Interim Results

Avon Rubber PLC 16 May 2002 INTERIM STATEMENT FOR THE HALF YEAR ENDED 30TH MARCH 2002 30TH MARCH 31ST MARCH 2002 2001 Â£MILLION Â£MILLION -------------- ----------- Turnover 126.4 141.5 Operating profit before exceptional items and goodwill amortisation 5.1 4.1 Operating loss (3.6) (5.9) Loss before tax (5.4) (8.5) Earnings per share before exceptional items 7.9p 3.2p Dividend per share 3.5p 3.5p * Debt reduced by Â£22.1 million in twelve months * Interest charge down 30% * Operating profit up 24% to Â£5.1 million * Improved performance in technical products * Successful progression to next phase of US respirator programme For further information please contact: Avon Rubber p.l.c. Steve Willcox, Chief Executive Terry Stead, Finance Director 020 7950 2800 (until 3pm) Weber Shandwick Square Mile Richard Hews 020 7950 2869 Trish Featherstone (Local/Trade Press) Roger Hunt, Executive Director 01225 861100 (after 3pm) INTRODUCTION In the first half of this financial year we have increasingly seen our recent actions positively impacting on our financial results. During the last year we have announced the sale or closure of five non core business units. We have announced the closure of the Trowbridge factory and started transferring the manufacturing to our existing facilities in Portugal and the Czech Republic. We have also reduced our cost base elsewhere and are utilising the Six Sigma approach to lower our breakeven point. These actions have enabled us to increase our first half operating profit before goodwill amortisation and exceptionals by 24% to Â£5.1 million (2001: Â£4.1 million), on sales some 11% lower at Â£126.4 million (2001: Â£141.5 million). Borrowings in the last twelve months have been reduced by Â£22.1 million to Â£47.3 million (2001: Â£69.4 million) and by Â£5.6 million since the year end. The lower net borrowings position has led to interest charges being reduced to Â£1.8 million (2001: Â£2.6 million), resulting in profit before tax, goodwill amortisation and exceptional charges of Â£3.2 million (2001: Â£1.5 million). We have incurred an exceptional charge of Â£8.3 million in the half year. In the main, this represents the cost of closing the Trowbridge factory and transferring production and some additional costs of reorganisation, principally in our European automotive activities. We would expect the transfer to be completed during the second half with the final closure of Trowbridge completed by the end of the calendar year. As we stated at the time of our preliminary announcement in December 2001, we estimate this will yield Â£3 million in annualised benefits from the reduced unit costs, when completed. Since the end of the half year we have reached agreement on the disposal of our plastics injection moulding business in New Jersey and sold our golf grips business which operated from Manton, Michigan. Both transactions will be cash generative and are not expected to have any adverse profit impact. Earlier this month we were delighted to announce that we had been awarded the System Design and Demonstration (SDD) phase of the US XM50 Joint Service General Purpose Mask (JSGPM) programme. RESULTS Sales at Â£126.4 million (2001: Â£141.5 million) were down Â£15.1 million. Of this reduction Â£9.3 million was as a result of the disposals made last year. In the continuing businesses at constant exchange rates, sales in Europe, including the UK were down Â£7.2 million at Â£69.6 million (2001: Â£76.8 million) and sales in North America were up Â£0.4 million at Â£56.8 million (2001: Â£56.4 million). Sales were lower in our automotive businesses, with the technical products division showing an increase over the previous year. Group operating profit before exceptional charges and goodwill amortisation was Â£5.1 million (2001: Â£4.1 million). At constant exchange rates European operating profit on the same basis was Â£1.7 million compared to Â£1.5 million in the previous year and North American operating profit was Â£3.4 million compared to Â£2.7 million in 2001. As a result of our focus on cash management and debt reduction, the Group interest charge reduced by Â£0.8 million to Â£1.8 million (2001: Â£2.6 million). This resulted in a Group profit before exceptional items, goodwill amortisation and tax up 113% at Â£3.2 million (2001: Â£1.5 million). After the exceptional charge of Â£8.3 million the Group recorded a loss before goodwill amortisation and tax of Â£5.1 million (2001: Â£8.2 million). Earnings per