Business Week – Rationalisation creates a glass act.

Four years of restructuring and cost-cutting has left glass manufacturer Pilkington at the top of its market and ready to weather the current economic downturn.

Although the company has not quite completed the process it has reached the final stage with the closure of its plants in the US.

Finance director Andrew Robb told Accountancy Age: ‘The whole story has been about turning the company around.’

He said the company had cut costs significantly and the workforce had been reduced.

According to the CIMA fellow, the cost cuts had led to increased margins.

‘If there is a downturn, we are well-placed to weather it because we are rationalising the group world-wide.’

Robb gave an example saying that in the US there was lower demand for its products because of fewer car sales, so the company was shutting plants there so it could resist the downturn.

He added: ‘Demand in Europe is quite good and the prices have been quite good.’ Good news for a company, which has 57% of its business in this region.

City analysts, however do not share this confidence. At the beginning of October, Goldman Sachs downgraded its recommendation of the stock, saying the deteriorating climate made the company vulnerable.

But Robb denied there would be less demand. He explained that over 50% of the company’s glass production in Europe went to replacing old windows to comply with new housing regulations driving up demand.

The areas which promise growth, according to Pilkington, are its new joint venture float glass plant in France, and a new self-cleaning glass.

This glass, which is currently being test marketed in the US, Ireland, and Austria, could be the company’s trump card.

The FD explained the self-cleaning glass would be launched in Europe in the new year. He said that, although the glass itself costs four times more than normal, the cost of a full window with all the fittings would only be 15% higher than those now in use.

In a trading statement issued in September, chief executive Paolo Scaroni confirmed the company was expecting to report good underlying improvement in its performance.

He said: ‘Pilkington has performed well in the first five months of the year, in line with expectations.’

But he cautiously added: ‘It is too early to predict the impact of the terrorist attack in North America on the economies in which we operate. Subject to this, we continue to expect to report further progress for the year as a whole.’

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Annual results to 31 March 2001

Turnover: #2,507m

Net cash outflow: #341m

Profit after taxation: #115m

Executive directors: Sir Nigel Rudd, chairman, appointed August 1994

Paolo Scaroni, chief executive, appointed May 1997

Andrew Robb, finance director, appointed December 1989

Auditor: PricewaterhouseCoopers

Company profile: Founded in 1826, Pilkington manufactures glass and glazing products for the building, automotive and technical markets, with operations in 25 countries. The company specialises in float glass, invented by Sir Alistair Pilkington in 1952.Listed on the London Stock Exchange in 1970.

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