RNS No 1236w
TISZAI VEGYI KOMBINAT RT.
30th July 1997
1. FINANCIAL STATEMENTS
Profit and Loss Account
(IAS, Non-Audited)
HI 1996 HI 1997 HI 1997
TVK Rt WK Rt TVK Group
(HUF millions) (HUF millions) (HUF millions)
Sales Revenue 31.082 40.681 41.386
Cost of Sales 21.969 27.659 27.703
Gross Profit 9.113 13.022 13.683
Selling, General and Administrative 3.908 4.292 4.866
Expenses
Operating hicome 5.205 8.730 8.817
Other Income 2.528 1.568 1.767
Other Expense 1.814 1.417 1.476
EBIT Extraordinary Items 5.919 8.881 9.108
Interest Income 692 1.139 1.315
Interest Expense 261 321 447
Profit Before Income Tax and 6.350 9.699 9.976
Extraordinary Items
Income Tax 1.000 1.683 1.765
Profit Before Extraordinary Items 5.350 8.016 8.211
Extraordinary Items 0 0 1
Net Profit 5.350 8.016 8.210
Balance Sheet
(IAS, Non-Audited)
30.06.1996. 30.06.1997. 30.06.1997.
WK Rt WK Rt WK Group
(HUF millions) (HUF millions) (HUF millions)
Long-term Assets 35.844 41.389 41.741
Net value of Tangible Assets 31.052 31.022 32.684
Net value of Intangible Assets 113 79 88
Investments 4,602 5.336 4.017
Treasury Stock 0 4.903 4.903
Receivables 77 49 49
Current assets 23.884 31.297 33.949
Cash 1.102 2.878 3,286
Receivables from APV Rt. 0 4.440 4.440
Receivables, Net 9,787 13.037 13.762
Inventories 5.863 5.007 5.527
Accruals and Other Receivables 2.117 1.548 2.199
Securities Portfolio 5.015 4.387 4.735
Short-term Debt 11.055 10.164 12.532
Uabilities 4.238 4,857 5.655
Short-term Debts 3.742 2.668 2.816
Current portion of long-term debt and
lease obligations 1,149 711 711
Other 1,926 1.928 3.350
Net Current Assets 12.829 21.133 21.418
Total Assets Less Current Liabilities48.673 62.522 63.159
Long-term Liabilities 4.158 4.543 5.047
Long-term Debt and Lease Obligations 4.077 4.252 4.546
Tax 0 160 160
Early Retirement 81 131 131
Net Assets 44.515 57.979 58.112
Shareholders' Equity 44.515 57.979 58.112
Share Capital 24.000 24.000 24.000
Net Profit 7.693 8.016 8.210
Capital Reserve 0 4.440 4.440
Profit Reserve 13.648 21.419 21.302
Revaluation Reserve 104 104 104
Minority 0 0 56
2. ANALYSIS OF HI 1997 OPERATIONS
Data presented in this TVK Rt report on HI 1997 are non-audited and should not
be interpreted as final.
2.1 Consolidation
We included three subsidiaries, one joint management and thirty affiliated
ventures of TVK Rt in the consolidation. For analysis, the IAS data of TVK
were considered, since consolidation does not represent considerable
modifications.
2.2 Business Environment
Due to sensible commercial and operational management the Company could benefit
from the favourable world market trends in HI 1997. During H1 1997 the
average world market price of Naphtha decreased continuously, from USD 193/t in
Q1 1997, down to USD 1791/t in H1 1997 which was 12.5 % higher than the H1
average price of the previous year- During the period under review the movement
of world market prices of polymer products was marked by stability, but average
world market price levels were by 4-11 % over H1 1996 (LDPE: 11 HDPE: 9 %,
PP: 4 %).
During H1 1997 the USD cross rate against the DEM strengthened continuously.
During the period, average domestic interest rates were around 25 %, compared to
28 % in the same period of the previous year. Average interest rates on HUF
loans was 21 %, down from 27 % a year earlier. Interest on hard currency loans
was at the LIBOR + 0.45 % level compared to LIBOR + 1.3% in the same period a
year earlier, with approximately the same average loans outstanding.
Depreciation of HUF against USD was 20 %, and against DEM 6 % during the period
under review.
