22nd May 2006 07:02
Avon Rubber PLC22 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 strategicadvance for the Group allowing us to focus on the high growth potential we haveidentified for our respiratory protection products. We shall continue to developour strong market positions in dairy, aerosol gaskets and engineeredfabrications. This combination of established businesses and growthopportunities provides a balanced portfolio of business activities for thefuture. We are targeting respiratory protection as our major growth area, particularlyrelated in the short-term to the new US military respirator and associatedfilters and an escape hood which provides emergency protection from chemical,biological, radiological and nuclear threats. Longer-term we have an excitingrange of new products being developed and will explore appropriate acquisitionsto enhance our technologies. Our recent acquisition, ISI, together with the North American dairy business andthe Engineered Fabrications business in Mississippi are operating in line withour expectations and delivering consistent levels of earnings. We are takingsteps to improve the performance of our continuing UK operations. The expectedgrowth from respiratory protection will build on this foundation. The Board is excited about the opportunity to pursue its planned strategicdirection and is confident of the future opportunities for growth of thecontinuing businesses as this strategy is implemented." For further enquiries, please contact: Avon Rubber p.l.c Terry Stead, Chief Executive 020 7067 0700Peter Slabbert, Group Finance Director (until 2.00pm) (Local/Trade Press)Fiona Stewart 01225 896300 Weber Shandwick Square MileRichard Hews 020 7067 0700Rachel 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 engineeringgroup adding value through material, manufacturing and industry sectorexpertise. 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 developmentsunderpinned by an improved operating performance. We are recommending toshareholders an offer to acquire our Automotive business at what we believe tobe a fair and reasonable price, we are realising the benefits of our purchase ofInternational Safety Instruments Inc. (ISI) last year, we have started deliveryof the new generation Military respirator in the US and we are implementingimprovement actions at our underperforming UK facilities. The Group reports for the first time under International Financial ReportingStandards (IFRS). The proposed disposal of our Automotive division and theBoard's expectation that this sale, subject to shareholder approval, will becompleted, has required that this division be treated as a discontinuedoperation and an impairment taken for the expected loss on disposal. Accordinglywe recorded a loss for the period of £15.9m of which £17.8m is represented bythis loss on disposal which includes £10.3m of goodwill written off. At atrading level, total operating profit for continuing and discontinuedoperations, 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 revenueof £133.6m (2005: £114.9m). Total operating profit from continuing operationsimproved to £0.1m from a loss of £1.1m (after exceptional items of £0.2m) in thesame period last year. Net interest costs of £1.8m (2005: £1.1m) offset by otherfinance income of £1.3m (2005: £0.5m) resulted in a loss from continuingoperations 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 operationswas £4.0m (2005: £1.5m after exceptional operating expenses of £1.8m). Interestand other finance income has been attributed to the legal entities to which theyapply and accordingly all fall within the continuing operations. The operating profit of discontinued operations reflects the revenues and costsof the entities for disposal with no apportionment of common or central costs.These costs are all reflected in the continuing operations. If an apportionmenthad been made on a similar basis to previous years but still on an IFRS basisthe operating profit before exceptional items for Protection and EngineeredProducts was £2.0m (2005: £0.8m) and Automotive £2.2m (2005: £1.5m). Forcomparative purposes the operating profit (before exceptional items) under UKGAAP was for Protection and Engineered Products £2.0m (2005: £0.8m) andAutomotive £2.2m (2005: £1.9m). The basic loss per share was 58.3p (2005: loss per share of 4.6p). The basicloss 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 theperiod. This has resulted in a tax credit of £0.2m for continuing operations anda charge of £1.9m in relation to the discontinued operations. The increased ratereflects the non-recognition of deferred tax assets on losses in the UK andcertain of the European entities. The disposal of the Automotive division islikely 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 halffrom £51.7m at the 2005 year end to £56.5m (2005: £35.9m). Further capitalinvestment of £5.4m (2005: £2.9m) particularly in manufacturing capacity andproduct development in our respiratory protection operations and the workingcapital 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 theexceptional charges taken in 2005 are reflected in the increase from the interimnet debt position of 2005. The proposed Automotive disposal would have had apositive cash impact of £50.0m (before tax) based on the working capitalposition at the half year. Based on the projected working capital at completionthe disposal is expected to have a positive cash impact of £54.1 million beforetax 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 