Interim Results

Avon Rubber PLC 16 May 2001 INTERIM STATEMENT FOR THE HALF YEAR ENDED 31 MARCH 2001 31ST MARCH 1ST APRIL 2001 2000 £MILLION £MILLION ------- ------- Turnover 141.5 139.9 Operating profit before exceptional items and goodwill amortisation 4.1 7.5 Operating (loss)/profit (5.9) 6.4 (Loss)/profit before tax (8.5) 5.7 Earnings per share before exceptional items 3.2p 15.9p Dividend per share 3.5p 7.0p * First half results significantly affected by downturn and disruption in North American automotive market * Action taken to mitigate effects of lower sales level with further restructuring being implemented in North America * Rationalisation of technical product businesses through intended disposal of non-core activities * Period of sustained high capital expenditure now completed * Limited improvement expected in second half in pre- exceptional operating profit * With increased emphasis on cash generation, borrowings expected to reduce by year-end For further information please contact: Avon Rubber p.l.c. Steve Willcox, Chief Executive Terry Stead, Finance Director 020 7324 8888 (until 3pm) Golin/Harris Ludgate Richard Hews 020 7324 8888 Trish Featherstone (Local/Trade Press) Bill Taylor, Business Services Director 01225 861180 (after 3pm) INTRODUCTION As we indicated in our trading statement in March the downturn and disruption in the North American automotive market has significantly affected our results in the first half year. Whilst the greatest schedule reductions from our customers occurred in December and January, current demand is still well below last year's levels. We have taken action to mitigate the effects of this lower sales level and are implementing further restructuring in North America. We continue to concentrate on our selected core business areas of medium and low pressure automotive hose together with a focussed portfolio of technical products requiring expertise in polymer materials. We believe significant long term growth opportunities exist in these areas and that this growth can be accelerated by the disposal of selected non-core businesses. RESULTS Sales at £141.5 million (2000: £139.9) were up £1.6 million. At constant exchange rates, sales in Europe, including the UK, were up £2.6 million at £76.0 million (2000: £73.4 million) whilst North American sales were down £7.9 million at £65.5 million (2000: £73.4 million) reflecting the weakness of the market. Group operating profit, before exceptional items of £9.7 million (2000: £0.7 million) and goodwill amortisation of £0.3 million (2000: £0.3 million) was £4.1 million (2000: £7.5 million). At constant exchange rates European operating profit was almost unchanged at £1.1 million (2000: £1.2 million), but North American operating profit was down £3.9 million at £2.7 million (2000: £6.6 million). The Group interest charge was £2.6 million (2000: £0.9 million) although in the first half of 2000 interest of £0.8 million was capitalised as part of the cost of development of the new Wiltshire facilities. The exceptional charges taken in this half year have been significant. We have concluded that a provision for the impairment of asset values is needed at some of our non-core North American businesses. These provisions totalled £9.7 million including goodwill previously written off to reserves of £3.2 million. None of these provisions have a cash impact. After these items and the goodwill amortisation on acquisitions the loss before tax for the half-year was £8.5 million (2000: profit £5.7 million). As a result of the exceptional charges which have arisen during the last 12 months, the Group's interest cover has deteriorated. This in turn has resulted in certain providers of finance seeking a substantial increase in interest rates. At this time the Group is still in discussion about the increased charges and is considering other options. Earnings per share before exceptional items were 3.2p (2000: 15.9p) based on an effective taxation rate of 32% (2000: 34%). Despite the difficult trading conditions EBITDA was £10.7 million (2000: £12.7 million). Our period of sustained high capital expenditure is now completed. Capital expenditure in the first half was £3.1 million (2000: £13.3 million) a reduction of £10.2 million. Net borrowings at the half year amounted to £69.4 million (2000: £60.5 million) giving gearing of 82.6% (2000: 64.5%). The net increase since the year-end is £4.5 million. Of this increase £2.3 million is due to exchange rate movements, in addition there was a dividend payment of £4.8 million and a cash outflow from provisions made last year in respect of the closure of the Croydon facility and UK restructuring of £2.6 million. AUTOMOTIVE COMPONENTS Sales were down by 3.5% at £106.5 million (2000: £110.3 million) at constant exchange rates. In North America sales were down 9.0% at £47.8 million (2000: £52.6 million). The 2001 sales include approximately £1.0 million of special tooling sales at no profit to support a major customer. As a result the reduction in product sales was some 11.0%. Operating profits before goodwill