Trading update
10/06/2009
Charter International plc (“Charter” or “the Company”) is providing the following trading update ahead of forthcoming meetings with investors.
ESAB
As has been widely reported, industrial output has continued to decline globally. European economies, particularly Germany and others which are dependent on exports, are deteriorating. India remains robust but other emerging markets, such as Russia and Brazil, appear to be weakening. Conditions in the steel industry have also deteriorated with the production of crude steel in April lower than in March with evidence that prices have continued to fall.
Against this background and after a period of relative stability in the first quarter of the year, ESAB’s European businesses in May saw a further reduction in consumables volumes and, in particular in relation to sales of solid welding wire, lower prices. In May, consumables volumes in Europe and North America were down around 35 per cent compared with the same month last year. Consumables volumes and prices in ESAB’s other markets have been more stable.
Sales of Standard Equipment have also deteriorated further and in May were down around 50 per cent compared with the same month last year. The much reduced order backlog of the Cutting business is now being reflected in lower factory loadings. ESAB’s Engineered automation business remains relatively strong with good prospects and orders.
As previously announced, ESAB has reduced head count by over 1,200 employees, representing some 13 per cent of its global workforce, with savings in 2009 expected to be in excess of £40 million. In the light of recent trading, ESAB will undertake additional remedial actions which will include further overhead reductions, two permanent factory closures and the temporary closure of two further factories. Full details of these measures, which are subject to employee consultation, will be announced with the Company’s interim results in July.
The cost of the measures being announced today is expected to be around £20 million, which will be taken as an exceptional item in 2009, of which the net cash cost, taking into account the expected proceeds from the sale of assets, is expected to be about half. These measures are likely to have a payback period of less than two years in cash terms.
The combined effect of the measures previously announced and those being announced today will be to reduce global manned capacity for the manufacture of consumables by around one third, and in the equipment businesses in Europe and North America manned capacity will be reduced by around one half.
In addition, ESAB will continue to reduce its distribution, manufacturing and administrative overheads. In particular, ESAB will reorganise its European distribution footprint during the next 12 months with a saving of £3 million per annum, and is aiming to achieve a similar level of savings from administrative efficiencies during 2010.
Howden
Trading has continued to be in line with previous expectations.
In the year to date, order intake has broadly matched sales but, as previously reported, remains below the high levels seen last year as demand in China and North America has softened. The order book at the end of the year is expected to be in line with the level seen at the end of 2008 and there have been no further order deferrals or cancellations of note.
New equipment pricing remains reasonably robust. The increasing share of sales represented by the aftermarket should help the margin performance of the business.
Howden continues to takes steps to ensure that its capacity is in line with requirements. Certain reductions in the workforce have taken place, mainly in contract staff and overtime working. Internal subcontracting is being used to maintain the loading of Howden facilities which might otherwise become short of work.
Financial position
Charter continues to have a strong balance sheet and to focus on cash realisation through effective working capital management.
As at 31 May, the group had net cash of £43 million; this figure reflects the continued generation of cash from trading operations and lower working capital, and is after the payment of the final dividend of £23 million.
Capital expenditure in 2009 will be below the levels seen in 2007 and 2008 and will focus on cost reduction and efficiency enhancement measures.
Outlook
To date, ESAB has seen no signs of general restocking or upturns in demand from the automotive industry or governmental infrastructure spending programmes. ESAB continues to expect falling shipbuilding activity later in the year and there also remains the possibility that some customers will take extended summer shutdowns. Competitive pressures are also increasing in some markets.
The Board’s expectations for Howden’s trading in the remainder of the year are in line with those expressed in the IMS on 29 April 2009.
Following an acceptable start to the year, Charter’s result for 2009 will reflect the weaker current trading conditions in ESAB’s European and other principal markets. The Company is implementing a further round of restructuring initiatives, and, if the difficult conditions seen in May persist, the Board of Charter would anticipate the outcome for 2009 being materially lower than its previous expectations.
Forward Looking Statement
Certain sections of this statement may include forward looking statements that are subject to risk factors associated with, amongst other things, economic and business circumstances occurring from time to time in the countries in which the Company and its subsidiaries operate. It is believed that the expectations reflected in the statement are reasonable but they may be affected by a wide range of variables which are outside the control of the Company and could cause actual results to differ materially from those currently anticipated.
- Ends -
An investor and analyst conference call will be held today at 08.45am on the following dial in facility.
Dial In: +44 (0) 1452 541 077
PIN: 14102498
Playback facility will be available until 16 June 2009:
International Dial In +44 (0) 1452 55 00 00
UK Local Call Dial In 0845 245 5205
Encore Replay Access Number: 14102498 #
Internet users will be able to view this announcement, together with information about Charter International plc on the company’s web site www.charter.ie