RNS No 6145d
TISZAI VEGYI KOMBINAT RT.
13th October 1998
TISZAI VEGYI KOMBINAT RT.
Tiszaujvaros
STOCK EXCHANGE REPORT
FOR Q1-3 1998
CONTENTS
1. Financial Statements
2. Analysis of Q1-3 1998 Operations
2.1 Consolidation
2.2 Business Environment
2.2.1 Sales revenues by divisions
2.2.1 Olefins
2.2.2 Polymers
2.2.3 Plastics
2.3 Financial Analysis
2.3.1 Profit and Loss Account
2.4 Capital Expenditures
2.4.1 Strategic Capital expenditures
2.4.2 Other capital expenditures
3. Changes in the organizational structure, the group of senior officials and
the make-up of the work force of the company
3.1 Employees
4. Ownership
5. Major Events
5.1 Events at TVK Group
6. Extraordinary reports with subject and date indicated
1. FINANCIAL STATEMENTS
Profit and Loss Account
(IAS, Non-Audited)
Q1-3 Q1-3 Q1-3 Q1-3
1997 1998 1997 1998
TVK Rt. TVK Rt. TVK TVK
Group Group
(HUF (HUF (HUF (HUF
millions) millions) millions) millions)
Sales 59,667 60,026 60,824 67,802
Cost of Sales 41,349 39,512 41,516 45,234
Gross Profit 18,318 20,514 19,308 22,568
Selling, General and Administrative
Expenses 6,572 6,840 7,417 8,171
Operating Income 11,746 13,674 11,891 14,397
Other Income 2,616 2,854 2,642 3,069
Other Expense 2,515 5,823 2,597 6,121
EBIT 11,847 10,705 11,936 11,345
Interest Income 1,929 3,168 2,353 3,229
Interest Expense 570 1,743 760 1,884
Profit Before Income Tax and
Extraordinary Items 13,206 12,130 13,529 12,690
Income Tax 1,182 1,119 1,261 1,194
Profit Before Extraordinary Items 12,024 11,011 12,268 11,496
Extraordinary Item 0 0 170 0
Minority Share of Profit After Taxes 0 0 5 41
Net Profit 12,024 11,011 12,433 11,455
Paid dividend 0 0 0 0
Retained Profit of the year 12,024 11,011 12,433 11,455
Balance Sheet
(IAS, Non-Audited)
30.09.1997. 30.09.1998. 30.09.1997. 30.09.1998.
TVK Rt. TVK Rt. TVK TVK
(HUF (HUF Group Group
millions) millions) (HUF (HUF
millions) millions)
Long-term Assets 41,024 41,589 41,391 42,260
Net value of Tangible Assets 31,384 34,007 33,060 36,299
Net value of Intangible Assets 116 126 127 259
Investments 5,099 7,389 3,779 5,607
Repurchased Treasury Stock 4,349 0 4,349 0
Receivables 76 67 76 95
Current assets 36,418 55,101 38,460 59,149
Cash 3,002 5,455 3,640 6,328
Receivables, Net 11,764 13,724 13,058 15,474
Inventories 5,054 5,164 5,483 6,091
Accruals and Other Receivables 2,078 6,443 1,560 6,595
Securities Portfolio 14,520 19,988 14,719 20,113
Treasury stock 0 4,327 0 4,548
Current liabilities 10,578 10,119 12,087 13,814
Accounts Receivable 5,044 5,729 5,145 7,550
Short term debt 3,776 2,399 4,012 3,634
Lease obligations 396 0 396 0
Other 1,362 1,991 2,534 2,630
Net current assets 25,840 44,982 26,373 45,335
Total assets Less Current
Liabilities 66,864 86,571 67,764 87,595
Long-term Liabilities 4,170 8,783 4,718 9,331
Long-term debt 3,984 8,781 4,194 9,329
Other long term liabilities 0 0 338 0
Deferrals 160 0 160 0
Early Retirement 26 2 26 2
Net Assets 62,694 77,788 63,046 78,264
Shareholders' Equity 62,694 77,788 63,046 78,264
Share Capital 24,000 25,084 24,000 25,084
Net Profit 12,024 11,011 12,433 11,455
Capital Reserve 5,181 4,933 5,181 4,933
Profit Reserve 21,385 36,656 21,268 36,480
Revaluation Reserve 104 104 104 104
Minority Interest 0 0 60 208
