Interim Results

Avon Rubber PLC 22 May 2006 Avon Rubber p.l.c. Strictly embargoed until 07:00 22 May 2006 Unaudited interim results for the six months ended 31 March 2006 31 March 31 March 2006 2005 £Millions £Millions CONTINUING OPERATIONS REVENUE 36.9 24.5 OPERATING PROFIT/(LOSS) 0.1 (1.1) LOSS FOR THE PERIOD (0.2) (2.3) DISCONTINUED OPERATIONS OPERATING PROFIT FOR THE PERIOD 4.0 3.2 (LOSS)/EARNINGS PER SHARE: Basic (58.3)p (4.6)p Continuing operations (1.2)p (8.7)p DIVIDENDS PER SHARE 3.7p 3.7p • Recommended Offer received of £63 million for Automotive business • Group reports for the first time under International Financial Reporting Standards (IFRS) • Operating profit improvement from continuing businesses • Strong performance from ISI • Restructuring of UK operation announced • Delivery of the new generation military respirator in the US commenced • Dividend maintained Commenting on the results, Terry Stead, Chief Executive said: 'The planned disposal of our Automotive business signals a significant strategic advance for the Group allowing us to focus on the high growth potential we have identified for our respiratory protection products. We shall continue to develop our strong market positions in dairy, aerosol gaskets and engineered fabrications. This combination of established businesses and growth opportunities provides a balanced portfolio of business activities for the future. We are targeting respiratory protection as our major growth area, particularly related in the short-term to the new US military respirator and associated filters and an escape hood which provides emergency protection from chemical, biological, radiological and nuclear threats. Longer-term we have an exciting range of new products being developed and will explore appropriate acquisitions to enhance our technologies. Our recent acquisition, ISI, together with the North American dairy business and the Engineered Fabrications business in Mississippi are operating in line with our expectations and delivering consistent levels of earnings. We are taking steps to improve the performance of our continuing UK operations. The expected growth from respiratory protection will build on this foundation. The Board is excited about the opportunity to pursue its planned strategic direction and is confident of the future opportunities for growth of the continuing businesses as this strategy is implemented.' For further enquiries, please contact: Avon Rubber p.l.c Terry Stead, Chief Executive 020 7067 0700 Peter Slabbert, Group Finance Director (until 2.00pm) (Local/Trade Press) Fiona Stewart 01225 896300 Weber Shandwick Square Mile Richard Hews 020 7067 0700 Rachel Taylor Stephanie Badjonat An analyst meeting will be held at 10.00 am this morning at the offices of ING Bank, 60 London Wall, EC2M 5TQ. NOTES TO EDITORS: Avon Rubber p.l.c. is an international polymer engineering group adding value through material, manufacturing and industry sector expertise. The Group is currently capitalised at approximately £56 million. AVON RUBBER p.l.c. UNAUDITED INTERIM RESULTS FOR THE PERIOD ENDED 31 MARCH 2006 INTRODUCTION The half year to 31 March 2006 has ended with significant strategic developments underpinned by an improved operating performance. We are recommending to shareholders an offer to acquire our Automotive business at what we believe to be a fair and reasonable price, we are realising the benefits of our purchase of International Safety Instruments Inc. (ISI) last year, we have started delivery of the new generation Military respirator in the US and we are implementing improvement actions at our underperforming UK facilities. The Group reports for the first time under International Financial Reporting Standards (IFRS). The proposed disposal of our Automotive division and the Board's expectation that this sale, subject to shareholder approval, will be completed, has required that this division be treated as a discontinued operation and an impairment taken for the expected loss on disposal. Accordingly we recorded a loss for the period of £15.9m of which £17.8m is represented by this loss on disposal which includes £10.3m of goodwill written off. At a trading level, total operating profit for continuing and discontinued operations, before exceptional items, increased to £4.2m (2005: £2.3m). RESULTS Revenue from continuing operations increased by 51% to £36.9m (2005: £24.5m). Automotive revenue increased to £96.7m (2005: £90.4m) giving total Group revenue of £133.6m (2005: £114.9m). Total operating profit from continuing operations improved to £0.1m from a loss of £1.1m (after exceptional items of £0.2m) in the same period last year. Net interest costs of £1.8m (2005: £1.1m) offset by other finance income of £1.3m (2005: £0.5m) resulted in a loss from continuing operations before tax of £0.4m (2005: £1.6m). After taxation of £0.2m credit (2005: £0.6m charge) the loss for the year from continuing operations was £0.2m (2005: £2.3m). The operating profit for the year from discontinued operations was £4.0m (2005: £1.5m after exceptional operating expenses of £1.8m). Interest and other finance income has been attributed to the legal entities to which they apply and accordingly all fall within the continuing operations. The operating profit of discontinued operations reflects the revenues and costs of the entities for disposal with no apportionment of common or central costs. These costs are all reflected in the continuing operations. If an apportionment had been made on a similar basis to previous years but still on an IFRS basis the operating profit before exceptional items for Protection and Engineered Products was £2.0m (2005: £0.8m) and Automotive £2.2m (2005: £1.5m). For comparative purposes the operating profit (before exceptional items) under UK GAAP was for Protection and Engineered Products £2.0m (2005: £0.8m) and Automotive £2.2m (2005: £1.9m). The basic loss per share was 58.3p (2005: loss per share of 4.6p). The basic loss per share from continuing operations was 1.2p (2005: 8.7p). An effective tax rate of 45.9% has been applied to the profits generated in the period. This has resulted in a tax credit of £0.2m for continuing operations and a charge of £1.9m in relation to the discontinued operations. The increased rate reflects the non-recognition of deferred tax assets on losses in the UK and certain of the European entities. The disposal of the Automotive division is likely to result in a short term increase in the effective tax rate. Net debt increased in line with our historic seasonal trend for the first half from £51.7m at the 2005 year end to £56.5m (2005: £35.9m). Further capital investment of £5.4m (2005: £2.9m) particularly in manufacturing capacity and product development in our respiratory protection operations and the working capital requirement associated with the growth in sales were the reasons for the £4.8m outflow. The acquisition of ISI for £11.7m and the cash costs of the exceptional charges taken in 2005 are reflected in the increase from the interim net debt position of 2005. The proposed Automotive disposal would have had a positive cash impact of £50.0m (before