Interim Results

Avon Rubber PLC 11 May 2000 INTERIM STATEMENT FOR THE HALF YEAR ENDED 1ST APRIL 3RD APRIL 2000 1999 £MILLION £MILLION -------- -------- TURNOVER 139.9 131.6 OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION 7.5 10.1 OPERATING PROFIT 6.4 10.1 PROFIT BEFORE TAX 5.7 9.5 EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS 15.9p 23.5p DIVIDEND PER SHARE 7.0p 7.0p * Improved results from continental Europe * Weak Euro impacts UK manufacturers * International profile gives lower cost options * Rationalisation of operations continues For further information please contact: Avon Rubber p.l.c. Steve Willcox, Chief Executive 0207 253 2252 Terry Stead, Finance Director - 2 pm 01225 861100 Ludgate Communications Richard Hews 0207 253 2252 (Local/Trade Press) Bill Taylor, Avon Rubber p.l.c. 01225 861100 Introduction Our strategy to focus on selected business areas and develop an international presence to support customers is delivering positive results and has enabled us to mitigate the difficult trading conditions in the UK. Continental European factories have all shown improved profits in comparison to the same period last year. North America remains our largest market and operating base and the continuing strong economic climate has enabled us to invest in our businesses and win new orders. At the Annual General Meeting held on 19th January 2000 we stated that profit for the first half of this year would be significantly lower than last year. The continued turbulence in the UK automotive market and the weakness of the Euro have resulted in reduced profits. Having reviewed the business outlook for our European operations, we have identified excess capacity and concluded that it is likely that we shall close our Croydon factory. Today we have started consultations with the workforce and ifin Croydon. If this leads to closure of that facility we would expect an exceptional operating charge in the second half of the year of over £4 million with most of the cash impact next year. Results Sales at £139.9 million (1999: £131.6 million) were up 6.3% and Group operating profit before exceptional items and goodwill amortisation was £7.5 million (1999: £10.1 million), a reduction of 25.7%. Recent overseas acquisitions have helped to mitigate the decline in performance of our UK businesses which have been hit by continuing reduced volumes at Rover Cars and other UK manufacturers and the increasing lack of competitiveness of Sterling against the weak Euro. The acquisition of businesses in Spain in June 1999 added £11.6 million to sales and £1.4 million to profit before interest and goodwill amortisation compared to last year. When the Group sold Avon Tyres in 1997, we committed to vacating the Melksham site by March 2000 and ceasing dependence on Cooper Avon Tyres for the supply of mixed rubber by September 2000. The move to a new factory for Technical Products was completed both on time and within budget in March. Our new rubber mixing facility is also on time and within budget and is expected to complete customer approvals for full production by September 2000. These investments represent some £32 million of the £68 million received from the disposal of the Avon Tyres business. The continued investment in acquisitions and equipment has increased the interest charge to £1.0 million (1999: £0.6 million) resulting in a net profit before all exceptional items, amortisation of goodwill, and taxation of £6.5 million (1999: £9.5 million). In North America sales were unchanged at £65.9 million (1999: £65.8 million). Operating profit at £5.8 million (1999: £7.4 million) was 21.6% down. However this was after the settlement of a claim amounting to £0.8 million between our joint venture company Bell Avon and the US Department of Justice in connection with goods manufactured in 1994 and 1995. amounting to £0.8 million and In additional increased engineering costs for future automotive ordersnew product development and customer design services will support growth in future automotive orders. The results include an exceptional operating expense of £0.7 million (1999: nil) which represents the cost of the first stage of reorganising our UK operations. The exceptional credit of £0.8 million arises from the replacement of plant and equipment under the insurance claim following the fire at our plant in Albion, New York. The and an exceptional charge of £0.5 million arises on the disposal of CQC plc in October 1999. After these items and the goodwill amortisation on acquisitions the profit for the half-year before tax was £5.7 million (1999: £9.5 million). Earnings per share before exceptional items were 15.9p (1999: 23.5p) based on an effective taxation rate of 34% (1999: 32%) on trading profits, the estimated year-end rate. The increased rate of tax reflects the reduced earnings originating in the UK. Net borrowings at the half-year amounted to £60.5 million (1999: £20.6 million) giving gearing of 64.5% (1999: 23.5%). The main reasons for the increase were the Spanish acquisitions in June 1999 and the high level of capital expenditure associated with the move from Melksham that was a committed part of the sale of Avon Tyres. Borrowings will reduce by the year-end. Automotive Components Sales were up by 14.2% at £105.4 