operating result (2004: € 20.9 million) and a small positive net income1, both excluding nonrecurring items (net income in 2004: € 6.3 million, excluding costs for preference dividend).
Net income in the second half of 2005 will include costs of around € 4 million for the refinancing program (non-recurring).
The clear improvement in operating result is being achieved in a market which remains difficult, with slow demand and still rising raw material prices (copper and polymers) maintaining the pressure on margins. These adverse factors are being more than offset, however, by the benefits accruing from the fundamental change in Draka’s organisational structure, which has gained momentum in the second half of 2005, and a further reduction in
the cost base of around € 25 million (of which about € 18 million in the second half-year).
Non-recurring items in the second half of 2005 are expected to amount to € 23 million negative, consisting of a provision formed for the ‘Stop, Swap and Share’ project at Draka Cableteq, which was announced on 30 August. This compares with non-recurring items of € 23.1 million negative in the second half of 2004. Including the non-recurring items of € 15.4
million positive in the first half of 2005, total non-recurring items are expected to amount to € 7.6 million negative this year (2004: € 25.2 million negative).
Draka expects to achieve its objectives for 2005: to reduce the level of capital employed and to generate an optimum level of free cash flow. In part this will be achieved by further reducing the operating working capital. Draka has set itself a target of lowering the operating working capital as a percentage of revenues to 27% by year-end, compared with 29.4% in June 2005
(year-end 2004: 27.4%). Despite a further increase in raw material prices since June 2005, inflating operating working capital in absolute terms, Draka currently expects to exceed that target by at least one percentage point. Partly thanks to this improvement, Draka also expects to generate a positive free cash flow in 2005 (excluding non-recurring items, utilisation of
provisions and effects of disposals and acquisitions).
The dedicated working capital task force, set up in the second quarter of 2005, is clearly succeeding in its aim of lowering the working capital ratio.