Vesuvius Regulatory News (VSVS)

Cookson Group plc

27 February 2012

ANNOUNCEMENT OF 2011 FULL YEAR RESULTS

HIGHLIGHTS

·; Significant performance improvement in 2011:

Revenue of £2,826m, up 11%; 9% on an underlying basis1 (2010: £2,546m)

Trading profit of £290.2m, up 15% (2010: £252.1m)

Return on sales1 of 10.3% (2010: 9.9%):

- Engineered Ceramics (Ceramics division renamed) 11.5%

- Performance Materials (Electronics division renamed) 12.2% (return on net sales value1: 23.8%)

Headline profit before tax1 of £261.5m, up 18% (2010: £222.1m)

·; Higher growth developing countries now contribute almost 50% of Group revenue and around 60% of Group trading profit

·; Good progress towards the return on sales margin target of 12% by 2013 at constant metal prices - 2011 restated margin was 10.9% versus 9.9% in 2010

·; Headline earnings per share1 of 70.4p, up 14% (2010: 61.5p)

·; Recommended final dividend of 14.50p per share, up 26%; total dividend of 21.75p per share

·; Net debt1 of £364m; leverage ratio (net debt to EBITDA1) of 1.1 times

·; Pension deficit significantly reduced from £114m to £59m

·; Disposal of the loss-making US operations of the Precious Metals Processing division agreed; completion expected in second quarter of 2012

·; Strong progress achieved in 2011 towards all Group 2013 targets

¹ Refer to Note 15 of the attached financial statements for definitions

² Tax rate on headline profit before tax (before share of post-tax profit of joint ventures)

3 Dividends are presented on an "as recommended" basis

Commenting on the Group's results and outlook, Nick Salmon, Chief Executive, said:

"We achieved further significant performance improvement in 2011, and important progress towards all of our published targets.

"Both our Engineered Ceramics and Performance Materials divisions have strong global market positions with significant developing market exposure, are well invested with strong product development pipelines, and have moved increasingly to a model where the emphasis is on selling on the basis of added value. The Group's profile will be further enhanced by the disposal, announced last week, of the loss-making US Precious Metals Processing business.

"While the macro-economic outlook remains uncertain, customer feedback and third party indicators continue to point to mid-single digit global growth in our core end-markets for 2012.

"Overall, we are confident that we can achieve further progress in the current year towards our 2013 targets, driving further value for shareholders."

OVERVIEW

The Group's performance continued to improve significantly in 2011. Continued market penetration of newly-developed products and the further expansion of our presence in developing markets have positioned our businesses favourably to benefit from the growth in our main end-markets. Accordingly, we have recorded strong progress towards achievement of the three year performance targets we announced in January 2011.

Last week, we announced an agreement to sell the US Precious Metals Processing business which will result in us exiting this loss-making business on a cash neutral basis.

The challenging global macro-economic trends evident through the second half of 2011 had only limited impact on our businesses. As anticipated, we saw some softening in steel production trends in Europe and China in the fourth quarter, but momentum in our foundry and electronics end-markets was maintained through to year-end. For 2012, we anticipate mid-single digit growth globally in our main end-markets with generally weaker demand in Europe being offset by continued growth in the Americas and Asia-Pacific.

RENAMING OF THE DIVISIONS AND THEIR BUSINESSES

Over the last ten years there have been substantial changes in the Group's portfolio and business model. Two of the four main businesses within the Electronics division, which together represented roughly half the division's revenue in 2003, were sold by 2006. By 2007, another twelve smaller non-core businesses across the Group had been sold or closed and, in early 2008, we completed the major Foseco acquisition which was integrated within the Ceramics division. Our business model has evolved placing much more emphasis on new product development and higher added-value products and services targeted to lift margins, gain market share and enter new end-market segments. As a consequence we have now decided to rename the Group's three divisions and the businesses within each division to better reflect the value-added nature of their operations and the end-markets they serve:

No operations have been transferred between divisions or businesses as a result of the name changes so segmental financial information remains comparable between periods.

SUMMARY OF GROUP PERFORMANCE

Trading performance

Group revenue of £2,826m was 11% higher, as reported, than 2010 in part reflecting the pass through to customers of significantly higher commodity metals prices for tin, silver and gold. On an underlying basis (at constant exchange rates and commodity metals prices), Group revenue increased by 9%, reflecting some market share gains and our favourable geographic market coverage, with almost half of revenue coming from higher growth developing countries. Trading profit of £290.2m was 15% higher than that reported for 2010, with around 60% coming from higher growth developing countries. Return on sales margin improved to 10.3% (2010: 9.9%). If commodity metals prices had remained at average 2010 levels, the margin in 2011 would have been 10.9%.

The Engineered Ceramics division's revenue of £1,686m was 13% higher than that reported in 2010 and 12% higher on an underlying basis. Within this the steel production industry related businesses of Steel Flow Control and Advanced Refractories had revenue of £533m and £545m respectively, underlying increases of 8% and 11%, which compare favourably with growth in global steel production, as reported by the World Steel Association, of 6.8%. The Foundry Technologies business had revenue of £527m, nearly back to the levels recorded in the first half of 2008 prior to the start of the financial crisis, an underlying increase of 19%. For all three of these businesses, raw material costs rose significantly during the year, particularly graphite, zirconia and magnesite minerals. Whilst compensating selling price increases were agreed with customers during the course of the year, there was some time lag in their implementation which had a negative impact on margins. Revenue for the smaller Fused Silica business of £81m was 6% higher than 2010 for the year as a whole, having been 34% ahead at the half year, reflecting the previously reported sharp fall in demand for Solar Crucibles™ driven by excess global inventories of solar panels. Decisive steps have been taken to adapt to these conditions. In total, the division's trading profit of £193.2m was 9% higher than the prior year and the return on sales margin was 11.5% (2010: 11.9%). Excluding the Fused Silica business, the return on sales margin for the remaining Engineered Ceramics division was 11.6% compared to 11.3% in 2010. 

The Performance Materials division's revenue of £814m was 13% higher than 2010, as reported. In large part, this increase was due to the pass through of higher tin, silver and gold prices. On an underlying basis, revenue increased as expected by only 1%, reflecting the on-going strategy of exiting more commoditised products (such as some types of lower margin bar solder), partly offset by continued market penetration of innovative, higher value-added and higher margin, products. As a result of this mix change, the division's trading profit increased significantly to £99.6m, an increase of 40% over that reported in 2010. The return on sales margin rose to 12.2% (2010: 9.8%). The net sales value for the division, being revenue less the value of tin and precious metals included in revenue, was £418m (2010: £410m), an increase of 2% and the return on net sales value was 23.8% (2010: 17.3%).

