Final Results
Avon Rubber PLC
04 December 2003
Strictly embargoed until
07.00 4 December 2003
Avon Rubber p.l.c.
Preliminary results for the year ended 30 September 2003
2003 2002
£Million £Million
-------- --------
TURNOVER 248.5 250.5
----------
TOTAL OPERATING PROFIT - before goodwill amortisation and exceptionals 11.2 11.1
------------------------
TOTAL OPERATING PROFIT 10.5 3.7
------------------------
PROFIT / (LOSS) BEFORE TAX & GOODWILL AMORTISATION (PBTA)
-----------------------------------------------------------
- before exceptionals 8.4 7.6
- after exceptionals 8.4 (0.8)
PROFIT / (LOSS) BEFORE TAX 7.7 (1.5)
----------------------------
EARNINGS / (LOSS) PER SHARE
-----------------------------
Basic 20.3p (5.7)p
Before exceptional items 20.3p 16.0p
Before exceptional items and goodwill amortisation 22.9p 18.3p
Diluted 19.2p (5.7)p
DIVIDEND PER SHARE 8.0p 7.5p
--------------------
NOTE: Management believes that reporting results before goodwill amortisation
and exceptional items provides a better comparison of underlying business
performance for the year.
• PBTA before exceptionals increased by 9.2%
• EPS before exceptionals increased by 26.9%
• Final dividend increased by 12.5% to 4.5p
• Gearing reduced to 46.2%
Commenting on the results, Steve Willcox, Chief Executive said: 'We have
continued to develop the two exciting growth areas we highlighted at the time of
our interim statement in May, our water hose facility in Orizaba, Mexico and the
new generation respirators. We expect to see progressive benefits from the
Orizaba operation this financial year and from new generation respirators from
2005 onwards.
We face some uncertainties with exchange rate movements, particularly in respect
of the US dollar. However, we are well positioned for any economic improvement
being reflected in higher demand in the automotive market, although the timing
of this remains uncertain.
We expect the strong demand for our military related products to continue into
2004 and look to benefit progressively from our repositioning in the European
dairy market.
We will continue to pursue our strategic direction and to focus on operational
efficiency and cash generation to deliver enhanced shareholder value.'
For further enquiries, please contact:
Avon Rubber p.l.c
Steve Willcox, Chief Executive 020 7067 0700
Terry Stead, Finance Director (until 3:30pm)
From 5 December 01225 861100
(Local/Trade Press)
Jayne Hunt 01225 861100
Weber Shandwick Square Mile
Richard Hews 020 7067 0700
Rachel Taylor
An analyst meeting will be held at 09.30 this morning at the offices of Weber
Shandwick Square Mile, Fox Court, 14 Gray's Inn Road, London, WC1X 8WS.
High resolution images are available for the media to download free of charge
from www.vismedia.co.uk.
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 £60 million.
Avon is a significant supplier to the world's automotive, engineering, dairy and
defence markets - manufacturing high performance elastomer products. The
business is split into two divisions: Automotive Components and Technical
Products.
Avon Rubber p.l.c.
Preliminary results for the year ended 30 September 2003
Introduction
We have seen continued operational improvement in the second half of the year
underpinned by the benefits of our Six Sigma Breakthrough programme and the
relocation of business following the closure of Trowbridge. Despite increases in
insurance and UK pension costs and some market weakness in automotive, profit
before tax for the year was £7.7 million compared to a loss of £1.5 million
(after exceptional charges) last year. This represents an increase in profit
before tax, exceptional items and goodwill amortisation of 9.2% from £7.6
million in 2002 to £8.4 million this year.
The market in North American Automotive, particularly for the 'big 3' domestic
producers, showed some weakening from the previous year. In the first half of
the year this was mitigated by a short-term project to support one of our major
customers. Whilst we are increasing our efforts to supply the 'new domestics',
this has only partially offset the weakness with traditional domestic customers.
We have seen encouraging progress at our water hose facility in Orizaba, Mexico,
where sales in the second half of the year were more than double those of the
same period last year.
In European Automotive we saw the expected benefits from the closure of
Trowbridge being reflected in performance. However, these did not fully
compensate for a softening market and the impact of increases in insurance and
UK pension costs.
In Technical Products we achieved a significant improvement in performance
largely as a result of higher demand for our military related products. Progress
with the new US military respirator has continued to plan and we have now
started our investment for prototype production in North America.