tax) based on the working capital position at the half year. Based on the projected working capital at completion the disposal is expected to have a positive cash impact of £54.1 million before tax and £52.1 million after tax. PROTECTION AND ENGINEERED PRODUCTS Revenue for the six months grew from £24.5m in 2005 to £36.9m. The growth came largely from our newly acquired ISI business in the US with revenue of £6.9m (2005: £nil for the Group as ISI was acquired in June 2005) in line with expectations, while our engineered fabrications business in Mississippi (AEF) also showed growth, particularly in the second quarter as it recovered from the effects of Hurricane Katrina in September last year. Further revenue growth came from our fledgling respirator facility in Cadillac, Michigan where we delivered the first shipment of the new M53 special forces mask to the US Department of Defense in March. The markets for our dairy products in both Europe and North America remained steady, as did those for business machines in Europe. The North American market for these business machines products continued its weaker trend as our customers re-source to lower cost areas. There remains a global market for our legacy respirators manufactured in the UK, although demand is variable dependent on military spend. Sales of these products in 2006 have continued at the lower levels experienced in 2005. The operating result improved from a loss of £1.1m in 2005 (after exceptional operating expenses of £0.2m) to a profit of £0.1m (after absorbing all central costs) and from £0.8m to £2.0m when central costs are apportioned across all operations. The improvement arises as a result of increased sales except for the respirator facility in Cadillac where we have invested in operational infrastructure in advance of planned volume increases. In our protection business, the first production volumes of M53 respirators were delivered in the half year and the Low Rate Initial Production (LRIP) order for the higher volume M50 is scheduled for the second half. In the UK we have experienced frustrating delays in the introduction of the newly developed rapid escape hoods which have pushed back planned benefits to the second half, but the overall outlook for these products remains unchanged despite the delays. We expect to start realising the benefits of the investments we have made in infrastructure, intellectual property and capital equipment in the near term. ISI performed well and we are starting to see opportunities arising from our expanded product offering and integration of the technologies. Our target of developing a substantial respiratory protection business remains on track in this, our primary strategic growth area. Hi-Life, our North American dairy business, has maintained its strong market position and operational performance while our European dairy business has stabilised as both an original equipment and own brand supplier. We remain convinced that our materials and manufacturing skills, our strong Milk-Rite brand and our expertise in milk flow technology give us the potential for growth outside our traditional geographic markets. Growth is also planned in our UK based aerosol gaskets business where increased sales resources and improved customer service are generating further opportunities, particularly in the US. Despite the opportunities in respiratory protection and the strong performance from Hi-Life, AEF and ISI, the performance of our continuing operations remains constrained by the underperformance of our UK operations, losses in our UK mixing facility and the need to absorb a level of central overhead associated with the larger Group prior to the automotive disposal. As a consequence a restructuring of our UK manufacturing sites, focussed around our Hampton Park West facility to a size and cost base appropriate to our current levels of business in dairy, aerosol gaskets and protection is being undertaken. Amongst other measures this will involve the closure of a small facility in Trowbridge and a reduction in headcount. The benefits will be realised in 2007. We are taking actions to reduce losses at our UK mixing facility and exploring options to deliver shareholder value. AUTOMOTIVE COMPONENTS Our continual drive over the last few years to position our Automotive business in appropriate low labour cost areas and to concentrate on continuous cost and efficiency improvements has enabled us to deliver consistent operational performance in a consistently challenging trading environment. Operating profit before exceptional items, (including a share of central costs) increased to £2.2m (2005: £1.5m) which included achieving most of the planned £3.0m annualised cost savings from the closure of our Spanish facility in Calaf. Material and energy cost increases and customer price reductions prevented the delivery of the full benefits of these improvements. We saw volume growth overall with revenue up from £90.4m to £96.7m particularly in North America with Greenbar (a small engine fuel barrier hose introduced in the second half of last year) continuing to grow into this new market and further volume increases in Orizaba, Mexico. Europe as a whole was steady although the proportion of sales from our lower cost manufacturing sites in the Czech Republic and Portugal increased. The new facility in Turkey came on stream in April. PROPOSED DISPOSAL Despite the improved result in Automotive Components, our operating margins remain low at 4.7% in 2005 and 4.2% in the half year to 31 March 2006 (both before exceptional items and an apportionment of central costs) and the business remains vulnerable to relatively small volume changes and selling price and cost pressures. We believe therefore that the disposal and release of approximately £52.1m of net proceeds will significantly reduce the risk to the long term sustainability of our earnings and cashflows and reduce the risk of further exceptional charges from restructuring or site closures. These risks and a detailed rationale for the proposed disposal are more fully described in the circular to the shareholders to be distributed later this week. It will also enable us to concentrate on and fund the growth opportunities in Protection and Engineered Products. PENSIONS The deficit on our UK defined benefit pension scheme (closed to new entrants) has reduced on an IAS19 basis (similar valuation to FRS17) from £15.2m at 30 September 2005 to £1.7m at 31 March 2006. The reduced deficit derives primarily from an improvement in the equity markets only partially offset by a lower discount rate. This shows the volatility of the deficit of a fund of our size (assets at 31 March 2006 of £257.9m). The valuation assumptions will be reassessed in a new triennial valuation to be prepared as at 1 April 2006 which adds to the uncertainty and, in particular updated mortality assumptions may have a negative effect on the scheme's position. FINANCING AND CAPITAL STRUCTURE The net debt of £56.5m results in a gearing level of 134%. The net consideration from the disposal of approximately £52.1 million is required by the Group's lending banks, in the event of a disposal