camelargely 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 withexpectations, while our engineered fabrications business in Mississippi (AEF)also showed growth, particularly in the second quarter as it recovered from theeffects of Hurricane Katrina in September last year. Further revenue growth camefrom our fledgling respirator facility in Cadillac, Michigan where we deliveredthe first shipment of the new M53 special forces mask to the US Department ofDefense in March. The markets for our dairy products in both Europe and NorthAmerica remained steady, as did those for business machines in Europe. The NorthAmerican market for these business machines products continued its weaker trendas our customers re-source to lower cost areas. There remains a global marketfor our legacy respirators manufactured in the UK, although demand is variabledependent on military spend. Sales of these products in 2006 have continued atthe lower levels experienced in 2005. The operating result improved from a loss of £1.1m in 2005 (after exceptionaloperating expenses of £0.2m) to a profit of £0.1m (after absorbing all centralcosts) and from £0.8m to £2.0m when central costs are apportioned across alloperations. The improvement arises as a result of increased sales except for therespirator facility in Cadillac where we have invested in operationalinfrastructure in advance of planned volume increases. In our protection business, the first production volumes of M53 respirators weredelivered in the half year and the Low Rate Initial Production (LRIP) order forthe higher volume M50 is scheduled for the second half. In the UK we haveexperienced frustrating delays in the introduction of the newly developed rapidescape hoods which have pushed back planned benefits to the second half, but theoverall outlook for these products remains unchanged despite the delays. Weexpect to start realising the benefits of the investments we have made ininfrastructure, intellectual property and capital equipment in the near term.ISI performed well and we are starting to see opportunities arising from ourexpanded product offering and integration of the technologies. Our target ofdeveloping a substantial respiratory protection business remains on track inthis, our primary strategic growth area. Hi-Life, our North American dairy business, has maintained its strong marketposition and operational performance while our European dairy business hasstabilised as both an original equipment and own brand supplier. We remainconvinced that our materials and manufacturing skills, our strong Milk-Ritebrand and our expertise in milk flow technology give us the potential for growthoutside our traditional geographic markets. Growth is also planned in our UKbased aerosol gaskets business where increased sales resources and improvedcustomer service are generating further opportunities, particularly in the US. Despite the opportunities in respiratory protection and the strong performancefrom Hi-Life, AEF and ISI, the performance of our continuing operations remainsconstrained by the underperformance of our UK operations, losses in our UKmixing facility and the need to absorb a level of central overhead associatedwith the larger Group prior to the automotive disposal. As a consequence arestructuring of our UK manufacturing sites, focussed around our Hampton ParkWest facility to a size and cost base appropriate to our current levels ofbusiness in dairy, aerosol gaskets and protection is being undertaken. Amongstother measures this will involve the closure of a small facility in Trowbridgeand a reduction in headcount. The benefits will be realised in 2007. We aretaking actions to reduce losses at our UK mixing facility and exploring optionsto deliver shareholder value. AUTOMOTIVE COMPONENTS Our continual drive over the last few years to position our Automotive businessin appropriate low labour cost areas and to concentrate on continuous cost andefficiency improvements has enabled us to deliver consistent operationalperformance in a consistently challenging trading environment. Operating profitbefore exceptional items, (including a share of central costs) increased to£2.2m (2005: £1.5m) which included achieving most of the planned £3.0mannualised cost savings from the closure of our Spanish facility in Calaf.Material and energy cost increases and customer price reductions prevented thedelivery of the full benefits of these improvements. We saw volume growth overall with revenue up from £90.4m to £96.7m particularlyin North America with Greenbar (a small engine fuel barrier hose introduced inthe second half of last year) continuing to grow into this new market andfurther volume increases in Orizaba, Mexico. Europe as a whole was steadyalthough the proportion of sales from our lower cost manufacturing sites in theCzech Republic and Portugal increased. The new facility in Turkey came on streamin April. PROPOSED DISPOSAL Despite the improved result in Automotive Components, our operating marginsremain low at 4.7% in 2005 and 4.2% in the half year to 31 March 2006 (bothbefore exceptional items and an apportionment of central costs) and the businessremains vulnerable to relatively small volume changes and selling price and costpressures. We believe therefore that the disposal and release of approximately£52.1m of net proceeds will significantly reduce the risk to the long termsustainability of our earnings and cashflows and reduce the risk of furtherexceptional charges from restructuring or