Our focus on cash generation has continued. As a result, net borrowings at £38.0
million (2002: £41.0 million) were £3.0 million lower than last year and £5.4
million lower than at the half-year. Gearing has now been reduced to 46.2%. The
impact of this and lower interest rates can be seen in the reduced net interest
charge of £2.8 million compared with £3.4 million last year, a reduction of £0.6
million. Annual interest charges have now fallen by £2.5 million over the past
two years.
On 20 November 2003, we completed the disposal of Avon Spencer Moulton, our
French crawler track and railway components business, for a total consideration
of £3.3 million. In the year to 30 September 2003 Avon Spencer Moulton had
external sales of £8.2 million and an operating profit of £0.4 million.
Results
Sales at £248.5 million (2002: £250.5 million) were down by £2.0 million, but
increased by £1.0 million when translating 2002 results at 2003 exchange rates
('constant exchange rates'). Sales in Technical Products at constant exchange
rates increased significantly to £68.3 million (2002: £62.7 million) with
European Automotive down £6.6 million at £103.9 million (2002: £110.5 million)
and North American Automotive up from £74.3 million in 2002 to £76.3 million.
Group operating profit before goodwill amortisation was £11.2 million (2002:
£4.4 million or £11.1 million before exceptional charges). At constant exchange
rates, Group operating profit before goodwill amortisation of £11.2 million
increased by £0.7 million from £10.5 million. North American operating profit
increased by £0.4 million to £8.1 million and European operating profit before
goodwill amortisation of £0.7 million (2002: £0.6 million) and exceptional
charges increased by £0.3 million to £3.1 million (2002: £2.8 million) despite
increases in insurance and UK pension costs of £2.0 million. Interest charges
were reduced by £0.6 million to £2.8 million (2002: £3.4 million) resulting in
Group profit before tax and goodwill amortisation of £8.4 million (2002: £7.6
million or a loss of £0.8 million after exceptional charges).
Basic earnings per share were 20.3p (2002: 16.0p before exceptional items) based
on an effective tax rate of 27.6% (2002: 40.0%). Earnings per share before
exceptional items and goodwill amortisation were 22.9p (2002: 18.3p).
As expected, net borrowings decreased by £3.0 million to £38.0 million (2002:
£41.0 million), a reduction of £5.4 million in the second half. Capital
expenditure at £8.3 million (2002: £5.1 million) remained below depreciation of
£9.5 million (2002: £10.4 million). Trade working capital at 13% of sales was
higher than the very low level of 11% achieved last year. Part of the increase
in working capital was the result of the timing of the planned increase in sales
of our military related products.
UK operations have become a progressively smaller part of total Group
activities, particularly following the closure of operations in Croydon and
Trowbridge in recent years. Accordingly, in order to reflect our internal
management structure, we no longer analyse the UK activities separately in our
segmental analysis.
Automotive Components
Sales at constant exchange rates were down £4.6 million at £180.2 million (2002:
£184.8 million) reflecting the overall softening of the automotive market. In
North America, sales were up by £2.0 million to £76.3 million (2002: £74.3
million) primarily as a result of the short-term project to support one of our
major customers in the first half of the year.
Towards the end of the year we saw the expected rapid growth at Orizaba, Mexico
where sales in the second half were more than double those of the same period
last year. We expect a similar step change in the second half of 2004. There has
been significant investment and development cost to achieve this growth as well
as the new CADbar products to meet LEV II regulations. As a result operating
profit at constant exchange rates in North American Automotive was down by £0.4
million at £3.3 million (2002: £3.7 million).
In Europe, sales at £103.9 million (2002: £110.5 million) were down by £6.6
million resulting from lower demand and severe pricing pressures. We can
identify that the planned benefits from the closure of our Trowbridge facility
in 2002 are being achieved. However, these have been largely offset by increases
in pension and insurance costs of £2.0 million in the period. Despite the focus
on operational improvement this resulted in a breakeven performance (2002:
profit £0.5 million).
Technical Products
Sales at constant exchange rates were up by £5.6 million at £68.3 million (2002:
£62.7 million) with operating profit before exceptional charges on a similar
basis up 28.6% at £7.2 million (2002: £5.6 million).
The higher sales of military related products, noted in our interim statement,
continued in the second half and enabled the UK operation at Hampton Park West
to continue its improvement. We are now achieving the level of returns that were
planned at the time of our investment in this facility. In addition to increased
sales of respirators, we also saw strong demand in our military fabrications
joint venture business in Picayune, Mississippi.