amortisation and exceptional items were down £3.9 million at £2.6 million (2000: £6.5 million) at constant exchange rates. All of this reduction can be accounted for in North America. As we noted in the trading update in March, the reduction in production of vehicles at the big three North American automotive companies has had a significant impact on our first half performance. Immediate short term actions were taken to reduce costs and this has been followed by a review to realign the cost base to the new lower volumes. The transfer of production from the former Cow Polymers UK plant to France and the Czech Republic has been completed. We did not see the full benefit of this in the first half-year because the operations were not achieving optimum efficiency as they absorbed the new products and there were additional costs of support from staff previously employed in Croydon. Our operation in Vannes, France moved to full production output of CADbar and efficiency improved during the first half of the year which will generate benefits in the second half and beyond. Our non-core automotive businesses in New York State have been underperforming. In part this is the result of business permanently lost following the fire in 1999. A provision for impairment of the assets of these businesses has been made totalling £3.5 million. TECHNICAL PRODUCTS Sales were 4.1% down at £35.0 million (2000: £36.5 million) and operating profits before exceptional items were almost unchanged at £1.2 million (2000: £1.3 million) at constant exchange rates. There were reduced profits from the industrial hose business in Cadillac, Michigan. Whilst this business has cut costs significantly, this has been insufficient to mitigate fully the reduced demand. We have therefore taken a provision for the impairment of the assets of this business of £0.5 million. We have also taken the view that if the value of the business is impaired, it is appropriate to take a provision against previously written off goodwill of £3.2 million. These, together with provisions of £2.5 million against the assets of non-core businesses being actively marketed give a total of £6.2 million in the Technical Products businesses. We are rationalising our portfolio of technical product businesses by seeking to dispose of activities which are outside our core business areas. The development programme for the Joint Services General Purpose Mask has progressed in line with expectations. We are hopeful that we will be awarded the next phase of the programme in early 2002. In Europe the establishment of a production unit for business machine components in our facilities in the Czech Republic has proved very successful and we anticipate increasing demand in this area. DIVIDEND Given the current performance of the Group, the already low level of dividend cover provided by historic earnings and the wish to conserve cash, the directors have decided to reduce the interim dividend to 3.5p per share (2000: 7.00p) payable on 29th June 2001 to holders of ordinary shares on the register at noon on 8th June 2001. OUTLOOK The economic outlook in North America remains uncertain. However, we believe we have taken the necessary steps to mitigate the problems as we currently see them. If this uncertainty causes an economic slowdown in Europe further rationalisation of our European operations may be needed. Against this background we would expect some limited improvement in pre-exceptional operating profit in the second half of the year, but still do not expect to exceed the corresponding period last year. With our increased emphasis on cash generation, borrowings are expected to reduce by the year- end. CONSOLIDATED PROFIT AND LOSS ACCOUNT Half year to Half year to Year to 31 Mar 01 1 Apr 00 30 Sep 00 Note £'000 £'000 £'000 Turnover 2 141,476 139,948 277,997 ________ ________ ________ Operating profit Before exceptional items (after charging £299,000 (2000 £346,000) goodwill amortisation) 3,833 7,106 15,425 Exceptional operating expenses 3 (9,731) (734) (6,672) ________ ________ ________ Total operating (loss)/profit 2 (5,898) 6,372 8,753 Profit on disposal of fixed assets - 750 25 Loss on sale of subsidiary undertaking - (479) - ________ ________ ________ (Loss)/profit before interest (5,898) 6,643 8,778 Interest 4 (2,635) (941) (3,040) ________ ________ ________ (Loss)/profit before taxation (8,533) 5,702 5,738 Taxation 5 (383) (2,134) (2,960) ________ ________ ________ (Loss)/profit after taxation (8,916) 3,568 2,778 Minority interests 79 413 717 ________ ________ ________ (Loss)/profit attributable to Avon shareholders (8,837) 3,981 3,495 Dividends: - Cumulative Preference 7 (17) (17) (35) - Ordinary 8 (969) (1,938) (6,700) ________ ________ ________ (Loss)/retained profit (9,823) 2,026 (3,240) ------ ------ ------ Rate of dividends: - Cumulative preference 3.50% 3.50% 7.00% - Ordinary 3.5p 7.0p 24.2p Earnings per ordinary share 9 Basic (31.8)p 14.2p 12.4p Before exceptional items 3.2p 15.9p 31.3p Before exceptional items and goodwill amortisation 4.2p 17.2p 33.5p Fully diluted (31.8)p 14.2p 