The Precious Metals Processing division's net sales value (being revenue excluding the precious metals content) of £132m decreased by 1%, as reported. The European business performed well throughout the year, benefitting from high levels of reclaimed precious metal processing and refining activity. As previously reported, having operated around break-even in the first half, the US business incurred significant losses through the second half. As a result the division's overall trading profit in 2011 of £6.2m was £6.5m lower than in 2010. In November 2011, we announced that we had initiated a strategic review and significant downsizing of the US operations. Subsequently we entered into negotiations with Richline Group, Inc. (a subsidiary of Berkshire Hathaway Inc.) for it to acquire these US operations and on 22 February the parties signed a binding Sale and Purchase agreement, which is subject only to normal legal and regulatory closing provisions which we anticipate to be completed in the second quarter of 2012. The net cash consideration is subject to closing balance sheet adjustments but is expected to be sufficient for the exit from the loss-making US business to be cash neutral, including the restructuring and other costs incurred in preparing the business for sale. The division's profitable European operations are unaffected by the transaction. 

Exceptional items

A net charge, pre-tax, of £49.9m was incurred (2010: £32.7m), principally due to charges relating to amortisation of intangible assets (£17.8m), restructuring charges (£8.9m), finance costs (£1.9m), and loss on the disposal of businesses (£36.5m, of which £29.0m related to US Precious Metals that was in the process of being disposed of at year-end). These charges have been partially offset by gains relating to employee benefits plans of £15.2m. Of the total net charge, £15m is cash-related and £35m is non-cash related.

Taxation

The tax charge on ordinary activities was £61.4m on headline profit before tax of £261.5m, an effective tax rate (before share of post-tax profit from joint ventures) of 23.5%. The effective tax rate in 2010 was 21.1%, as this reflected the benefit of a number of non-recurring credits. The underlying effective tax rate for 2010 was around 24%. It is currently expected that the effective tax rate for 2012 will remain around 23.5%.

Attributable profit and earnings

Headline attributable profit was £194.2m (2010: £169.8m), an increase of 14%. Headline earnings per share was 70.4p (2010: 61.5p), also an increase of 14%.

After taking into account all exceptional items, the Group recorded a profit for the year of £146.8m compared with £145.3m for 2010.

Dividend

Given the good trading performance in 2011 and the outlook for 2012, the Board is recommending a final dividend of 14.50p per share (2010: 11.50p), an increase of 26% and in line with our stated target of growing dividends ahead of earnings growth. Together with the interim dividend of 7.25p per share, this gives a total dividend for the year of 21.75p per share (2010: 11.50p), an increase of 89%.

Pensions

At 31 December 2011, the net deficit in the Group's post-retirement defined benefit plans was £58.7m (31 December 2010: £113.8m). The significant improvement principally arose in respect of the Group's UK pension plan. This reflected both strong gains for the plan assets arising from our investment and hedging strategies plus a gain in connection with the change in the UK inflation index (from RPI to CPI), more than offsetting the negative impact of lower discount rates used to value plan liabilities.

An 'Enhanced Transfer Value' exercise is currently on-going in the UK and, as at 31 December 2011, a significant number of deferred members with liabilities totalling £37m had so far transferred out of the UK Plan. 

Financial position

Net debt at 31 December 2011 was £364m, £34m higher than a year earlier. 

Trade working capital cash outflows were £61m in the year while reported revenue grew by £280m. Hence, the working capital to sales ratio increased to 23.1% (2010: 21.1%). Management action plans are in place targeted at improving working capital performance and we anticipate stronger cash generation in 2012.

Capital expenditure of £85.1m (2010: £57.2m) was 1.5 times depreciation and included investments to expand our production capacity in higher growth markets, notably Brazil, India, China and Eastern Europe and in expanding and upgrading our R&D facilities. The net debt also reflects the acquisition of SERT for €11m (£9m) in November 2011.

In April 2011, the Group entered into a new £600m, five year revolving credit facility with a syndicate of banks to replace the existing £511m bank facility which was due to mature in October 2012. This followed the successful issue in December 2010 of US$250m of private placement loan notes with an average maturity of 8.7 years.

At 31 December 2011, the ratio of net debt to EBITDA was 1.1 times, very comfortably within the debt covenant level of 3.25 times, and the interest cover ratio was 15.1 times. The Group's financial position is strong with ample liquidity under long-term financing arrangements.

DIRECTORATE

Having served for nine years as a non-executive Director, Barry Perry retired from the Board at the close of the Annual General Meeting on 12 May 2011. 

Dr Emma FitzGerald joined the Board as a non-executive Director on 1 August 2011. Dr FitzGerald is Vice President, Global Retail Network for Shell International. She joined Shell in 1992, and has held a variety of general management, strategic and technical roles. Dr FitzGerald has extensive experience of the Asia-Pacific region and has served on boards in Korea and China.

Steve Corbett, the current Chief Executive of the Performance Materials division, will be joining the Board as an executive Director on 1 May 2012.

BUSINESS MODEL AND STRATEGY

Cookson is a leading materials science company comprised of two main divisions - Engineered Ceramics and Performance Materials. They supply specialist consumable materials and chemicals used in industrial production processes - notably for the steel, foundry castings, electronics and electro-plating industries, and emerging "clean technology" sectors such as solar and LED.

Both divisions' products and services add value to their customers' businesses by enabling them to increase the efficiency and quality of their operations and products, reducing overall production costs, saving energy and reducing their environmental impact. Their products constitute a small fraction of their customers' costs, and add significant value to their customers.

In both cases, the business model is based on being recognised by their customers worldwide for technology leadership, outstanding technical support services and reliable "just in time" supply capabilities. This requires them to have manufacturing and technical support resources close to customers in every major economic region, supported by strong central R&D resources. 

Group-wide, including the smaller Precious Metals Processing division, we currently employ some 15,500 people working in more than 40 countries. Approximately 23% of Group sales are to customers in NAFTA, 35% in Europe, 32% in Asia-Pacific and 10% in the rest of the world, which is principally Brazil and South Africa.

We have focused our businesses on products and services where they can command leading global market positions and where they can sell on the basis of added-value rather than just price. This has resulted in a progressive improvement in the Group's profitability and returns to shareholders.

The Group is committed to maintaining a strong financial position to support its businesses, with low leverage and ample liquidity headroom under long-term financing arrangements. Strong emphasis is placed on risk management and a robust internal control framework has been developed to maintain a high level of governance.

GROUP TARGETS

On 26 January 2011, we set out our targets for performance improvement to the year ended 31 December 2013 and our strategy for achieving those targets. The following table sets out those targets and the strong progress achieved in 2011.

In setting these targets we are not assuming any significant acquisitions, but some selected bolt-on acquisitions may continue to be made. The significant improvement in the Group's portfolio of businesses means that achievement of the 12% margin target does not require any division to deliver higher margins than they have previously achieved (note: pro-forma for Foseco acquired in April 2008).

We see achievement of these targets being underpinned by:

• leading global market positions, supplying consumables to essential industries - steel, foundry and electronics;

• track record of market share gains with new, enhanced technology, higher margin products - increased R&D capability and spending;

• significant developing market exposure (c.50% of revenue; c.60% of trading profit);

• considerable further recovery potential in mature markets where cost base significantly reduced;

• opportunities to leverage further organic growth through bolt-on acquisitions; and

• maintaining strong cash flow momentum.