Our Hi-Life dairy business in North America continued to perform strongly by
providing advanced technology products under the Milk-Rite brand to the
aftermarket as well as supplying original equipment customers. In September we
launched the Milk-Rite brand in Europe supplying customers closer to the end
user. The costs of this launch were taken in the year.
Financing
Net debt at the year-end stood at £38.0 million (2002: £41.0 million) a
reduction of £3.0 million in the year and £5.4 million in the second half. This
resulted in year-end gearing of 46.2% (2002: 53%) which met our previously stated
short term goal of achieving gearing of less than 50%.
As a result of this continued debt reduction coupled with lower worldwide
interest rates we have reduced our net interest charge in the year by £0.6
million to £2.8 million (2002: £3.4 million). Annual net interest charges have
now been reduced by £2.5 million over the past two years.
Total capital expenditure is not expected to exceed depreciation over the next
few years. We will require some investment in our growth areas of respirators in
North America and water hose in Orizaba, Mexico, which in time will require some
increase in working capital. We shall continue our focus on cash management.
Dividend
The Board is pleased to recommend an increased final dividend of 4.5p per share
(2002: 4.0p per share) which will be paid on 30 January 2004 to ordinary
shareholders on the register on 16 January 2004. When added to the interim
dividend of 3.5p per share (2002: 3.5p per share) the total dividend is 8.0p per
share (2002: 7.5p per share), an increase of 6.7%.
Outlook
We have continued to develop the two exciting growth areas we highlighted at the
time of our interim statement in May, our water hose facility in Orizaba, Mexico
and the new generation respirators. We expect to see progressive benefits from
the Orizaba operation this financial year and from new generation respirators
from 2005 onwards.
We face some uncertainties with exchange rate movements, particularly in respect
of the US dollar. However, we are well positioned for any economic improvement
being reflected in higher demand in the automotive market, although the timing
of this remains uncertain.
We expect the strong demand for our military related products to continue into
2004 and look to benefit progressively from our repositioning in the European
dairy market.
We will continue to pursue our strategic direction and to focus on operational
efficiency and cash generation to deliver enhanced shareholder value.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2003
2003 2002 2002 2002
Before
Exceptional Exceptional
Total Items Items Total
Note £'000 £'000 £'000 £'000
-------- -------- -------- --------
Turnover 2 248,507 250,509 - 250,509
Cost of sales 3 (203,922) (209,739) - (209,739)
-------- -------- -------- --------
Gross profit 44,585 40,770 - 40,770
-------- -------- -------- --------
Net operating expenses
(including £681,000
(2002:£626,000)
goodwill amortisation) 3 (34,138) (30,349) (6,701) (37,050)
-------- -------- -------- --------
Operating profit 10,447 10,421 (6,701) 3,720
Share of profits of joint
venture and associate 45 21 - 21
-------- -------- -------- --------
Total operating profit
including joint venture
and associate 210,492 10,442 (6,701) 3,741
Loss on disposal of
fixed assets - - (1,205) (1,205)
Loss on disposal of
operations - - (568) (568)
-------- -------- -------- --------
Profit on ordinary
activities before interest 10,492 10,442 (8,474) 1,968
Interest receivable 181 609 - 609
Interest payable (3,003) (4,032) - (4,032)
-------- -------- -------- --------
Profit/(loss) on ordinary
activities before taxation 7,670 7,019 (8,474) (1,455)
Taxation 4 (2,116) (2,810) 2,500 (310)
-------- -------- -------- --------
Profit/(loss) on ordinary
activities after taxation 5,554 4,209 (5,974) (1,765)
Minority interests (108) 194 - 194
-------- -------- -------- --------
Profit/(loss) for the
financial year 5,446 4,403 (5,974) (1,571)
Dividends 6 (2,131) (2,031) - (2,031)
-------- -------- -------- --------
Retained profit/(loss)
for the financial year 3,315 2,372 (5,974) (3,602)
-------- -------- -------- --------
Rate of dividend
Ordinary 8.0p 7.5p
Earnings/ (loss) per
ordinary share 7
Basic 20.3p (5.7)p
Before exceptional items 20.3p 16.0p
Before goodwill
amortisation and
exceptional items 22.9p 18.3p
Diluted 19.2p (5.7)p
All of the Group's turnover and operating profit was generated from continuing
activities.