share before exceptional items were 7.9p (2001: 3.2p) based on an effective taxation rate of 30% (2001:32%). Capital expenditure at Â£2.1 million (2001: Â£3.1 million) remained below depreciation of Â£5.6 million (2001: Â£6.5 million). Trade working capital was 13.4% of sales at Â£34.3 million (2001: Â£46.6 million, 16.7%) a reduction of Â£12.3 million. The result of this has been a reduction in net borrowings over the last twelve months of Â£22.1 million to Â£47.3 million (2001: Â£69.4 million) giving gearing of 61.5% (2001: 82.6%). The Group has a policy of matching its net assets with long term borrowings by currency. We feel that our Euro borrowings require restructuring to be longer term to suitably match our asset base. We are working on establishing this better balance before the year end and are confident this will be achieved. Our plans indicate that capital expenditure will be less than depreciation for some time. We will also continue to focus our efforts on controlling working capital. This will help to avoid increasing gearing despite the cash expenditure on exceptional items. We have reduced inventories in the first half year by Â£1.7 million compared to an increase last year of Â£1.6 million. We estimate that the adverse profit impact of this inventory swing is approximately Â£1 million. However, we are convinced that our policy of aligning our inventories with activity levels is correct. AUTOMOTIVE COMPONENTS Sales on continuing operations were down by 7.8% at Â£94.0 million (2001: Â£102.0 million) at constant exchange rates. In North America, where the first quarter was disrupted following the attacks on 11th September, sales were 3.8% down at Â£41.0 million (2001: Â£42.6 million) at constant exchange rates. Our European businesses recorded a reduction in sales of 10.8% at Â£53.0 million (2001: Â£59.4 million) at constant exchange rates. Despite tight overhead control, operating profits on continuing operations before goodwill amortisation and exceptional items were Â£0.7million down at Â£2.8 million (2001: Â£3.5 million) at constant exchange rates. Operating profit in North America was down 20% at Â£2.3 million (2001: Â£2.9 million) and in Europe was down 19% at Â£0.5 million (2001: Â£0.6 million). Whilst new car sales in North America have strengthened this calendar year, there has been a significant shift away from our traditional major customers. We have adjusted our costs accordingly and move into the second half of the year in a stronger position. Our work with several of the Japanese transplant OEM's is now generating orders and we expect these relationships to yield greater benefits in the longer term. We are very encouraged by the growing interest in our coolant hose facility in Orizaba, Mexico. In addition to supplying products to the Epsilon programme for General Motors, which is due to start production in 2003, we have received significant orders from other customers and expect Orizaba to be a major producer within the next three years. TECHNICAL PRODUCTS Sales on continuing operations were Â£32.3 million (2001: Â£31.3 million) with operating profits on the same basis up Â£0.5 million at Â£2.3 million (2001: Â£1.8 million) at constant exchange rates. Hi Life, our North American dairy business, continued to perform strongly. The UK operation at Hampton Park West, which has dairy, protection and aerosol gasket businesses, improved significantly and is beginning to achieve the returns to support our recent investment. The co-located business machines joint venture, Avon-Ames, had a poor first half as its principal customer experienced reduced demand. We are close to completing the disposals of our non-core activities and are moving forward with a more focused technical products division. On 9th May we were able to announce that we had been awarded the System Design and Demonstration phase for the US Joint Service General Purpose Mask (XM50) programme. The XM50 is the next generation US military chemical-biological protective mask. The mask is planned for initial fielding in 2006 and will replace all ground and shipboard masks used by the US Joint Services. Avon recently successfully completed the initial two year phase of the XM50 JSGPM programme on schedule, with its customer at Soldier Biological Chemical Command (SBCCOM) expressing a high level of satisfaction with Avon's performance. Avon Rubber & Plastics Inc. will have prime contractual responsibilities for the three year, US$ 15 million SDD phase