OUTLOOK FOR 2012

While the macro-economic outlook remains uncertain, feedback from our customers and third party industry forecasters continues to indicate mid-single digit growth globally in our main end-markets in 2012, with generally weaker demand in Europe offset by continued growth in the Americas and Asia-Pacific. For the small Solar Crucibles™ business, we hope to see some recovery in the market in the second half of 2012 but are currently uncertain on the timing and rate of that recovery.

Both our Engineered Ceramics and Performance Materials divisions are well positioned to deliver further performance improvement based on their global market coverage, strong presence in higher growth developing markets, leading technologies and strong new product pipelines, high technical service element and value selling competence. The Board is confident of the Group's ability to achieve further progress in the current year towards its 2013 targets, driving further value for shareholders.

REVIEW OF OPERATIONS

Note: the data provided in the Group and divisional tables below are at reported exchange rates.

Group

Group revenue in 2011 of £2,826m was 11% higher than 2010 and 9% higher on an underlying basis (being revenue at constant exchange rates and commodity metal prices). Demand in the Group's key end-markets of steel production, foundry castings and electronics has been generally strong during the year, although there was some moderate softening of steel production in the fourth quarter. Revenue for the Group was well balanced geographically with 35% coming from sales to customers in Europe, 32% from Asia-Pacific, 23% from NAFTA and 10% from the Rest of the World. 

Trading profit in 2011 rose significantly to £290.2m (2010: £252.1m), being 15% higher at both constant and reported exchange rates. Trading profit in the second half of 2011 was 1% lower than the first half at both constant and reported exchange rates. 

The return on sales margin in 2011 was 10.3%, ahead of the 9.9% reported in 2010. This improvement was achieved notwithstanding the impact of higher metal prices (notably for gold, silver and tin), which increased reported revenue in the Performance Materials and Precious Metals Processing divisions without any impact on profitability. The return on sales margin in 2011 would have been 10.9% if these metal prices had remained at 2010 average levels.

Note: in the divisional and product line narrative analysis below, all of the financial information is presented at constant currency, unless indicated otherwise.

Engineered Ceramics division

Trading under the Vesuvius and Foseco brand names, the Engineered Ceramics division is the world leader in the supply of advanced consumable products and systems to the global steel industry (which accounts for a little over half of revenue) and the global foundry industry (approximately one third of revenue) and a leading supplier of speciality products to the glass and solar industries.

In 2011, the Engineered Ceramics division experienced strong demand in the majority of its end-markets. Revenue of £1,686m was 12% higher than 2010 (13% at reported exchange rates). Revenue in the second half of 2011 was 2% lower than the first half, principally reflecting a moderate slowdown in steel production in the fourth quarter in Europe and China, and a very marked deterioration in the solar end-market in the second half. 

Trading profit in 2011 rose significantly to £193.2m (2010: £177.4m), being 8% higher (9% higher at reported exchange rates). Trading profit was 3% lower in the second half of 2011 compared to the first half reflecting the lower revenue. The return on sales margin in 2011 was 11.5%, marginally lower than the 11.9% achieved in 2010. Raw material costs rose significantly during the year, particularly for graphite, zirconia and magnesite minerals. Whilst compensating selling price increases were agreed with customers during the course of the year, there was some time lag in implementing these price increases which had a negative impact on margins. Margins were also impacted in the second half of the year by the marked deterioration in the solar end-market which significantly impacted demand for the division's Solar Crucible™ products. Excluding the Fused Silica business (of which Solar Crucibles™ represents around 50% of revenue), the return on sales margin for the remaining Engineered Ceramics division was 11.6% in 2011 (first half: 11.3%; second half 11.9%) compared to 11.3% in 2010. 

The Engineered Ceramics division provides leading technologies to its customers supported by outstanding technical support and R&D resources. As outlined in the Capital Markets presentation on 26 January 2011, the division expects to double its R&D spend over the next five years. As part of this initiative, investments in land and facilities for R&D centres have been made in Pittsburgh, US and Vizag, India.

Steel end-market: global steel production is the division's main end-market corresponding to a little over half of its total revenue. According to the World Steel Association, global steel production was 1,527m tonnes in 2011, a 6.8% increase compared to 2010 and a record level of global steel production. Global steel production was marginally lower (by 4%) in the second half compared to the first half.

Within these totals, steel production in China (which now accounts for 46% of global steel production) grew 8.9% in 2011 compared to 2010. Chinese steel production grew strongly in the first three quarters of 2011, but then fell sharply in the fourth quarter as a result of slowing economic growth, such that production in the second half of 2011 was 6% lower than the first half. However, market trends outside of China are more significant for the Engineered Ceramics division in the short-term as China currently accounts for only around 12% of the division's steel-related revenue. A large part of steel production in China is not yet based on the enclosed continuous casting technology which uses Vesuvius' Steel Flow Control products. The use of enclosed continuous casting is expected to increase over time as the Chinese steel industry continues to modernise and demand for higher grade 'flat' steel product increases. In November 2011, the Chinese government announced a new five year (2011 to 2015) plan for the steel industry which targets higher production levels of better quality, more value-added steel products to be produced in a more environmentally conscious way. In the Advanced Refractories product line, there is as yet only modest revenue arising in China as this market has only recently been addressed.

Excluding China, global steel production in 2011 was 5.1% higher than in 2010 as the recovery in 2010 continued through 2011. Steel production fell marginally in the third quarter of 2011, reflecting the normal seasonal slowdown in production, and then remained unchanged in the fourth quarter, with a moderate slowdown in Europe being offset by higher production in the US and India. Overall, steel production (excluding China) was only 2% lower in the second half compared to the first. Whilst the overall improvement in steel production in 2011 is encouraging, production levels in the developed world are still materially below the levels seen prior to the 2008 economic downturn, suggesting scope for considerable further growth in steel output in the medium term. Production in Europe and the US in the fourth quarter of 2011 represented only 75% and 84%, respectively, of the production levels seen in the second quarter of 2008. 

Foundry castings end-market: this market, which represents around one-third of the division's revenue, produces castings which are used in a wide variety of engineered products. Approximately 40% of castings (and therefore a similar percentage of the revenue for the Foundry Technologies product line) are produced for the vehicle sector, being 25% for cars and light trucks ('automotive') and 15% for heavy trucks. Other end-markets for foundry castings include: construction, agriculture and mining machinery; power generation equipment; pipes and valves; railroad; and general engineering equipment. The foundry castings market deteriorated significantly towards the end of 2008 and has subsequently demonstrated more "late-cycle" characteristics in its recovery. Whilst automotive production started to improve from mid-2009 onwards, truck production (particularly in Europe) only started to recover from mid-2010 onwards. It was only towards the end of the first half of 2010 that the Foundry Technologies business started to experience a more positive impact on its revenue, with this improvement continuing during the remainder of 2010 and in 2011. According to JD Power, in 2011 automotive production grew 10% in North America and 7% in Europe, but fell 2% in the Rest of the World (excluding China). Truck production has grown strongly in 2011, albeit from a relatively low level in 2010, with growth of 30% in North America, 32% in Europe and 3% in the Rest of the World (excluding China). 