site closures. These risks and adetailed rationale for the proposed disposal are more fully described in thecircular to the shareholders to be distributed later this week. It will alsoenable us to concentrate on and fund the growth opportunities in Protection andEngineered 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 30September 2005 to £1.7m at 31 March 2006. The reduced deficit derives primarilyfrom an improvement in the equity markets only partially offset by a lowerdiscount 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 bereassessed in a new triennial valuation to be prepared as at 1 April 2006 whichadds to the uncertainty and, in particular updated mortality assumptions mayhave 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 considerationfrom the disposal of approximately £52.1 million is required by the Group'slending banks, in the event of a disposal of this nature, to be applied in thefirst instance to reduce indebtedness resulting from, in part, previousinvestments and acquisitions in respiratory protection. The disposal of the Automotive business represents an opportunity to review theappropriate capital structure for the continuing group. The appropriate capitalstructure will need to be determined by the Board having balanced a number ofimportant factors, including perceived growth/acquisition opportunities (mostnotably in respiratory protection), product development programmes,restructuring plans, on-going pension obligations and distribution policy. TheBoard intends to update shareholders on this review at the time of the Group'spreliminary results. DIVIDEND The Board announces an unchanged interim dividend of 3.7p per share payable on 3July 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 strategicadvance for the Group allowing us to focus on the high growth potential we haveidentified for our respiratory protection products. We shall continue to developour strong market positions in dairy, aerosol gaskets and engineeredfabrications. This combination of established businesses and growthopportunities provides a balanced portfolio of business activities for thefuture. We are targeting respiratory protection as our major growth area, particularlyrelated in the short-term to the new US military respirator and associatedfilters and an escape hood which provides emergency protection from chemical,biological, radiological and nuclear threats. Longer-term we have an excitingrange of new products being developed and will explore appropriate acquisitionsto enhance our technologies. Our recent acquisition, ISI, together with the North American dairy business andthe Engineered Fabrications business in Mississippi are operating in line withour expectations and delivering consistent levels of earnings. We are takingsteps to improve the performance of our continuing UK operations. The expectedgrowth from respiratory protection will build on this foundation. The Board is excited about the opportunity to pursue its planned strategicdirection and is confident of the future opportunities for growth of thecontinuing 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 forthe six months ended 31 March 2006 which comprises a consolidated incomestatement, consolidated statement of recognised income and expense, consolidatedbalance 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 andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those accounting standards adopted for use by theEuropean Union. This interim report has been prepared in accordance with thebasis set out in note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 30 September 2006 are not known with certaintyat the time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin 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 thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 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 AuditorsBristol18 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 operationsRevenue 2 36,929 24,514 53,344Operating 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 193Interest 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 115Loss 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 operationsBasic (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 3,974Movement 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____________________________________________________________________________________________________________AssetsNon-current assetsGoodwill 6,338 10,168 16,123Intangible assets 10,456 7,777 14,173Property, plant and equipment 31,613 69,857 71,294Investments accounted for using equity method - 74 146Trade and other receivables 597 790 604Deferred tax assets 2,620 8,594 3,208____________________________________________________________________________________________________________ 51,624 97,260 105,548Current assetsInventories 9,072 23,541 24,004Trade and other receivables 16,492 47,935 51,227Financial assets - derivative financial instruments - - 24Cash 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____________________________________________________________________________________________________________ LiabilitiesCurrent liabilitiesFinancial liabilities- Borrowings 44,027 21,362 35,884- Derivative financial instruments 26 - -Trade and other payables 12,935 48,182 47,270Current 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 liabilitiesFinancial liabilities - borrowings 20,246 27,515 24,754Deferred tax liabilities 1,682 - 3,116Other non current liabilities 1,153 