Pilkington helped by cost cutting

Rigorous cost cutting and a concentration on cash generation on Wednesday helped Pilkington to report an 11 per cent rise in underlying interim profits.

But despite the progress in continuing weak markets Stuart Chambers, chief executive repeated his warnings that the trading conditions would remain difficult in the short-term.

"Certainly in the next six to 12 months we are not expecting any help from the markets and will have to drive internal improvements."

Mr Chambers said the group, which has spent the last six years restructuring its operations, was still in the second half of its business overhaul with the focus remaining on cash generation and reduced borrowings.

This focus will put any acquisition plans on hold for at least 18 months, Mr Chambers said. "Unless the company is so compelling in terms of shareholder value then its is extremely likely that we are on hold for any thing like this [acquisitions]."

As part of its emphasis on hammering down cost the group is continuing to reduce head count, with an estimated cut of between 700-800 jobs going forward.

In the six months to September 300 free cash flow, excluding the contribution from disposals rose from £47m ($79m) to £89m in the half year, cutting borrowing by 10 per cent to £775m.

Underlying profits before goodwill, amortisation and exceptional items rose from £76m to £84m, but were flattered by reduced production which affected profits last year as the group was forced to carry out routine repair work on its machinery.

Profits in the second half of this year are also expected to beimpacted by further repair work, the group declined to put a figure on the possible reduction.

Stephen Rawlinson, analyst with Arbuthnot commended the group's performance. "It is a measure of how far the company has come that in the past in difficult trading conditions the numbers would have been very disappointing but Pilkington today has a highly robust cost structure and is very well managed."

Pre-tax profits fell by £1m from £72m to £71m and were hit by exceptional charges of £9m related to the closure of the automotive glass replacement operations in New Zealand and some operations in Brazil.

The group reported that the building products market continued to be weak, with the only high points coming from performances in the UK and Australia. Operating profits were flat at £64m on also largely flat turnover of £628m against £624m.

While the automotive market as a whole remained depressed, the increased number of new models using Pilkington glass helped to push operating profits up 23 per cent to £43m.

The strong cash position helped to underpin the interim dividend, which remained at 1.75p a share.

Mr Chambers said the dividend was unlikely to rise soon given the return. "At the current share price the yield remains pretty good so sustaining it at this level seems to be the right thing."

Earnings per share rose from 2.8p to 3.1p. Pilkington shares rose ¼p to 87¼p in morning trading.

600450 Pilkington helped by cost cutting glassonweb.com
Date: 6 November 2003
Source: News.ft.com

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