Solar and glass end-markets: the principal products in the Fused Silica product line are Solar Crucibles™, which are used in the production of photovoltaic ("solar") panels, and tempering rollers used mainly in the production of glass for construction and automotive applications. Demand for Solar Crucibles™ was good in the first half of 2011, but fell sharply in the second half as a number of customers cut production in response to excess global inventories of finished solar panels. This slowdown is expected to continue into 2012. However, the prospects for the solar industry in the medium to long-term remain very promising. Demand for tempering rollers remained strong throughout 2011.

Steel Flow Control

The Steel Flow Control product line provides a full range of consumable products, systems and technical services to control, regulate and protect the flow of steel in the enclosed continuous casting process. Products include VISO™ and VAPEX™ products, slide-gate and tube changer systems and refractories, gas purging and temperature control devices, and mould and tundish fluxes.

Global steel production represents almost 100% of the end-market for Steel Flow Control products and services. Revenue of £533m was 8% higher compared to 2010. This growth rate was marginally ahead of the increase in steel production in the key markets in which Vesuvius operates, reflecting favourable product mix, including increased market penetration of its new, higher value-added, tundish tube changer and ladle shroud products, and the partial pass-through of higher raw material costs.

The cost of some of the key raw materials used in Steel Flow Control products rose significantly throughout the year, notably for graphite and zirconia. Whilst compensating selling price increases were agreed with customers throughout the year, there was some time lag in implementing these price increases.

In line with the strategy, announced in January 2011, of making 'bolt-on' acquisitions to complement our existing product and service offering, we completed the acquisition of SERT in November for a net cash consideration of €11m (£9m). This business, headquartered in France, is a world leader in the development and manufacture of systems for the automation of the casting process of molten metals within steel mills and foundries. In 2011, SERT had revenue of €11m (£9m) and a trading profit of €2m (£2m). 

A project to double manufacturing capacity at the Indian facility in Kolkata was completed in the first half of 2011. The first phase of the project to double the capacity of the existing facility in Trinec, Czech Republic to service more effectively the Eastern Europe and CIS markets was completed at the end of the year. A new facility is being built in Brazil to improve the efficiency of raw material processing.

Advanced Refractories

Advanced Refractories includes products and services that enable customers' plants to withstand the effects of extreme temperatures or erosive chemical attack and reduce energy consumption and carbon emissions. The business manufactures castables, gunning materials, ramming mixes, pre-cast shapes, tap hole clay, bricks, mortars, and provides construction and installation services.

Global iron and steel production represents more than 75% of the end-market for Advanced Refractories' products and services with the remainder arising from a variety of non-steel markets including the cement, lime, aluminium, power generation, petrochemical and waste incineration industries.

Revenue of £545m represented an 11% increase compared to 2010. The growth reflected increased levels of maintenance as steel producers increased production, and the pass-through of some higher raw material prices. 

As with Steel Flow Control, there were significant raw materials cost increases in the year. However, prices for magnesite - the single most important raw material for Advanced Refractories - did stabilise in the second half of the year following large increases in the first half.

Production capacity at our Chinese specialist magnesia carbon brick-lining business, BRC, has been increased by around one-half through the installation of additional automated presses. 

Foundry Technologies

The Foundry Technologies business is a leading supplier of consumable products and technical services to the foundry industry worldwide and trades under the Foseco brand name. Products include feeding systems, filters, metal treatments, metal transfer systems, crucibles, stoppers, sand binders, coatings and moulding materials used in the production of metal castings. These products improve quality and yields whilst reducing energy consumption and production costs.

Revenue of £527m represented a 19% increase compared to 2010. There has been strong growth in most regions, particularly Northern Europe (especially Germany which accounted for just under 20% of revenue), NAFTA, Japan and India, reflecting the strong demand in these markets for cars, trucks, and equipment for the mining, agriculture, construction, power generation and general engineering industries. Southern European markets are recovering more slowly. Revenue in the second half of 2011 was just over 90% of the revenue achieved in the first half of 2008 (pro-forma for Foseco), reflecting the strong recovery of this business in the last two years.

Customer demand for the INITEK™ system, launched in June 2011, has been strong with six systems now in operation, six in the process of being commissioned and a further thirty-five under negotiation with potential customers. The INITEK™ system is based on a proprietary combination of additives and processes in a purpose-designed converter vessel which significantly improves casting quality and reduces customers' production costs by some 10% through reductions in the consumption of energy and materials.

The manufacturing facility in Chambery, France was closed in the first half of the year with production transferring to existing facilities in Poland and India. Additional production capacity for filters and feeding systems is also being installed in our facilities in the UK and Japan, respectively, for completion in early 2012. 

The Chinese foundry castings end-market is expected to grow strongly over the next few years. In anticipation of this growth, it has been decided to build a new production facility in China. A number of locations are currently under evaluation.

Fused Silica

The principal products in the Fused Silica product line are Solar Crucibles™ used in the manufacture of photovoltaic ("solar") panels and tempering rollers used in the glass industry. 

Revenue of £81m represented a 6% increase compared to 2010. Solar Crucible™ revenue, which represents around 50% of total Fused Silica revenue, decreased by 7% compared to 2010. Demand for Solar Crucibles™ was good in the first half of 2011, but fell sharply in the second half of the year as a number of customers cut production in response to excess global inventories of finished solar panels. Revenue in the second half of the year was less than half that of the first half. Some recovery in this market is expected in the second half of 2012 but there is considerable uncertainty as to the timing and rate of that recovery. Steps have been taken to adapt to these market conditions by removing temporary workers and adopting some short-time working arrangements in Europe, and via some permanent workforce reductions in our Chinese operations. In addition, a number of technological innovations have been developed both to improve product quality and also to enable us to significantly reduce production costs, and hence improve competitiveness, in anticipation of a recovery in solar market volumes at some stage in 2012. These initiatives include the doubling of capacity of the line for production of the recently introduced 'ready to use' ('RTU') Solar Crucibles™ in the facility in Skawina, Poland which was completed in the third quarter of 2011. RTU Solar Crucibles™ are crucibles pre-coated with a patented solution which increases customers' manufacturing productivity. A new raw material processing plant has also recently been completed in China which allows the sourcing of cheaper raw materials from a wider variety of sources and which also enables the supply of processed materials to our European factories.

Whilst the solar industry is currently very depressed, prospects for the medium to long-term remain very promising. Solar panels' costs have reduced significantly in recent years and, as a result, "grid parity" (at which electricity from solar panels is produced at a cost, before government subsidies, which is not more than the price charged by utilities) is being achieved in an increasing number of geographic regions.

For glass tempering rollers and other speciality products used in the manufacture of glass, revenue increased 25% compared to 2010 with end-market demand remaining satisfactory throughout the year.

Performance Materials division

The Performance Materials division is a world leading supplier of electronic assembly materials and advanced surface treatment and plating chemicals. The electronic equipment production end-market accounts for approximately three-quarters of revenue with the other quarter being direct applications (non-electronics) in automotive and industrial production. The division comprises two businesses; Joining Technologies, which is a supplier of solder, fluxes, adhesives, and related products, and Surface Chemistries, which is a supplier of electro-plating chemicals.

