1st Dec 2005 07:02
Avon Rubber PLC01 December 2005 Avon Rubber p.l.c Strictly embargoed until 07.00 1 December 2005 Preliminary results for the year ended 30 September 2005 30 Sept 30 Sept 2005 2004 £Millions £Millions________________________________________________________________________________ TURNOVER 239.7 239.2 TOTAL OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION (i) 7.6 10.8 TOTAL OPERATING (LOSS)/PROFIT (1.3) 10.1 PROFIT BEFORE TAX, EXEPTIONAL ITEMS AND GOODWILL AMORTISATION (i) 6.1 9.4 (LOSS)/PROFIT BEFORE TAX (2.8) 8.7 (LOSS)/PROFIT AFTER TAX (3.7) 7.0 (LOSS)/EARNINGS PER SHARE: Basic (14.1)p 25.1p Before exceptional items and goodwill amortisation (i) 16.0p 27.6p Diluted (14.1)p 23.5p DIVIDENDS PER SHARE 8.5p 8.5p NOTE:(i) Management believes that reporting results before exceptional items and goodwill amortisation provides further information for an understanding of the Group's performance. O Improved year on year performance in Automotive o new global structure implemented O Lower profits in Protection & Engineered Products, but o first production order placed on JSGPM o acquisition of ISI has created new business opportunities in Protection O Board streamlined with reduced central management costs O Dividend maintained Commenting on the results, Terry Stead, Chief Executive said: "The Group is in a period of transition as we begin to realise the growth opportunities from ourProtection activities to alter the balance between Automotive and Protection andEngineered Products. We now have a streamlined organisation focused on cash management and costcontrol. We shall continue to invest, particularly in the future Protection andEngineered Products opportunities and expect to deliver enhanced performanceover the next two to three years." For further enquiries, please contact: Avon Rubber p.l.cTerry Stead, Chief Executive 020 7067 0700Peter Slabbert, Finance Director (until 2:00pm) From 2 December 01225 896871 (Local/Trade Press) 01225 896869Jayne Hunt Weber Shandwick Square MileRichard Hews 020 7067 0700Rachel TaylorStephanie Badjonat An analyst meeting will be held at 09.30 this morning at the offices of WeberShandwick Square Mile, Fox Court, 14 Gray's Inn Road, London, WC1X 8WS. NOTES TO EDITORS: Avon Rubber p.l.c. is an international polymer engineeringgroup adding value through material, manufacturing and industry sectorexpertise. The Group is currently capitalised at approximately £48 million. Avon is a significant supplier to the world's automotive, engineering, dairy anddefence markets - manufacturing high performance elastomer products. Introduction------------ As previously anticipated, most of our markets remained challenging during theyear. We realised the projected benefits from our move to a global automotivebusiness but, in a year of transition and investment in future growth, we haveseen results eroded from some of our non automotive operations. Consequently, weachieved a profit before tax, goodwill amortisation and exceptional items of£6.1 million down from £9.4 million in 2004. After exceptional operating chargesof £8.2 million (2004: £nil), we recorded a loss before taxation of £2.8 million(2004: profit £8.7 million). Significant steps have been taken during the year, particularly in the finalquarter, to deliver a more efficient and effective organisation. Automotive'stransformation from separate North American and European businesses into asingle global operation is now complete. Our non Automotive businesses have beengrouped together as Protection and Engineered Products. The Board has beenstreamlined and we have reduced central management costs and devolved as manyfunctions as possible to the businesses. In Automotive it has been pleasing to see our strategy delivering improved yearon year performance (before exceptional items) despite our markets remainingunrelentingly difficult. The new market facing global structure is enabling moreefficient and cost effective management and an improved operating focus. This,combined with the continuing progress of our low labour cost operations,particularly in Portugal, Mexico and the Czech Republic together with successfulnew product introductions, has enabled sales to grow by 5.5% to £185.0 million(2004: £175.3 million) and operating profit before exceptional items toincrease from £3.0 million in 2004 to £6.2 million in 2005. In Protection & Engineered Products, we have seen substantially lower volumeswith sales falling from £63.9 million in 2004 to £54.7 million in 2005. Sales ofrespirators, which had benefited significantly from higher than normal volumesin 2003 and 2004 as a result of the unsettled security environment, slowedconsiderably. This was further accentuated by the introduction of a new standardin the USA, with which Avon was required to comply. An upturn in the finalquarter of our financial year, the receipt of the first production order underthe Joint Services General Purpose Mask Programme (JSGPM) for