Cash Flow Statement
(IAS, Non-Consolidated, Non-Audited)
Q1-3 1997 Q1-3 1998
(HUF (HUF
millions) millions)
Operating activities
Income Before Extraordinaries 12,024 11,011
Deferrals 0 0
Default interest 0 0
Changes resulted from facing the Income Before
Extraordinaries and Net Cash
from Operating Activities:
Decrease in Profit Reserve 0 -240
Increase in Share Capital 0 1,084
Decrease/increase in Capital Reserve 5,225 -247
Depreciation and Amortisation 2,805 3,091
Increase/decrease in Receivables -583 -2,656
Decrease/increase in Inventories -554 162
Decrease/increase in Other Current Assets -40 -1,566
Increase/decrease in Liabilities -944 -429
Decrease/increase in Other Current Liabilities -2,171 -1,312
Decrease/increase m Other Liabilities 0 0
Net Cash from Operating Activities 15,762 8,898
Investing Activities
Purchase of Intangible Assets -19 -33
Decrease/increase in Short-term Securities -12,382 -10,886
Proceeds from Purchase of Long-term Investments -368 2,088
Purchase of Tangible Fixed Assets -2,743 -6,693
Other change in Fixed Assets -60 50
Disposal of Fixed Assets 311 387
In-kind Contribution 537 1,512
Net Cash from Investing Activities -14,724 -13,575
Financing Activities
Proceeds from Borrowings 5,355 17,538
Repayment of Debt and Lease Obligations -5,728 -11,568
Dividends Paid 0 0
Increase in Long-term Receivables -53 -25
Net Cash from Financing Activities -426 5,945
Increase/decrease in Cash 612 1,268
Cash at Beginning of Year 2,390 4,187
Cash at End of Year 3,002 5,455
Increase/decrease in Cash 612 1,268
2. ANALYSIS OF Q1-3 1998 OPERATIONS
The data in this Stock Exchange Report on Q1-3 1998 is not audited and should
not be interpreted as final.
2.1. CONSOLIDATION
We included seven subsidiaries, two joint ventures, twenty-six affiliated
ventures, and one subsidiary of a subsidiary of TVK Rt. in the consolidation.
For comparative analysis we relied on IAS data of the consolidated company.
Corporate level data are not consolidated data.
2.2. BUSINESS ENVIRONMENT
In the first nine months of 1998 world markets followed diverse tendencies. The
world market price of naphtha stagnated, after a continuous decline during the
first half of the year. The average world market price of naphtha was USD 122
per ton, compared to USD 178 per ton average a year ago, this represents a 31%
decrease. In case of polymers in the first seven months of the year the market
was characterised by a continuous price-erosion, while after the price stability
in August, a slight increase was experienced in September. Due to this the
average main market price level decreased by 15% to 24%, year on year (by
divisions: LDPE: -17%, HDPE: -15%, PP: - 24%).
In Q1-3 1998, the average HUF/USD exchange rate was 214.8, while the average
HUF/DEM was 120.2. Compared to the last year's figures the HUF devaluated
against the USD by 16.3%, and against the DEM by 12.9%. During this period the
average interest rate levels on domestic deposits was around 17.48%, this rate
was 20.58% during the same period of the previous year. The average borrowing
rate in HUF was around 18.11%. Interest on hard currency loans was LIBOR +
0.26%, while one year ago the rate was approximately 16.83% and LIBOR + 0.47%
respectively.