241 1,155Retirement benefit obligations 4,952 23,004 23,076Provisions 2,879 1,950 5,615____________________________________________________________________________________________________________ 30,912 52,710 57,716____________________________________________________________________________________________________________Net Assets 42,121 59,039 47,699____________________________________________________________________________________________________________ Shareholders equityOrdinary shares 28,127 27,824 28,121Share premium 34,072 34,070 34,070Revaluation reserve 1,751 2,213 1,751Capital redemption reserve 500 500 500Translation reserve 978 606 606Profit and loss account (24,187) (6,878) (18,114)____________________________________________________________________________________________________________Equity shareholders funds 7 41,241 58,335 46,934Minority 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 activitiesCash generated from operations 8 6,328 (199) 8,613Interest received 100 112 234Interest 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 activitiesAcquisition of subsidiaries (net of cash required) - - (11,395)Proceeds from sale of property, plant and equipment 38 690 988Purchase 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 activitiesNet proceeds from issues of ordinary share capital 8 - 297Net movements in loans and finance leases 1,903 10,718 20,058Decrease/(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 statementsfollowing the adoption of International Financial Reporting Standards (IFRS). Asthe Group has not previously published a full set of financial statements underIFRS the content of these statements has been expanded to include summarisedreconciliations to those previously reported under UK GAAP for the six monthsended 31 March 2005 and the year ended 30 September 2005 (note 10). Additionalstatements regarding the transition, together with the new Group accountingpolicies under IFRS can be found on the home page of Avon Rubber p.l.c. websiteat www.avon-rubber.com under the heading "Corporate Information: PressReleases". The financial information has been prepared in accordance with all internationalFinancial Reporting Standards and IFRS interpretations that had been publishedby 31 March 2006 and apply to accounting periods beginning on or after 1 January2005. The standards used are those endorsed by the EU together with thosestandards and interpretations that have been issued by the IASB (InternationalAccounting Standards Board) but had not been endorsed by the EU by 31 March2006. The 2005 comparative information has, as permitted by the exemption inIFRS 1, not been prepared in accordance with IAS 32 "Financial instruments:Disclosure and presentation" and IAS 39 "Financial instruments: Recognition andmeasurement". At this stage in the development of IFRS, matters such as the interpretation andapplication surrounding it are continuing to evolve. In addition, IFRS currentlyin issue and endorsed by the EU are subject to interpretation by IFRIC(International Financial Reporting Interpretations Committee) and furtherStandards may be issued by the IASB that will be endorsed by September 2006. Accordingly, the accounting policies for 2006 will only finally be determinedwhen the annual financial statements are prepared for the year ending 30September 2006. These uncertainties could result in the need to change the basisof accounting or presentation of certain financial information from thatpresented in this document. This interim report is unaudited and does not constitute audited accounts withinthe meaning of the Companies Act 1985. The accounts for the year ended 30September 2005, on which the auditors gave an unqualified audit opinion, werenot prepared in accordance with International Financial Reporting Standards andIFRIC 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 Rubberp.l.c.'s primary reporting segment is by business. The secondary reportingformat 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 sectorProtection & Engineered Products 36,929 24,514 53,334Automotive Components (discontinued operation) 96,702 90,372 186,391____________________________________________________________________________________________________________ 133,631 114,886 239,735____________________________________________________________________________________________________________Operating profit by business sectorProtection & Engineered Products 114 (902) (2,618)Automotive Components (discontinued operation) 4,043 3,235 8,801____________________________________________________________________________________________________________ 4,157 2,333 6,183Exceptional operating expensesProtection & Engineered Products - (172) (1,424)Automotive Components (discontinued operation) - (1,760) (6,734)____________________________________________________________________________________________________________ 4,157 401 (1,975)____________________________________________________________________________________________________________Turnover by originEurope 66,947 66,001 135,085North America 66,684 48,885 104,650____________________________________________________________________________________________________________ 133,631 114,886 239,735____________________________________________________________________________________________________________Operating profit by originEurope (460) (534) (978)North America 4,617 2,867 7,161____________________________________________________________________________________________________________ 