production in2006, the investment in new products and programmes during 2005 and theacquisition of International Safety Instruments Inc. (ISI) in June 2005demonstrated positive progress for the future. Results------- Sales at £239.7 million were up from £239.2 million in 2004 with Automotive upby £9.7 million at £185.0 million and Protection & Engineered Products down £9.2million at £54.7 million. Gross profit reduced from 16.3% in 2004 to 15.5%largely due to higher raw material and energy costs while operating expensesbefore exceptional items increased by 4.6%. As a result, operating profit,before exceptional items of £8.2 million (2004: £nil) and goodwill amortisationof £0.8 million (2004: £0.7 million), reduced by £3.2 million to £7.6 million(2004: £10.8 million). Operating loss after exceptional items and goodwillamortisation was £1.3 million (2004: profit £10.1 million). Net interest increased to £2.5 million (2004: £2.2 million) as net borrowingsincreased and interest rates (in particular the US$) rose. Other finance incomearising from the FRS17 pension accounting increased to £1.0 million (2004: £0.8million). This resulted in a profit before tax and exceptional items of £5.3million (2004: £8.7 million) and a loss on ordinary activities after exceptionalitems of £2.8 million (2004: profit of £8.7 million). Exceptional charges of £8.2 million were incurred; £6.4 million related to therestructuring of our European Automotive operations including the factoryclosure of Calaf, Spain and the reorganisation of the Group's central anddivisional management structures. £1.8 million related to bad debt provisions inrespect of the MG Rover administration (announced in April 2005) and the DelphiCorporation (Delphi) Chapter 11 reorganisation of October 2005. The benefits ofthe various reorganisation activities (which are now complete) remain on courseto be delivered in line with expectations. The taxation charge represents an effective rate of 32% on profits beforeexceptional items (2004: 19%). This is a more normal rate, with the 2004 chargereduced by the recognition of deferred tax assets on taxation losses previouslynot recognised principally in respect of our now profitable business in Orizaba,Mexico. Future tax rates will be affected by the geographic split of profits. Earnings per share before exceptional items and goodwill amortisation were 16.0p(2004: 27.6p) and basic loss per share was 14.1p (2004: earnings per share of25.1p). Four years of cash generation totalling £35.2 million had reduced our net debtto £29.7 million in 2004. In 2005, our focus on investment in future growth inProtection, in particular the cash cost acquisition of ISI of £11.4 million andthe cash cost of the exceptional charge of £3.0 million resulted in net debtincreasing by £22.0 million to £51.7 million (£2004: £29.7 million). Net capitalexpenditure (including capitalised development expenditure) of £11.0 million,was £1.2 million above depreciation and amortisation charges of £9.8 million. Weaccelerated our investment in future opportunities, particularly in theProtection business in the second half of the year. This programme ofdevelopment will continue into 2006. Working capital increased by £5.7 millionwhile trade working capital as a percentage of sales increased to 14.0% (2004:12.1%) due to higher year on year final quarter sales. Acquisition----------- As part of our strategy of developing the respiratory protection business tobecome a significant part of the Group, we announced the purchase of ISI in June(at a cost of $22.7 million). This acquisition provided the Group with keyself-contained breathing apparatus (SCBA) technology used primarily by fireservices. It complements our existing product range and provides expandeddistribution networks. To date, ISI is performing in line with expectations andhas already created opportunities to tender for further significant new defenceprogrammes. Automotive---------- A 5.5% increase in sales to £185.0 million (2004: £175.3 million) and a morethan doubling in operating profit before exceptional items to £6.2 million(£2004: £3.0 million) reflects the success of our low cost manufacturingstrategy, the benefits of a global automotive structure and our pursuit ofoperational excellence. This represents a significant achievement in a generallyflat market. While material and energy costs showed large increases during theyear, these were more than offset by our cost reduction programmes and continuedgrowth in low labour cost areas. In North America, sales rose from £73.1 million to £77.3 million with the waterhose business, principally from Orizaba, Mexico, being the primary driver.Operating profit before exceptional items in North American Automotive increasedto £3.9 million (2004: £3.7 million). The targeting of the "New Domestics"remains our long-term focus although we continue to have significant businesswith the traditional Big 3 (Ford, General Motors and Daimler Chrysler). Volumesto