Interim management statement for the period from 1 July to 4 November 2009
05/11/2009
Charter International plc (“Charter”), the international engineering group which comprises ESAB, one of the world’s leading welding companies, and Howden, a world leader in air movement equipment, is today issuing its interim management statement for the period from 1 July to 4 November 2009.
During the period under review, Charter’s trading performance has been satisfactory.
Providing current trading conditions continue, the Board envisages an outcome for the full year which would be somewhat ahead of their expectations at the time of reporting the first half results.
ESAB
Overall, trading conditions remained generally stable around the levels experienced in June. Throughout the period, ESAB has maintained its policy of price discipline. Summer shutdowns were less severe than we expected and the automotive industry has shown some improvement. Shipbuilding has, as anticipated, slowed down, particularly in Europe.
Turning to our regional markets, ESAB’s business in Europe appears to have levelled out and we are returning our plant at Terni in Italy to production to meet current demand levels for solid wire. Russia and the CIS have shown recovery, as have exports to Africa.
ESAB’s business in South America has stabilised and we are seeing improved performances in Brazil and Argentina. ESAB India continues to perform well and its results are in line with last year.
The market in North America remains weak although ESAB’s consumables sales have remained stable. The market in China, which accounts for only a modest proportion of ESAB’s revenue, is showing recovery. In the Middle East and South East Asia, there is a good level of enquiries from customers in the energy sector but bigger projects are still slow to proceed.
During the period, Standard Equipment sales were flat although they continue to be well down in Europe and North America compared with the same period of last year. However, there are some signs of improvement in South America. Engineered Automation continued to perform well, with good prospects driven by ESAB’s unique competencies and position in the energy industry. The performance of the cutting business remains weak and, given current levels of industrial capacity utilisation, is expected to remain so throughout 2010.
ESAB’s restructuring plans are delivering in accordance with our expectations and we are on course to achieve cost savings of £50 million this year. The plans previously outlined have all been completed with the exception of restructuring of the equipment and cutting activities in the USA, which we announced in June and which will be completed in the first half of next year. The low activity levels currently being experienced across the cutting business and which we expect to continue for the time being have resulted in the need for us to take further action to reduce headcount and other costs in the business.
In terms of the outlook for ESAB, we believe that the low point in the cycle is probably behind us. However, the recovery looks as though it will be slow and uneven, with some regions and industries faring better than others.
Providing current trading conditions continue, we now expect that ESAB’s adjusted operating margin in the second half of the year will be ahead of the margin achieved in the second quarter of the year and broadly in line with the level of 6.6 per cent achieved in the first half.
For 2010, the World Steel Association is forecasting growth of 13.1 per cent in the consumption of steel for the world excluding China, which, if fulfilled, will benefit ESAB’s consumables business. On this basis, we would also expect ESAB’s Standard Equipment to see some recovery later that year but we do not expect Cutting to recover until 2011.
By the middle of next year, we will have reinstated the physical manufacturing capacity from closed factories into existing factories in lower cost locations. This, together with the operating improvements being implemented across the business, the new products being introduced and the strength of ESAB’s technology and brand, position ESAB to benefit strongly from the recovery as it develops.
Howden
Howden has continued to trade in line with the trends reported for the first half of 2009. Sales to the oil and gas sector have remained strong and the good progress shown in the aftermarket in the first half of the year is being sustained, whilst sales of new equipment to the power sector, especially in China, have continued to be relatively weak.
Enquiry levels generally have remained at reasonable levels but these are taking longer to convert into orders. It is therefore expected that the year-end order book will be in the range £425 - 450 million, that is, about 10 – 15 per cent below the level at the beginning of the year.
The Board’s expectations for revenues and margin in the second half of the year remain unchanged but, as a result of the reduced order in-take for new build power customers, particularly in North America and China, Howden is taking steps to ensure that headcount is in line with future activity levels. Whilst the impact of lower new equipment sales on Howden’s workforce will be reduced by an increased proportion of work being retained in-house, it is expected that headcount will be reduced by around 270 people during 2009, representing approximately 7 per cent of Howden’s workforce as at 1 January 2009, at an exceptional cost of £2 million.
In relation to 2010, given the current delays in converting enquiries into orders, we expect a reduction in sales of new equipment, although the impact of these on Howden’s profitability should be partially offset by continued progress in the aftermarket. We expect bookings to strengthen during 2010, which will have the effect of returning new equipment sales to growth in 2011.
Financial position
Charter’s financial position remains strong, and the group’s healthy net cash position reflects the trading developments during the period outlined above, continued capital expenditure and also the payment of the interim dividend of £11.7 million.
Change in Head Office and Company Secretary
On 21 October 2009, Michael Hampson joined Charter as Company Secretary and General Counsel. He has previously worked with a number of other companies listed on the London Stock Exchange including Anglian Water Group plc and Whitbread plc.
Also on that day, the Company’s head office was re-located to 27 Northwood House, Northwood, Santry, Dublin 9, Ireland.
Forward Looking Statements
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
IMS Investor call
Charter will be hosting a conference call for investors at 3.00 p.m. GMT this afternoon. This may be accessed by dialling +44 (0) 20 7108 6369; participant pass code: 7772121. Replays of this call will be available by dialling +44 (0) 20 7970 8431; participant pass code: 6199 until 19 November 2009.
Capital Markets event
An investor event is being held on Monday 9 November in London. It is not intended that any new information on the Company’s trading or prospects will be made available at this event. Materials to be presented at the investor event will be available on the Company’s website from approximately 2 p.m. GMT that day, and a webcast of the event will be available from Tuesday 10 November.
Financial Calendar
Charter does not intend to issue any further trading updates during 2009. The next scheduled release will be the Company’s results for its financial year ending 31 December 2009; the date of this announcement will be published on the Company’s website (www.Charter.ie).
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