Preliminary Results

Strictly Embargoed until 07:00 am							
30 November 2000

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2000

Avon Rubber p.l.c. announces its preliminary results for the year to 30 September 2000 which the Board approved on 29 November 2000.

		2000	1999	
		£MILLION	£MILLION	


TURNOVER	278.0	266.2	
			

OPERATING PROFIT - before Exceptionals	15.4	21.9
	

PROFIT BEFORE TAX
- before Exceptionals	12.4	20.5
- after Exceptionals	5.7	21.9

EARNINGS PER SHARE
Basic	12.4p	56.8p	
Before Exceptional Items	31.3p	53.5p
Before Exceptional Items and Goodwill	33.5p	54.1p
Diluted	12.4p	56.7p

DIVIDEND PER SHARE	24.2p	24.2p	


? Dividend maintained.
? Improved performance at all Continental European automotive businesses.
? Global footprint helped to mitigate impact of weak euro.
? Successful completion of UK investment projects.

For further information, please contact:
Avon Rubber p.l.c
Steve Willcox, Chief Executive			ING Barings - Tel: [phone]
Terry Stead, Group Finance Director 		                    (between 10:30 - 12:30 & 14:00 - 15:30)

(Local/Trade Press)
Bill Taylor, Avon Rubber p.l.c.			                               01225 861180
	
Golin/Harris Ludgate
Richard Hews				                              020 7253 2252
Trish Featherstone


INTRODUCTION

The last year was a difficult one for the Group. The combination of the strength of sterling against the euro, a depressed automotive market in the UK and the commissioning of major new production facilities resulted in a substantial fall in profits. In addition, the firm actions we took to reduce our UK cost base necessitated one off expenses of £6.7 million.

Despite these factors, we are pleased to report steady strategic progress during the year. The development of our North American business and the growth of our Continental European operations mean that some 70% of our sales are now manufactured outside the UK. In the UK we have concentrated on four modern factories, two of which are brand new. After a year of great change and the completion of our major capital investments we can now focus on profitable growth in our chosen markets.

The impact of the continuing weakness of the euro on the UK's relative competitiveness reduced demand for UK manufactured products. As a result we decided to close our Croydon plant and transfer the manufacturing to our operations in the Czech Republic and France. This, together with other actions taken in September has resulted in a fall in the UK workforce of over 200 and will reduce our total cost base by in excess of £5 million per annum.

Against a background of continuous and rapid consolidation in the markets we serve, our strategy is to continue to focus on automotive hose and a selected range of niche technical products where we have achieved or can achieve world-leading positions. We have now completed our major investment in facilities in Wiltshire. As a result capital expenditure will be substantially lower in 2001. This together with the disposal of non-core activities is targeted to reduce borrowings significantly.


RESULTS

Operating profit before exceptional items for the year was £15.4 million (1999: £21.9 million). After a net interest charge of £3.0 million (1999: £1.4 million) Group profit before  exceptional items and taxation was £12.4 million (1999: £20.5 million) on a turnover of £278.0 million (1999: £266.2 million). The Group profit after exceptional items and before taxation was £5.7 million (1999: £21.9 million).

The exceptional charge of £6.7 million relates principally to costs of reorganisation, most of which have been incurred in the UK. These costs include a charge of £3.8 million associated with the closure of the Croydon operation and a charge of £1.5 million relating to non recurring costs associated with disruption resulting from the move to our new Wiltshire facilities.

The taxation charge of £3.0 million (1999: £6.3 million) represents an effective rate of 51.6% (35.2% pre exceptional items) compared with 28.6% (28.1% pre exceptional items) in 1999.

Profit after taxation, exceptional items and minority interests was £3.5 million (1999: £15.8 million) and basic earnings per share were 12.4p (1999: 56.8p). Profit after taxation and minority interests but before exceptional items was £8.7 million (1999: £14.9 million) and earnings per share on this basis were 31.3p (1999: 53.5p).

Capital expenditure was £22.1 million (1999: £37.9 million) of which £11.1 million (1999: £22.2 million) was associated with the new facilities in Wiltshire. With the completion of these projects we are planning capital expenditure to be lower than depreciation and are committed to achieving a significant improvement in cash generation.

