Preliminary Results

Avon Rubber PLC 30 November 2000 Avon Rubber p.l.c PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2000 Avon Rubber p.l.c. announces its preliminary results for the year to 30 September 2000 which the Board approved on 29 November 2000. 2000 1999 £MILLION £MILLION TURNOVER 278.0 266.2 OPERATING PROFIT - before Exceptionals 15.4 21.9 PROFIT BEFORE TAX - before Exceptionals 12.4 20.5 - after Exceptionals 5.7 21.9 EARNINGS PER SHARE Basic 12.4p 56.8p Before Exceptional Items 31.3p 53.5p Before Exceptional Items and Goodwill 33.5p 54.1p Diluted 12.4p 56.7p DIVIDEND PER SHARE 24.2p 24.2p * Dividend maintained. * Improved performance at all Continental European automotive businesses. * Global footprint helped to mitigate impact of weak euro. * Successful completion of UK investment projects. For further information, please contact: Avon Rubber p.l.c Steve Willcox, Chief Executive ING Barings - Tel:020 7767 5430 Terry Stead, Group Finance Director (between 10:30 - 12:30 & 14:00 - 15:30) (Local/Trade Press) Bill Taylor, Avon Rubber p.l.c. 01225 861180 Golin/Harris Ludgate Richard Hews 020 7253 2252 Trish Featherstone INTRODUCTION The last year was a difficult one for the Group. The combination of the strength of sterling against the euro, a depressed automotive market in the UK and the commissioning of major new production facilities resulted in a substantial fall in profits. In addition, the firm actions we took to reduce our UK cost base necessitated one off expenses of £6.7 million. Despite these factors, we are pleased to report steady strategic progress during the year. The development of our North American business and the growth of our Continental European operations mean that some 70% of our sales are now manufactured outside the UK. In the UK we have concentrated on four modern factories, two of which are brand new. After a year of great change and the completion of our major capital investments we can now focus on profitable growth in our chosen markets. The impact of the continuing weakness of the euro on the UK's relative competitiveness reduced demand for UK manufactured products. As a result we decided to close our Croydon plant and transfer the manufacturing to our operations in the Czech Republic and France. This, together with other actions taken in September has resulted in a fall in the UK workforce of over 200 and will reduce our total cost base by in excess of £5 million per annum. Against a background of continuous and rapid consolidation in the markets we serve, our strategy is to continue to focus on automotive hose and a selected range of niche technical products where we have achieved or can achieve world-leading positions. We have now completed our major investment in facilities in Wiltshire. As a result capital expenditure will be substantially lower in 2001. This together with the disposal of non-core activities is targeted to reduce borrowings significantly. RESULTS Operating profit before exceptional items for the year was £15.4 million (1999: £21.9 million). After a net interest charge of £3.0 million (1999: £1.4 million) Group profit before exceptional items and taxation was £12.4 million (1999: £20.5 million) on a turnover of £278.0 million (1999: £266.2 million). The Group profit after exceptional items and before taxation was £5.7 million (1999: £21.9 million). The exceptional charge of £6.7 million relates principally to costs of reorganisation, most of which have been incurred in the UK. These costs include a charge of £3.8 million associated with the closure of the Croydon operation and a charge of £1.5 million relating to non recurring costs associated with disruption resulting from the move to our new Wiltshire facilities. The taxation charge of £3.0 million (1999: £6.3 million) represents an effective rate of 51.6% (35.2% pre exceptional items) compared with 28.6% (28.1% pre exceptional items) in 1999. Profit after taxation, exceptional items and minority interests was £3.5 million (1999: £15.8 million) and basic earnings per share were 12.4p (1999: 56.8p). Profit after taxation and minority interests but before exceptional items was £8.7 million (1999: £14.9 million) and earnings per share on this basis were 31.3p (1999: 53.5p). Capital expenditure was £22.1 million (1999: £37.9 million) of which £11.1 million (1999: £22.2 million) was associated with the new facilities in Wiltshire. With the completion of these projects we are planning capital expenditure to be lower than depreciation and are committed to achieving a significant improvement in cash generation. AUTOMOTIVE At constant exchange rates sales were up 9.5% at £209.5 million (1999: £191.3 million). The principal reason for the increase was the additional sales of £18.2 million resulting from a full year of operation of the Spanish businesses acquired in June 1999. We indicated at the time of the interim announcement that our international operations