of this nature, to be applied in the first instance to reduce indebtedness resulting from, in part, previous investments and acquisitions in respiratory protection. The disposal of the Automotive business represents an opportunity to review the appropriate capital structure for the continuing group. The appropriate capital structure will need to be determined by the Board having balanced a number of important factors, including perceived growth/acquisition opportunities (most notably in respiratory protection), product development programmes, restructuring plans, on-going pension obligations and distribution policy. The Board intends to update shareholders on this review at the time of the Group's preliminary results. DIVIDEND The Board announces an unchanged interim dividend of 3.7p per share payable on 3 July 2006 to holders of ordinary shares on the register at noon on 9 June. OUTLOOK The planned disposal of our Automotive business signals a significant strategic advance for the Group allowing us to focus on the high growth potential we have identified for our respiratory protection products. We shall continue to develop our strong market positions in dairy, aerosol gaskets and engineered fabrications. This combination of established businesses and growth opportunities provides a balanced portfolio of business activities for the future. We are targeting respiratory protection as our major growth area, particularly related in the short-term to the new US military respirator and associated filters and an escape hood which provides emergency protection from chemical, biological, radiological and nuclear threats. Longer-term we have an exciting range of new products being developed and will explore appropriate acquisitions to enhance our technologies. Our recent acquisition, ISI, together with the North American dairy business and the Engineered Fabrications business in Mississippi are operating in line with our expectations and delivering consistent levels of earnings. We are taking steps to improve the performance of our continuing UK operations. The expected growth from respiratory protection will build on this foundation. The Board is excited about the opportunity to pursue its planned strategic direction and is confident of the future opportunities for growth of the continuing businesses as this strategy is implemented. Independent review report to Avon Rubber p.l.c Introduction We have been instructed by the company to review the financial information for the six months ended 31 March 2006 which comprises a consolidated income statement, consolidated statement of recognised income and expense, consolidated balance sheet information as at 31 March 2006, consolidated cash flow statement, and associated notes. We have read the other information contained in the interim report and considered whether it contains 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 directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group will be prepared in accordance with those accounting standards adopted for use by the European Union. This interim report has been prepared in accordance with the basis set out in note 1. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual financial statements for the first time in accordance with accounting standards adopted for use in the European Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 30 September 2006 are not known with certainty at the time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. 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 disclosed accounting policies have been applied. 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 and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 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 31 March 2006. Notes: (a) The maintenance and integrity of the Avon Rubber p.l.c web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Bristol 18 May 2006 CONSOLIDATED INCOME STATEMENT Note Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 (unaudited) (unaudited (unaudited and restated) and £'000 £'000 restated) £'000 ____________________________________________________________________________________________________________ Continuing operations Revenue 2 36,929 24,514 53,344 Operating profit/(loss) from continuing operations 2 114 (1,074) (4,042) ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ Operating profit/(loss) is analysed as: Before exceptional items 114 (902) (2,618) Reorganisation costs - (172) (1,424) ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ Interest receivable 100 112 193 Interest payable (1,901) (1,179) (2,670) Other finance income 1,260 504 1,010 ____________________________________________________________________________________________________________ Loss before tax (427) (1,637) (5,509) Taxation 3 196 (614) (1,116) ____________________________________________________________________________________________________________ Loss for the period from continuing operations (231) (2,251) (6,625) Discontinued operations (Loss)/profit for the period from discontinued operations 4 (15,646) 1,073 1,579 ____________________________________________________________________________________________________________ Loss for the period (15,877) (1,178) (5,046) Profit attributable to minority interest 107 54 115 Loss attributable to equity shareholders (15,984) (1,232) (5,161) ____________________________________________________________________________________________________________ (15,877) (1,178) (5,046) ____________________________________________________________________________________________________________ (Loss) per share expressed in pence per share 6 Basic (58.3) (4.6) (19.1) Diluted (58.3) (4.6) (19.1) (Loss) per share from continuing operations Basic (1.2) (8.7) (25.0) Diluted (1.2) (8.7) (25.0) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Note Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 (unaudited) (unaudited (unaudited and restated) and £'000 £'000 restated) £'000 ____________________________________________________________________________________________________________ Loss for the period (15,877) (1,178) (5,046) Actuarial gain recognised in retirement benefit scheme 11,029 6,633 3,974 Movement on deferred tax relating to retirement benefit liabilities - (1,990) (6,275) Net exchange differences offset in reserves 372 606 606 ____________________________________________________________________________________________________________ Net gains/(losses) not recognised in income statement 11,401 5,249 (1,695) ____________________________________________________________________________________________________________ Total recognised income/(expense) for the period (4,476) 4,071 (6,741) ____________________________________________________________________________________________________________ Attributable to: Equity shareholders (4,583) 4,017 (6,856) Minority interest 107 54 115 ____________________________________________________________________________________________________________ Total recognised income/(expense) for the period (4,476) 4,071 (6,741) ____________________________________________________________________________________________________________ Adoption of IAS 39 attributable to: Equity shareholders (12) Minority interests - ____________________________________________________________________________ (12) ____________________________________________________________________________ CONSOLIDATED BALANCE SHEET Note Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 (unaudited) (unaudited (unaudited and restated) and £'000 £'000 restated) £'000 ____________________________________________________________________________________________________________ Assets Non-current assets Goodwill 6,338 10,168 16,123 Intangible assets 10,456 7,777 14,173 Property, plant and equipment 31,613 69,857 71,294 Investments accounted for using equity method - 74 146 Trade and other receivables 597 790 604 Deferred tax assets 2,620 8,594 3,208 ____________________________________________________________________________________________________________ 51,624 97,260 105,548 Current assets Inventories 9,072 23,541 24,004 Trade and other receivables 16,492 47,935 51,227 Financial assets - derivative financial instruments - - 24 Cash and cash equivalents 7,808 12,959 8,919 ____________________________________________________________________________________________________________ 33,372 84,435 84,174 ____________________________________________________________________________________________________________ Assets classified as held for sale 93,182 - - ____________________________________________________________________________________________________________ Current assets 126,554 84,435 84,174 ____________________________________________________________________________________________________________ Liabilities Current liabilities Financial liabilities - Borrowings 44,027 21,362 35,884 - Derivative financial instruments 26 - - Trade and other payables 12,935 48,182 47,270 Current tax liabilities 3,008 402 1,153 ____________________________________________________________________________________________________________ 59,996 69,946 84,307 ____________________________________________________________________________________________________________ Liabilities directly associated with assets classified as held for sale 45,149 - - ____________________________________________________________________________________________________________ Current liabilities 105,145 69,946 84,307 ____________________________________________________________________________________________________________ Net current assets/(liabilities) 21,409 14,489 (133) ____________________________________________________________________________________________________________ Non-current liabilities Financial liabilities - borrowings 20,246 27,515 24,754 Deferred tax liabilities 1,682 - 3,116 Other non current liabilities 1,153 241 1,155 Retirement benefit obligations 4,952 23,004 23,076 Provisions 2,879 1,950 5,615 ____________________________________________________________________________________________________________ 30,912 52,710 57,716 ____________________________________________________________________________________________________________ Net Assets 42,121 59,039 47,699 ____________________________________________________________________________________________________________ Shareholders equity Ordinary shares 28,127 27,824 28,121 Share premium 34,072 34,070 34,070 Revaluation reserve 1,751 2,213 1,751 Capital redemption reserve 500 500 500 Translation reserve 978 606 606 Profit and loss account (24,187) (6,878) (18,114) ____________________________________________________________________________________________________________ Equity shareholders funds 7 41,241 58,335 46,934 Minority interests (equity interests) 880 704 765 ____________________________________________________________________________________________________________ Total equity 42,121 59,039 47,699 ____________________________________________________________________________________________________________ CONSOLIDATED CASH FLOW STATEMENT Note Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 (unaudited) (unaudited (unaudited and restated) and £'000 £'000 restated) £'000 ____________________________________________________________________________________________________________ Cash flows from operating activities Cash generated from operations 8 6,328 (199) 8,613 Interest received 100 112 234 Interest paid (1,382) (1,101) (2,568) Tax received/(paid) 348 (1,293) (2,062) ____________________________________________________________________________________________________________ Net cash from operating activities 5,394 (2,481) 4,217 ____________________________________________________________________________________________________________ Cash flows from investing activities Acquisition of subsidiaries (net of cash required) - - (11,395) Proceeds from sale of property, plant and equipment 38 690 988 Purchase of property, plant and equipment (4,737) (2,947) (8,060) Capitalised development costs (3,641) (1,066) (4,774) ____________________________________________________________________________________________________________ Net cash used in investing activities (8,340) (3,323) (23,241) ____________________________________________________________________________________________________________ Cash flows from financing activities Net proceeds from issues of ordinary share capital 8 - 297 Net movements in loans and finance leases 1,903 10,718 20,058 Decrease/(increase) in derivatives 50 - (12) Dividends paid to shareholders (1,316) (1,268) (2,293) ____________________________________________________________________________________________________________ Net cash used in financing activities 645 9,450 18,050 ____________________________________________________________________________________________________________ Effects of exchange rate changes 15 (69) 68 ____________________________________________________________________________________________________________ Net (decrease)/increase in cash and cash equivalents (2,286) 3,577 (906) Cash and cash equivalents at beginning of the period 7,702 8,608 8,608 ____________________________________________________________________________________________________________ Cash and cash equivalents at end of the period 9 5,416 12,185 7,702 ____________________________________________________________________________________________________________ NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Basis of preparation These interim financial statements are the first interim financial statements following the adoption of International Financial Reporting Standards (IFRS). As the Group has not previously published a full set of financial statements under IFRS the content of these statements has been expanded to include summarised reconciliations to those previously reported under UK GAAP for the six months ended 31 March 2005 and the year ended 30 September 2005 (note 10). Additional statements regarding the transition, together with the new Group accounting policies under IFRS can be found on the home page of Avon Rubber p.l.c. website at www.avon-rubber.com under the heading 'Corporate