these customers held up reasonably well despite our customers' generallyweaker sales figures. The launch of our new GREENbar(TM) fuel hose, designed to meet environmentalregulations now applicable to small engines, exceeded expectations in the finalquarter of the financial year. Continued growth is expected in 2006. While the Chapter 11 reorganisation entered into by Delphi caused us to provide£0.7 million against outstanding receivables, we do not expect a significantimpact going forward as they continue to trade at normal levels. In European Automotive, operating profits (before exceptional items) of £2.3million were £3.0 million above the £0.7 million loss in 2004 on sales of £107.7million (2004: £102.2 million). The administration of MG Rover reduced sales inthe second half by £1.5 million and resulted in a provision against stock andoutstanding debt of £1.1 million (charged as an exceptional operating expense).Significant operating improvements, particularly in our French facility, as wellas reduced overhead costs were the drivers of the improved performance.Development of our new water hose facility in Turkey has commenced and we expectit to come on stream early in calendar year 2006. Protection & Engineered Products-------------------------------- Sales were down £9.2 million at £54.7 million (2004: £63.9 million) due to lowerdevelopment income as we completed the System Development and Demonstrationphase of the JSGPM programme in March 2005 and lower respirator and Europeandairy sales. This resulted in a disappointing performance from our UK facility.An operating profit (before exceptional items) of £0.7 million resulted (2004:£7.1 million) as we resourced for future growth opportunities and were unable toadjust overheads quickly enough to compensate for this fall in sales elsewhere.The overhead cost reduction of £2.5 million announced in July will help toalleviate this. In Protection, we have continued to invest for the future in mask and filterproduction. The JSGPM move from development to production phase was delayed bynew U.S. Government contracting procedures but we now have an initial low rateproduction contract and will commence manufacture in 2006. We will also commence production of our newly developed rapid escape hood inearly 2006 which we expect to generate considerable interest from the emergencyservices. Order books are buoyant at our fabrications operation in Mississippi,particularly for its flexible liquid storage tanks. Improvements inmanufacturing were, however, interrupted by the effects of hurricane Katrina. Asa result, they recorded a disappointing outcome for the year although theoutlook for 2006 remains encouraging. Hi-Life in the USA achieved some growth in its mature market and continues todeliver excellent operational performance. Dividend-------- The Board is recommending an unchanged final dividend of 4.8p per share (2004:4.8p per share) which will be paid on 27 January 2006 to ordinary shareholderson the register on 13 January 2006. When added to the interim dividend of 3.7pper share (2004: 3.7p per share) the total dividend is unchanged at 8.5p pershare (2004: 8.5p per share). The Board believes this is appropriate against thebackground of this year's results, but is still committed to a progressivedividend policy. Outlook------- The Group is in a period of transition as we begin to realise the growth opportunities from our Protection activities to alter the balance between Automotive and Protection and Engineered Products. Our automotive operations continue to perform well in tough markets and togenerate cash. Our operation in Orizaba, Mexico is expected to see increasinglevels of demand and we anticipate further growth for our GREENbarTM product. Weare continuing our development of low cost operations with the opening of afacility in Turkey. Whilst recent indications, particularly in North America,mean that market conditions are likely to be even more demanding, we expectAutomotive to generate the cash to fund our investment for future growth. In Protection and Engineered Products, we have acquired ISI, have starteddelivery of the new US military respirator, developed and brought to productiona new rapid escape hood and started investment in filter production. We expectJSGPM demand to grow progressively over the next two to three years, withsignificant volumes starting in the second half of 2006. We now have a streamlined organisation focused on cash management and costcontrol. We shall continue to invest, particularly in the future Protection andEngineered Products opportunities and expect to deliver enhanced performanceover the next two to three years. CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 30 September 2005 2005 2005 2005 2004 Before Exceptional exceptional items items (note 3) Total Total Note £'000 £'000 £'000 £'000___________________________________________________________________________________Turnover 2 239,735 - 239,735 239,212Cost