ESAB sounds more positive than Lincoln

AGM and Interim Management Statement

Interim Management Statement for the period from 1 January to 28 April 2009
Current trading
The results for the first quarter of the year were generally in line with the Board’s previous expectations.

ESAB
After the sharp fall in trading in the fourth quarter of 2008, trading during the first quarter of 2009 continued at similar levels to those seen in January as reported at the time of the preliminary results, with seasonal increases in consumable volumes each month. The input cost of steel has fallen, but prices for consumables have so far either held or been marginally increased except for solid wires and in China and South East Asia. In relation to the market for solid wires, which has seen contraction due to the state of the automotive market, prices have fallen but gross margins have been broadly maintained.
It is expected that trading will continue for the next few months at similar levels, with downside risks emerging from potential extended summer shutdowns at end users in the third quarter and from falling shipbuilding activity later in the year. However, potential increases in demand from automotive activity restarting and governmental infrastructure spending programmes represent opportunities.

Regionally, trading in Europe is stable at current levels, although Russia seems to be strengthening from previously very low levels. South America is showing signs of softening and India is trading in line with last year. The Middle East and South East Asia are showing early signs of some potential improvement. North America and China remain challenging.

Purchases of Standard Equipment are deferrable and are therefore significantly down year-on-year but seem stable at current levels. ESAB’s Engineered automation business remains strong with good prospects and orders. The Cutting business is seeing falling levels of activity and reducing order backlog; in response we are introducing short-time working at our German Cutting equipment factory.
Overall, the business has continued to trade at net margins of over 8 per cent through to the end of the first quarter. This has been underpinned by continued focus on measures to reduce costs and to match capacity with demand. In January 2009, ESAB announced it had committed to the reduction of 940 employees at a cost of up to £10 million with an annualised saving of £30 million. Continued review and focus on costs and capacity has increased the planned reduction in head count to over 1,200, with savings in 2009 in excess of £40 million. The total cost to execute the measures taken since the fourth quarter of 2008 is expected to be around £12 million (of which £6.2 million was charged in 2008). The effect of these measures will be to reduce manned capacity for consumables by 27 per cent and Standard Equipment capacity in Europe and North America by 35 per cent.
We expect further cost reductions through our ongoing continuous improvement programmes, and as strategic initiatives to improve the distribution, manufacturing and administrative footprints in Europe are progressively implemented.

Overall, we believe that ESAB is gaining market share and remains well placed to benefit quickly from any strengthening in end user markets.