AUTOMOTIVE

At constant exchange rates sales were up 9.5% at £209.5 million (1999: £191.3 million). The principal reason for the increase was the additional sales of £18.2 million resulting from a full year of operation of the Spanish businesses acquired in June 1999.

We indicated at the time of the interim announcement that our international operations had mitigated the difficulties in the UK. This has continued with a clear distinction in performance between UK operations and those in North America and Continental Europe.

There was severe disruption in the UK automotive industry coupled with a volatile and weak euro. The weakness of the euro reduced the relative competitiveness of our UK manufacturing operations, increasing the pressure for transferring more manufacturing to other parts of Europe. As a result we closed our Croydon facility at a cost of £3.8 million.  We are taking actions to reduce our cost base and whilst UK manufacturing competitiveness remains challenging, our well developed global footprint provides well invested, cost effective alternative manufacturing locations.

All our Continental European automotive businesses performed better than last year. CADbar, our low permeation fuel hose, went into European production in Vannes, France, during the year. General Motors' Vauxhall Zafira is the first high volume European vehicle to be equipped with the low emission CADbar hoses.

The North American automotive market remained relatively strong. However, lower cost solutions and 'de-contenting' of products resulted in a 6.1% reduction in turnover. The cost of supporting North American automotive customers increased as more of the development work passed to component suppliers. We also invested in a new product development centre close to our main facility in Cadillac. These extra costs have impacted our North American profitability, but have allowed us to develop products for new business opportunities in the future. As we reported at the time of the interim results, we have already been able to win business on a global basis and have secured significant new contracts which are starting to have a substantial benefit.


TECHNICAL PRODUCTS

Sales were down 13.9% at constant exchange rates to £68.5 million (1999: £79.6 million). Of this reduction, £8.0 million was the result of the disposal of CQC Ltd in October 1999 and the sale of the Fabrications business in September 1999. Excluding these disposals UK and Continental Europe Technical Products turnover was down 6.6% at £30.9 million (1999: £33.1 million) whilst North American sales decreased by £0.9 million.

This was a challenging year in the UK with the move of the business from the former Avon Tyres site in Melksham to a new Technical Products facility three miles away and a new Rubber Mixing plant at Westbury, Wiltshire. We chose not to transfer some non-core businesses and as a result have seen lower turnover. We now have a modern, purpose designed, low cost factory to support future growth opportunities in our chosen markets of dairy, military protection, closure seals and business machines. In Europe we have worked with two of the world's largest business machine manufacturers to establish an operation alongside our automotive facility in the Czech Republic for the supply of rollers. This began manufacture in the last quarter of the year and offers exciting growth opportunities starting immediately.

In North America, Hi-Life continued to perform outstandingly well. We saw good progress at Zatec and Bell Avon. Both Pacer, our plastics business in New Jersey and our industrial hose business in Cadillac, Michigan were adversely affected by lower demand, but have actively addressed their cost base to make them more competitive for the future. As was stated at the time of the interim results a settlement was finalised between Bell Avon and the US Department of Justice in connection with a claim relating to goods manufactured in 1994 and 1995. The settlement with a total value of £0.8 million was fully reflected at the time of the half year announcement.

Having been awarded the development contract for the new United States Joint Service General Purpose Mask, we have been working closely with our partners and the US Department of Defense to progress the project. The initial contract is for US$9.2 million, but the total sales potential is several hundred million dollars.


FINANCING

Net debt at the year-end stood at £64.9 million compared with the opening net debt of £46.4 million, resulting in year end gearing of 72.4% (1999: 50.5%).

This year we are planning lower capital expenditure, following the completion of our new Wiltshire facilities. This, together with cash generated from operational performance and the disposal of non-core activities, is planned to reduce gearing significantly during the year.

It is the Board's intention to seek shareholder approval at the AGM in January 2001 to buy back up to 15% of the Company's issued share capital.


DIVIDEND

The Board is recommending an unchanged final dividend of 17.2p per share which will be paid on 26 January 2001 to ordinary shareholders on the register on 3 January 2001. When added to the interim dividend of 7.0p per share the total dividend of 24.2p is the same as in 1999.


OUTLOOK

Our international markets continue to be demanding, but we believe that the overall outlook for Avon is improving. The three main factors which drive this belief are the cost reductions resulting from the considerable restructuring undertaken over recent months, the expected substantial fall in the current year in exceptional charges relating to restructuring and increased business arising from our significant investment in new products and efficient, low cost manufacturing facilities.