Information: Press Releases'. The financial information has been prepared in accordance with all international Financial Reporting Standards and IFRS interpretations that had been published by 31 March 2006 and apply to accounting periods beginning on or after 1 January 2005. The standards used are those endorsed by the EU together with those standards and interpretations that have been issued by the IASB (International Accounting Standards Board) but had not been endorsed by the EU by 31 March 2006. The 2005 comparative information has, as permitted by the exemption in IFRS 1, not been prepared in accordance with IAS 32 'Financial instruments: Disclosure and presentation' and IAS 39 'Financial instruments: Recognition and measurement'. At this stage in the development of IFRS, matters such as the interpretation and application surrounding it are continuing to evolve. In addition, IFRS currently in issue and endorsed by the EU are subject to interpretation by IFRIC (International Financial Reporting Interpretations Committee) and further Standards may be issued by the IASB that will be endorsed by September 2006. Accordingly, the accounting policies for 2006 will only finally be determined when the annual financial statements are prepared for the year ending 30 September 2006. These uncertainties could result in the need to change the basis of accounting or presentation of certain financial information from that presented in this document. This interim report is unaudited and does not constitute audited accounts within the meaning of the Companies Act 1985. The accounts for the year ended 30 September 2005, on which the auditors gave an unqualified audit opinion, were not prepared in accordance with International Financial Reporting Standards and IFRIC interpretations but have been filed with the Registrar of Companies. 2. Segmental analysis Due to the differing natures of the products and their markets, Avon Rubber p.l.c.'s primary reporting segment is by business. The secondary reporting format comprises the geographical segments by origin. Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 £'000 £'000 £'000 ____________________________________________________________________________________________________________ Turnover by business sector Protection & Engineered Products 36,929 24,514 53,334 Automotive Components (discontinued operation) 96,702 90,372 186,391 ____________________________________________________________________________________________________________ 133,631 114,886 239,735 ____________________________________________________________________________________________________________ Operating profit by business sector Protection & Engineered Products 114 (902) (2,618) Automotive Components (discontinued operation) 4,043 3,235 8,801 ____________________________________________________________________________________________________________ 4,157 2,333 6,183 Exceptional operating expenses Protection & Engineered Products - (172) (1,424) Automotive Components (discontinued operation) - (1,760) (6,734) ____________________________________________________________________________________________________________ 4,157 401 (1,975) ____________________________________________________________________________________________________________ Turnover by origin Europe 66,947 66,001 135,085 North America 66,684 48,885 104,650 ____________________________________________________________________________________________________________ 133,631 114,886 239,735 ____________________________________________________________________________________________________________ Operating profit by origin Europe (460) (534) (978) North America 4,617 2,867 7,161 ____________________________________________________________________________________________________________ 4,157 2,333 6,183 Exceptional operating expenses Europe - (1,932) (7,393) North America - - (765) ____________________________________________________________________________________________________________ 4,157 401 (1,975) ____________________________________________________________________________________________________________ The operating profit numbers in the above tables reflect the decision to dispose of the automotive group and therefore do not include any allocation of central costs which were previously allocated between the two primary segments. The table below shows how operating profits would have been analysed using the previous basis. Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 £'000 £'000 £'000 ____________________________________________________________________________________________________________ Operating profit by business sector Protection & Engineered Products 2,006 796 726 Automotive Components (discontinued operation) 2,151 1,537 5,457 ____________________________________________________________________________________________________________ 4,157 2,333 6,183 Exceptional operating expenses Protection & Engineered Products - (172) (1,424) Automotive Components (discontinued operation) - (1,760) (6,734) ____________________________________________________________________________________________________________ 4,157 401 (1,975) ____________________________________________________________________________________________________________ 3. Taxation The split of the tax charge/(credit) between UK and overseas is as follows: Half year to Half year to Half year to Half year to 31 March 06 31 March 06 31 March 06 31 March 05 Continuing Discontinued Total Total £'000 £'000 £'000 £'000 ____________________________________________________________________________________________________________ United Kingdom - - - (189) Overseas (196) 1,856 1,660 1,207 ____________________________________________________________________________________________________________ (196) 1,856 1,660 1,018 ____________________________________________________________________________________________________________ The tax charge relating to the sale of operations is £1,944,000 (2005: nil) 4. Sale of operations On 18 May 2006, the Group announced the proposed sale of its Automotive division for a consideration of £53,977,000. The consideration is expected to be received in June 2006. Results from discontinued operations Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 £'000 £'000 £'000 ____________________________________________________________________________________________________________ Revenue 96,702 90,372 186,391 Operating profit from discontinued operations 4,043 1,475 2,067 ____________________________________________________________________________________________________________ Operating profit/(loss) is analysed as: Before exceptional items 4,043 3,235 8,801 Reorganisation costs - (1,760) (6,734) ____________________________________________________________________________________________________________ Share of post tax profits of joint venture - 2 78 Taxation on profits from discontinued operations (1,856) (404) (566) Loss on disposal (17,833) - - ____________________________________________________________________________________________________________ (Loss)/profit for the year from