2.3 Sales Revenue by Divisions
2.3.1 Sales by Divisions
HUF millions
Description HI 1996 HI 1997
Total Total 1997/96 Export Domestic
Olefin Division 7,041 10,599 151 1,811 8,788
Purchase of Ethylene - -2,251 - - -
LDPE Division 5,065 7,065 139 4,222 2,843
HDPE Division 9,720 12,952 133 9,797 3,155
Polypropylene 6,366 8,616 135 5,192 3,424
Division
Plastics Processing 2,820 3,477 123 1,270 2,207
Divisions
Other Activities 70 223 319 30 193
Total Sales 31,082 40,681 131 22,322 18,359
Purchase of ethylene and sales to Borsodchem should have been counterbalanced
according to IAS which did not consider them as separate businesses.
2.3.2 Olefins
In H1 1997 the Olefin Plant run with continuous raw material supply and
produced 157,000 tons of ethylene and 89,400 tons of propylene by processing
431,300 tons of naphtha and 84,600 tons of gas oil. The quantities produced are
3 % and 7 % higher respectively compared to H1 1996, with a 6 % higher naphtha
and 5 % higher gas oil consumption. Utilization of capacity at the Olefin Plant
applied to ethylene production was 109,8 % compared to 106.6 % in H1 1996.
85 % of naphtha supplies were delivered by MOL Rt. The average hard currency
price of naphtha purchased from MOL Rt was 13 % higher than in HI of 1996. The
extent of the price change was higher (30 %) in the previous quarter, the
moderation reflects the favourable world market trends. The average purchase
price, calculated in HUF terms, shows a 36 % increase over H l 1996 in the case
of purchases from MOL Rt.
Ethylene deliveries by pipelines from the Ukrainian Oriana Concern were
uninterrupted during the period under review. Total quantity received stood at
20,700 tons, only slightly less than the 21,900 received in H1 1996. WK Rt sold
34,400 tons of ethylene to BorsodChem Rt in HI 1997 (in H1 1996: 33,300 tons).
The average hard currency price of ethylene sold was 28 % higher in H1 1997,
while average HUF price of the same increased by 336 % in the same period.
Average sales prices of other olefin products showed similar increases. Revenue
from ethylene sales represented 38 % of the sales revenue of the Olefin Plant
(prior counterbalancing) compared to 39 % achieved in the same period of the
previous year. The shift in ratio was due to a slight structural change in the
range of olefin products sold.
The sales revenue of the Olefin Plant (prior counterbalancing) represents 26 %
of the total net sales revenue, compared to a ratio of 23 % a year earlier. The
increase was due to the increase of olefin product prices.
2.3.3 Polymers
In H1 1997 the polyolefin plants of WK produced 51,600 tons of LDPE, 90,700
tons of HDPE and 74,000 of PP, representing 97 % for LDPE, and 104 % both for
HDPE and PP of the H1 1996 production levels. Utilisation of capacities in the
LDPE, HDPE and PP plants was 90.4 %, 96.3 % and 106.6 % respectively, compared
to, in the same order, 92.7 %, 91.9 % and 10 1. 9 % in the previous period.
In H1 1997 average main market prices showed a high degree of stability, price
movements were limited to a narrow range. Difference between high and low
monthly average prices remained below 5 % during the period. Compared to H1
1996 main market average USD prices increased by 11 %, 9 % and 4 % in case of
LDPE, HDPE and PP respectively.
The Company's average sales prices increased more considerable than the main
market prices mainly due to the efficient activities of the newly formed trading
companies. H1 1997 hard currency average export prices increased by 20 %
(LDPE), 17 % (HDPE) and by 16 % (PP). Average export prices calculated in HUF by
product lines showed a higher rate of increase (LDPE: 43 %, HDPE: 38%, PP:38%)
due to exchange rate movements, compared to the same period of the previous
year.
Average domestic polyolefin sales prices increased by 26 %, 26 % and 33 % in
case of LDPE, HDPE and PP respectively.
The sales revenue of the polyolefin plants represented 70 % of the total
corporate level sales revenue in H1 1997, compared to 68 % a year ago. The
increase was due to price increases and higher volumes sold.
2.3.4 Plastics
In H1 1997, the four plastics processing divisions of TVK produced 14,600 tons
of finished products, with a 47,6 % capacity utilization, compared to 41.5 %
capacity utilization and 11,096 tons production (privatized activities are
excluded) a year earlier. Sales revenue of the four units represented 8.5 % of
the corporate level sales revenue in the period under review, compared to 9 % a
year ago. The slight decrease was the result of the significant increase in the
price of raw materials and olefins.