We expect that the initiatives which we have taken will produce benefits for shareholders in the short and longer term.








CONSOLIDATED PROFIT AND LOSS
for the year ended 30 September 2000































2000


1999




Before


Before





exceptional 
Exceptional 
Total
exceptional 
Exceptional 
Total



items
items (note 3)

items
items



Note
£'000
£'000
£'000
£'000
£'000
£'000
Turnover

2
277,997
-
277,997
266,164
-
266,164
Cost of sales


(231,842)
(1,984)
(233,826)
(214,012)
-
(214,012)
Gross Profit


46,155
(1,984)
44,171
52,152
-
52,152
Net operating expenses








(including £623,000 (1999:£163,000) goodwill amortisation)

(30,891)
(4,688)
(35,579)
(30,218)
-
(30,218)
Share of profits/(losses) of joint ventures and associates

161
-
161
(54)
-
(54)
Operating profit

2
15,425
(6,672)
8,753
21,880
-
21,880
Profit on disposal of fixed assets


-
25
25
-
1,422
1,422
Profit on ordinary activities before interest

15,425
(6,647)
8,778
21,880
1,422
23,302
Interest receivable


2,871
-
2,871
3,136
-
3,136
Interest payable


(5,911)
-
(5,911)
(4,532)
-
(4,532)
Profit on ordinary activities before taxation

12,385
(6,647)
5,738
20,484
1,422
21,906
Taxation

4
(4,360)
1,400
(2,960)
(5,759)
(498)
(6,257)
Profit on ordinary activities after taxation

8,025
(5,247)
2,778
14,725
924
15,649
Minority interests


717
-
717
133
-
133
Profit for the year


8,742
(5,247)
3,495
14,858
924
15,782
Dividends (including non-equity interests)
6
(6,735)
-
(6,735)
(6,733)
-
(6,733)
(Loss)/retained profit for the year


2,007
(5,247)
(3,240)
8,125
924
9,049
Rate of dividend
   Cumulative Preference
   Ordinary
Earnings per ordinary share

6


7



7%
24.2p



7%
24.2p
   Basic




12.4p


56.8p
   Before exceptional items


31.3p


53.5p


   Before goodwill amortisation and exceptional items
33.5p


54.1p


   Diluted




12.4p


56.7p

All the group's turnover and profit was generated from continuing activities.
There is no material difference between the profit as stated above and that calculated on an historical cost basis.













CONSOLIDATED STATEMENT
 OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2000






2000

          1999















£'000

        £'000







Profit for the year



3,495

      15,782
Net exchange differences on overseas investments


309
                 (431)
Total gains and losses for the year



3,804

     15,351





















RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 30 September 2000









2000

1999















£'000

£'000







Opening shareholders' funds



89,557

80,405 
Profit for the year



3,495

15,782 
Dividends 




(6,735)

(6,733)
Net exchange difference on overseas investments



309

(431)
New share capital subscribed (net)



-

534 
Goodwill resurrected on disposal of subsidiary



1,337

              -
Closing shareholders' funds



87,963

89,557 









Equity shareholders' funds



87,463

89,057 
Non-equity shareholders' funds



500

500 






87,963

89,557 



















CONSOLIDATED BALANCE SHEET
At 30 September 2000





2000

1999







(Restated)





£'000

£'000
Fixed assets






Intangible assets


13,154

13,338 
Tangible assets



112,687

102,102 
Investments



1,051

900 





126,892

116,340 
Current assets






Stocks



26,836

24,014 
Debtors - Amounts falling due within one year

56,528

57,029 
Debtors - Amounts falling due after more than one year
8,146

5,772
Cash at bank and in hand


7,585

17,336 





99,095

104,151 
Creditors






Amounts falling due within one year


71,782

67,215 
Net current assets


27,313

36,936






Total assets less current liabilities


154,205

153,276 
Creditors






Amounts falling due after more than one year

56,116

55,115 
Provisions for liabilities and charges


8,385

6,276 
Net assets



89,704

91,885 








Capital and reserves





Ordinary share capital


27,824

27,824 
Preference share capital


500

500 
Share premium account


34,070

34,070 
Revaluation reserve


2,575

2,723 
Profit and loss account


22,994

24,440 
Shareholders' funds (incl.non-equity interests)
87,963

89,557 
Minority  interests (equity interests)


1,741

2,328 
Total capital employed


89,704

91,885 








The restatement of 1999 reflects the change in accounting policy detailed in note 1.






SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2000





2000

1999












Note
£'000

£'000
Operating activities





Operating profit



8,753

21,880 
Goodwill amortisation


623

163 
Depreciation



11,911

9,734 
Movement in working capital and provisions


        (4,439)

(8,905)
Other movements


1,472

(646)
Net cash inflow from operating activities


18,320

22,226 
Returns on investments and servicing of finance

(4,250)

(1,926)
Corporation tax paid 


(4,112)

            (4,215)
Net capital expenditure


(21,961)

          (32,226)
Sale of subsidiary undertakings


2,399

               -
Purchase of subsidiary undertakings


-

          (17,957)
Equity dividends paid


(6,700)

(6,394)
Net cash outflow before management of
(16,304)

(40,492)
liquid resources and financing





Decrease in cash deposits treated as liquid resources
-

36,800 
Financing






Issue of ordinary shares


-

534 
Movement in loans and finance leases


(1,805)

13,760 
(Decrease)/increase in cash in the period


(18,109)

10,602 








Reconciliation of net cash flow to movement in net debt



(Decrease)/increase in cash in the period


(18,109)

   10,602 
Movements in loans and finance leases


1,805

           (13,760)
Movement in liquid resources


-

           (36,800)
Amortisation of loan costs


(59)

                  (50)
Loans and finance leases acquired from acquisitions
-

             (3,457)
Finance leases transferred on sale of subsidiary


5

                      -
Exchange differences


(2,221)

                (429)
Movement in net debt in the year


(18,579)

           (43,894)
Net debt at the beginning of the year


(46,366)

             (2,472)
Net debt at the end of the year

8
(64,945)

           (46,366)



















NOTES TO THE PRELIMINARY ANNOUNCEMENT



























1. The figures and financial information for the year ended 30 September 2000 do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the Registrar, nor have the auditors yet reported on them. The company's accounting period ends on the Saturday nearest to 30 September each year. The period ended 30 September 2000 consisted of 52 weeks (1999: 52 weeks).

This preliminary announcement has been prepared using accounting policies that are consistent with the policies detailed in the financial statements for the year ended 2 October 1999 except for the introduction of the following:

(       Development costs were previously charged to the profit and loss account when incurred. An increase in the extent of development work for new vibration systems products, prior to commercial production, has resulted in significant costs being incurred from which it is expected to generate profitable revenue streams. Accordingly, the Group has capitalised such costs where the viability of these product developments can be ascertained with reasonable certainty. The costs will be amortised over the lives of the products to which the development costs relate. This change in accounting policy has had no impact on the profit for last year. Approximately £0.5 million of development costs have been reclassified from current assets to development costs in the 1999 balance sheet which are included in intangible assets.

? During the year Financial Reporting Standards (FRS) 15 (Tangible Fixed Assets) and 16 (Current Tax) became effective. These standards have been reflected in these financial statements to the extent considered appropriate. In the adoption of FRS 15, the Group has decided to retain the book value of land and buildings (certain of which were revalued in 1996) and depreciate this value over the remaining useful economic lives of the buildings. Future additions will be included at cost.
















2. Segmental Information 
For the year ended 30 September 2000







2000

1999






£'000

£'000

a) External sales by destination:






    United Kingdom


46,621

51,655 

    Other European


93,167

73,776 

    North America



133,933

133,926 

    Rest of World



4,276

6,807 






277,997

266,164 

b) External sales by origin:






    United Kingdom


84,054

90,621 

    Other European


59,591

41,385 

    North America



134,352

134,158 






277,997

266,164 

c) Operating profit/(loss) by origin before
    exceptional items:






    United Kingdom


(2,656)

3,298 

    Other European


6,023

3,743 

    North America



12,058

14,839 






15,425

21,880 

d) Operating profit/(loss) by origin after
     exceptional items:






     United Kingdom


(8,558)

3,298

     Other European


5,253

3,743

     North America


12,058

14,839




8,753

21,880

e) External sales by business sector:






    Automotive Components


209,479

187,815 

    Technical Products


68,518

78,349 






277,997

266,164 

f) Operating profit by business sector
    before exceptional items:






    Automotive Components


11,605

13,198 

    Technical Products


3,820

8,682 





                           15,425

21,880 

g) Operating profit by business sector
     after exceptional items:
     Automotive Components
     Technical Products



7,173
1,580
8,753



13,198
8,682
21,880










h) Analysis of external sales and operating profit:




    External Sales 
- First half of year


139,948

131,596



- Second half of year


138,049

134,568






277,997

266,164










    Operating profit before exceptional items
                                 - First half of year



7,106


10,050



- Second half of year


8,319

11,830






15,425

21,880
























3. Exceptional costs, during the year, resulted from the following rationalisation and reorganisation programme:

* Relocating manufacturing operations from the United Kingdom to low cost territories.

* Relocating manufacturing facilities for Technical Products to a new purpose built location in the United Kingdom.

* Implementing a 'state of the art' rubber mixing facility in the United Kingdom and transferring production from external sources.

* Rationalisation of the work force to reduce the ongoing cost base in the United Kingdom.


4. The taxation charge, based on the results for the year, comprises:










2000

1999


Current taxation:




£'000

£'000



United Kingdom corporation tax at 30%
(1999 30.5%)
(375)

546



Overseas taxes




3,719

3,651



Associated company



52

14








3,396

4,211


          Deferred Tax




(436)

2,046








2,960

6,257













5. Profit and loss accounts of foreign group undertakings are translated at average rates of exchange and balance sheets are translated at year-end rates.











6. If approved, payment of the final dividend on the ordinary shares will be made on 26 January 2001 to shareholders on the register at the close of business on 3 January 2001. The cost will be £4,762,000 (1999: £4,762,000).











The half yearly dividend on the 500,000 7% cumulative preference shares will be paid at the rate of 3.5p per share on 31 December 2000 to shareholders on the register at close of business on 8 December 2000. The cost will be £17,500 (1999 £17,500).











7.Basic earnings per share amount to 12.4p (1999: 56.8p) and are based on profit after taxation, and deduction of minority interests, and non-equity dividends, of £3,460,000 (1999: £15,747,000) and 27,824,000 ordinary shares (1999 27,721,000) being the weighted average of the shares in issue during the year.  

Earnings per share before exceptional items amount to 31.3p (1999: 53.5p) and are based on profit after taxation and deduction of minority interests and non-equity dividends of £8,707,000 (1999: £14,823,000).

Earnings per share before exceptional items and goodwill amortisation amount to 33.5p (1999: 54.1p) and are based on profit after taxation and deduction of minority interests and non equity dividends of £9,330,000 (1999: £14,986,000).      












There is no difference between the weighted average number of shares in issue and the diluted weighted average number of shares in issue.

Adjusted earnings per share figures have been calculated in addition to the basic and diluted figures since, in the opinion of the directors, these give a better understanding of the Group's performance.

8. Analysis of movement in net debt











                As at



Exchange 
Disposal of



        03-Oct-99

Cash flow

Movements
subsidiary
30-Sep-00












               £'000

£'000

£'000

£'000

£'000











Cash in bank and in hand
             17,336 

(10,101)

416

(66)

7,585
Overdrafts
              (2,401)

(7,942) 

234

-

(10,109)
Debt due after 1 year
           (52,879)

1,760

(3,053)

-

(54,172)
Debt due within 1 year
             (6,828)

(758)

163

-

(7,423)
Finance leases
             (1,594)

744

19

5

(826)












           (46,366)

(16,297)

(2,221)

(61)

(64,945)






















9. The company completed the sale of its subsidiary company, CQC Ltd (formerly known as CQC PLC) on 15 October 1999 to a new company Crossco (430) Ltd.

The consideration for this disposal amounted to £1.6 million in cash. Additionally, and by a separate transaction, the Group also sold the freehold site, from which CQC Ltd operated, for a consideration of £1.0 million in cash.

The sale of the business, which was regarded as non-core to the Group's activities did not result in any gain or loss based upon the carrying value in the accounts (including goodwill previously written off against reserves).

10. Copies of the directors' report and the audited financial statements for the year ended 30 September 2000 will be posted to shareholders by 15 December 2000 and may be obtained thereafter from the company's registered office at Manvers House, Kingston Road, Bradford-on-Avon, Wiltshire BA15 1AA (Telephone [phone]).





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