discontinued operations (15,646) 1,073 1,579 ____________________________________________________________________________________________________________ The loss on disposal has been calculated as follows: £'000 ____________________________________________________________________________________________________________ Proceeds from sale 53,977 Costs associated with sale (4,000) ___________________________________________________________________________ 49,977 Taxation on disposal (1,944) ___________________________________________________________________________ Net proceeds from sale 48,033 Net assets disposed of pre impairment (64,866) ___________________________________________________________________________ (16,833) Other provisions (1,000) ___________________________________________________________________________ Loss on disposal after tax (17,833) ___________________________________________________________________________ Net assets disposed of pre impairment 64,866 Impairment (16,833) ___________________________________________________________________________ Net assets shown in balance sheet 48,033 ___________________________________________________________________________ 5. Dividends The directors are proposing an interim dividend in respect of the half year ending 31 March 2006 of 3.7p which will absorb an estimated £1,040,000 of shareholders' funds. The dividend will be paid on 3 July 2006 to shareholders on the register at noon on 9 June 2006. In accordance with IFRS the interim dividend is not recorded as a liability nor reflected in the income statement. 6. Earnings per share Basic loss per share is based on a loss attributable to ordinary shareholders of £15,984,000 (2005: £1,232,000) and 27,406,000 (2005: 26,617,000) ordinary shares, being the weighted average of the shares in issue during the period on which dividends are paid. Loss per share on continuing operations is based on a loss of £338,000 (2005: £2,305,000). The loss per share on discontinued operations is 57.1p (2005: earnings: 4.0p) and is based on a loss of £15,646,000 (2005: £1,073,000 profit). The company has dilutive potential ordinary shares in respect of the Sharesave Option Scheme and the Performance Share Plan. The diluted loss per share is not materially different to the basic loss per share. 7. Shareholders' funds and statement of changes in shareholders equity Note Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 £'000 £'000 £'000 ____________________________________________________________________________________________________________ At the beginning of the period 46,934 55,405 55,405 Loss for the period attributable to equity shareholders (15,984) (1,232) (5,161) Dividends (1,315) (1,268) (2,294) Actuarial gain recognised in retirement benefit schemes 11,029 6,633 3,974 Movement on deferred tax relating to retirement benefit liabilities - (1,990) (6,275) Net exchange differences offset in reserves 372 606 606 New share capital subscribed 8 297 Movement in respect of employee share scheme 197 181 382 ____________________________________________________________________________________________________________ At the end of the period 41,241 58,335 46,934 ____________________________________________________________________________________________________________ 8. Cash generated from operations Half year to Half year to Year to 30 31 March 06 31 March 05 Sept 05 £'000 £'000 £'000 ____________________________________________________________________________________________________________ Continuing operations Loss for the financial year (231) (1,762) (5,939) Adjustments for: Tax (196) 125 430 Depreciation 1,456 1,665 2,730 Amortisation and impairment of intangibles 462 25 215 Net interest expense 1,801 1,067 2,477 Other finance income (1,260) (504) (1,010) Movements in working capital and provisions (1,049) (1,600) (3,640) Other movements 730 100 343 ____________________________________________________________________________________________________________ Cash generated from continuing operations 1,713 (884) (4,394) ____________________________________________________________________________________________________________ Discontinued operations: (Loss)/profit for the financial year (15,646) 584 893 Adjustments for: Tax 1,856 893 1,252 Depreciation 2,809 3,082 5,521 Amortisation and impairment of intangibles 744 906 2,288 Movements in working capital and provisions 14,828 (4,730) 3,153 Other movements 24 (50) (100) ____________________________________________________________________________________________________________ Cash generated from discontinued operations 4,615 685 13,007 ____________________________________________________________________________________________________________ Cash generated from operations 6,328 (199) 8,613 ____________________________________________________________________________________________________________ 9. Analysis of net debt As at 30 Cash Amortisation Exchange As at 31 Sep 05 Flow of loan issue movements Mar 06 costs £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________________________________ Cash at bank and in hand 3,902 568 - 53 4,523 Overdrafts (1,217) (1,137) - (38) (2,392) Current asset investments classified as cash equivalents 5,017 (1,732) - - 3,285 ____________________________________________________________________________________________________________ Cash and cash equivalents 7,702 (2,301) - 15 5,416 Debt due after 1 year (24,754) 4,734 - (226) (20,246) Debt due within 1 year (34,665) (6,639) (30) (301) (41,635) Finance leases (2) 2 - - - ____________________________________________________________________________________________________________ (51,719) (4,204) (30) (512) (56,465) ____________________________________________________________________________________________________________ 10. Reconciliation of operating (loss)/profit and equity shareholders funds under UK GAAP to IFRS Avon Rubber p.l.c. reported under UK GAAP in its previously published financial statements for the half year ended 31 March 2005 and the year ended 30 September 2005. The analysis below shows a reconciliation if operating profit/(loss) and equity shareholders funds as reported under UK GAAP as at 31 March 2005 and 30 September 2005 to the revised operating (loss)/profit and equity shareholders funds under IFRS as reported in these financial statements. Note Half year to Year to 30 31 March 05 Sept 05 £'000 £'000 ____________________________________________________________________________________________________ Reconciliation of total operating loss As per UK GAAP 772 (1,325) 2005 development costs now capitalised d 277 643 Amortisation and impairment of development costs and other intangibles d (323) (1,244) Goodwill amortisation a 348 802 Share options b (802) (1,002) Reduced depreciation on re-valued assets c 131 262 Share of profits of joint venture (2) (111) ____________________________________________________________________________________________________ As per IFRS (note 2) 401 (1,975) ____________________________________________________________________________________________________ Reconciliation of