According to estimates from Henderson Ventures, global production of electronic equipment (measured in US dollars at constant currency) grew in 2011 by 1.7%. Global PC unit shipments (both traditional and tablet PCs) were estimated to be 13% higher, with tablet units increasing by more than three times from 20m units in 2010 to 67m units in 2011. Global unit shipments of mobile phones increased by 12% to 1.8b compared to 2010, with just over one-quarter of these being more technically sophisticated smartphones compared to just under 20% in 2010. Automotive markets have shown good improvement, particularly for higher value vehicles which typically use more of the division's products.

Revenue of £814m was 13% higher than 2010 at both constant and reported exchange rates. The higher revenue largely reflects the 'pass through' to customers of higher tin and silver prices, both major raw materials for Joining Technologies, and higher gold and palladium prices in the Surface Chemistries business. In 2011, the average prices of tin, silver and gold were respectively 35%, 83% and 29% higher than 2010, such that approximately £111m of the division's revenue increase was as a result of these higher metal prices. Excluding the impact of these commodity metals and adjusting for a small disposal in December 2010, underlying revenue was 1% higher than 2010. These trends reflect the division's strong market positions in the faster growth market segments within consumer electronics (such as tablets and smartphones), the continuing strategy of exiting more commoditised products (particularly bar solder, where volumes fell by 14%), and the increased market penetration of innovative, higher margin products such as advanced solder pastes and 'tape and reel' packaged solder pre-forms. Asia-Pacific, the division's largest region, accounted for just under half of revenue in 2011 (by location of customer).

In 2011, the division's revenue included £206m of tin, £122m of silver, and £68m of gold and palladium. Net sales value (which excludes these amounts from revenue) in 2011 was £418m, 2% higher than 2010 (as reported). 

As a result of the improving mix in the profitability of revenue, trading profit for 2011 rose significantly to £99.6m (2011: £71.0m), a 40% increase at both constant and reported exchange rates. The return on sales margin in 2011 was 12.2%, well ahead of the 9.8% reported in 2010. The pass through to customers of the higher tin and precious metals commodity prices discussed above increased revenue by some £111m but had no material impact on trading profit. The return on sales margin in 2011 would have been 14.2% if metal prices had remained at average 2010 levels.

The return on net sales value in 2011 was 23.8%, well ahead of the 17.3% as reported in 2010. Management believe this measure, which eliminates the impact of the pass through of commodity metals, is an important measure of the underlying profitability of the division.

Joining Technologies

Joining Technologies is a leading global supplier of materials to assemblers of printed circuit boards ("PCBs") and the semi-conductor packaging industry and to certain non-electronics markets such as automotive and water treatment. Its principal brand name is Alpha and products include solder (in bar, wire, paste, powder and sphere form) and fluxes, adhesives, cleaning chemicals and stencils.

Revenue of £527m was 17% higher than 2010 (18% at reported exchange rates). Excluding the impact of passing through higher tin and silver prices and adjusting for a small disposal in December 2010, on an underlying basis revenue was 1% higher than 2010. This reflects the growth in the global production of electronic equipment, the continuation of the successful strategy to focus on higher margin, enhanced technology products, and exiting more commoditised products such as bar solder. For solder products, which account for three-quarters of Joining Technologies' revenue, sales of higher margin advanced solder pastes were up 8% by weight compared to 2011 while bar solder was down 14%, partially reflecting the continuing shift from wave soldering to surface mount technology for the production of PCBs. Sales of tape-and-reel packaged pre-forms, which are manufactured shapes of solder used in jointing applications requiring high physical strength, have almost doubled in the year driven, in particular, by smartphone applications. The recycling, reclaim business in the US and China, in which scrap solder generated by our customers' production processes is reclaimed for processing back into solder alloys for sale to third parties or for reuse within the business, also benefitted from strong growth during the year.

Net sales value (which excludes the value of tin and silver from revenue) in 2011 was £199m, 1% higher than 2010. 

The business continues to focus on new product development and on penetrating new markets, including LED, solar and power electronics. These new products include Ready Ribbon™, a pre-fluxed, solder coated, copper ribbon used for connecting solar cells within a solar panel, and nano-silver die attach products for use in the manufacture of LED lights and power electronics. Related new production lines for Ready Ribbon™ were completed towards the end of 2011 in the Netherlands and Singapore, and a further line in the US is nearing completion. The first nano-silver production line in Singapore has also now been successfully commissioned. Both products attracted high levels of customer interest ahead of their recent commercial launch and, once product trials are completed by our customers, commercial sales are expected to commence shortly. 

A new solder bar, wire, paste and chemicals factory has been built in Manaus, Brazil, which went into production in December 2011.

Surface Chemistries

The Surface Chemistries product line manufactures speciality electro-plating chemicals under the trade name Enthone. Approximately 45% of sales are to the electronics industry and 55% to industrial and automotive applications.

Revenue of £287m for 2011 was 5% higher than 2010 at both constant and reported exchange rates. Net sales value (which excludes the value of gold and palladium from revenue) in 2011 was £219m, 2% higher than 2010. Compared to 2010, sales of plating-on-plastics and corrosion and wear resistant products for automotive and industrial applications were up 3%. Sales of surface coating products serving the PCB fabrication market were up 1%, with growth of the Immersion Tin PCB surface finish product up over 50%, driven by automotive electronics market share gains. Sales of proprietary Copper Damascene additives into the semi-conductor market were up 18% compared to 2010. The first qualification for Copper Damascene additives for use in the recently launched 22 nanometre semi-conductor wafer node was achieved in the year.

The construction of the new £14m Chemistry facility in Shanghai, to serve China's growing electronic materials, automotive and industrial end-markets, is now expected to be completed in the third quarter of 2012. Currently the Chinese market is served from Cookson facilities in Tianjin and Singapore.

Precious Metals Processing

The Precious Metals Processing division is a leading supplier of fabricated precious metals (primarily gold, silver and platinum) to the jewellery industry in the UK, France and Spain, and also has significant precious metal recycling operations.

The Precious Metals Processing division operated during 2011 in two distinct geographic regions: the US, which constituted 37% of the total net sales value (being revenue excluding the precious metals content), and Europe (focused on the UK, France and Spain). Average precious metal prices in 2011 have been significantly higher than for 2010, being approximately 29% higher for gold, 83% for silver and 9% for platinum.

Net sales value of £132m in 2011 was in line with 2010 (1% lower at reported exchange rates). The European businesses performed well during the year, benefitting from high levels of precious metal reclaim activity, stimulated by the high price of gold. However, the performance of the US business has been unsatisfactory, particularly in the second half of the year.

Trading profit in 2011 at £6.2m was £6.7m below 2010 (£6.5m lower at reported exchange rates). The division made a trading profit of £6.7m in the first half of 2011 but made a small loss in the second half. Whilst the European businesses maintained a good level of profitability throughout the year, the US business, which had operated at around breakeven in the first half, incurred losses in the second half as previously communicated. The return on net sales value for the division in 2011 was 4.7%, below the 9.5% achieved in 2010.