12.4p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Half year to Half year to Year to 31 Mar 01 1 Apr 00 30 Sep 00 £'000 £'000 £'000 (Loss)/profit for the period (8,837) 3,981 3,495 Impairment of revaluation on tangible assets (145) - - Net exchange differences on overseas investments 1,270 (1,107) 309 ________ ________ ________ Total gains and losses for the period (7,712) 2,874 3,804 ------ ------ ------ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Half year to Half year to Year to 31 Mar 01 1 Apr 00 30 Sep 00 £'000 £'000 £'000 Opening shareholders' funds 87,963 89,557 89,557 (Loss)/profit for the period (8,837) 3,981 3,495 Dividends (986) (1,955) (6,735) Impairment of revaluation on tangible assets (145) - - Net exchange differences on overseas investments 1,270 (1,107) 309 Goodwill resurrected on disposal of subsidiary - 1,337 1,337 Goodwill resurrected on impaired operations 3,215 - - ________ ________ ________ Closing shareholders' funds 82,480 91,813 87,963 ------ ------ ------ Equity shareholders' funds 81,980 91,313 87,463 Non-equity shareholders' funds 500 500 500 ________ ________ ________ 82,480 91,813 87,963 ------ ------ ------ CONSOLIDATED BALANCE SHEET As at As at As at 31 Mar 01 1 Apr 00 30 Sep 00 £'000 £'000 £'000 Fixed assets Intangible assets 13,111 11,625 13,154 Tangible assets 104,696 109,074 112,687 Investments 832 983 1,051 ________ ________ ________ 118,639 121,682 126,892 ________ ________ ________ Current assets Stocks 28,351 23,147 26,836 Debtors - Amounts falling due within one year 60,285 64,753 56,528 Debtors - Amounts falling due after more than one year 8,497 6,321 8,146 Cash at bank and in hand 6,220 3,516 7,585 ________ ________ ________ 103,353 97,737 99,095 ________ ________ ________ Creditors - amounts falling due within one year Short term borrowings and current instalments of loans 18,242 12,384 18,087 Other creditors 54,227 54,483 53,695 ________ ________ ________ 72,469 66,867 71,782 ________ ________ ________ Net current assets 30,884 30,870 27,313 ________ ________ ________ Total assets less current liabilities 149,523 152,552 154,205 ________ ________ ________ Creditors - amounts falling due after more than one year Borrowings 57,422 51,602 54,443 Other creditors 1,667 993 1,673 ________ ________ ________ 59,089 52,595 56,116 ________ ________ ________ Provisions for liabilities and charges 6,314 6,176 8,385 ________ ________ ________ Net assets 84,120 93,781 89,704 ------ ------ ------ Capital and reserves Equity shareholders' funds 81,980 91,313 87,463 Non-equity shareholders' funds 500 500 500 Minority interests 1,640 1,968 1,741 ________ ________ ________ 84,120 93,781 89,704 ------ ------ ------ CONSOLIDATED CASH FLOW STATEMENT Half year to Half year to Year to 31 Mar 01 1 Apr 00 30 Sep 00 Note £'000 £'000 £'000 Operating activities Operating (loss)/profit (5,898) 6,372 8,753 Goodwill amortisation 299 346 623 Depreciation 6,528 5,957 11,911 Impairment of fixed assets and goodwill 9,731 - - Movement in working capital and provisions (3,928) (7,688) (4,439) Other movements 922 83 1,472 ________ ________ ________ Net cash flow from operating activities 7,654 5,070 18,320 Returns on investments and servicing of finance (2,396) (1,752) (4,250) Corporation tax received/(paid) 390 (2,005) (4,112) Net capital expenditure (3,070) (13,306) (21,961) Sale of subsidiary undertakings - 2,404 2,399 Equity dividends paid (4,762) (4,762) (6,700) ________ ________ ________ Net cash outflow before management of liquid resources and financing (2,184) (14,351) (16,304) Financing Movements in loans and finance leases (188) (2,507) (1,805) ________ ________ ________ Decrease in cash (2,372) (16,858) (18,109) ------ ------ ------ Reconciliation of net cash flow to movement in net debt Decrease in cash (2,372) (16,858) (18,109) Movements in loans and finance leases 188 2,507 1,805 Amortisation of loan costs (30) (28) (59) Finance leases transferred on sale of subsidiary - - 5 Exchange differences (2,285) 275 (2,221) ________ ________ ________ Movement in net debt in the period (4,499) (14,104) (18,579) Net debt at the beginning of the period (64,945) (46,366) (46,366) ________ ________ ________ Net debt at the end of the period 10 (69,444) (60,470) (64,945) ------ ------ ------ NOTES TO THE INTERIM STATEMENT 1) The results for the half years to 31 March 2001 and 1 April 2000 are unaudited and have been prepared using accounting policies consistent with those set out in the 2000 Annual Report and Financial Statements. The figures for the financial period ended 30 September 2000 are taken from the statutory accounts for that period which have been delivered to the Registrar of Companies and upon which an unqualified audit report was given. These interim financial statements were approved by the board of directors on 15 May 2001. 