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Corus Group announces 2004 interim results

Corus : 16 September, 2004  (Company News)
Corus Group has posted its interim results for the half-year to 3 July 2004.

Corus Group has posted its interim results for the half-year to 3 July 2004.

The group operating profit for the first half year amounted to 147 million, which represented an improvement of 204 million against the 57 million loss in the same period of 2003. This translated into a profit after tax and minority interests of 100 million, and represented a substantial improvement of some 225 million compared with the same period of last year (2003: H1 loss of 125 million).

The key drivers behind the improvement in the operating result were better steel market fundamentals which provided the platform for higher steel selling prices, that in turn, more than offset higher raw material costs, together with the benefits of management actions encompassed within our 'Restoring Success' programme. The pace of improvement in the operating result accelerated sharply in the second quarter of 2004.

Net debt amounted to 1203 million at the end of the period and translated into a gearing ratio of 43% (net debt/net tangible assets). Compared to the year end position at 3 January 2004, net debt increased by some 190 million, reflecting an increase in working capital requirements, notably debtors due to volume and price growth and higher capital expenditure. Compared with the equivalent period of 2003, there was a 303 million reduction in net debt, due mainly to the 291 million net proceeds from the equity placing and open offer in December 2003.

The 'Restoring Success' programme comprises a series of initiatives that were launched in 2003 and designed to deliver exit rate benefits of 680 million p.a. by the end of 2006, of which 220 million p.a. was secured by the end of June 2004. These initiatives generated benefits of some 100 million in the first half of 2004, and accounted for nearly half of the year-on-year improvement in the Group operating result.

Savings to date have been secured from both 'existing plans' related to previously announced manpower reductions and the World Class IJmuiden and High Performance Strip UK cost and efficiency programmes; and also 'new initiatives' which aim to improve performance by the sharing and implementation of best practice across the Group. Benefits from the 'UK restructuring' programme, the third leg of Restoring Success, which aims to improve the efficiency and cost position of the Group's UK steel making assets, are on track to be delivered in the second half of 2005 and in 2006. Investments associated with this programme are still in the construction phase and to date around 45% of the related capital expenditure has been spent.

The group continues to sharpen its commercial focus through improvements in the coordination of pricing policy, customer service and market mix. Price increases are now being implemented more quickly than in the past as a result of better co-ordination between upstream and downstream businesses. Customer service is seeing benefits from improved delivery performance, better training of commercial staff and several projects to enhance the efficiency of internal supply chains. Market mix has been enhanced by focusing on attractive market segments and the reduction of low margin sales.

The disposal of non-core assets is proceeding to plan. In the first half of 2004, the group secured a cash inflow of 58 million from disposals including the North American service centres, piling commercial operations and surplus land. The proceeds from the sale of the Tuscaloosa mini-mill, which was announced in June, were received in the second half of 2004. Discussions on the Teesside steelmaking facility are progressing with a number of interested parties. With regard to our aluminium activities, whilst we remain committed to the disposal process, the timing has been impacted by the on-going structural changes in the European aluminium industry. This is likely to push the timing of a transaction beyond the current year.

Since the period end, the group has successfully increased its debtor securitisation programme by 60 million to 275 million and extended the final maturity from 2007 to 2009. As a first step to extend the maturity of its bonds falling due in the period 2006-2008, Corus is today announcing the launch of a new bond, concurrent with a tender offer for the 5 3/8% euro bonds due 2006.
No interim dividend will be paid.

Jacques Schraven(62) will join the Board as Non-Executive Deputy Chairman with effect from 1 December 2004. He is currently the President of the Confederation of Netherlands Industry and Employers (VNO-NCW).
Rauke Henstra (58) will join the Board as an Executive Director with effect from 1 October 2004. He is a member of the Executive Committee and will retain his executive responsibilities for the Strip Products division.
Richard Turner, a Non-Executive Member of the Board since the formation of Corus will be retiring with effect from 31 December 2004.
Further details of these changes are contained in a separate announcement, released today.

A new divisional structure was adopted towards the end of 2003 to ensure greater accountability for performance, to make better use of internal supply chains and to facilitate the sharing of resources and best practice across the Group. The attached interim report is the first to be prepared in accordance with this new structure.

Commenting on the results, Philippe Varin, Chief Executive said:
'The substantial improvement in our performance in the first half of the year reflects a combination of benefits from our actions under 'Restoring Success' and positive market fundamentals. As a result of this I am pleased to see that the Group is firmly on track to close the competitive gap with our European peers by the end of 2006. This gap as measured by the EBITDA to sales ratio was estimated at 6% in 2003 and was reduced to 4.5% in the first half of 2004.
Our short term priorities are to deliver the full benefits from Restoring Success by the end of 2006, to continue to sharpen our commercial focus, to refinance bonds maturing between 2006 and 2008 and to dispose of our remaining non-core assets.'

Based on a combination of further planned benefits from the Restoring Success programme, previously announced price increases and continued tight market conditions, the Board expects that the progress in operating profit and margins will continue in the second half of 2004.
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