million (1999: £92.3 million) which is mostly accounted for by the sales from the newly acquired businesses in Spain. However, operating profits before goodwill amortisation and exceptional items were down 4.6% at £6.2 million (1999: £6.5 million). Our overseas businesses, in both continental Europe and North America, have performed well, but the continued low volumes from Rover Cars and other UK manufacturers together with increased pricing pressure and the weakness of the Euro have adversely impacted our UK operations. Our new Spanish acquisitions have performed well and are ahead of expectations. All our other continental European operations have produced operating profits ahead of last year. In the UK our businesses at Croydon and Chippenham had a disappointing first half, suffering particularly from the low demand from Rover Cars in the UK and the weak Euro. North America is down on the previous year, but part of this is the result of costs associated with a new hose development centre located at Cadillac and increased resources at our Detroit engineering and sales centre. Some contracts with major automotive customers are now being bid on the Internet. This shortens the timescale for obtaining such contracts and we are pleased with our success in winning profitable business whilst having the processes in place to decline unattractive work. The success of our international operations has mitigated the difficulties in the UK. We are seeing the benefits of the transfer of technologies and new ideas between these territories. We have been able to win business on a global basis and secured significant new contracts which will progressively benefit the results from the second half of this year onwards. Technical Products Sales were down 12.2% at £34.5 million (1999: £39.3 million) and operating profits before exceptional items were down 62.9% at £1.3 million (1999: £3.5 million). £3.7 million of the reduction in turnover and £0.3 million reduction in profits can be attributed to disposals of businesses partly in preparation for the move of the UK businesses and the disposal of CQC. The half-year has featured three significant events. First the UK businesses moved from the former Avon Tyres site at Melksham to a new world class manufacturing facility at Hampton Park West. Secondly, a settlement was finalised between Bell Avon and the US Department of Justice in connection with a claim relating to goods manufactured in 1994 and 1995. This settlement was for a total value of £0.8 million and was fully reflected in the results of Bell Avon in this half year. Finally, Avon Rubber and Plastics Inc. were awarded the development contract for the new Joint Services General Purpose Mask by the US Department of Defence. The initial contract is for US$9.2 million, but the total potential value over 10 years is several hundred million dollars. The factory move, combined with Euro weakness, has meant that the first half has been difficult for the UK business. In North America Hi Life continues to perform well, the Nylaflow industrial hose business has been brought to full operational level and elsewhere we see encouraging progress. We are now settled in new premises in the UK. We have a portfolio of strong businesses and the opportunity to see the progress reflected in increased profitability over the next twelve months. Dividend The Directors are pleased to announce an interim dividend maintained at 7.00p per share (1999: 7.00p) payable on 30 June 2000 to holders of ordinary shares on the register at noon on 9 June 2000. Outlook We have continued our strategic progress. Our focus on selected business areas and our increased international presence have helped during a difficult first half. The uncertainty in the UK automotive industry and the weakness of the Euro continue to impact on the financial performance of the Group. Our North American businesses continue to contribute substantial profits and because in the past we have invested in low cost operations in continental Europe and Mexico, we are reaping tangible benefits as demonstrated by the orders we have won. The ongoing deployment of our strategy will entail further development in lower labour cost areas, growth in North America and divestment of non-core activities. Whilst conditions in our main markets remain challenging, especially demand from our UK based automotive customers, the Board remains confident that its strategy will produce benefits for the Group. CONSOLIDATED PROFIT & LOSS ACCOUNT Note Half year to Half year to Year to 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 Turnover 2 139,948 131,596 266,164 ------- ------- ------- Operating Profit Before exceptional items and goodwill amortisation 7,452 10,050 22,043 Exceptional operating expenses 3 (734) - - Goodwill amortisation (346) - (163) ------- ------- ------- Total Operating Profit 2 6,372 10,050 21,880 Profit on disposal of fixed assets 4 750 - 1,422 Loss on sale of subsidiary undertaking 5 (479) - - ------- ------- ------- Profit before interest 6,643 10,050 23,302 Interest 6 (941) (549) (1,396) ------- ------- ------- Profit before taxation 5,702 9,501 21,906 Taxation 7 (2,134) (3,040) (6,257) ------- ------- ------- Profit after taxation 3,568 6,461 15,649 Minority interests 413 