Charter plc - AGM Statement
27/06/2006
At today’s Annual General Meeting, at which shareholders considered the Annual Report and Accounts for the year ended 31 December 2005, David Gawler, the Company’s Chairman & Chief Executive, made the following statement:
I will be standing down as Chief Executive on 30 June 2006, but will remain as Chairman; however, as this is my final AGM as Chief Executive, I believe it is appropriate that I comment on the progress that the Company has made during the past five years.
Five-Year Overview
When I was invited to take on the role of Chairman and Chief Executive, Charter was facing an uncertain future, its share price had been falling, the operating businesses were performing poorly, Lincoln Electric had withdrawn its second public offer for the Company and lenders were on the verge of calling in their loans. Net debt at 31 December 2000 exceeded £200 million and equity shareholders’ funds were less than £25 million. Not only was the Company excessively geared, but it was incurring substantial financing costs and disproportionately high tax rate. Furthermore, operating profits and margins of its Welding and Cutting business (“ESAB”) and of its Air & Gas handling business (“Howden”) were underperforming competitors and, as a consequence, Charter and its subsidiaries, as a whole, were generating insufficient cash flows to meet outgoings.
Over the period from 2001 to 2004, the Company undertook a major programme of asset disposals, closures of manufacturing facilities and operating businesses and a number of other cost saving initiatives. This programme has certainly contributed to the improving trend of operating profits and margins that have been achieved by ESAB and Howden over the past three years. Both of these businesses are now cash generative, the Company’s financing charges have been reduced as has the adjusted effective global tax rate that it was incurring on its worldwide income.
Over the five year period, net debt has been reduced by more than £200 million and at 31 December 2005 amounted to £6.5 million, whereas equity shareholders’ funds have been increased by more than £100 million to £135.1 million.
Financial Highlights for the year ended 31 December 2005
I am pleased to report that Charter enjoyed another highly successful year in 2005 during which the Company achieved substantially improved results.
Sales increased by 22 per cent to £1,065.7 million, adjusted operating profit increased by 78 per cent to £97.5 million, profit before tax increased by 152 per cent to £103.5 million and profits attributable to equity shareholders by 148 per cent to £74.0 million. Overall, adjusted earnings increased by 117 per cent to 43.0 pence per share and basic earnings by 124 per cent to 46.9 pence per share.
These excellent results reflected both the strength of the key markets in which ESAB and Howden have traded and the significant benefits that have arisen from the restructuring initiatives, that I mentioned earlier. These two factors have been the major reasons for the substantial improvements in adjusted operating margins in 2005 which in respect of ESAB increased to 10.3 per cent, compared with 7.9 per cent in 2004, and in Howden increased to 9.7 per cent, compared with 5.9 per cent in 2004.
In 2005 ESAB recorded another set of excellent results. Sales increased by 15.2 percent to £720.1 million and adjusted operating profits by 51.2 per cent to £74.4 million.
Howden made tremendous further progress in 2005 and is demonstrating its true potential. Sales increased by 42.8 per cent to £345.1 million and adjusted operating profits by 136 per cent to £33.5 million. Howden’s order intake in the year was particularly strong and at 31 December 2005, its orders in hand totalled £304 million, an increase of 68 per cent over last year.
In September 2005, the Company successfully completed the acquisition of the remaining 49 per cent minority interest in ESAB’s South American business for a total cost of £26.4 million. The acquisition of these shares increased ESAB’s exposure to the important Brazilian and Argentine welding markets and I am pleased to report that the South American businesses performed well in 2005 and accordingly, as anticipated, the acquisition of the shares, enhanced the Company’s earnings per share.
Board and Committees
Last year, three new Non-Executive Directors joined the Board. Grey Denham and Andrew Osborne were appointed on 8 February 2005 and John Biles on 1 April 2005. All three were appointed to the Remuneration Committee and the Audit Committee. At the conclusion of last year’s AGM John Biles assumed the Chairmanship of the Audit Committee and John Neill, who will be continuing as a Non-Executive Director, stepped down as a member of the Audit and Remuneration Committees. The Board currently comprises five Non-Executive Directors and three Executive Directors.
I am particularly pleased that Michael Foster, who was appointed Commercial Director on 1 January 2005, will succeed me as Chief Executive on 1 July 2006. The Company recently announced the appointment of a new Executive Director, James Deeley, who will join the Company with effect from 10 July 2006, as Legal Director and Company Secretary. I would like to take this opportunity to thank all my Board colleagues and the employees for their support and commitment to the success of the Company.
Prospects
When, in March 2006, the Company released its results for 2005, the Board announced that it viewed the outlook for 2006 with confidence on the basis of the excellent results achieved in 2005.
The Company and its subsidiaries are continuing to invest in new production lines and in modernising existing facilities, together with new manufacturing facilities in the faster growing global markets. ESAB’s consumables’ manufacturing facility in Zhangjiagang, Jiangsu Province in China, is scheduled to commence production in July 2006.
Year to date results at ESAB and Howden for the first five months of the year have been ahead of the Board’s previous expectations in operating profit and cash flow terms, and since year end Howden’s order book has continued to grow, albeit at a marginally slower pace than was experienced in the latter half of last year. Furthermore, in 2006 the Company’s effective tax rate will benefit from the recognition of certain deferred tax assets given that a number of its subsidiaries are generating taxable income in territories where there are significant brought forward tax losses. For these reasons, and given the generally favourable trading outlook for the operating businesses and the excellent results achieved in 2005, the Board views the Company’s trading and earnings prospects for 2006 with increased confidence.
Contact
Andrew Fenwick; Pamela Small, Brunswick +44 (0) 20 7404 5959