Trading Statement
December 19 2003 - 2:00AM
UK Regulatory
RNS Number:4464T
RMC Group PLC
19 December 2003
RMC Group p.l.c.
TRADING REVIEW FOR THE YEAR ENDING 31 DECEMBER 2003
This trading review is being issued by RMC Group p.l.c. in advance of its
preliminary results for the 12 months ending 31 December 2003, which will be
announced on 3 March 2004.
At our interim results meeting in September, the Group indicated that, in the
absence of unexpected adverse events, its financial performance for the full
year was expected to be within the range of market expectations. Despite the
unacceptably high losses in Germany and a possible additional UK pension charge
of #5m in 2003, RMC now expects that its overall financial performance (profit
before tax excluding exceptional items) will be at the top of the range of
market expectations for the year.
The Group has continued to benefit from the firming of trading conditions in the
USA and improved performance of the cement division in Great Britain. Trading
in a number of other countries, notably Australia, Croatia, the Czech Republic
and Spain has remained strong. As a result, the underlying performance of the
Group, excluding Germany, will be substantially ahead of last year.
The results will include exceptional restructuring charges relating to the
previously announced cost reduction programme, and also substantial provision
for a more extensive restructuring of the German business. These are described
in the Business Development section below.
Operating performance
In Great Britain, the Rugby cement plant has continued to deliver consistent
production at design capacity. Clinker production has now averaged 100,000
tonnes per month for a 9-month period, allowing sales of own production
progressively to displace sales of externally sourced cement.
In general, market conditions in Great Britain have, as expected, remained
broadly unchanged from 2002, although there have recently been signs that the
flow of publicly-funded work is slowing. Sales of the readymix division have
been lower than last year, primarily reflecting the decline in market share
experienced in the first half of the year. However, during the second half of
the year the division's market share has been recovering closer to the levels
achieved last year. In addition, the forward order book has strengthened.
Aggregates sales have fallen slightly, in line with market conditions, but
margins have improved. In the building products division, rail activity remains
strong.
Underlying profitability, excluding Hales Waste Control Limited and RMC
Environmental Services Limited, which were sold in June 2003, is expected to
have increased in 2003, reflecting the improved performance of the cement
division and increased aggregates profitability, partially offset by the lower
profitability of the readymix division.
In Germany, while market conditions have stabilised, prices have shown little
sign of recovery in the second half of 2003. Although RMC has notified
customers of its intention to raise cement and concrete prices, the impact
during the second half of the year has, as expected, been very limited and ready
mixed concrete margins have remained under pressure in some areas of the
country. The net result is that, with the significantly lower cement price seen
this year and the sharp fall in concrete margins, we expect to incur a
substantial loss this year, around one third of which will be incurred in the
second half.
In the Rest of Europe, market conditions have generally been similar to those
seen in the first half. For the year as a whole, with favourable exchange rates
and improved performance in a number of countries, especially in eastern Europe,
the net result is that profitability in the Rest of Europe is expected to be
significantly higher than last year.
In western Europe, construction demand has remained strong in Spain and has been
stronger than expected in Ireland. Although trading conditions have remained
difficult in Austria, performance during the second half of the year has
benefited from a reorganisation of the business. In France, demand has weakened
somewhat, causing underlying profit (excluding exchange rate impact) to reduce
from the record level seen in 2002.
In eastern Europe, Croatia has seen very strong domestic demand throughout the
year and the Czech Republic has benefited from higher sales of concrete,
improved margins and the contribution from the cement grinding plant that came
into operation last year. In Poland, the impact of harsh winter weather
conditions and a fall in cement prices in the first half of the year has been
offset by increased volumes in the second half.
In the USA, the strength of the housing sector continues to compensate for the
weakness of the non-residential sector and there are signs that the economy is
beginning to grow strongly. In the second half of 2003, the firming of activity
levels seen in the summer has continued throughout the autumn, supported by
favourable weather conditions. The business has also benefited from cost
reduction initiatives implemented in the first half of the year, with the result
that profitability for the year in the USA is expected to be ahead of last
year's level, despite the adverse exchange rate movement experienced this year.
Performance in the Rest of the World reflects the continuing favourable market
conditions in Australia, and the strong performance of Adelaide Brighton.
Elsewhere, demand continues to grow in the Gulf States, and although Israel has
been held back by the continuing political uncertainty, profit is expected to
increase. Overall, profitability in the Rest of the World is expected to
increase significantly compared with 2002.
Business developments
On 15 December, the Group announced the sale of 19.9% of the issued share
capital of Adelaide Brighton Limited (ABL) for a price of A$1.55 per ABL share,
a premium of 36% over the closing share price of ABL on 15 December 2003. This
generated cash proceeds of approximately #71m and reduced RMC's shareholding to
34.9%. The disposal will result in an estimated profit on disposal
(pre-goodwill) of #38.5m. However, after attributable goodwill, it will result
in a loss of #8.9m this year.
The cost reduction programme announced in September is now underway. It is
aimed at positioning RMC at the forefront of industry competitiveness by
achieving #50m of annualised cost savings by mid-2005. This is an essential
component to delivering a 12% EBITA return on net operating assets in the medium
term. The estimated total cost of the programme, as previously indicated, is
#35m, of which approximately #15m will be taken as a charge in 2003.
Plans for a more extensive restructuring of the German business have been
largely finalised and additional restructuring costs of #25m will be incurred.
The objective of these restructuring plans is to restore the business to
profitability as soon as possible. As we indicated in September, these plans
will address the key issues of costs, overcapacity and pricing, and will result
in significant tangible asset and goodwill write-downs, which will be taken this
year. Asset write-downs across the Group in 2003 are expected to be of the
order of #230m, of which #210m will apply to Germany.
Full details of the cost reduction programme and the German restructuring plans
will be given in March.
Other
The underlying tax rate for the year based on profit before tax excluding
goodwill amortisation and exceptional items, is expected to be close to the rate
reported for the first half of the year (22.2%).
Exchange rate movements are expected to have an almost neutral effect on the
Group's results, the impact of the weaker US dollar being offset by the benefit
of the stronger euro and Australian dollar.
Expenditure on acquisitions during 2003 is expected to total around #80m, while
net capital expenditure is expected to total approximately #160m. Disposals are
expected to generate proceeds of around #250m.
The disposals during 2003, including the recent sale of shares in ABL, have
further strengthened the financial position and flexibility of the Group. By
the year end, net debt is expected to be below #1 billion. Net debt will be
further reduced when ABL repays its outstanding loan to RMC (#102m at 30 June
2003).
The actuarial review of the Group's UK pension funds is close to completion.
This is likely to lead to an additional UK pension charge of #5m in 2003. In
2004, the Group's annual cash contributions are expected to rise from previous
levels by about #16m, with the profit and loss account charge currently
estimated to increase by approximately #7m.
Outlook
Substantial progress has been made during the year in reshaping the Group and
rebuilding the long-term value of RMC. This is continuing and the strength of
the balance sheet provides the platform for selectively and prudently investing
for growth in RMC's core markets of Great Britain, continental Europe and the
USA.
With financial performance underpinned by the prospect of some price recovery in
Germany, benefits from the cost reduction programme and continued improvement
from the cement business in Great Britain, the Board is confident of RMC's
prospects for 2004.
Enquiries:
Investor Relations Gary Rawlinson 01932 583067
Media Relations Tim Stokes 01932 583215
This information is provided by RNS
The company news service from the London Stock Exchange
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