had mitigated the difficulties in the UK. This has continued with a clear distinction in performance between UK operations and those in North America and Continental Europe. There was severe disruption in the UK automotive industry coupled with a volatile and weak euro. The weakness of the euro reduced the relative competitiveness of our UK manufacturing operations, increasing the pressure for transferring more manufacturing to other parts of Europe. As a result we closed our Croydon facility at a cost of £3.8 million. We are taking actions to reduce our cost base and whilst UK manufacturing competitiveness remains challenging, our well developed global footprint provides well invested, cost effective alternative manufacturing locations. All our Continental European automotive businesses performed better than last year. CADbar, our low permeation fuel hose, went into European production in Vannes, France, during the year. General Motors' Vauxhall Zafira is the first high volume European vehicle to be equipped with the low emission CADbar hoses. The North American automotive market remained relatively strong. However, lower cost solutions and 'de-contenting' of products resulted in a 6.1% reduction in turnover. The cost of supporting North American automotive customers increased as more of the development work passed to component suppliers. We also invested in a new product development centre close to our main facility in Cadillac. These extra costs have impacted our North American profitability, but have allowed us to develop products for new business opportunities in the future. As we reported at the time of the interim results, we have already been able to win business on a global basis and have secured significant new contracts which are starting to have a substantial benefit. TECHNICAL PRODUCTS Sales were down 13.9% at constant exchange rates to £68.5 million (1999: £79.6 million). Of this reduction, £8.0 million was the result of the disposal of CQC Ltd in October 1999 and the sale of the Fabrications business in September 1999. Excluding these disposals UK and Continental Europe Technical Products turnover was down 6.6% at £30.9 million (1999: £33.1 million) whilst North American sales decreased by £0.9 million. This was a challenging year in the UK with the move of the business from the former Avon Tyres site in Melksham to a new Technical Products facility three miles away and a new Rubber Mixing plant at Westbury, Wiltshire. We chose not to transfer some non-core businesses and as a result have seen lower turnover. We now have a modern, purpose designed, low cost factory to support future growth opportunities in our chosen markets of dairy, military protection, closure seals and business machines. In Europe we have worked with two of the world's largest business machine manufacturers to establish an operation alongside our automotive facility in the Czech Republic for the supply of rollers. This began manufacture in the last quarter of the year and offers exciting growth opportunities starting immediately. In North America, Hi-Life continued to perform outstandingly well. We saw good progress at Zatec and Bell Avon. Both Pacer, our plastics business in New Jersey and our industrial 0hose business in Cadillac, Michigan were adversely affected by lower demand, but have actively addressed their cost base to make them more competitive for the future. As was stated at the time of the interim results 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. The settlement with a total value of £0.8 million was fully reflected at the time of the half year announcement. Having been awarded the development contract for the new United States Joint Service General Purpose Mask, we have been working closely with our partners and the US Department of Defense to progress the project. The initial contract is for US$9.2 million, but the total sales potential is several hundred million dollars. FINANCING Net debt at the year end stood at £64.9 million compared with the opening net debt of £46.4 million, resulting in year end gearing of 72.4% (1999: 50.5%). This year we are planning lower capital expenditure, following the completion of our new Wiltshire facilities. This, together with cash generated from operational performance and the disposal of non-core activities, is planned to reduce gearing significantly during the year. It is the Board's intention to seek shareholder approval at the AGM in January 2001 to buy back up to 15% of the Company's issued share capital. DIVIDEND The Board is recommending an unchanged final dividend of 17.2p per share which will be paid on 26 January 2001 to ordinary shareholders on the register on 3 January 2001. When added to the interim dividend of 7.0p per share the total dividend of 24.2p is the same as in 1999. OUTLOOK Our international markets continue to be demanding, but we believe that the overall outlook for Avon is improving. The three