which will require the production of 5,000 masks for testing and user evaluation. Prime subcontractors are SAIC of Abingdon, Maryland and Guild Associates of Columbus, Ohio. Production requirements from 2006 onwards are expected to be of the order of 3 million units. We are also working on a commercial version which we plan to bring to market earlier and where the sales opportunities are even greater. We see this as a significant opportunity to develop our business in an area of core skills. DIVIDEND The Directors announce an interim dividend maintained at 3.5p per share (2001: 3.5p) payable on 28 June 2002 to holders of ordinary shares on the register at noon on 7 June 2002. OUTLOOK The economic outlook in North America seems to be strengthening. However, the improved demand in the automotive market is having the greatest impact at the transplant companies, with our traditional customers faring less well. In Europe we see weaker demand in automotive than a year ago. We expect the efforts to reduce our cost base, including the transfer of work to lower cost operations, to be increasingly reflected in our results during the second half with the full impact in 2003. In the short term we shall continue to ensure that we align our costs with the market demand for our products and to actively manage our borrowings, with particular emphasis on tight control over capital expenditure and working capital. We can see the focus on our core business areas generating longer term benefits. Our global strength in coolant hose, with centres of excellence in Europe, is now being enhanced by our facility in Orizaba, Mexico. Our fuel hose technology is enabling us to respond to the North American requirements for even lower vehicle emissions. The significant opportunity for our protection business is building on our long established respirator expertise and our strong market position in dairy continues to produce outstanding results. We are confident that our strategy will continue to translate into enhancing shareholder value. CONSOLIDATED PROFIT AND LOSS ACCOUNT Half year to Half year to Year to 30 Mar 02 31 March 01 29 Sept 01 Note Â£'000 Â£'000 Â£'000 Turnover 2 Continuing operations 126,379 132,157 262,031 Discontinued operations - 9,319 16,010 -------- -------- --------- Total Turnover 126,379 141,476 278,041 -------- -------- --------- Operating Profit Continuing operations before exceptional items (including Â£299,000 (2001: Â£299,000) goodwill amortisation) 4,784 4,902 10,615 Exceptional operating expenses 3 (8,351) (9,731) (3,556) -------- -------- --------- (3,567) (4,829) 7,059 Discontinued operations - (1,069) (1,881) -------- -------- --------- Total operating (loss)/profit 2 (3,567) (5,898) 5,178 Loss on disposal of operations - - (8,916) -------- -------- --------- Loss before interest (3,567) (5,898) (3,738) Interest (1,847) (2,635) (5,321) -------- -------- --------- Loss before taxation (5,414) (8,533) (9,059) Taxation 4 (895) (383) 918 -------- -------- --------- Loss after taxation (6,309) (8,916) (8,141) Minority interests 153 79 (30) -------- -------- --------- Loss attributable to Avon Shareholders (6,156) (8,837) (8,171) Dividends: - Cumulative preference - (17) (23) - Ordinary 6 (954) (969) (1,938) -------- -------- --------- Loss for the period (7,110) (9,823) (10,132) -------- -------- --------- Rate of dividends: - Cumulative preference - 3.5% 7.0% - Ordinary 3.5p 3.5p 7.0p -------- -------- --------- (Loss)/earnings per ordinary share 7 Basic (22.1)p (31.8)p (29.4)p Before exceptional items 7.9p 3.2p 7.5p Before exceptional items and goodwill amortisation 9.0p 4.2p 9.7p Fully diluted (22.1)p (31.8)p (29.4)p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Half year to Half year to Year to 30 Mar 02 31 Mar 01 29 Sep 01 Â£'000 Â£'000 Â£'000 Loss for the period (6,156) (8,837) (8,171) Impairment of revaluation on tangible assets - (145) - Premium paid on redemption of preference shares - - (84) Net exchange differences on overseas investments 900 1,270 1,143 -------- -------- --------- Total gains and losses for the period (5,256) (7,712) (7,112) ======== ======== ========= RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Half year to Half year to Year to 30 Mar 02 31 Mar 01 29 Sep 01 Â£'000 Â£'000 Â£'000 Opening shareholders' funds 81,605 87,963 87,963 Loss for the period (6,156) (8,837) (8,171) Dividends (954) (986) (1,961) Impairment of revaluation on tangible assets - (145) - Net exchange differences on overseas