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
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