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Corus Group plc 2004 Preliminary Results

1. sunnyb0y 17 maart 2005 08:27

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   • sunnyb0y

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   Corus Group plc 2004 Preliminary Results
   
   17 Mar 2005
   
   Highlights
   
   Group operating profit of £582m
   Underlying operating profit of £627m, an improvement of £693m over 2003*
   ‘Restoring Success’ accounts for approximately 30% of the improvement
   Retained profit of £446m
   Earnings per share of 10 pence
   Net debt reduced to £854m, gearing ratio of 27%
   Debt maturity extended and new working capital facility secured
   
   
   £ millions unless stated2004 2003
   
   Turnover 9,332 7,953
   
   Group operating profit/(loss)582 (208)
   
   EBITDA* 934 250
   
   Operating profit/(loss)*627 (66)
   
   Pre-tax profit/(loss) 559 (255)
   
   Retained profit/(loss) 446 (305)
   
   Earnings/(loss) per share (pence) 10.05p (9.25)p
   
   Net debt at end of period (854) (1,013)
   
   
   * before restructuring and impairment costs. Refer to supplementary information note 12 for reconciliation to the Group’s operating profit/(loss)
   
   Outlook Summary
   
   Global growth remains relatively strong
   Stockbuilding in European and North American markets has softened demand in the first half of 2005
   Overall H1 2005 trading environment expected to be broadly in line with second half of 2004
   Conditions more uncertain as year progresses. Looking to recover significant raw material cost increases
   Further benefits from Restoring Success
   Intention to recommence dividend payments in respect of 2005
   Operating performance
   
   The Group operating profit for 2004 was £582m compared to a loss of £208m in 2003. The improvement reflected a combination of more favourable market conditions together with benefits from the Group’s ‘Restoring Success’ programme. The profit in the first half amounted to £147m, increasing to £435m in the second half. The underlying operating profit, excluding restructuring and impairment costs, amounted to £627m, compared with an equivalent loss of £66m in 2003.
   
   The improvement in the Group operating result was evident in all four divisions, although most notably in the three steel divisions, which achieved a 19% rise in turnover against unchanged sales volume of 21mt. Turnover for the aluminium division rose by 6%, with a 10% rise in sales volume offset by a 3% fall in average revenue.
   
   Restructuring and impairment costs included in the operating result amounted to a net charge of £45m, including £13m in the first half and £32m in the second half. Restructuring and impairment costs in the first half were mainly related to the announced closure of the heavy section mill at Scunthorpe. In the second half there were redundancy and related costs for a series of ongoing efficiency measures across the Group and net charges to recognise impairments of fixed assets and goodwill.
   
   The Group experienced a significant increase in raw material and energy costs during 2004, with notably large increases in coking coal, iron ore and scrap, but was able to recover the increase in steel selling prices and to enhance margins, as global demand for steel remained strong and global surplus capacity reduced. Total Group turnover for the period was £9,332m, an increase of 17% on 2003. Total operating costs, including restructuring and impairment costs rose by 7% to £8,750m but excluding these items, operating costs rose by 9%.
   
   After net income from joint ventures, disposals and interest, profit before tax amounted to £559m. The retained profit for the year amounted to £446m, an improvement of £751m on the previous year and represented basic earnings per share of 10.05p.
   
   'Restoring Success'
   
   The Restoring Success programme accounted for approximately 30% of the year on year improvement in the Group operating result prior to restructuring and impairment charges. The programme is designed to deliver EBITDA benefits of £680m per annum by the end of 2006 from a base of June 2003. At the end of 2004, annualised exit rate benefits of £335m had been secured, equivalent to nearly 50% of the overall target. The programme comprises three broad areas:
   
   Existing initiatives, which include previously announced headcount reductions (where almost all had been achieved by the end of 2004), the ‘World Class IJmuiden’ programme (also completed in 2004) and the ‘High Performance Strip UK’ programme (on target for completion by end 2005).
   The UK restructuring programme, which aims to improve the efficiency of the UK steelmaking assets. The capital investment for this programme is on target to be completed in the first half of 2005 and the benefits are on course to be realised progressively from mid 2005 and into 2006.
   New initiatives, related to the sharing and implementation of best practice across the Group and the enrichment of the product and customer mix towards premium end markets.
   The table below summarises progress to date, based on annualised exit rate benefits.
   
   Initiative End 2006 targets Progress to December 2004
   
   Existing initiatives £210m £165m
   
   UK restructuring £120m Benefits from 2005 H2
   
   New initiatives £350m £170m
   
   Gross target £680m £335m
   
   
   As part of the UK restructuring programme, Teesside’s steelmaking capacity becomes surplus to the Group’s internal requirements in 2006. Teesside has, therefore, been refocused as a slab exporter and has entered into an agreement effective from 2 January 2005 with a consortium of re-rolling companies to supply slab under a ten year off-take contract. Under this agreement the consortium will take at cost slab production in 2005 and 2006 that is surplus to Corus’ internal requirements, and approximately 78% of output thereafter. The consortium will pay Corus a total of US$157m and will also contribute approximately 76% of the expected US$100m of capital expenditure requirements to enable identified improvements to be undertaken.
   
   Full implementation of the Restoring Success programme is designed to close the competitive gap with Corus’ European peers by the end of 2006. This gap as measured by the EBITDA to sales ratio, is estimated to have reduced from 6% in 2003, to 4.5% in the first half of 2004 and 2.6% in the second half of 2004.
   
   Debt and cash flow
   
   Net debt of £854m at 1 January 2005, compared with £1,013m at 3 January 2004. The reduction of £159m mainly reflected the improved operating profit, described above, which more than offset an increase in working capital requirements and higher capital expenditure. The increase in working capital requirements was predominantly associated with higher stock values reflecting the significant increase in raw material costs. Stock tonnages remained broadly unchanged from 2003. The ratio of working capital to turnover was maintained at 18%. The period end gearing ratio was 27% compared to 37% for the prior year.
   
   Financing
   
   The funding position of the Group has been strengthened through a number of specific initiatives including:
   
   the disposal of non-core businesses and assets, which generated net proceeds of £118m.
   the issue of €800m 7.5% bonds due 2011 and concurrent tender offer for the €400m 5.375% bonds due 2006.
   an increase in the debtor securitisation programme by £60m to £275m and an extension of the final maturity from 2007 to 2009.
   subsequent to the year end, the completion of a €800m replacement bank facility on substantially more favourable terms.
   These actions have successfully extended the maturity profile of the Group’s debt with no signif