City welcomes pounds 303m Pilkington cash call

Handsome pay-off: Profits surge by 70 per cent, share earnings double and dividend is increased


Deputy City Editor

The market welcomed a pounds 303m rights issue from glass maker Pilkington yesterday, seduced by an unexpected 70 per cent jump in first-half profits and a 17.5 per cent dividend hike. The shares closed 8p higher at 189p, compared with the 155p at which the cash call was priced.

Investors were impressed by the decision to buy in the 50 per cent of formerly state-owned Italian glass group SIV that Pilkington did not already own. The acquisition for pounds 120m is expected to be immediately earnings- enhancing and strengthens the company's position in the European automotive market.

Pilkington also announced the pounds 55m acquisition of Interpane, a Scandinavian and Swiss glass processing and distribution group, which consolidates the company's presence in the downstream double-glazing and toughening market and underwrites a further 63,000 tonnes of production from Pilkington's float glass plants.

Strong growth in the contribution from SIV, where Pilkington has cut the headcount and improved operational efficiencies, helped profits in the six months to September increase from pounds 61m to pounds 104m after turnover rose from pounds 1.29bn to pounds 1.37bn. For the first time in several years sales were lifted by price rise and margins improved by 2 percentage points.

Earnings per share more than doubled from 3p to 7.3p leaving the higher payout (1.75p versus 1.5p) well covered.

The acquisition of SIV is the first big move since Nigel Rudd, chairman of Williams Holdings and East Midlands Electricity, took over from Sir Anth- ony Pilkington in February, ending five generations of family control of the St Helens-based company.

The deal gives Pilkington a 36 per cent share of the European automotive glass market and complements existing contracts with Mercedes, BMW and Rover with the volume car makers, Fiat, VW and Ford.

The pounds 120m cost of the second half of the business compares with the pounds 44m paid for the first 50 per cent stake. Having stripped out costs, Pilkington estimated that it acquired SIV for just 5 times its post-tax earnings and has generated a 21 per cent return on the price paid.

Pilkington said it had adopted the rights issue funding route to keep the lid on gearing, down from 66 per cent to 59 per cent between September 1994 and the half-year mark.

Investment Column, page 22

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