investments 900 1,270 1,143 Redemption of preference shares - - (584) Goodwill resurrected on disposal of operations - 3,215 3,215 -------- -------- ------- Closing shareholders' funds 75,395 82,480 81,605 ======== ======== ======= Equity shareholders' funds 75,395 81,980 81,605 Non-equity shareholders' funds - 500 - -------- -------- ------- 75,395 82,480 81,605 ======== ======== ======= CONSOLIDATED BALANCE SHEET As at As at As at 30 Mar 02 31 Mar 01 29 Sep 01 Â£'000 Â£'000 Â£'000 Fixed assets Intangible assets 13,155 13,111 13,553 Tangible assets 97,198 104,696 100,865 Investments 1,035 832 647 ________ _________ _______ 111,388 118,639 115,065 ________ _________ _______ Current assets Stocks 20,796 28,351 22,534 Debtors - amounts falling due within one year 49,001 60,285 47,246 Debtors - amounts falling due after more than one year 6,437 8,497 6,802 Investments 2,800 - - Cash at bank and in hand 12,828 6,220 13,586 ________ _________ _______ 91,862 103,353 90,168 ________ _________ _______ Creditors - amounts falling due within one year Short term borrowings and current instalments of loans 25,098 18,242 18,675 Other creditors 49,050 54,227 47,514 ________ _________ _______ 74,148 72,469 66,189 ________ _________ _______ Net current assets 17,714 30,884 23,979 ________ _________ _______ Total assets less current liabilities 129,102 149,523 139,044 ________ _________ _______ Creditors - amounts falling due after more than one year Borrowings 37,851 57,422 47,878 Other creditors 2,875 1,667 3,151 ________ _________ _______ 40,726 59,089 51,029 ________ _________ _______ Provisions for liabilities and charges 11,419 6,314 4,689 ________ _________ _______ Net assets 76,957 84,120 83,326 ======== ========= ======= Capital and reserves Equity shareholders' funds 75,395 81,980 81,605 Non-equity shareholders' funds - 500 - Minority interests 1,562 1,640 1,721 ________ ________ ________ 76,957 84,120 83,326 ======== ======== ======== CONSOLIDATED CASH FLOW STATEMENT Half year to Half year to Year to 30 Mar 02 31 Mar 01 29 Sep 01 Note Â£'000 Â£'000 Â£'000 Operating activities Operating (loss)/profit (3,567) (5,898) 5,178 Goodwill amortisation 299 299 617 Depreciation 5,614 6,528 11,945 Impairment/writedown of fixed assets and goodwill 1,200 9,731 2,201 Provision for exceptional operating expenses 6,521 (2,413) (3,238) Movement in working capital and other provisions 1,141 (1,515) 10,370 Other movements 947 922 1,141 ________ ________ ________ Net cash flow from operating activities 12,155 7,654 28,214 Returns on investments and servicing of finance (1,857) (2,396) (4,682) Corporation tax (paid)/received (585) 390 1,281 Net capital expenditure (1,885) (3,070) (6,170) Capitalised development expenditure (250) - (990) Purchase of fixed asset investments - - (98) Sale of operations - - 2,002 Equity dividends paid (969) (4,762) (5,731) ________ _________ _______ Net cash inflow/(outflow) before management of liquid resources and financing 6,609 (2,184) 13,826 Management of liquid resources Increase in investments treated as liquid resources (2,800) - - Financing Redemption of preference shares - - (584) Movements in loans and finance leases (2,286) (188) (3,745) ________ ________ ________ Increase/(decrease) in cash 1,523 (2,372) 9,497 ======== ======== ======== Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 1,523 (2,372) 9,497 Movements in loans and finance leases 2,286 188 3,745 Movement in liquid resources 2,800 - - Amortisation of loan costs (86) (30) (279) Exchange differences (877) (2,285) (985) ________ _________ _______ Movement in net debt in the period 5,646 (4,499) 11,978 Net debt at the beginning of the period (52,967) (64,945) (64,945) ________ _________ _______ Net debt at the end of the period 8 (47,321) (69,444) (52,967) ======== ========= ======= NOTES TO THE INTERIM STATEMENT 1) The results for the half years to 30 March 2002 and 31 March 2001 are unaudited and have been prepared using accounting policies consistent with those set out in the 2001 Annual Report and Accounts other than the adoption of Financial Reporting Standard (FRS) 19 (Deferred Tax). The figures for the financial period ended 29 September 2001 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. These interim financial statements were approved by the board of directors on 15 May 2002. 