2.2.1 SALES REVENUE BY DIVISIONS
HUF MILLIONS
Q1-3 1997 Q1-3 1998
TOTAL TOTAL 1998 Q1-3/ EXPORT DOMESTIC
1997 Q1-3 (%)
OLEFIN DIVISION
(GROSS) 14.395 13.028 91 1.344 11.684
PURCHASED ETHYLENE
IMPORT -3.458 -3.005 87 0 -3.005
OLEFIN DIVISION 10.937 10.023 92 1.344 8.679
LDPE DIVISION 10.857 11.214 103 6.472 4.742
HDPE DIVISION 19.340 21.326 110 16.265 5.061
POLYPROPYLENE
DIVISION 13.005 11.577 89 6,663 4.914
PLASTIC PROCESSING
DIVISION 5.226 5.567 107 1.649 3.918
OTHER ACTIVITIES 302 319 106 50 269
TOTAL SALES 59.667 60.026 101 32.443 27.583
2.2.1 OLEFINS
During Q1-3 1998, the Olefin Plant produced 233,400 tons of ethylene and 124,300
tons of propylene by processing 614,800 tons of naphtha and 135,100 tons of gas
oil. The processed quantity of naphtha was 3% higher, and that of gas oil was
18% higher, and the produced ethylene and propylene were 7% and 1% higher than
the last year's figures. The capacity utilization of the Olefin Plant applied to
ethylene was 107.6%.
The average foreign currency price for naphtha purchased from MOL Rt was USD 139
per ton, which is 30% lower than in the same period of 1997 (calculated in HUF
this is a 18% price decrease).
In the period under review, the Company bought 32,300 tons of ethylene from the
Oriana Concern at a DEM 846 per ton average price, which is a 13% decrease in
quantity and a 14% decrease in price compared to Q1-3 1997. 42,500 tons of
ethylene were sold to BorsodChem at a HUF 105,300 per ton average price as
opposed to 48,200 tons at HUF 116,100 per tons in the same period of last year.
(12% and 9% decrease respectively). This is due to the effects of a 15% decrease
in the West European contract price of ethylene and the devaluation of the
Hungarian Forint. The purchased quantity of ethylene from Oriana correspond to
the demand of BorsodChem Rt.
Net sales revennue form olefin products was HUF 10,023 million, contributing, a
14.8% share to the total sales revenues of the Group.
2.2.2 POLYMERS
In Q1-3 1998 the polyolefin plants produced 80,600 tons of LDPE, 140,400 tons of
HDPE and 105,900 of PP which came to 5%, 10% increases and 1% increase
respectively. The utilization of capacities was 93.8% in the LDPE plants, 98.8%
in the HDPE plant and 101.1% in the PP plants. The same factors in Q1-3 1997
were 89.3%, 89.6% and 100.5% respectively. The increase of the utilization of
capacities in cash of olefins and polymers is due to the revamping of the
Cracker, which ended in 1997. As a result there were not any maintenance
shutdowns, compared to a three-week shutdown a year ago.
HUF based domestic sales prices increased by 1% and 2% for LDPE and HDPE and
decreased by 7% for PP, while export prices increased by 2%, 1% and 12%
respectively.
USD based prices
(Q1-3 1998/Q1-3-1998)
Change in main Change in domestic Change in export
market price price price
LDPE -17% -13% -16%
HDPE -15% -13% -16%
PP -24% -20% -25%
Sales revenues of polymers contributed 65.1% to the total sales of the TVK
Group. This figure was 71.% a year ago.
2.2.3 Plastics
In Q1-3-1998, the four plastic processing divisions of the Company produced
20,100 tons of finished plastic products at a 53,9% capacity utilization rate,
compared to 20,700 tons at a 45.8% capacity utilization rate a year ago. The
decrease of the capacity base is due to the increase in the multi-phased higher
value added finished products. In this period, revenue of the four divisions had
a 9.3% share of company's total sales at a corporate level, while a year ago
this figure was 8.8%.
2.3 Financial Analysis
2.3.1. Profit and Loss Account
During the first three quarters of 1998, the net sales of the Group amounted to
HUF 67,802 million, which is 11% higher than in the same period of last year.
Domestic sales accounted for 46% of net sales.
In Q1-3 export sales increased by 1% to HUF 32,443 million. Europe had a 89%
share (86% year on year) including Central and Eastern Europe with 8% (8% year
on year), Middle East with 5% (6% year on year), Africa with 2% (5% year on
year), and North America with 4% (3% year on year).
Direct sales costs show a 9% increase to HUF 45,234 million, which is equal to
66.7% of net sales (68.3% year on year). The lower than inflation cost increase
is due to the 18% decrease in the price of naphtha purchased from MOL and paid
in HUF.
According to HAS, corporate level material costs, similarly to last year,
represented 66% of the total costs. The share of naphtha and gas-oil decreased
from 46.6% to 44.1%, which total energy costs increased from 8.1% to 10%. In
total, material related costs decreased by 9% This change in the cost structure
was the result of the significant decrease of the most important cost factor,
naphtha price.