There is no material difference between the profit/(loss) 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 2003
2003 2002
£'000 £'000
Profit/(loss) for the year 5,446 (1,571)
Net exchange difference on overseas investments 1,330 768
--------- --------
Total gains/(losses) for the year 6,776 (803)
Prior year adjustment - (2,688)
--------- --------
Total gains/(losses) since last annual report 6,776 (3,491)
--------- --------
The prior year adjustment relates to the adoption of FRS 19 (Deferred Tax) in
2002.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 30 September 2003
2003 2002
£'000 £'000
Opening shareholders' funds as previously stated 76,083 81,605
Prior year adjustment (deferred tax) - (2,688)
Opening shareholders' funds restated 76,083 78,917
Profit/(loss) for the year 5,446 (1,571)
Dividends (2,131) (2,031)
Net exchange difference on overseas investments 1,330 768
Closing equity shareholders' funds 80,728 76,083
The prior year adjustment relates to the adoption of FRS 19 (Deferred Tax) in
2002.
CONSOLIDATED BALANCE SHEET
At 30 September 2003
2003 2002
£'000 £'000
Fixed Assets
Intangible assets 14,375 13,107
Tangible assets 92,208 93,306
Investments 595 914
--------- --------
107,178 107,327
--------- --------
Current Assets
Stocks 20,611 19,210
Debtors - amounts falling due within one year 47,538 42,200
Debtors - amounts falling due after more than one year 4,880 5,378
Investments 3,986 3,536
Cash at bank and in hand 7,563 8,042
--------- --------
84,578 78,366
Creditors
Amounts falling due within one year 80,292 70,775
--------- --------
Net current assets 4,286 7,591
--------- --------
Total assets less current liabilities 111,464 114,918
Creditors
Amounts falling due after more than one year 23,934 30,910
Provisions for liabilities and charges 5,282 6,458
--------- --------
Net assets 82,248 77,550
--------- --------
Capital and reserves
Ordinary share capital 27,824 27,824
Share premium account 34,070 34,070
Revaluation reserve 2,518 2,536
Capital redemption reserve 500 500
Profit and loss account 15,816 11,153
--------- --------
Equity shareholders' funds 80,728 76,083
Minority interests (equity interests) 1,520 1,467
--------- --------
Total capital employed 82,248 77,550
CONSOLIDATED CASH FLOW STATEMENT
2003 2002
Note £000 £000
Operating activities
Operating profit 10,492 3,741
Goodwill amortisation 681 626
Depreciation 9,527 10,446
Provision for exceptional operating expenses - 1,388
Movement in working capital and other provisions (2,782) 5,982
Other movements 1,693 1,080
-------- --------
Net cash flow from operating activities 19,611 23,263
Returns on investments and servicing of finance (2,589) (3,359)
Corporation tax paid (1,776) (1,726)
Net capital expenditure (7,325) (4,146)
Capitalised development expenditure (1,519) (625)
Net fixed asset investments (511) (1,120)
Sale of operations - 904
Equity dividends paid (2,013) (1,923)
-------- --------
Net cash inflow before management of
liquid resources and financing 3,878 11,268
Management of liquid resources
Increase in investments treated as liquid resources (544) (3,536)
Financing
Net movement in loans and finance leases (3,183) (8,446)
-------- --------
Increase/(decrease) in cash 151 (714)
-------- --------
Reconciliation of net cash flow to movement in net
debt
Increase/(decrease) in cash 151 (714)
Net movement in loans and finance leases 3,183 8,446
Movement in liquid resources 544 3,536
Amortisation of loan costs (68) (44)
Exchange differences (811) 722
-------- --------
Movement in net debt in the period 2,999 11,946
Net debt at the beginning of the period (41,021) (52,967)
-------- --------
Net debt at the end of the period 8 (38,022) (41,021)
-------- --------
1. NOTES TO THE PRELIMINARY ANNOUNCEMENT
(a) The figures and financial information for the year ended 30 September 2003
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.
(b) The preliminary announcement has been prepared using accounting policies
that are consistent with the policies detailed in the financial statements
for the year ended 30 September 2002 and was approved by the Board of Directors
on 3 December 2003.