2) Segmental information Half year to Half year to Year to 31 Mar 01 1 Apr 00 30 Sep 00 £'000 £'000 £'000 (a)Turnover by destination: United Kingdom 24,268 27,512 46,621 Other European 49,622 45,490 93,167 North America 65,401 65,137 133,933 Rest of World 2,185 1,809 4,276 _______ _______ _______ 141,476 139,948 277,997 ======= ======= ======= (b)Turnover by origin: United Kingdom 39,460 44,371 84,054 Other European 36,531 29,646 59,591 North America 65,485 65,931 134,352 _______ _______ _______ 141,476 139,948 277,997 ======= ======= ======= (c)Operating (loss)/profit by origin: Before exceptional operating expenses United Kingdom (530) (1,470) (2,656) Other European 1,664 2,741 6,023 North America 2,699 5,835 12,058 _______ _______ _______ 3,833 7,106 15,425 Exceptional operating expenses United Kingdom - (734) (5,902) Other European - - (770) North America (9,731) - - _______ _______ _______ (5,898) 6,372 8,753 ======= ======= ======= (d) Turnover by product group: Automotive Components 106,466 105,444 209,479 Technical Products 35,010 34,504 68,518 _______ _______ _______ 141,476 139,948 277,997 ======= ======= ======= (e) Operating (loss)/profit by product group: Before exceptional operating expenses Automotive Components 2,627 5,855 11,605 Technical Products 1,206 1,251 3,820 _______ _______ _______ 3,833 7,106 15,425 Exceptional operating expenses Automotive Components (3,469) (241) (4,432) Technical Products (6,262) (493) (2,240) _______ _______ _______ (5,898) 6,372 8,753 ======= ======= ======= 3) The exceptional charge during the half year ended 31 March 2001 consists of: £'000 Impairment of tangible fixed assets 6,516 Impairment of goodwill previously written off to reserves 3,215 _______ 9,731 ======= This impairment charge relates to the writedown of the tangible fixed assets at Avon Injected Rubber and Plastics Inc., Pacer Tool and Plastics Inc. and Nylaflow (a division of Cadillac Rubber and Plastics Inc.) to their net realisable values, and the impairment of goodwill, relating to Nylaflow, which was previously written off to reserves. 4) Analysis of interest 2001 2000 £'000 £'000 Net interest payable 2,635 1,735 Less interest capitalised - (794) _______ _______ 2,635 941 ======= ======= Certain providers of finance are seeking a substantial increase in interest rates. At this time the Group is still in discussion about the increased charges and is considering other options. 5) Estimated tax rates in the United Kingdom and overseas have been calculated based on the latest projections for the year ending 29 September 2001. These tax rates have been used in determining the tax charge for the six month period to 31 March 2001. 2001 2000 £'000 £'000 United Kingdom (32% (2000 42%)) 54 (825) Overseas (32% (2000 35%)) 329 2,959 _______ _______ 383 2,134 ======= ======= 6) Profit and loss accounts of foreign group undertakings are translated at average rates of exchange and balance sheets are translated at period end or year end rates, as appropriate. 7) The 500,000 7% cumulative preference shares were repaid at 116.67 pence, together with the dividend accrued at 3.5% from 1 January 2001 to 27 April 2001, on 27 April 2001. 8) The cost of the interim dividend on the ordinary shares in issue will be approximately £969,000 (2000: £1,938,000). The dividend will be paid on 29 June 2001 to shareholders on the register at noon on 8 June 2001. 9) Basic earnings per ordinary share are based on a loss (net of preference share dividend) of £8,854,000 (2000: £3,964,000 profit) and 27,824,000 (2000: 27,824,000) ordinary shares, being the weighted average of the shares in issue during the period. Earnings per ordinary share before exceptional items are based on a profit (net of preference share dividend) of £877,000 (2000: £4,427,000). Earnings per ordinary share before exceptional items and goodwill amortisation are based on a profit (net of preference share dividend) of £1,176,000 (2000: £4,773,000). 10) Analysis of net funds/(net debt) As at Exchange As at 1 Oct 00 Cash flow movements 31 Mar 01 £'000 £'000 £'000 £'000 Cash at bank and in hand 7,585 (1,679) 314 6,220 Overdrafts (10,109) (693) (156) (10,958) Debt due after 1 year (54,172) (966) (2,208) (57,346) Debt due within 1 year (7,423) 759 (231) (6,895) Finance leases (826) 365 (4) (465) _______ _______ _______ _______ (64,945) (2,214) (2,285) (69,444) 11) Copies of this announcement are being sent to ordinary and preference shareholders. Copies are also available from the company's registered office at Manvers House, Kingston Road, Bradford on Avon, Wiltshire, BA15 1AA (telephone 01225 861100). Independent Review Report to Avon Rubber p.l.c. Introduction We have been instructed by the company to review the financial information set out on pages four to ten. We have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the listing rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board 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 accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 March 2001. PricewaterhouseCoopers Chartered Accountants Bristol 15 May 2001 Notes: a) The maintenance and integrity of the Avon Rubber p.l.c. website 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 website. b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

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