As a result of all the above mentioned factors, the gross profit in Q1-3 was HUF
22,568 million, 17% higher than in the same period of last year. Gross margin
increased from 32% to 33%.
Selling, general and administrative costs in Q1-3 of 1998, amounted to HUF
8,171 that is 12.1% of total sales (year on year: 12.2%) and represent a 10%
cost increase. Within this category, a HUF 447 million increase is the result
of the capital increase registered on the 4th of September. According to IAS,
234,843 shares have to be accounted HUF 2,537 daily average price. According to
the HAS, this effect is not shown in the Income Statement.
Corporate level HAS based personnel expenditures represented 9.1% of total cost,
compared to 8.1% year on year. The increase of the percentage is due to changes
in the cost structure, as the nominal increase of personnel cost was only 4%.
In Q1-3, depreciation was HUF 3,091 million (IAS) (year on year: HUF 2,805
million).
Operating income was HUF 14,397 million in Q1-3 of 1998, as opposed to HUF
11,891 million year on year, showing a 21% increase. The increase is the result
of favorable prices and improved cost effectiveness.
The company's internal price for ethylene and propylene were 90% of the main
market prices, and for polymers they were equal to the domestic market prices.
Based on these prices and HAS, the operating income of the Olefin division
increased by 39%, that of the LDPE division by 220%, HDPE division by 38% and
the operating income of the PP division decreased by 30%. The total operating
income of the four plastics divisions increased by 82%. In addition to the
effective cost control, the increase in the LDPE division is the result of
expiry of the leasing payments.
Other income amounted to HUF 3,069 million compared to HUF 2,642 million year
on year, which means a 16% increase. Most important factor were exchange rate
gains, revenues from maintenance (HUF 1,574 million) and other services (HUF 618
million)(year on year: HUF 1,043 million and HUF 529 million respectively).
Other expenditures reached HUF 6,121 million which is 136% higher than in Q1-3
of 1997. The most important factor of the increase was the hedging contract
covering the period of July 1997-June 1998, and which-due to low oil prices
resulted in a HUF 2,339 million loss.
Interest income exceeded interest expenditure by HUF 1,345 million, compared to
a HUF 1,593 million year on year, reflecting a 16% decrease. The reason for this
decrease is that Q1-3 of 1997 included HUF 842 million penalty interest received
from APV Rt with respect to the privatisation refund.
TVK Group's profit before tax was HUF 12,690 million HUF as opposed to 13,529
million in Q1-3, 1997, reflecting a 6% decrease. The main reason for the
decrease was loss on hedging activities amounting to HUF 2,339 million and the
HUF 447 million cost of the capital increase. Profit tax was HUF 1,194 million
(year on year: HUF 1,261 million) taking into consideration the 50% tax holiday.
The resulting net profit was HUF 11,455 million, compared to HUF 12,433
million.
Comparing the results of the period under review to the data of Q1-3, 1997,
gross profit increased by HUF 3,260 million, operating income by HUF 2,506
million, but the result of other activities decreased by HUF 3,097 million, and
that of financial activities by HUF 248 million.
IAS, consolidated
Q1-3 1997 Q1-3 1998 Change
HUF million HUF million (%)
Gross Profit 19.308 22.568 17%
Operating Income 11.891 14.397 21%
Net Profit 12.433 11.455 -8%
2.3.2 Balance Sheet
In Q1-3 1998 the balance sheeet total amounted to HUF 101,409 million versus
last year's Q1-3 of HUF 79,851 million, which is an increase of 27%. This is
mostly explained by a 53,8% increase in current assets on the asset side, while
profit reserves grew significantly on the liability side (71,5).
Under current assets cash increased by 74% and the amount of securities grew by
37%. The latter one is partly the result of the investment of the transfers
from the APV Rt and the reinvestment of net profits.
The accruals and other items amount to HUF 6,595 million versus last year's HUF
1,560 million, which is due to a rise in payment in advance on investments from
HUF 180 million to HUF 4,124 million.
In the increase of current assets the most important part was played by the 47%
increase of Accounts Receivables. The change in the accounts receivables is due
to the increase in the account receivable of capex and the increase of
liabilities toward banks because of factoring.