4,157 2,333 6,183Exceptional operating expensesEurope - (1,932) (7,393)North America - - (765)____________________________________________________________________________________________________________ 4,157 401 (1,975)____________________________________________________________________________________________________________ The operating profit numbers in the above tables reflect the decision to disposeof the automotive group and therefore do not include any allocation of centralcosts which were previously allocated between the two primary segments. Thetable below shows how operating profits would have been analysed using theprevious 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 sectorProtection & Engineered Products 2,006 796 726Automotive Components (discontinued operation) 2,151 1,537 5,457____________________________________________________________________________________________________________ 4,157 2,333 6,183Exceptional operating expensesProtection & 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 divisionfor a consideration of £53,977,000. The consideration is expected to be receivedin 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 8,801Reorganisation costs - (1,760) (6,734)____________________________________________________________________________________________________________ Share of post tax profits of joint venture - 2 78Taxation 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 53,977Costs associated with sale (4,000)___________________________________________________________________________ 49,977Taxation on disposal (1,944)___________________________________________________________________________Net proceeds from sale 48,033Net 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 64,866Impairment (16,833)___________________________________________________________________________Net assets shown in balance sheet 48,033___________________________________________________________________________ 5. Dividends The directors are proposing an interim dividend in respect of the half yearending 31 March 2006 of 3.7p which will absorb an estimated £1,040,000 ofshareholders' funds. The dividend will be paid on 3 July 2006 to shareholders onthe register at noon on 9 June 2006. In accordance with IFRS the interim dividend is not recorded as a liability norreflected 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) ordinaryshares, being the weighted average of the shares in issue during the period onwhich 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 SharesaveOption Scheme and the Performance Share Plan. The diluted loss per share is notmaterially 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 55,405Loss 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 3,974Movement on deferred tax relating to retirement benefit liabilities - (1,990) (6,275)Net exchange differences offset in reserves 372 606 606New share capital subscribed 8 297Movement 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 operationsLoss for the financial year (231) (1,762) (5,939)Adjustments for:Tax (196) 125 430Depreciation 1,456 1,665 2,730Amortisation and impairment of intangibles 462 25 215Net interest expense 1,801 1,067 2,477Other 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 893Adjustments for:Tax 1,856 893 1,252Depreciation 2,809 3,082 5,521Amortisation and impairment of intangibles 744 906 2,288Movements in working capital and provisions 14,828 (4,730) 3,153Other 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 4,523Overdrafts (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 5,416Debt 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 financialstatements for the half year ended 31 March 2005 and the year ended 30 September2005. The analysis below shows a reconciliation if operating profit/(loss) andequity shareholders funds as reported under UK GAAP as at 31 March 2005 and 30September 2005 to the revised operating (loss)/profit and equity shareholdersfunds 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 lossAs per UK GAAP 772 (1,325)2005 development costs now capitalised d 277 643Amortisation and impairment of development costs and other intangibles d (323) (1,244)Goodwill amortisation a 348 802Share options b (802) (1,002)Reduced depreciation on re-valued assets c 131 262Share of profits of joint venture (2) (111)____________________________________________________________________________________________________As per IFRS (note 2) 401 (1,975)____________________________________________________________________________________________________Reconciliation of equity shareholders fundsAs per UK GAAP 66,987 55,578Development costs and other intangibles d 2,179 1,625Goodwill amortisation a 348 8022005 dividend proposed not yet paid e 1,003 1,315Re-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__________________________________________________________________________________________________AssetsNon-current assetsGoodwill 10,144 10,144Intangible assets d 4,451 809 2,226 7,486Property, plant and equipment c 85,330 (809) (11,911) 72,610Investments accounted for using equity method 68 68Trade and other receivables 617 617Deferred tax assets f 795 8,489 9,284__________________________________________________________________________________________________ 101,405 8,489 (9,685) 100,209 Current assetsInventories 20,983 20,983Trade and other receivables 43,342 43,342Financial assets - derivative financial instruments k 12 12Cash and cash equivalents 