equity shareholders funds As per UK GAAP 66,987 55,578 Development costs and other intangibles d 2,179 1,625 Goodwill amortisation a 348 802 2005 dividend proposed not yet paid e 1,003 1,315 Re-valuation of fixed assets c (11,780) (11,649) Deferred tax adjustment j (402) (737) ____________________________________________________________________________________________________ As per IFRS (note 2) 58,335 46,934 ____________________________________________________________________________________________________ Reconciliation of equity at 1 October 2004 UK GAAP IFRS IFRS IFRS reformatted Reclassifications Adjustments Restated Note £'000 £'000 £'000 £'000 __________________________________________________________________________________________________ Assets Non-current assets Goodwill 10,144 10,144 Intangible assets d 4,451 809 2,226 7,486 Property, plant and equipment c 85,330 (809) (11,911) 72,610 Investments accounted for using equity method 68 68 Trade and other receivables 617 617 Deferred tax assets f 795 8,489 9,284 __________________________________________________________________________________________________ 101,405 8,489 (9,685) 100,209 Current assets Inventories 20,983 20,983 Trade and other receivables 43,342 43,342 Financial assets - derivative financial instruments k 12 12 Cash and cash equivalents 9,885 9,885 __________________________________________________________________________________________________ 74,210 12 - 74,222 Liabilities Current liabilities Financial liabilities - Borrowings 24,641 24,641 Trade and other payables e 45,274 12 (1,268) 44,018 Current tax liabilities 2,019 2,019 __________________________________________________________________________________________________ 71,934 12 (1,268) 70,678 Non-current liabilities Financial liabilities - borrowings 14,931 14,931 Deferred tax liabilities j 1,500 (71) 1,429 Other non-current liabilities 401 401 Retirement benefit obligations f 19,654 8,489 28,143 Provisions 2,794 2,794 __________________________________________________________________________________________________ 39,280 8,489 (71) 47,698 __________________________________________________________________________________________________ Net assets 64,401 - (8,346) 56,055 __________________________________________________________________________________________________ Shareholders equity Ordinary shares 27,824 27,824 Share premium 34,070 34,070 Revaluation reserve 2,213 2,213 Capital redemption reserve 500 500 Profit and loss account (856) (8,346) (9,202) __________________________________________________________________________________________________ Equity shareholders funds 63,751 - (8,346) 55,405 Minority interests (equity interests) 650 650 __________________________________________________________________________________________________ Total equity 64,401 - (8,346) 56,055 __________________________________________________________________________________________________ Reconciliation of equity at 31 March 2005 UK GAAP IFRS IFRS IFRS reformatted Reclassifications Adjustments Restated Note £'000 £'000 £'000 £'000 __________________________________________________________________________________________________ Assets Non-current assets Goodwill a 9,820 348 10,168 Intangible assets d 4,798 800 2,179 7,777 Property, plant and equipment c 82,437 (800) (11,780) 69,857 Investments accounted for using equity method 74 74 Trade and other receivables 790 790 Deferred tax assets f 8,594 8,594 __________________________________________________________________________________________________ 97,919 8,594 (9,253) 97,260 Current assets Inventories 23,541 23,541 Trade and other receivables 47,935 47,935 Cash and cash equivalents 12,959 12,959 __________________________________________________________________________________________________ 84,435 - - 84,435 Liabilities Current liabilities Financial liabilities - Borrowings 21,362 21,362 Trade and other payables e 49,185 (1,003) 48,182 Current tax liabilities 402 402 __________________________________________________________________________________________________ 70,547 - (601) 69,946 Non-current liabilities Financial liabilities - borrowings 27,515 27,515 Other non-current liabilities 241 241 Retirement benefit obligations f 14,410 8,594 23,004 Provisions 1,950 1,950 __________________________________________________________________________________________________ 44,116 8,594 - 52,710 __________________________________________________________________________________________________ Net assets 67,691 - (8,652) 59,039 __________________________________________________________________________________________________ Shareholders equity Ordinary shares 27,824 27,824 Share premium 34,070 34,070 Revaluation reserve 2,213 2,213 Capital redemption reserve 500 500 Translation reserve 606 606 Profit and loss account 1,774 (8,652) (6,878) __________________________________________________________________________________________________ Equity shareholders funds 66,987 - (8,652) 58,335 Minority interests (equity interests) 704 704 __________________________________________________________________________________________________ Total equity 67,691 - (8,652) 59,039 __________________________________________________________________________________________________ Reconciliation of equity at 30 September 2005 UK GAAP IFRS IFRS IFRS reformatted Reclassifications Adjustments Restated Note £'000 £'000 £'000 £'000 __________________________________________________________________________________________________ Assets Non-current assets Goodwill a 18,299 (2,058) 16,241 Intangible assets d 7,416 772 5,985 14,173 Property,plant and equipment c 83,715 (772) (11,649) 71,294 Investments accounted for using equity method 146 146 Trade and other receivables 604 604 Deferred tax assets f 788 2,420 3,208 __________________________________________________________________________________________________ 110,968 2,420 (7,722) 105,666 Current assets Inventories 24,004 24,004 Trade and other receivables 51,251 (24) 51,227 Financial assets - derivative financial instruments k 24 24 Cash and cash equivalents 8,919 8,919 __________________________________________________________________________________________________ 84,174 - - 84,174 Liabilities Current liabilities Financial liabilities - Borrowings 35,884 35,884 Trade and other payables e 48,585 (1,315) 47,270 Current tax liabilities 1,153 1,153 __________________________________________________________________________________________________ 85,622 - (1,315) 84,307 Non-current liabilities Financial liabilities - borrowings 24,754 24,754 Deferred tax liabilities j 997 2,237 3,234 Other non-current liabilities 1,155 1,155 Retirement benefit obligations f 20,656 2,420 23,076 Provisions 5,615 5,615 __________________________________________________________________________________________________ 53,177 2,420 2,237 57,834 __________________________________________________________________________________________________ Net assets 56,343 - (8,644) 47,699 __________________________________________________________________________________________________ Shareholders equity