The 122% increase of long term debt is due to the term loan in foreign exchange
taken for capex.
The 71,5% growth of the profit reserves is due to the adding of the profit to
said reserves.
2.3.3. Cash flow statement (not consolidated)
The HUF 3,091 million depreciation and the working capital modified the HUF
11,011 million corporate profit to HUF 8,898 million. This 44% decrease
compared to the same period of last year is due to an increase of HUF 1,566
million in other current liabilities (a significant part of that in advance on
capex) and the increase of net receivables.
The cash flow resulting from financing activities grew by HUF 6,371 million,
which is due to the syndicated loan signed in July and the repayment of other
debts and leasing liabilities.
The value of net cash was HUF 5,455 million.
2.4 Capital expenditures
The capex budget of the Company in Q1-3 1998 was HUF 6,693 million compared to
last year's HUF 2,743 million, which means a 144% growth. In the period under
review the payment in advance on investments amounted to HUF 4,124 million.
Thus the total amount of capex was HUF 10,817 million in Q1-3.
2.4.1 Strategic capital expenditures
The Company invested HUF 8,421 million in strategic, production-increasing
capex, of which HUF 4,091 million appear as payment in advance versus
last-year's HUF 1,357 million. From this amount HUF 1,532 million and an advance
of HUF 2,161 million was spent on the 20% capacity increase of the cracker,
which will probably come on stream in the second quarter of 1999. HUF 837
million and an advance of HUF 386 million was spent on the new BOPP plant with
15,000 tons of capacity, which will start next summer. HUF 555 million and an
advance of HUF 1,544 million on the new PP plant with a capacity of 140,000
tons, which will come on line at the end of 1999. TVK invested HUF1,202 million
in three plastic processing machines: in the cast film line, in the coextrusion
film line and the fine shrink film line.
2.4.2 Other capital expenditures
The company spent HUF 2,363 million (and an amount of HUF 33 million payment in
advance) on other capex versus last year's HUF 1,386 million, which represents
an increase of 70%. The most important of the other capex were in the field of
environmental protection, infrastructure, information technology and safety.
3. CHANGES IN THE ORGANIZATIONAL STRUCTURE, THE GROUP OF SENIOR OFFICIALS AND
THE MAKE-UP OF THE WORK FORCE OF THE COMPANY
3.1 Employees
The total number of employees stood at 3,274 as of September 30, 1998 versus
3,261 on June 30, 1998 and 3,301 on January 1, 1998. The average number of
employees in the third quarter of the year of 1998 was 3,273. Year-on-year the
number of employees was 3,345 and the average number was 3,471.
4. OWNERSHIP STRUCTURE
As indicated by the Share Register, the ownership structure of TVK Rt as of
September 30, 1998 is as follows:
Shareholder % of Share Capital
Domestic Retail 22,92 %
TVK Rt 11,00 %
Domestic Institutional 23,25 %
Non Registered Shareholders 1,44 %
International Institutional 41,31 %
International Retail 0,08 %
TOTAL (24,234,843 shares): 100,00 %
Employees' shares 606,472
The increase in the number of registered shares is due to the management
share option scheme in the course of which 234,843 shares were issued on June
10, but effectively these shares will only be put into circulation in November.
The 606,472 employees' shares with the face value of HUF 1,000 that were
subscribed for in June have been already issued and possess the right to a
dividend and a vote, their circulation however is limited in accordance with
regulations governing employee shares. The amount of treasury stock was reduced
by 12,832 shares. This is due to the fact that 12,832 shares were sold to
those members of the Board of Directors and the Supervisory Board., who are not
the employee of TVK, at a HUF 2,090 price. In Q3 the number of TVK's own
shares did not change.
5. MAJOR EVENTS
5.1 Events at TVK Group
As of 15 September, 1998 TVK Gyarfentarto Kft purchased at face value
TVK's 25% stake in TBG Tisza Beton KFT. Thus TVK ceased to be a shareholder.
6. EXTRAORDINARY REPORTS WITH SUBJECT AND DATE INDICATED
July 27, 1998 Signing the syndicated term loan
Tiszaujvaros, November 12, 1998
Miklos Varhegyi
CEO
Chairman of the Board
END
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