9,885 9,885__________________________________________________________________________________________________ 74,210 12 - 74,222 LiabilitiesCurrent liabilitiesFinancial liabilities- Borrowings 24,641 24,641Trade and other payables e 45,274 12 (1,268) 44,018Current tax liabilities 2,019 2,019__________________________________________________________________________________________________ 71,934 12 (1,268) 70,678 Non-current liabilitiesFinancial liabilities - borrowings 14,931 14,931Deferred tax liabilities j 1,500 (71) 1,429Other non-current liabilities 401 401Retirement benefit obligations f 19,654 8,489 28,143Provisions 2,794 2,794__________________________________________________________________________________________________ 39,280 8,489 (71) 47,698__________________________________________________________________________________________________Net assets 64,401 - (8,346) 56,055__________________________________________________________________________________________________ Shareholders equityOrdinary shares 27,824 27,824Share premium 34,070 34,070Revaluation reserve 2,213 2,213Capital redemption reserve 500 500Profit and loss account (856) (8,346) (9,202)__________________________________________________________________________________________________Equity shareholders funds 63,751 - (8,346) 55,405Minority 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__________________________________________________________________________________________________AssetsNon-current assetsGoodwill a 9,820 348 10,168Intangible assets d 4,798 800 2,179 7,777Property, plant and equipment c 82,437 (800) (11,780) 69,857Investments accounted for using equity method 74 74Trade and other receivables 790 790Deferred tax assets f 8,594 8,594__________________________________________________________________________________________________ 97,919 8,594 (9,253) 97,260 Current assetsInventories 23,541 23,541Trade and other receivables 47,935 47,935Cash and cash equivalents 12,959 12,959__________________________________________________________________________________________________ 84,435 - - 84,435 LiabilitiesCurrent liabilitiesFinancial liabilities- Borrowings 21,362 21,362Trade and other payables e 49,185 (1,003) 48,182Current tax liabilities 402 402__________________________________________________________________________________________________ 70,547 - (601) 69,946 Non-current liabilitiesFinancial liabilities - borrowings 27,515 27,515Other non-current liabilities 241 241Retirement benefit obligations f 14,410 8,594 23,004Provisions 1,950 1,950__________________________________________________________________________________________________ 44,116 8,594 - 52,710 __________________________________________________________________________________________________Net assets 67,691 - (8,652) 59,039__________________________________________________________________________________________________ Shareholders equityOrdinary shares 27,824 27,824Share premium 34,070 34,070Revaluation reserve 2,213 2,213Capital redemption reserve 500 500Translation reserve 606 606Profit and loss account 1,774 (8,652) (6,878)__________________________________________________________________________________________________Equity shareholders funds 66,987 - (8,652) 58,335Minority 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__________________________________________________________________________________________________AssetsNon-current assetsGoodwill a 18,299 (2,058) 16,241Intangible assets d 7,416 772 5,985 14,173Property,plant and equipment c 83,715 (772) (11,649) 71,294Investments accounted for using equity method 146 146Trade and other receivables 604 604Deferred tax assets f 788 2,420 3,208__________________________________________________________________________________________________ 110,968 2,420 (7,722) 105,666 Current assetsInventories 24,004 24,004Trade and other receivables 51,251 (24) 51,227Financial assets - derivative financial instruments k 24 24Cash and cash equivalents 8,919 8,919__________________________________________________________________________________________________ 84,174 - - 84,174 LiabilitiesCurrent liabilitiesFinancial liabilities- Borrowings 35,884 35,884Trade and other payables e 48,585 (1,315) 47,270Current tax liabilities 1,153 1,153__________________________________________________________________________________________________ 85,622 - (1,315) 84,307 Non-current liabilitiesFinancial liabilities - borrowings 24,754 24,754Deferred tax liabilities j 997 2,237 3,234Other non-current liabilities 1,155 1,155Retirement benefit obligations f 20,656 2,420 23,076Provisions 5,615 5,615__________________________________________________________________________________________________ 53,177 2,420 2,237 57,834 __________________________________________________________________________________________________Net assets 56,343 - (8,644) 47,699__________________________________________________________________________________________________ Shareholders equityOrdinary shares 28,121 28,121Share premium 34,070 34,070Revaluation reserve 1,751 1,751Capital redemption reserve 500 500Translation reserve 606 606Profit and loss account (9,470) (8,644) (18,114)__________________________________________________________________________________________________Equity shareholders funds 55,578 - (8,644) 46,934Minority 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 ExchangeRelated Shares:
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