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Dear shareholder,
2009 was another challenging year for Tomkins. The severe financial crisis in the first half of the year caused extended plant shutdowns and extensive destocking in most of the Group’s markets. Industrial markets declined significantly, particularly the OE markets. The US automotive aftermarket continued to demonstrate its resilience, with demand supported by lower gasoline prices and increasing miles driven. The automotive OE market was down 13% globally in 2009, with North American production down 32%. US non-residential construction declined by 46% on a square footage basis and 33% on a value basis. The US residential construction market declined for the fourth consecutive year and now stands 73% below the peak in 2005, as measured by housing starts. This market declined by 39% in 2009 alone, to reach 554,000 housing starts. However, the second half of the year saw stabilisation across some of our markets, with a recovery in volumes in the automotive OE markets, strong growth in our emerging markets and stabilisation in the industrial replacement and residential construction markets.
Weak economic fundamentals, such as low levels of consumer and business confidence, combined with lack of credit and availability of cash, still continue to constrain demand. Any recovery is expected to be slow, particularly in Europe. Emerging economies, such as China, India and Brazil, are expected to remain strong, and to continue to grow by high single digit percentages.
During the year, we implemented and substantially completed our restructuring initiatives, which include Project Eagle and Project Cheetah. As well as reducing our capacities in developed regions, these initiatives were aimed at expanding our footprint in higher growth regions and, as such, we have completed new facilities in China and India in 2009 and will open a new facility in Turkey in 2010.
Results
Sales were $4,180.1 million in 2009 (2008: $5,515.9 million), a decline of 24.2%. Most of the Group’s end markets weakened significantly, particularly in the first half of the year, which caused a corresponding decline in sales volumes across the Group.
Adjusted operating profit was $249.8 million in 2009 (2008: $402.9 million), down 38.0% largely due to the effect of reduced sales volumes.
The Group’s adjusted operating margin was 6.0% in 2009 compared with 7.3% in 2008.
Cash generated from operations was $532.1 million (2008: $628.7 million). Trading cash flow decreased by $20.8 million to $422.0 million (2008: $442.8 million). Net debt was reduced in the year by $268.9 million to $207.5 million.
In 2009, the Group incurred a diluted loss per share on continuing operations of 1.33 cents (2008: loss of 7.34 cents). Adjusted diluted earnings per share were 14.81 cents (2008: 25.96 cents).
Dividend
The Board proposes a final dividend for 2009 of 6.50 cents per share, making a total dividend for the year of 10.00 cents per share. Looking forward, the Board will seek to resume its progressive dividend policy as soon as results and market conditions allow.
Subject to approval by shareholders at the AGM on 1 June 2010, the final dividend will be paid on 10 June 2010 to shareholders on the register as at the close of business on 7 May 2010.
Highlights 2009
The Group made good progress against its key priorities:
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Substantially completed its restructuring initiatives, Projects Eagle and Cheetah. |
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Completed the acquisition of Hydrolink within the Gates Engineering & Services business. |
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Reduced working capital by over $240 million. |
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Completed a forward-start committed bank facility, extending the maturity of our bank facilities to 2012. |
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Maintained a strong balance sheet, supported by good working capital management and reductions in capital expenditure. |
Strategy
Our growth strategy is focused on three key initiatives which we execute both organically and through bolt-on acquisitions: (i) leveraging the global Gates brand and footprint by growing our service and distribution capabilities in the global industrial and automotive aftermarket end markets; (ii) expanding our presence in higher-growth emerging markets; and (iii) developing energy-efficient, ‘green’ products which reduce emissions. A summary of our strategic priorities and progress is set out in Group strategy.
Corporate Social Responsibility
CSR remains an integral part of our everyday business practices and one of the drivers of our success. Corporate governance at Tomkins is recognised to be amongst the best in class. We continue to address the demands of the challenging regulatory environment and place a strong emphasis on corporate governance in all our activities. The health and safety of our employees and those people and communities who are affected by our operations is of utmost importance to us. Our health and wellness programme entered its second year, aimed at improving the wellness level of the employees, increasing productivity and promoting loyalty and collaboration worldwide. We completed the roll out of our supplier charter, which is now incorporated into the terms of all our companies’ purchase orders. Looking forward, we will continue to implement our CSR strategy, focusing in 2010 on our key priorities of:
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Further improving our safety performance |
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Wellness of employees |
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Understanding and managing our environmental and climate change impacts |
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Recruiting and retaining talented people |
Outlook
Although a number of our end markets appear to have stabilised, there remains uncertainty about the strength and timing of any recovery. We expect any recovery to be towards the latter part of 2010. We set out below our current expectations for our end markets for 2010 compared to 2009. The share of Group sales shown is based on sales of ongoing segments in 2009.
Industrial (28.3% of Group sales)
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North America (17.7% of Group sales) |
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North American industrial OE markets are expected to grow gradually by low to mid-single digit percentages, benefiting from the ending of destocking and recovery of economic activity. North American industrial replacement markets are expected to grow by mid-single digit percentages. |
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Europe (4.7% of Group sales) |
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Industrial activity in Europe is expected to demonstrate a similar trend to North America. |
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Rest of the world (5.9% of Group sales) |
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Industrial activity across the remainder of our geographic markets is expected to grow by double-digit percentages. |
Automotive aftermarket (22.9% of Group sales)
The automotive aftermarket in North America and Europe is expected to be broadly flat in 2010. In Asia, the aftermarket is expected to grow by high single digit percentages.
Automotive OE (22.6% of Group sales)
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Global |
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The global automotive OE market is expected to grow by around 10%, to around 60.0 million units. |
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North America (8.8% of Group sales) |
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North American automotive OE production is expected to grow from 8.6 million units to around 10.0 million units in 2010. |
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Europe (5.5% of Group sales) |
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European automotive OE production is expected to remain flat at around 16.5 million units in 2010. |
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Rest of the world (8.3% of Group sales) |
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The Group’s other major geographic markets comprising China, India and Brazil, are expected to grow from 16.3 million units to around 18.5 million units in 2010. |
Non-residential construction (16.5% of Group sales)
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US non-residential construction is expected to decline by around 10-15% on both a square foot basis and a value basis. |
Residential construction (8.0% of Group sales)
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US residential construction is expected to improve, with housing starts expected to reach around 625,000 units in 2010. In the first half of 2010, housing starts are expected to be broadly flat compared with the second half of 2009, with an improvement in the second half of the year. |
Other markets include manufactured housing and recreational vehicles and in total account for 1.7% of Group sales.
We believe that the actions of our managers in executing our restructuring plans have positioned the Group well to take advantage of any recovery in our end markets.
Customers, investors and employees
On behalf of the Board, we would like to thank all of our customers, suppliers, business partners and investors for their continued support, especially under these difficult market conditions. We look forward to continuing these strong relationships over the forthcoming year.
The continued commitment and dedication of our employees enables us to achieve our objectives and we would like to thank them for their hard work and commitment during the past year.
David Newlands
Chairman |
James Nicol
Chief Executive |
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