In November 2011, we announced that we had initiated a strategic review and significant downsizing of the US operations. Subsequently we entered into negotiations with Richline Group, Inc. (a subsidiary of Berkshire Hathaway Inc.) for it to acquire these US operations and on 22 February the parties signed a binding Sale and Purchase agreement, which is subject to normal legal and regulatory closing provisions which we anticipate to be completed in the second quarter of 2012. The net cash consideration is subject to closing balance sheet adjustments but is expected to be sufficient for the exit from the loss-making US business to be cash neutral, including the restructuring and other costs incurred in preparing the business for sale. The division's profitable European operations are unaffected by the transaction. 

Group corporate

The Group's corporate costs, being the costs directly related to managing the Group holding company were £8.8m, £0.2m lower than for 2010.

FINANCIAL REVIEW

Group results highlights

1 Dividends are presented on an "as recommended" basis

As described in detail in the Operating Review, the majority of the Group's businesses experienced improved end-market conditions during 2011 and, as a result, the trading profit in 2011 of £290.2m was 15% higher than in 2010. 

Group Income Statement

Headline profit before tax

Headline profit before tax was £261.5m for 2011, £39.4m higher than for 2010. The increase in headline profit before tax arose as follows:

Net finance costs (interest) were £1.7m lower than in 2010 principally due to a £1.3m lower charge for pension interest.

Items excluded from headline profit before tax

A net charge of £49.9m was incurred in 2011 (2010: £32.7m) for the following items excluded from headline profit before tax:

Amortisation of intangible assets: costs of £17.8m (2010: £17.7m) were incurred in 2011 relating to intangible assets (customer relationships, intellectual property rights and the Foseco trade name) arising on the acquisition of Foseco in April 2008. These intangible assets are being amortised over lives varying between 10 and 20 years.

Restructuring charges: the £8.9m incurred in 2011 (2010: £17.3m) comprises total costs of £11.7m, less profits of £2.8m arising on the sale of vacant property. Of the costs of £11.7m, £8.2m arose in Engineered Ceramics and £3.5m in Performance Materials, both principally from headcount reductions.

Restructuring charges of between £5m and £10m are expected to be incurred in 2012.

Finance costs - exceptional items: costs of £1.9m (2010: £3.0m) were incurred in 2011 arising from the write-off of unamortised borrowing costs relating to the syndicated bank facility which was terminated in April 2011 following the negotiation of a new facility.

Gains relating to employee benefits plans: the £15.2m credit in 2011 (2010: £5.3m) is principally in respect of the UK defined benefit pension plan ("UK Plan") and principally comprises a credit of £21.5m relating to the change in the UK inflation index (from RPI to CPI) which is used to value deferred pension benefits, less a charge of £8.3m in respect of an Enhanced Transfer Value ("ETV") exercise under which deferred members are being offered the opportunity to transfer their accrued pension benefits out of the UK Plan. This exercise eliminates longevity and investment risk for Cookson in respect of the amounts transferred out of the UK Plan. The cost of the ETV exercise reflected in 2011 is only in respect of transfers agreed prior to 31 December 2011. A further charge of some £5m is expected to be incurred in 2012 in respect of any transfers agreed after 1 January 2012.

Loss on disposal of continuing operations: a net loss of £36.5m (2010: £0.6m) was incurred in 2011, of which £29.0m relates to the US business of the Precious Metals Processing division that was in the process of being disposed of as at 31 December 2011 and was therefore recorded as held for sale at that date. On being classified as held for sale the net assets of the business were written down to their fair value less costs to sell. Subsequent to year-end, an agreement was signed on 22 February 2012 with Richline Group, Inc. (a subsidiary of Berkshire Hathaway Inc.) for it to acquire the Group's interest in this business.

Group profit before tax and after the items noted above was £211.6m for 2011 compared to a profit before tax of £189.4m in 2010.

Taxation

The tax charge on ordinary activities was £61.4m on headline profit before tax of £261.5m, an effective tax rate (before share of post-tax profit from joint ventures) of 23.5%. The effective tax rate in 2010 was 21.1%, although this reflected the benefit of a number of non-recurring credits. The underlying effective tax rate for 2010 was around 24%.

Whilst the Group's effective tax rate going forward will be affected by the geographic split of profit before tax, it is currently expected that the effective tax rate for 2012 will be around 23.5%.

A tax credit of £2.5m (2010: £9.4m) arose in relation to all the items excluded from headline profit before tax noted above. 

Profit attributable to owners of the parent

Headline attributable profit for 2011 was £194.2m (2010: £169.8m), an increase of 14%. Profit attributable to non-controlling interests of £5.9m was £0.3m higher than for 2010. 

After taking account of all items excluded from headline profit before tax noted above (net of the related tax impact), the Group recorded a profit of £146.8m for 2011 (2010: £145.3m).

Return on investment (ROI)

The Group's post-tax ROI in 2011 was 10.3%, ahead of the 9.6% reported in 2010, reflecting the improvement in trading performance during the year. 

Earnings per share (EPS)

Headline EPS, based on the headline profit attributable to owners of the parent divided by the average number of shares in issue, amounted to 70.4p per share in 2011, 14% higher than the 61.5p in 2010. The Board believes this basis of calculating EPS is an important measure of the underlying earnings per share of the Group. Basic EPS, based on the net profit attributable to owners of the parent, was 53.2p (2010: 53.0p).

The average number of shares in issue during 2011 was 275.7m, 0.5m lower than for 2010.

Dividend and dividend policy

In the Capital Markets presentation on 26 January 2011, it was stated that one of the financial targets for the three year period to 2013 was that dividends would grow at least in line with earnings growth. It was also noted that the Board's intention is to balance the split of interim and final dividends broadly on a one third/two thirds basis. 

Given the good trading performance in 2011 and the outlook for 2012, the Board is recommending a final dividend of 14.50p per share (2010: 11.50p) which, together with the interim dividend of 7.25p per share, gives a total dividend for the year of 21.75p per share (2010: 11.50p). The final dividend, if approved at the Annual General Meeting on 17 May 2012, is to be paid on 11 June 2012 to shareholders on the register on 4 May 2012. Any shareholder wishing to participate in the Cookson Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 24 May 2012.

Group cash flow

Net cash inflow from operating activities

In 2011, the Group generated £159.8m of net cash inflow from operating activities, £50.2m higher than in 2010.

The cash outflow of £86.8m from trade and other working capital reflects the strong increase in underlying revenue in 2011 and the high level of commodity metal prices at year-end. The higher levels of trade working capital resulted in a ratio of average trade working capital to sales in 2011 of 23.1%, two percentage points higher than for 2010.

Cash outflow for restructuring was £13.2m, of which the majority related to trailing costs from the cost-saving initiatives in the Engineered Ceramics and Performance Materials divisions commenced in prior years. A cash outflow for restructuring of around £10m is expected in 2012. The cash impact of the disposal of the US Precious Metals Processing business, which is expected to complete in the second quarter of 2012, is expected to be broadly neutral.