main factors which drive this belief are the cost reductions resulting from the considerable restructuring undertaken over recent months, the expected substantial fall in the current year in exceptional charges relating to restructuring and increased business arising from our significant investment in new products and efficient, low cost manufacturing facilities. We expect that the initiatives which we have taken will produce benefits for shareholders in the short and longer term. CONSOLIDATED PROFIT AND LOSS for the year ended 30 September 2000 2000 Before exceptional Exceptional Total items items (note 3) Note £'000 £'000 £'000 __________________________________________________________________ Turnover 2 277,997 - 277,997 Cost of sales (231,842) (1,984) (233,826) --------- --------- --------- Gross Profit 46,155 (1,984) 44,171 Net operating expenses (including £623,000(1999:£163,000) goodwill amortisation) (30,891) (4,688) (35,579) Share of profits/(losses) of joint ventures and associates 161 - 161 --------- --------- -------- Operating profit 2 15,425 (6,672) 8,753 Profit on disposal of fixed assets - 25 25 --------- --------- -------- Profit on ordinary activities before interest 15,425 (6,647) 8,778 Interest receivable 2,871 - 2,871 Interest payable (5,911) - (5,911) --------- --------- -------- Profit on ordinary activities before taxation 12,385 (6,647) 5,738 Taxation 4 (4,360) 1,400 (2,960) -------- --------- ------- Profit on ordinary activities after taxation 8,025 (5,247) 2,778 Minority interests 717 - 717 -------- --------- ------- Profit for the year 8,742 (5,247) 3,495 Dividends (including non-equity interests) 6 (6,735) - (6,735) -------- --------- ------- (Loss)/retained profit for the year 2,007 (5,247) (3,240) ======== ========= ======= Rate of dividend 6 Cumulative Preference 7% Ordinary 24.2p Earnings per ordinary share 7 Basic 12.4p Before exceptional items 31.3p Before goodwill amortisation and exceptional items 33.5p Diluted 12.4p 1999 Before exceptional Exceptional Total items items Note £'000 £'000 £'000 __________________________________________________________________ Turnover 2 266,164 - 266,164 Cost of sales (214,012) - (214,012) --------- -------- -------- Gross Profit 52,152 - 52,152 Net operating expenses (including £623,000 (1999:£163,000)goodwill amortisation) (30,218) - (30,218) Share of profits/(losses) of joint ventures and associates (54) - (54) -------- -------- -------- Operating profit 2 21,880 - 21,880 Profit on disposal of fixed assets - 1,422 1,422 -------- -------- -------- Profit on ordinary activities before interest 21,880 1,422 23,302 Interest receivable 3,136 - 3,136 Interest payable (4,532) - (4,532) -------- -------- ------- Profit on ordinary activities before taxation 20,484 1,422 21,906 Taxation 4 (5,759) (498) (6,257) -------- -------- ------- Profit on ordinary activities after taxation 14,725 924 15,649 Minority interests 133 - 133 -------- -------- ------- Profit for the year 14,858 924 15,782 Dividends (including non-equity interests) 6 (6,733) - (6,733) -------- -------- ------- (Loss)/retained profit for the year 8,125 924 9,049 -------- -------- ------- Rate of dividend 6 Cumulative Preference 7% Ordinary 24.2p Earnings per ordinary share 7 Basic 56.8p Before exceptional items 53.5p Before goodwill amortisation and exceptional items 54.1p Diluted 56.7p All the group's turnover and profit was generated from continuing activities. There is no material difference between the profit as stated above and that calculated on an historical cost basis. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2000 2000 1999 £'000 £'000 Profit for the year 3,495 15,782 Net exchange differences on overseas investments 309 (431) ------- ------- Total gains and losses for the year 3,804 15,351 ======= ======= RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the year ended 30 September 2000 2000 1999 £'000 £'000 Opening shareholders' funds 89,557 80,405 Profit for the year 3,495 15,782 Dividends (6,735) (6,733) Net exchange difference on overseas investments 309 (431) New share capital subscribed (net) - 534 Goodwill resurrected on disposal of subsidiary 1,337 - ------- ------- Closing shareholders' funds 87,963 89,557 ======= ======= Equity shareholders' funds 87,463 89,057 Non-equity shareholders' funds 500 500 ------- ------- 87,963 89,557 ======= ======= CONSOLIDATED BALANCE SHEET At 30 September 2000 2000 1999 (Restated) £'000 £'000 Fixed assets Intangible assets 13,154 13,338 Tangible assets 112,687 102,102 Investments 1,051 900 ------- ------- 126,892 116,340 Current assets Stocks 26,836 24,014 Debtors - Amounts falling due within one year 56,528 57,029 Debtors - Amounts falling due after more than one year 8,146 5,772 Cash at bank and in hand 7,585 17,336 ------- ------- 99,095 104,151 Creditors Amounts falling due within one year 71,782 67,215 ------- ------- Net current assets 27,313 36,936 Total assets less