Ordinary shares 28,121 28,121 Share premium 34,070 34,070 Revaluation reserve 1,751 1,751 Capital redemption reserve 500 500 Translation reserve 606 606 Profit and loss account (9,470) (8,644) (18,114) __________________________________________________________________________________________________ Equity shareholders funds 55,578 - (8,644) 46,934 Minority interests (equity interests) 765 765 __________________________________________________________________________________________________ Total equity 56,343 - (8,644) 47,699 __________________________________________________________________________________________________ Explanation of key IFRS adjustments a) Under UK GAAP, goodwill on businesses acquired by the Group on or after 3 October 1998 is capitalised and amortised on a straight line basis over its useful economic life. Under IFRS, from 1 October 2004 onwards, goodwill will no longer be amortised, but will instead be subject to annual impairment reviews. All goodwill was tested for impairment at the transition date with no adjustment necessary on transition from UK GAAP to IFRS. Where goodwill is deductible for tax purposes in the relevant jurisdiction, a temporary difference arises and consequently a related deferred tax liability has been recognised under IFRS. b) Under UK GAAP, Avon Rubber p.l.c. recognises as an expense the intrinsic value at the date of the award, of options granted under the Performance Share Plan 2002 accrued over the vesting period to the extent that they are projected to vest. No expense is recognised for Sharesave option schemes for which UK GAAP recognises an exemption. Under IFRS the cost of all share-based payments, based on the fair values of the options or shares at the date of grant and calculated using an appropriate model, is recognised over the vesting period of the award. The Group has used the Black-Scholes model to value equity instruments. Under IFRS 2, a deferred tax asset is calculated in respect of future anticipated tax relief under Schedule 23 FA 2003. Due to the deferred tax position of the group, this deferred tax asset has not been recognised in the IFRS accounts. c) Under the options available under IFRS 1 the company has chosen to measure its United Kingdom freehold properties on a fair value basis and adopt this valuation as deemed cost as at the date of transition, 1 October 2004. This valuation was undertaken by DTZ Debenham Tie Leung Limited. This has also resulted in a lower depreciation charge. The change in valuation has led to an increase in the deferred tax asset, both in 2004 and 2005. Due to the deferred tax position of the group, this increased asset has been recognised in part in 2004, but the entry reversed in the 2005 profit and loss account so that no further deferred tax asset is recognised in the 2005 balance sheet. d) Under IAS 38 'Intangible Assets', the company is required to capitalise the cost of developments which meet certain recognition criteria, including the technical feasibility of, and probable future economic benefit arising from, the project. This expenditure is then amortised over the anticipated future life of the economic benefits arising and is subject to ongoing impairment reviews. Whereas SSAP13 permits an entity either to recognise development expenditure that meets the conditions for recognition as an asset or to write it off to the profit and loss account, IAS 38 does not permit a choice. If the development expenditure meets the recognition criteria it must be capitalised. As the development costs have historically been treated as a deductible, current year expense for tax purposes in the relevant jurisdictions, a temporary difference arises and a deferred tax liability is created under IFRS. e) Under UK GAAP dividends relating to an accounting period but declared after the balance sheet date were recognised as a liability even if the approval of that dividend took place after the balance sheet date. Under IFRS, proposed dividends do not meet the definition of a liability until such time as they have been declared, and in the case of the final dividend, approved by shareholders at the Annual General Meeting. f) Under UK GAAP the company had already adopted FRS 17 'Retirement Benefits'. Under FRS 17, scheme assets are measured using market values while liabilities are measured using the projected unit method. The operating and financing costs of defined benefit pension schemes are recognised in the profit and loss account as operating costs and finance costs respectively. Variations from expected costs arising from the experience of the plans to changes in actuarial assumptions are recognised immediately in the Statement of Total Recognised Gains and Losses. g) The change to IAS 19 'Employee Benefits' does not give rise to any significant change in the basis of accounting for pensions, as Avon Rubber p.l.c. will adopt the option allowed under IAS 19 to take actuarial gains and losses immediately and directly to equity through the Statement of Recognised Income and Expense. Changes are largely confined to presentation, in that retirement benefit scheme surpluses and deficits must be aggregated separately on the face of the balance sheet and shown gross, rather than net, of deferred taxation. h) Under IFRS 3, the UK GAAP goodwill arising on the ISI acquisition has been analysed into further intangible assets, namely patents and distribution network. Under IAS 12, no initial recognition exemption is available in respect of these intangible assets as they arise as a result of a business combination. Deferred tax is therefore provided on these intangible assets. Goodwill is then adjusted by the amount of deferred tax so that the total acquisition cost remains unchanged, and there is therefore no impact on the 2005 profit and loss account. i) Under UK GAAP computer software costs were capitalised and included within tangible assets. Under IAS 38 computer software costs are now classified as intangible assets. j) Other than the adjustments to deferred taxation arising from the IFRS adjustments described in paragraphs a - i above, there are no significant adjustments to either current or deferred tax resulting from the change from UK GAAP to IAS 12. k) It has been the practice of the Group to manage its exposures to movements in currency exchange rates and interest rates by use of derivative contracts, namely forward currency contracts. Under IFRS such contracts must be recognised as assets and liabilities on the balance sheet measured at fair value, which is in contrast to UK GAAP accounting. However, as the Group has decided not to hedge account for its derivative financial instruments as permitted under IAS 39, they are accounted for through the income statement. 11. Copies of this announcement are being sent to shareholders. Copies are also available from the company's registered office at Hampton Park West, Semington Road, Melksham, Wiltshire. SN12 6NB, England. (Telephone +44 1225 896871), or via the corporate website (www.avon-rubber.com). This information is provided by RNS The company news service from the London Stock Exchange
UK 100

Latest directors dealings