The cash outflow for additional pension plan funding contributions included the following:

UK Plan: payments totalling £7.0m were made into the UK Plan in 2011 based upon the current agreement with the Trustee. The level of these payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

US defined benefit pension plans: additional payments totalling £6.2m were made into the US pension plans in 2011, in line with the previously announced intention to make additional 'top-up' payments of approximately £6m per annum into the plans with effect from the beginning of 2011.

Net cash flows from investing activities

Capital expenditure: payments to acquire property, plant and equipment in 2011 were £85.1m, £27.9m higher than 2010 and representing 151% of depreciation (2010: 106%). A cash outflow for capital expenditure of around £75m is expected in 2012 principally reflecting the expansion of production capacity in China, India, Brazil, Eastern Europe, and the Middle East; customer installations in the Engineered Ceramics and Performance Materials divisions; and the expansion of R&D facilities in the Engineered Ceramics division. 

Acquisition of subsidiaries and joint ventures: net cash outflow in 2011 was £11.3m (2010: £3.9m), primarily comprised of the Engineered Ceramics division's acquisition of SERT for €11m (£9m) on 23 November 2011 and also the division's further investment in the Advanced Refractories joint venture in China with Angang Steel, one of China's largest steel producers.

Free cash flow

Free cash flow is defined as net cash flow from operating activities after net outlays for capital expenditure, dividends received from joint ventures and paid to non-controlling shareholders, but before additional funding contributions to Group pension plans.

Free cash inflow for 2011 was £90.1m, £26.4m higher than 2010, due to the £50.2m increase in net cash flow from operating activities, for the reasons described above, more than offsetting the £27.9m increase in capital expenditure. 

The Group normally experiences weaker free cash flows in the first half of the year compared with the second half, due to the seasonality of trade working capital cash flows. In 2011, free cash inflow in the second half of the year was £119.4m compared to a free cash outflow of £29.3m in the first half. This normal trade working capital seasonality is expected to continue in 2012.

Net cash flow before financing

Net cash inflow before financing for 2011 was £56.4m, £4.6m higher than 2010 due principally to the increase in free cash flow described above.

Cash flow from financing activities

Net cash outflow from financing activities (before movement in borrowings) was £92.8m (2010: £6.9m), principally comprising the following:

Settlement of forward foreign exchange contracts: a cash outflow of £27.6m arose relating to the settlement during the year of forward foreign exchange contracts, in particular those relating to the Singapore dollar and US dollar (2010: £3.3m). These forward foreign exchange contracts had been taken out in previous years to align broadly the currency profile of the Group's borrowings with the net assets of the Group and formed part of the hedge on investments of the Group's foreign investments. 

Purchase of treasury shares: a cash outflow of £7.8m (2010: £nil) arose in respect of the purchase during 2011 of shares in Cookson Group plc to satisfy the actual and potential vesting of shares under the Group's share-based payment plans. 

Dividends paid: a cash outflow of £51.8m (2010: £nil) arose in respect of the payment in June 2011 of the final dividend for 2010 of £31.8m and the payment in October 2011 of the interim dividend for 2011 of £20.0m.

Net cash (outflow)/inflow and movement in net debt

Net cash outflow for 2011 (before movement in borrowings) was £36.4m compared to a net cash inflow of £44.9m in 2010.

With a £1.0m positive foreign exchange adjustment and £1.2m in other non-cash movements, this resulted in an increase in net debt from £329.7m at 31 December 2010 to £363.9m at 31 December 2011, an increase of £34.2m.

Net debt

The net debt of £363.9m as at 31 December 2011 was primarily drawn on available committed facilities of £884m. The Group's net debt comprised the following:

In December 2010, the Group issued US$250m of new US Private Placement loan notes. The notes were issued in two series: US$110m at a fixed interest rate of 4.16% - maturing in December 2017, and US$140m at a fixed interest rate of 4.87% - maturing in December 2020. The average weighted interest rate on the new notes is 4.57% and the average weighted duration from issuance is 8.7 years. The remaining US$190m of US Private Placement loan notes are repayable in May 2012 and have an average fixed interest rate of 8.1%.

In April 2011, the Group entered into a new £600m revolving credit facility with a syndicate of banks to replace the existing £511m bank facility which was due to mature in October 2012. The new facility matures in April 2016. 

In the Capital Markets presentation on 26 January 2011, it was stated as part of the financial targets for the three year period to 2013 that the Group would maintain a strong financial position with a leverage ratio (net debt to EBITDA ratio) of not more than 1.5 times at year end and 1.75 times at the half year. The Group is currently operating very comfortably within this limit and, as at 31 December 2011, the net debt to EBITDA ratio was 1.1 times (as compared with not more than 3.25 times for bank covenant purposes). Also as at 31 December 2011, the ratio of EBITDA to interest on borrowings was 15.1 times (as compared with not less than 4.0 times for bank covenant purposes). Based on these covenant ratios, the Group will pay a margin of 95bps over LIBOR on its borrowings under the committed bank facility.

As at 31 December 2011, the Group had undrawn committed debt facilities totalling around £340m.

Currently around two-thirds of the Group's current gross borrowings are at fixed interest rates for an average period of just under four years from December 2011. This reflects both the fixed interest rate nature of the US Private Placement loan notes and the Group entering into a number of interest rate swaps.

Currency

In 2011, the net translation impact of using 2011 rates to translate 2010 results was not material i.e. an increase in 2010 revenue of £4m and an increase of 2010 trading profit by £1.2m. Between these years, the average exchange rates for sterling strengthened against the US dollar by 4% and the Polish zloty by 2%, but weakened against both the euro and the Chinese renminbi by 1%, the Brazilian real by 2% and the Czech koruna by 4%.

The Group has a policy of broadly matching the currency of borrowings to the currency of operating activities for its major trading currencies. Currently, just over half of the Group's gross borrowings are non-sterling denominated, principally in US dollars and euros.

Pension fund and other post-retirement obligations

The Group operates defined contribution and defined benefit pension plans, principally in the UK, the US and Germany. In addition, the Group has various other post-retirement defined benefit arrangements, being principally healthcare arrangements in the US. The Group's principal defined benefit pension plans in the UK and the US are closed to new members and to further accruals for existing members.

As at 31 December 2011, there was a net deficit of £58.7m in respect of employee benefits. The reduction of £55.1m from the net deficit as at 31 December 2010 of £113.8m primarily arose in respect of the UK arrangements, as a result of a strong asset performance more than offsetting the impact of the reduction in the applicable discount rate. The deficit in the Group's US pension arrangements increased by £6.9m to £64.8m, due mainly to the reduction in the applicable discount rate. The net deficit in the plans in the remainder of the Group was broadly the same as at the end of 2010.

The total Group net deficit comprises a surplus of £65.6m relating to Cookson's UK defined benefit plan ("the UK Plan"), deficits of £64.8m relating to the Group's defined benefit pension plans in the US, £35.3m to pension plans in Germany, £14.5m to pension arrangements in other countries, and £9.7m to other, unfunded, post-retirement defined benefit arrangements.