2. Segmental Information
for the year ended 30 September 2003
2003 2002
£'000 £'000
a) External sales by destination:
Europe 134,256 133,163
North America 108,150 111,839
Rest of World 6,101 5,507
-------- --------
248,507 250,509
-------- --------
2003 2002
Total Total
External operating External operating
sales profit sales profit/(loss)
b) By business sector: £'000 £'000 £'000 £'000
Before exceptional operating items
Automotive Components 180,240 3,301 186,176 4,485
Technical Products 68,267 7,191 64,333 5,957
--------- --------- -------- ---------
248,507 10,492 250,509 10,442
--------- --------- -------- ---------
2003 2002
Total Total
External operating External operating
sales profit sales profit/(loss)
c) After exceptional operating
items £'000 £'000 £'000 £'000
Automotive Components 180,240 3,301 186,176 (1,853)
Technical Products 68,267 7,191 64,333 5,594
--------- --------- -------- ---------
248,507 10,492 250,509 3,741
--------- --------- -------- ---------
2003 2002
Total Total
External operating External operating
sales profit sales profit/(loss)
£'000 £'000 £'000 £'000
d) By origin:
Before exceptional operating items:
Europe 142,695 2,432 137,348 2,013
North America 105,812 8,060 113,161 8,429
--------- --------- -------- ---------
248,507 10,492 250,509 10,442
--------- --------- -------- ---------
Total Total
External operating External operating
sales profit sales profit/(loss)
e) After exceptional
operating items: £'000 £'000 £'000 £'000
Europe 142,695 2,432 137,348 (4,688)
North America 105,812 8,060 113,161 8,429
--------- --------- -------- ---------
248,507 10,492 250,509 3,741
--------- --------- -------- ---------
The 2002 segmental information has been restated to combine the results of the
United Kingdom and other European operations. In the opinion of the Directors,
this better reflects the structural changes implemented in the past two years.
2003 2002
f) Analysis of external sales and total operating profit: £'000 £'000
External sales
- First half of year 123,548 126,379
- Second half of year 124,959 124,130
-------- --------
248,507 250,509
-------- --------
Total operating profit before exceptional items
- First half of year 5,424 4,784
- Second half of year 5,068 5,658
-------- --------
10,492 10,442
-------- --------
3. £4,784,000 of costs, treated as cost of sales in 2002, have been
re-classified as administrative expenses, as this is considered a better
classification of costs.
4. The taxation charge based on the results for the year comprises:
2003 2002
£'000 £'000
Current tax
UK corporation tax on profits of the year at 30% (2002: 30%) 306 28
Overseas taxes 2,470 1,802
Associated company - (13)
(Over)/under provision in previous years (324) 576
-------- --------
2,452 2,393
Deferred tax
Origination and reversal of timing differences (336) (2,083)
-------- --------
2,116 310
-------- --------
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 30 January 2004 to shareholders on the register at the close of business
on 16 January 2004. The total proposed final dividend will be £1,195,000 (2002:
£1,077,000).
7. Basic earnings per share amounts to 20.3p (2002: loss 5.7p) and is based on
profit after taxation and deduction of minority interests of £5,446,000 (2002:
loss £1,571,000) and 26,779,000 ordinary shares (2002: 27,448,000) being the
weighted average of the shares in issue during the year.
Earnings per share before exceptional items amounts to 20.3p (2002: 16.0p) and
is based on profit after taxation and deduction of minority interests of
£5,446,000 (2002: £4,403,000).
Earnings per share before goodwill amortisation and exceptional items amounts to
22.9p (2002: 18.3p) and is based on profit for the year (adjusted to add back
goodwill amortisation and exceptional charges) of £6,127,000 (2002: £5,029,000).
The company has dilutive potential ordinary shares in respect of the Sharesave
Option Scheme and Performance Share Plan. The diluted earnings per share amounts
to 19.2p (2002: loss 5.7p) and is based on profit after taxation and deduction
of minority interests of £5,446,000 (2002: loss £1,571,000) and 28,377,000
ordinary shares (2002: 28,007,000) being the weighted average of the shares in
issue during the year adjusted to assume conversion of all dilutive potential
ordinary shares.
Adjusted earnings per share figures have been calculated in addition to basic
and diluted figures since, in the opinion of the directors, these provide
further information for the understanding of the Group's performance.
8. Analysis of net debt
Amortisation
As at Cash of loan issue Exchange As at
1 Oct 02 flow costs movements 30 Sep 03
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 8,042 (721) - 242 7,563
Overdrafts (1,864) 872 - (16) (1,008)
Debt due after 1 year (29,992) 8,567 (68) (900) (22,393)
Debt due within 1 year (20,676) (5,425) - (43) (26,144)
Finance leases (67) 41 - - (26)
Current asset investments 3,536 544 - (94) 3,986
-------- -------- ---------- --------- --------
(41,021) 3,878 (68) (811) (38,022)
-------- -------- ---------- --------- --------
9. Copies of the directors' report and the audited financial statements for the
year ended 30 September 2003 will be posted to shareholders by 17 December 2003
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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