2) Segmental information Half year to Half year to Year to 30 Mar 02 31 Mar 01 29 Sep 01 Â£'000 Â£'000 Â£'000 (a)Turnover by destination: United Kingdom 25,618 24,268 46,207 Other European 42,249 49,622 95,506 North America 56,292 65,401 132,443 Rest of World 2,220 2,185 3,885 -------- --------- --------- 126,379 141,476 278,041 -------- --------- --------- (b)Turnover by origin: United Kingdom 35,909 39,460 77,253 Other European 33,640 36,531 70,508 North America 56,830 56,166 114,270 -------- --------- --------- Continuing operations 126,379 132,157 262,031 Discontinued operations - 9,319 16,010 -------- --------- --------- 126,379 141,476 278,041 -------- --------- --------- (c)Operating (loss)/profit by origin: Before exceptional operating expenses United Kingdom 1,357 (530) (769) Other European 76 1,664 3,610 North America 3,351 3,768 7,774 -------- --------- --------- 4,784 4,902 10,615 Exceptional operating expenses United Kingdom (7,768) - (150) Other European (583) - (802) North America - (9,731) (2,604) -------- --------- --------- Continuing operations (3,567) (4,829) 7,059 Discontinued operations - (1,069) (1,881) -------- --------- --------- (3,567) (5,898) 5,178 -------- --------- --------- (d) Turnover by product group: Automotive Components 94,040 100,987 195,017 Technical Products 32,339 31,170 67,014 -------- --------- --------- Continuing operations 126,379 132,157 262,031 Discontinued operations - 9,319 16,010 -------- --------- --------- 126,379 141,476 278,041 -------- --------- --------- (e) Operating (loss)/profit by product group: Before exceptional operating expenses Automotive Components 2,472 3,082 6,932 Technical Products 2,312 1,820 3,683 -------- --------- --------- 4,784 4,902 10,615 Exceptional operating expenses Automotive Components (7,997) (3,469) (1,355) Technical Products (354) (6,262) (2,201) -------- --------- --------- Continued operations (3,567) (4,829) 7,059 Discontinued operations - (1,069) (1,881) -------- --------- --------- (3,567) (5,898) 5,178 -------- --------- --------- 3) Exceptional operating expenses The exceptional charge relates primarily to European rationalisation and reorganisation, principally the closure of the UK automotive hose factory at Trowbridge. The comparative figures for the half year to 31 March 2001 include an impairment charge of Â£7,449,000 (of which Â£3,215,000 was in respect of goodwill) which was charged against operating profit. Following the completion of the disposal of the related operations in the second half of the year, this charge was reclassified as part of the loss on disposal in the results for the year to 29 September 2001. 4) Estimated tax rates in the United Kingdom and overseas have been calculated based on the latest projections for the year ending 28 September 2002. These tax rates have been used in determining the tax charge for the six month period to 30 March 2002. The adoption of FRS 19 has had no significant impact on the tax charge. 2002 2001 Â£'000 Â£'000 United Kingdom (0% (2001: 32%)) - 54 Overseas (32% (2001: 32%)) 895 329 ---------- ----------- 895 383 ---------- ----------- 5) 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. 6) The cost of the interim dividend on the ordinary shares in issue will be approximately Â£954,000 (2001: Â£969,000). The dividend will be paid on 28 June to shareholders on the register at noon on 7 June 2002. 7) Basic loss per ordinary share is based on a loss of Â£6,156,000 (2001: Â£8,854,000) and 27,824,000 (2001: 27,824,000) 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 of Â£2,195,000 (2001: Â£877,000). Earnings per ordinary share before exceptional items and goodwill amortisation are based on a profit of Â£2,494,000 (2001: Â£1,176,000). 8) Analysis of net debt Amortisation As at of loan Exch As at 30 Sept 01 Reclass- Cash Flow costs mvts 30 Mar 02 ified Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 13,586 - (1,052) - 294 12,828 Overdrafts (6,613) - 2,575 - 31 (4,007) Debt due after more than one year (47,807) 11,282 (94) (86)(1,054) (37,759) Debt due after less than one year (11,768) (11,282) 2,222 - (148) (20,976) Finance leases (365) - 158 - - (207) Current asset investments - - 2,800 - - 2,800 ------------------------------------------------------------------------------ (52,967) - 6,609 (86) (877) (47,321) ------------------------------------------------------------------------------ 9) Copies of this announcement are being sent to 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). This information is provided by RNS The company news service from the London Stock Exchange

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