77 133 ------- ------- ------- Profit attributable to Avon Shareholders 3,981 6,538 15,782 Dividends Cumulative Preference 9 (17) (18) (35) Ordinary 10 (1,938) (1,926) (6,698) ------- ------- ------- Retained profit 2,026 4,594 9,049 ======= ======= ======= Rate of dividends Cumulative preference 3.50% 3.50% 7.00% Ordinary 7.0p 7.0p 24.2p Earnings per ordinary share 11 Basic 14.2p 23.5p 56.8p Before exceptional items 15.9p 23.5p 53.5p Before exceptional items and goodwill amortisation 17.2p 23.5p 54.1p Fully diluted 14.2p 23.5p 56.7p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Half year to Half year to Year to 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 Profit for the period 3,981 6,538 15,782 Net exchange differences on overseas investments (1,107) 101 (431) ------- ------- ------- Total gains and losses for the period 2,874 6,639 15,351 ======= ======= ======= RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Half year to Half year to Year to 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 Opening shareholders' funds 89,557 80,405 80,405 Profit for the period 3,981 6,538 15,782 Dividends (1,955) (1,944) (6,733) Net exchange difference on overseas investments (1,107) 101 (431) New share capital subscribed (net) - - 534 Goodwill resurrected on disposal of subsidiary 1,337 - - ------- ------- ------- Closing shareholders' funds 91,813 85,100 89,557 ======= ======= ======= Equity shareholders' funds 91,313 84,600 89,057 Non-equity shareholders' funds 500 500 500 ------- ------- ------- 91,813 85,100 89,557 ======= ======= ======= CONSOLIDATED BALANCE SHEET As at As at As at 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 Fixed assets Intangible assets 11,625 - 12,788 Tangible assets 109,074 77,055 102,102 Investments 983 1,042 900 ------- ------- ------- 121,682 78,097 115,790 ======= ======= ======= Current assets Stocks 23,147 25,608 24,014 Debtors - Amounts falling due within one year 64,753 54,331 57,579 Debtors - Amounts falling due after more than one year 6,321 5,055 5,772 Investments - 18,000 - Cash at bank and in hand 3,516 11,531 17,336 ------- ------- ------- 97,737 114,525 104,701 Creditors Amounts falling due within one year 66,867 53,078 67,215 ------- ------- ------- Net current assets 30,870 61,447 37,486 Total assets less current liabilities 152,552 139,544 153,276 Creditors Amounts falling due after more than one year 52,595 46,796 55,115 Provisions for liabilities and charges 6,176 5,226 6,276 ------- ------- ------- Net assets 93,781 87,522 91,885 ======= ======= ======= Capital and reserves Ordinary share capital 27,824 27,718 27,824 Preference share capital 500 500 500 Share premium account 34,070 33,642 34,070 Revaluation reserve 2,723 2,735 2,723 Profit and loss account 26,696 20,505 24,440 ------- ------- ------- Shareholders' funds (incl. non-equity interests) 91,813 85,100 89,557 Minority interests 1,968 2,422 2,328 ------- ------- ------- Total capital employed 93,781 87,522 91,885 ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT Note Half year to Half year to Year to 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 Operating Activities Operating Profit 6,372 10,050 21,880 Goodwill amortisation 346 - 163 Depreciation 5,957 5,083 9,734 Movement in working capital and provisions (7,688) (10,671) (8,905) Other movements 83 219 (646) ------- ------- ------- Net cash flow from operating activities 5,070 4,681 22,226 Returns on investments and servicing of finance (1,752) (537) (1,926) Corporation tax paid (2,005) (2,417) (4,215) Net capital expenditure (13,306) (13,563) (32,226) Purchase of subsidiary undertakings - - (17,957) Sale of subsidiary undertakings 2,404 - - Equity dividends paid (4,762) (4,458) (6,394) ------- ------- ------- Net cash (outflow) before management of liquid resources and financing (14,351) (16,294) (40,492) Management of liquid resources - 18,800 36,800 Financing Issue of ordinary shares - - 534 Movements in loans and finance leases (2,507) 1,163 13,760 ------- ------- ------- Increase/(decrease) in cash (16,858) 3,669 10,602 ======= ======= ======= Reconciliation of net cash flow to movement in net funds/(debt) Increase/(decrease) in cash (16,858) 3,669 10,602 Movements in loans and finance leases 2,507 (1,163) (13,760) Movement in liquid resources - (18,800) (36,800) Amortisation of loan costs (28) - (50) Loans and finance leases acquired from acquisitions - - (3,457) Exchange differences 275 (1,838) (429) ------- ------- ------- Movement in net (debt) in the period (14,104) (18,132) (43,894) Net (debt) at the beginning of the period (46,366) (2,472) (2,472) ------- ------- ------- Net (debt) at the end of the period 12 (60,470) (20,604) (46,366) ======= ======= ======= NOTES TO THE INTERIM STATEMENT 1) The results for the half years to 1 April 2000 and 3 April 1999 are unaudited and have been prepared using accounting policies consistent with those set out in the 1999 Annual Report and Financial statements. The figures for the financial period ended 2 October 1999 are taken from the statutory accounts for that period which have been delivered to the Registrar of Companies and upon which an unqualified audit report was given. 