current liabilities 154,205 153,276 Creditors Amounts falling due after more than one year 56,116 55,115 Provisions for liabilities and charges 8,385 6,276 ------- ------- Net assets 89,704 91,885 ======= ======= Capital and reserves Ordinary share capital 27,824 27,824 Preference share capital 500 500 Share premium account 34,070 34,070 Revaluation reserve 2,575 2,723 Profit and loss account 22,994 24,440 ------- ------- Shareholders' funds (incl.non- equity interests) 87,963 89,557 Minority interests (equity interests) 1,741 2,328 ------- ------- Total capital employed 89,704 91,885 ======= ======= The restatement of 1999 reflects the change in accounting policy detailed in note 1. SUMMARISED CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2000 2000 1999 Note £'000 £'000 Operating activities Operating profit 8,753 21,880 Goodwill amortisation 623 163 Depreciation 11,911 9,734 Movement in working capital and provisions (4,439) (8,905) Other movements 1,472 (646) ------- ------- Net cash inflow from operating activities 18,320 22,226 Returns on investments and servicing of finance (4,250) (1,926) Corporation tax paid (4,112) (4,215) Net capital expenditure (21,961) (32,226) Sale of subsidiary undertakings 2,399 - Purchase of subsidiary undertakings - (17,957) Equity dividends paid (6,700) (6,394) ------- ------- Net cash outflow before management of liquid resources and financing (16,304) (40,492) Decrease in cash deposits treated as liquid resources - 36,800 Financing Issue of ordinary shares - 534 Movement in loans and finance leases (1,805) 13,760 ------- ------- (Decrease)/increase in cash in the period (18,109) 10,602 ======= ======= Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the period (18,109) 10,602 Movements in loans and finance leases 1,805 (13,760) Movement in liquid resources - (36,800) Amortisation of loan costs (59) (50) Loans and finance leases acquired from acquisitions - (3,457) Finance leases transferred on sale of subsidiary 5 - Exchange differences (2,221) (429) ------- ------- Movement in net debt in the year (18,579) (43,894) Net debt at the beginning of the year (46,366) (2,472) ======= ======= Net debt at the end of the year 8 (64,945) (46,366) ======= ======= NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. The figures and financial information for the year ended 30 September 2000 do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the Registrar, nor have the auditors yet reported on them. The company's accounting period ends on the Saturday nearest to 30 September each year. The period ended 30 September 2000 consisted of 52 weeks (1999: 52 weeks). This preliminary announcement has been prepared using accounting policies that are consistent with the policies detailed in the financial statements for the year ended 2 October 1999 except for the introduction of the following: * Development costs were previously charged to the profit and loss account when incurred. An increase in the extent of development work for new vibration systems products, prior to commercial production, has resulted in significant costs being incurred from which it is expected to generate profitable revenue streams. Accordingly, the Group has capitalised such costs where the viability of these product developments can be ascertained with reasonable certainty. The costs will be amortised over the lives of the products to which the development costs relate. This change in accounting policy has had no impact on the profit for last year. Approximately £0.5 million of development costs have been reclassified from current assets to development costs in the 1999 balance sheet which are included in intangible assets. * During the year Financial Reporting Standards (FRS) 15 (Tangible Fixed Assets) and 16 (Current Tax) became effective. These standards have been reflected in these financial statements to the extent considered appropriate. In the adoption of FRS 15, the Group has decided to retain the book value of land and buildings (certain of which were revalued in 1996) and depreciate this value over the remaining useful economic lives of the buildings. Future additions will be included at cost. 2. Segmental Information For the year ended 30 September 2000 2000 1999 £'000 £'000 a)External sales by destination: United Kingdom 46,621 51,655 Other European 93,167 73,776 North America 133,933 133,926 Rest of World 4,276 6,807 ------- ------- 277,997 266,164 ======= ======= b)External sales by origin: United Kingdom 84,054 90,621 Other European 59,591 41,385 North America 134,352 134,158 ------- ------- 277,997 266,164 ======= ======= c)Operating profit/(loss) by origin before exceptional items: United Kingdom (2,656) 3,298 Other European 6,023 3,743 North America 12,058 14,839 ------- ------- 15,425 21,880 ======= ======= d)Operating profit/(loss) by origin after exceptional items: United Kingdom (8,558) 3,298 Other European 5,253 3,743 North America 12,058 14,839 ------- ------- 8,753 21,880 ------- ------- e)External sales by business sector: Automotive Components 209,479 187,815 Technical Products 68,518 78,349 ------- ------- 277,997 266,164 ======= ======= f)Operating profit by business sector before exceptional items: Automotive Components 11,605 13,198 Technical Products 3,820 8,682 ------- ------- 15,425 21,880 ------- ------- g) Operating profit by business sector after exceptional items: Automotive Components 7,173 13,198 Technical Products 1,580 8,682 ------- ------- 8,753 21,880 ------- ------- h) Analysis of external sales and operating profit: External Sales - First half of year 139,948 131,596 - Second half of year 138,049 134,568 ------- ------- 277,997 266,164 ======= ======= Operating profit before exceptional items - First half of year 7,106 10,050 - Second half of year 8,319 11,830 ------- ------- 15,425 21,880 ======= ======= 3. Exceptional costs, during the year, resulted from the following rationalisation and reorganisation programme: * Relocating manufacturing operations from the United Kingdom to low cost territories. * Relocating manufacturing facilities for Technical Products to a new purpose built location in the United Kingdom. * Implementing a 'state of the art' rubber mixing facility in the United Kingdom and transferring production from external sources. * Rationalisation of the work force to reduce the ongoing cost base in the United Kingdom. 4. The taxation charge, based on the results for the year, comprises: 2000 1999 Current taxation: £'000 £'000 United Kingdom corporation tax at 30% (375) 546 (1999 30.5%) Overseas taxes 3,719 3,651 Associated company 52 14 ------ ------ 3,396 4,211 Deferred Tax (436) 2,046 ------ ------ 2,960 6,257 ====== ====== 5. Profit and loss accounts of foreign group undertakings are translated at average rates of exchange and balance sheets are translated at year-end rates. 6. If approved, payment of the final dividend on the ordinary shares will be made on 26 January 2001 to shareholders on the register at the close of business on 3 January 2001. The cost will be £4,762,000 (1999: £4,762,000). The half yearly dividend on the 500,000 7% cumulative preference shares will be paid at the rate of 3.5p per share on 31 December 2000 to shareholders on the register at close of business on 8 December 2000. The cost will be £17,500 (1999 £17,500). 7.Basic earnings per share amount to 12.4p (1999: 56.8p) and are based on profit after taxation, and deduction of minority interests, and non-equity dividends, of £3,460,000 (1999: £15,747,000) and 27,824,000 ordinary shares (1999 27,721,000) being the weighted average of the shares in issue during the year. Earnings per share before exceptional items amount to 31.3p (1999: 53.5p) and are based on profit after taxation and deduction of minority interests and non-equity dividends of £8,707,000 (1999: £14,823,000). Earnings per share before exceptional items and goodwill amortisation amount to 33.5p (1999: 54.1p) and are based on profit after taxation and deduction of minority interests and non equity dividends of £9,330,000 (1999: £14,986,000). There is no difference between the weighted average number of shares in issue and the diluted weighted average number of shares in issue. Adjusted earnings per share figures have been calculated in addition to the basic and diluted figures since, in the opinion of the directors, these give a better understanding of the Group's performance. 8. Analysis of movement in net debt As at Exchange Disposal of 03-Oct-99 Cash flow Movements subsidiary 30-Sep-00 £'000 £'000 £'000 £'000 £'000 Cash in bank and in hand 17,336 (10,101) 416 (66) 7,585 Overdrafts (2,401) (7,942) 234 - (10,109) Debt due after 1 year (52,879) 1,760 (3,053) - (54,172) Debt due within 1 year (6,828) (758) 163 - (7,423) Finance leases (1,594) 744 19 5 (826) ------ ------ ------ ------ ------- (46,366) (16,297) (2,221) (61) (64,945) ------ ------ ------ ------ ------- 9. The company completed the sale of its subsidiary company, CQC Ltd (formerly known as CQC PLC) on 15 October 1999 to a new company Crossco (430) Ltd. The consideration for this disposal amounted to £1.6 million in cash. Additionally, and by a separate transaction, the Group also sold the freehold site, from which CQC Ltd operated, for a consideration of £1.0 million in cash. The sale of the business, which was regarded as non-core to the Group's activities did not result in any gain or loss based upon the carrying value in the accounts (including goodwill previously written off against reserves). 10. Copies of the directors' report and the audited financial statements for the year ended 30 September 2000 will be posted to shareholders by 15 December 2000 and may be obtained thereafter from the company's registered office at Manvers House, Kingston Road, Bradford-on-Avon, Wiltshire BA15 1AA (Telephone 01225 861100).

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