of sales (202,553) - (202,553) (200,110)___________________________________________________________________________________Gross profit 37,182 - 37,182 39,102Net operating expenses (including £802,000 (2004:£681,000) goodwill amortisation) (30,460) (8,158) (38,618) (29,124)___________________________________________________________________________________Group operating (loss)/profit 6,722 (8,158) (1,436) 9,978Share of profits of joint venture and associate 111 - 111 138___________________________________________________________________________________Total operating (loss)/profit: Group and share of joint venture 2 6,833 (8,158) (1,325) 10,116Interest receivable 193 - 193 138Interest payable (2,703) - (2,703) (2,345)Other finance income 1,010 - 1,010 776___________________________________________________________________________________(Loss)/profit on ordinary activities before taxation 5,333 (8,158) (2,825) 8,685Taxation 4 (1,715) 841 (874) (1,658)___________________________________________________________________________________(Loss)/profit on ordinary activities after taxation 3,618 (7,317) (3,699) 7,027Minority interests (115) - (115) (389)___________________________________________________________________________________(Loss)/profit for the financial year 3,503 (7,317) (3,814) 6,638Dividends 5 (2,341) - (2,341) (2,245)___________________________________________________________________________________Retained (loss)/profit for the financial year 1,162 (7,317) (6,155) 4,393___________________________________________________________________________________Rate of dividend 8.5p 8.5p(Loss)/earnings per ordinary share 6Basic (14.1)p 25.1pBefore exceptional items 13.0p 25.1pBefore goodwillamortisation and exceptional items 16.0p 27.6pDiluted (14.1)p 23.5p___________________________________________________________________________________ All of the Group's turnover and operating (loss)/profit was generated fromcontinuing activities.There is no material difference between the profit as stated above and thatcalculated on an historical cost basis. CONSOLIDATED STATEMENTOF TOTAL RECOGNISED GAINS AND LOSSESfor the year ended 30 September 2005 2005 2004 £'000 £'000________________________________________________________________________________ (Loss)/profit for the year (3,814) 6,638 Actuarial gain/(loss) recognised in retirement benefit schemes 3,974 (1,083) Movement on deferred tax relating to retirement benefit liabilities (6,275) 330 Net exchange difference on overseas investments 606 (672)________________________________________________________________________________ Total recognised (losses)/gains for the year (5,509) 5,213________________________________________________________________________________ RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDSfor the year ended 30 September 2005 2005 2004 £'000 £'000________________________________________________________________________________ Opening shareholders' funds as previously stated 63,751 80,728 Prior year adjustment - (20,318) ________________________________________________________________________________Opening shareholders' funds restated 63,751 60,410 (Loss)/profit for the year (3,814) 6,638 Dividends (2,341) (2,245) Actuarial gain/(loss) recognised in retirement benefit schemes 3,974 (1,083) Movement on deferred tax relating to retirement benefit liabilities (6,275) 330 Movement in respect of employee share scheme (620) (19) Goodwill resurrected on disposal of subsidiary - 392 New share capital subscribed 297 - Net exchange difference on overseas investments 606 (672)________________________________________________________________________________Closing shareholders' funds 55,578 63,751________________________________________________________________________________ CONSOLIDATED BALANCE SHEETAt 30 September 2005 2005 2004 (restated see note 1) £'000 £'000________________________________________________________________________________ Fixed assets Intangible assets 25,715 14,595 Tangible assets 83,715 85,330 Investments 146 68________________________________________________________________________________ 109,576 99,993Current assetsStocks 24,004 20,983 Debtors - amounts falling due within one year 51,963 44,137 Debtors - amounts falling due after more than one year 604 617 Investments 5,017 4,118 Cash at bank and in hand 3,902 5,767________________________________________________________________________________ 85,490 75,622 Creditors - amounts due within one year (85,293) (71,934)________________________________________________________________________________ Net current assets 197 3,688________________________________________________________________________________Total assets less current liabilities 109,773 103,681 Creditors - amounts falling due after more than one year (25,909) (15,332) Provisions for liabilities and charges (6,865) (4,294)________________________________________________________________________________ (32,774) (19,626)________________________________________________________________________________ Net assets excluding pension liability 76,999 84,055 Pension liability (20,656) (19,654)________________________________________________________________________________ Net assets including pension liability 56,343 64,401________________________________________________________________________________ Capital and reserves Share capital 28,121 27,824 Share premium account 34,070 34,070 Revaluation reserve 1,751 2,213 Capital redemption reserve 500 500 Profit and loss account (8,864) (856)________________________________________________________________________________Equity shareholders' funds 55,578 63,751Minority interests (equity interests) 765 650________________________________________________________________________________Capital employed 56,343 64,401________________________________________________________________________________ CONSOLIDATED CASH FLOW STATEMENTfor the year ended 30 September 2005 2005 2004 Note £000 £000________________________________________________________________________________ Net cash flow from operating activities 7 8,374 21,728 Returns on investments and servicing of finance (2,687) (2,367)Taxation Corporation tax paid (2,350) (1,994)Capital expenditure and financial investment Net capital expenditure (7,072) (6,970) Capitalised development expenditure (3,906) (2,384)Acquisitions and disposals Sale of operations - 1,884 Purchase of shares in subsidiary undertakings - (1,189) Purchase of subsidiary undertaking (11,652) - Cash acquired 257 -Equity dividends paid (2,293) (2,172)________________________________________________________________________________ Net cash (outflow)/inflow before use of (21,329) 6,536 liquid resources and financing Management of liquid resourcesIncrease in investments treated as liquid resources (874) (270) FinancingIssue of ordinary share capital 297 -Net movement in loans and finance leases 20,058 (7,690)Purchase of own shares - (449)________________________________________________________________________________ Decrease in net cash (1,848) (1,873)________________________________________________________________________________ Reconciliation of net cash flow to movement in net debtDecrease in cash (1,848) (1,873)Net movement in loans and finance leases (20,058) 7,690Movement in liquid resources 874 270Amortisation of loan issue costs (14) (92)Exchange differences (986) 2,340________________________________________________________________________________Movement in net debt in the period (22,032) 8,335 Net debt at the beginning of the period 8 (29,687) (38,022)Net debt at the end of the period 8 (51,719) (29,687)________________________________________________________________________________ 1. NOTES TO THE PRELIMINARY ANNOUNCEMENT (a) The figures and financial information for the year ended 30 September 2005do not constitute the statutory financial statements for that year. Thosefinancial statements have not yet been delivered to the Registrar, nor have theauditors yet reported on them. (b) The preliminary announcement has been prepared using accounting policiesthat are consistent with the policies detailed in the financial statements forthe year ended 30 September 2004 (except as noted below), and was approved bythe Board of Directors on 30 November 2005. Warranty provisions of £1,946,000 (2004: £2,344,000) have been reclassified fromcreditors amounts falling due within one year to provisions for liabilities andcharges as this presentation better reflects the nature of the underlyingliabilities. Amounts previously disclosed as other reserves relating to shares held by theESOP trust have been reclassified as a deduction from the profit and lossreserve. The amount deducted in 2005 is £1,597,000 (2004: £977,000). (c) The Company's existing bank facilities are in the process of beingrenegotiated. The Group has agreed commercial terms for these new facilities andthe banks have confirmed their commitment to them based upon an agreed detailedterm sheet. The Group and its lenders expect to complete legal documentation inthe near future. 2. Segmental Informationfor the year ended 30 September 2005 2005 2004 30 Sept 05 30 Sept 04 £'000 £'000________________________________________________________________________________ a) Turnover by destination Europe 130,448 127,562 North America 104,548 105,471 Rest of World 4,739 6,179________________________________________________________________________________ 239,735 239,212 b) Turnover by origin Europe 135,085 135,067 North America 104,650 104,145________________________________________________________________________________ 239,735 239,212 Operating profit/(loss) by origin before exceptional operating items Europe (365) 1,903 North America 7,198 8,213________________________________________________________________________________ 6,833 10,116 Exceptional operating items Europe (7,393) - North America (765) -________________________________________________________________________________ (8,158) - After exceptional operating items Europe (7,758) 1,903 North America 6,433 8,213________________________________________________________________________________ (1,325) 10,116 c) Turnover by business sector Automotive components 185,028 175,308 Protection & Engineered Products 54,707 63,904________________________________________________________________________________ 239,735 239,212 Operating profit by business sector before exceptional operating items Automotive components 6,157 2,996 Protection & Engineered Products 676 7,120________________________________________________________________________________ 6,833 10,116 Exceptional operating items: Automotive components (7,203) - Protection & Engineered Products (955) -________________________________________________________________________________ (8,158) - After exceptional operating items Automotive components (1,046) 2,996 Protection & Engineered Products (279) 7,120________________________________________________________________________________ (1,325) 10,116________________________________________________________________________________ 3. The exceptional charge during the year ended 30 September 2005 consists of: £'000 AutomotiveEurope Reorganisation costs 5,347 Provision against MG Rover 1,091 balances North America Reorganisation costs 65 Provision against Delphi balance 700 Protection & EngineeredProductsEurope Reorganisation costs 955 ___________ 8,158 ___________ The cash effect of the reorganisation costs was £3,000,000 4. The taxation charge based on the results for the year comprises: 2005 2004 £'000 £'000 Current tax UK corporation tax on profits of the year at 30% (2004: 30%) - (128) Overseas taxes 1,237 2,713 Over provision in previous years (62) (434) __________________ 1,175 2,151Deferred tax Origination and reversal of timing differences (301) (493) __________________ 874 1,658 __________________ 5. If approved, payment of the final dividend on the ordinary shares will bemade on 27 January 2006 to shareholders on the register at the close of businesson 13 January 2006. The total proposed final dividend will be £1,315,000 (2004:£1,268,000). 6. Basic loss per share amounts to 14.1p (2004: earnings 25.1p) and is based ona loss after taxation and deduction of minority interests of £3,814,000 (2004:profit £6,638,000) and 26,963,971 ordinary shares (2004: 26,472,000) being theweighted average of the shares in issue during the year. Earnings per share before exceptional items amounts to 13.0p (2004: 25.1p) andis based on profit for the year (adjusted to add back exceptional items) of£3,503,000 (2004: £6,638,000). Earnings per share before goodwill amortisation and exceptional items amounts to16.0p (2004: 27.6p) and is based on profit for the year (adjusted to add backgoodwill amortisation and exceptional items) of £4,305,000 (2004: £7,319,000). The company has dilutive potential ordinary shares in respect of the SharesaveOption Scheme and Performance Share Plan. The diluted loss per share is notmaterially different to the basic loss per share. Adjusted earnings per share figures have been calculated in addition to basicand diluted figures since, in the opinion of the directors, these providefurther information for an understanding of the Group's performance. 7. Net cash flow from operating activities 2005 2004 £000 £000________________________________________________________________________________ Operating (loss)/profit (1,325) 10,116Goodwill amortisation 802 681Depreciation 8,513 8,935Amortisation of development and loan issue costs 1,317 1,292Movement in working capital and other provisions (84) 249Other movements (849) 455________________________________________________________________________________Net cash flow from operating activities 8,374 21,728________________________________________________________________________________ 8. Analysis of net debt Amortisation As at Cash of loan issue Exchange As at 1 Oct 04 flow costs movements Acquisitions 30 Sep 05 £'000 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 5,767 (2,183) - 61 257 3,902 Overdrafts (1,277) 78 - (18) - (1,217) Debt due after 1 year (14,931) (9,399) (14) (410) - (24,754) Debt due within 1 year (23,361) (10,660) - (644) - (34,665) Finance leases (3) 1 - - - (2) Current asset investments 4,118 874 - 25 - 5,017______________________________________________________________________________________ (29,687) (21,289) (14) (986) 257 (51,719)______________________________________________________________________________________ 9. Copies of the directors' report and the audited financial statements for theyear ended 30 September 2005 will be posted to shareholders by 20 December 2005and may be obtained thereafter from the Company's registered office at HamptonPark West, Semington Road, Melksham, Wiltshire, SN12 6NB. 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Avon Protection