2) Segmental Information Half year to Half year to Half year 1 April 3 April 2 October 00 99 99 £'000 £'000 £'000 (a) Turnover by destination: United Kingdom 27,512 25,554 51,655 Other European 45,490 38,091 73,776 North America 65,137 65,057 133,926 Rest of World 1,809 2,894 6,807 ------- ------- ------- 139,948 131,596 266,164 ======= ======= ======= (b) Turnover by origin: United Kingdom 44,371 45,737 90,621 Other European 29,646 20,015 41,385 North America 65,931 65,844 134,158 ------- ------- ------- 139,948 131,596 266,164 ======= ======= ======= (c) Operating profit by origin: United Kingdom (1,470) 1,059 3,298 Other European 2,741 1,561 3,743 North America 5,835 7,430 14,839 ------- ------- ------- 7,106 10,050 21,880 Exceptional operating expenses - United Kingdom (734) - - ------- ------- ------- 6,372 10,050 21,880 ======= ======= ======= (d) Turnover by product group: Automotive Components 105,444 92,290 187,815 Technical Products 34,504 39,306 78,349 ------- ------- ------- 139,948 131,596 266,164 ======= ======= ======= (e) Operating profit by product group: Automotive Components 5,855 6,521 13,198 Technical Products 1,251 3,529 8,682 ------- ------- ------- 7,106 10,050 21,880 Exceptional operating expenses Automotive Components (241) - - Technical Products (493) - - ------- ------- ------- 6,372 10,050 21,880 ======= ======= ======= 3) Exceptional operating costs represent the costs of reorganising the company's UK operations. 4) The exceptional gain arises from a credit resulting from the replacement of plant and equipment under the insurance claim following the fire at Avon Injected Rubber, Albion, New York, USA. 5) On 15 October 1999 the company completed the sale of CQC Ltd (formerly known as CQC PLC) to a new company Crossco (430) Ltd. The loss on disposal comprises: £'000 Consideration: On sale of shares 1,600 On sale of land 1,010 ------- 2,610 Less: Carrying cost of net assets (1,607) Goodwill previously written off to reserves (1,337) Costs incurred (145) ------- Loss on sale of subsidiary undertaking (479) ======= 6) The interest charge of £941,000 is shown after capitalisation of interest costs of £794,000 (1999 nil). 7) Estimated tax rates in the United Kingdom and overseas have been calculated based on the latest projections for the year ending 2 October 2000. These tax rates have been used in determining the tax charge for the six month period to 1 April 2000. 2000 1999 £'000 £'000 United Kingdom (42%) (825) 902 Overseas (35%) 2,959 2,138 ------- ------- 2,134 3,040 ======= ======= The effective rate of tax recovered on losses in the United Kingdom reflects excess relief on capital expenditure above depreciation. The overseas tax rate is also lower than expected as a result of the allowance for the amortisation of goodwill for taxation purposes. 8) Profit and loss accounts of foreign group undertakings are translated at average rates of exchange and balance sheets are translated at period end or year end rates, as appropriate. 9) The half year dividend on the 500,000 7% cumulative preference shares will be paid at the rate of 3.5p per share on 30 June 2000 to shareholders on the register at noon on 9 June 2000. 10) The cost of the Interim dividend on the ordinary shares in issue will be approximately £1,938,000 (1999 £1,926,000). The dividend will be paid on 30 June 2000 to shareholders on the register at noon on 9 June 2000. 11) Basic earnings per ordinary share are based on a profit (net of preference share dividend) of £3,964,000 (1999 £6,520,000) and 27,824,000 (1999 27,718,000) ordinary shares, being the weighted average of the shares in issue during the period. Earnings per ordinary share before exceptional items are based on a profit (net of preference share dividend) of £4,427,000 (1999 £6,520,000). Earnings per ordinary share before exceptional items and goodwill amortisation are based on a profit (net of preference share dividend) of £4,773,000 (1999 £6,520,000). 12) Analysis of net funds/(net debt) As at Exchange As at 3 Oct 99 Cash flow movements 1 Apr 00 £'000 £'000 £'000 £'000 Cash at bank and in hand 17,336 (13,841) 21 3,516 Overdrafts (2,401) (3,017) 232 (5,186) Debt due after 1 year (52,879) 2,099 (225) (51,005) Debt due within 1 year (6,828) 23 226 (6,579) Finance leases (1,594) 357 21 (1,216) ------- ------- ------- ------- (46,366) (14,379) 275 (60,470) ======= ======= ======= ======= 13) Following a review of IT systems over the last three years the company has experienced no significant disruption or malfunction since the turn of the year arising from computer systems, or other equipment with embedded computer chips, not being Year 2000 compliant. The costs of the review, which were not considered material, have been covered within normal IT expenditure. 14) Copies of this announcement are being sent to ordinary and preference shareholders. Copies are also available from the company's registered office at Manvers House, Kingston Road, Bradford-on-Avon, Wiltshire, BA15 1AA , Telephone (01225) 861100. INDEPENDENT REVIEW REPORT TO AVON RUBBER p.l.c. Introduction We have been instructed by the company to review the financial information set out on pages 5 to 10 and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 1 April 2000. PricewaterhouseCoopers Chartered Accountants Bristol 9 May 2000

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