The UK government implemented, with effect from 1 January 2011, the use of the Consumer Price Index ("CPI") instead of the Retail Prices Index ("RPI") for the purpose of determining statutory minimum pension increases for private sector pension schemes. During the year, the deferred members of the UK Plan were advised of the change from the use of RPI to value their benefit to the use of CPI, with effect from 1 January 2011. At the same time, deferred members were advised that the Company was to offer them the opportunity to transfer their benefits out of the UK Plan to another arrangement of their choice at an enhanced value, calculated to reflect the retention of RPI to value any deferred benefits so transferred. The offer of enhanced transfer values closes during the first half of 2012. This exercise eliminates longevity and investment risk for Cookson in respect of the £37m of liabilities transferred out of the UK Plan. The impact on the IAS 19 valuation of UK pension liabilities of the change from RPI to CPI and of the impact of the transfers agreed up to 31 December 2011, result in a net reduction in liabilities of £13.2m, which has been reported in the income statement as an exceptional credit. The impact of transfers agreed after 1 January 2012 will be reported as an exceptional charge in 2012.

In accordance with a schedule of contributions agreed between the Company and the UK Plan Trustee, the Company is making 'top-up' payments of £7.0m per annum until February 2016, targeted at eliminating by that date the UK Plan deficit of £54.5m per the 2009 triennial actuarial valuation. The level of 'top-up' payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

The UK Plan assets include a liability-driven investment portfolio of financial derivative contracts which significantly reduces the risk that the Plan's assets will fall materially relative to the value of its projected liabilities for meeting future pension payments (the UK Plan's "economic liabilities"). When there is a stable relationship between the swap yields relevant to the UK Plan's derivatives and the corporate bond yields used for the IAS 19 discount rate, the UK Plan's hedging strategy should deliver a broadly stable 'funding ratio' (the ratio of plan assets to plan liabilities) not just in relation to the UK Plan's economic liabilities, but also under an IAS 19 basis of valuation. As at 31 December 2011, the estimated 'economic' funding position showed a funding ratio of 97%, whilst the IAS 19 valuation showed a funding ratio of 116%. This represents a valuation difference of around £80m, reflecting the use of more prudent valuation assumptions for deriving the economic funding position, the basis by which the Company continues to fund the UK Plan.

Additional 'top-up' payments of approximately £6m per annum are currently being made into the US pension plans. The total charge against trading profit in the income statement in 2011 for all pension plans (including defined contribution plans) was £22.4m, broadly in line with 2010. Included within net finance charges was £2.3m (2010: £3.6m); and reported as exceptional curtailment credits was £15.2m (2010: £5.3m). Total pension cash contributions amounted to £41.1m in 2011 (2010: £40.5m), which included £13.2m (2010: £11.6m) of additional cash funding contributions into the UK and US plans.

For further information please contact:

Copies of Cookson's 2011 Annual Report are due to be posted to shareholders of the Company who have elected to receive a hard copy on 11 April 2011 and are also expected to be available on the Company's website and at the Registered Office of the Company on or before this date. 

Cookson management will make a presentation to analysts on 27 February 2012 at 9.00am (UK time). This will be broadcast live on Cookson's website, www.cooksongroup.co.uk and an archive version of the presentation will be available on the website later that day.

Forward looking statements

This announcement contains certain forward looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters.

Statements in this announcement that are not historical facts are hereby identified as "forward looking statements". Such forward looking statements, including, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to Cookson, wherever they occur in this announcement, are necessarily based on assumptions reflecting the views of Cookson and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements include without limitation: economic and business cycles; the terms and conditions of Cookson's financing arrangements; foreign currency rate fluctuations; competition in Cookson's principal markets; acquisitions or disposals of businesses or assets; and trends in Cookson's principal industries.

The foregoing list of important factors is not exhaustive. When relying on forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts.

Such forward looking statements speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Cookson undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur.

Cookson Group plc, 165 Fleet Street, London EC4A 2AE

Registered in England and Wales No. 251977

www.cooksongroup.co.uk

Group Income Statement

For the year ended 31 December 2011

Group Statement of Comprehensive Income

For the year ended 31 December 2011

Group Statement of Cash Flows

For the year ended 31 December 2011

Group Balance Sheet

As at 31 December 2011

Group Statement of Changes in Equity

For the year ended 31 December 2011

Notes to the financial statements

1.BASIS OF PREPARATION

1.1 BASIS OF ACCOUNTING

The audited consolidated financial statements of Cookson Group plc ("the Company") in respect of the year ended 31 December 2011 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and were approved by the Board of Directors on 27 February 2012. The financial information set out in this annual results announcement does not constitute the Company's statutory accounts for the year ended 31 December 2011, but is derived from those accounts. An unqualified audit report was issued on the statutory accounts for 2011, which will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The comparative figures for the financial year ended 31 December 2010 are not the Company's statutory accounts for that financial year. Those accounts, which were prepared under IFRS, have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. These sections address whether proper accounting records have been kept, whether the Company's accounts are in agreement with these records and whether the auditor has obtained all the information and explanations necessary for the purposes of its audit.

1.2 GOING CONCERN

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, they have continued to adopt the going concern basis in preparing the financial statements for the year ended 31 December 2011.

1.3 NEW AND REVISED IFRS

During the year a number of amendments to IFRS became effective and were adopted by the Group, none of which had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share. A number of other new and amended IFRS were issued during the year which do not become effective until after 1 January 2012, none of which are likely to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

1.4 DISCLOSURE OF EXCEPTIONAL ITEMS

IAS 1, Presentation of Financial Statements, provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Company has adopted a policy of disclosing separately on the face of its Group income statement the effect of any components of financial performance considered by the Directors to be exceptional, or for which separate disclosure would assist both in a better understanding of the financial performance achieved and in making projections of future results.

Both materiality and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, amortisation charges relating to intangible assets, the financial effect of major restructuring activity, profits or losses relating to non-current assets, gains or losses relating to employee benefits plans, finance costs, profits or losses arising on business disposals, and other items, including the taxation impact of the aforementioned items, which have a significant impact on the Group's results of operations either due to their size or nature.

2. SEGMENT INFORMATION

2.1 BUSINESS SEGMENTS

For reporting purposes, the Group is organised into three main business segments: Engineered Ceramics, Performance Materials and Precious Metals Processing and the senior executive management of each of these business segments reports to the Chief Executive of the Group. It is the Cookson Board which makes the key operating decisions in respect of these segments. The information used by the Cookson Board to review performance and determine resource allocation between the business segments is presented with the Group's activities segmented between the three business segments, Engineered Ceramics, Performance Materials and Precious Metals Processing. Taking into account not only the basis on which the Group's activities are reported to the Cookson Board, but also the nature of the products and services of the product lines within each of these segments, the production processes involved in each and the nature of their end-markets, the Directors believe that these three business segments are the appropriate way to analyse the Group's results.

Segment revenue represents revenue from external customers (inter-segment revenue is not material) and segment result is equivalent to trading profit excluding corporate costs directly related to managing the parent company, which are reported separately in the tables below. Segment net operating assets exclude goodwill and other intangible assets, net debt, net employee benefits liabilities, net income tax liabilities and other net non-operating liabilities. Segment result and segment net operating assets include items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.

2.2 INCOME STATEMENT

2.3 BALANCE SHEET