2.4 Financial Analysis
2.4. 1 Profit and Loss Account
In H1 1997 TVK's net sales revenue was HUF 40,681 million exceeding the H1
1996 level by 31 %. Domestic sales represented 45 % of net sales revenue,
compared to 50 % in H1 1996.
There are several factors behind the decline of the share of domestic sales.
The volume sold on the domestic market increased by 11 % while the volume sold
abroad increased by only 10 % in H1 1997 compared to H1 1996. The increase of
average export prices, however, was more significant than the one of domestic
prices. Furthermore the change in recording ethylene purchase to our accounts
also contributed to the reduction in the value of domestic sales.
Export sales revenue was 43 % higher in H1 1997 than in the same period of
1996. Distribution of exports: Europe 85 % (in HI 1996: 82%), Central Eastern
Europe 7 % (in H1 1996:6 %), the Middle East 6 % (in H1 1996: 8 %), Africa 6 %
(in H1 1996: 5 %) and North America 3 % (in H1 1996. 3 %).
Cost of goods sold amounted to HUF 27,659 million, or 68 % of the net sales
revenue (in H1 1996 71 %). Compared to H1 1996 this value shows a 26 %
increase, which can be explained by the 13 % increase (a 36 % increase in HUF
terms) in the average hard currency price of naphtha purchased from MOL Rt.
Material costs represent 68 % of total costs (73 % in the previous period).
The ratios of the costs of naphtha and gas oil within total cost did not change
compared to H1 1996, remained at 45 %, and 8 % respectively. As a result of the
foregoing H1 1997 corporate level gross margin was 32 %, compared to 29 % in the
same period of 1996.
General, selling and administrative costs amounted to HUF 4,292 million, or 11%
of net sales revenue (in HI 1996: 13 %), only 10 % higher in value, than the
HI 1996 figure. The diminishing role of these cost items within the cost
structure is the result of effective cost control at all levels,
Other H1 1996 income amounted to HUF 1,568 million, representing a 38 % easing
compared to H1 1996 (HUF 2,528 million), due mainly to revenues foregone related
to the previous year and to the decrease of earnings from other services. The
HUF 1,417 million value of other expenditures represents a 22 % decrease
compared to the same period of the previous year, due to the 23 % drop in
exchange rate loss (the largest ratio in other expenditures), amounting to HUF
626 million in H1 1997 (previous year: HUF 818 million).
Personnel expenditures amounted to 8 % of total costs in H1 1997 compared to
10% in the same period of 1996. The decrease is due to the reduction of the
work force. Depreciation in H1 1997 was HUF 1,832 million (in H1 1996: HUF
1.414 Million), Interest income exceeded interest expence by HUF 818 million,
compared to HUF 431 in H1 1996. The 90% increase is due firstly to the HUF 842
million default interest received from APV Rt related to TVK's share of the
privatization revenue.
Profit before taxes amounted to HUF 9,699 million, a 53% increase over the
corresponding 1996 level. Taxes amounted to HUF 1,683 million, net profit was
HUF 8,016 million compared to HUF 5,350 million in H1 1996.
Comparing these results to that of the whole year income in 1996 it shows that
the corporate level operating income is higher by HUF 113 million in H1 1997
than in 1996, The difference is further widened by net other income to HUF 818
million. Net interest income downgrades this a little. At net profit level
there is a HUF 323 million difference in the favour of H1 1997.
2.4.2 Balance Sheet
In Hl 1997 the balance sheet total was HUF 57,979 million which is a 30%
increase over the same period of 1996. The increase was in part due to a 65%
increase in net current assets and in part to a 57% increase in profit reserve
and the recording of the repayment of 20% of the privatisation proceeds.
Within current assets the value of net receivables increased by 33%, as a
result of the increase of the receivables portfolio, which in turn, was due to
exchange rate changes and price increases. Receivables from APV Rt, means the
HUF 4,440 million amount of the privatisation proceeds which was not transferred
until 30 June 1997.
Among short term obligations while liabilities slightly increased, the short
term credit portfolio decreased by 29 % as a result of prepayment of
instalments, and in addition, the portion of long term debt and leasing
obligations decreased by 38 %.
The 57 % increase of the Accumulated Profit Reserve contains last year net
profit.
2.4.3 Cash Flow Statement
The HUF 8,016 million amount of net profit was modified by the HUF 1,832
million amount of depreciation and amortization and the cash necessary for
operation to HUF 5,344 million. Investments amounted to HUF 1,408 million in H1
1997. Cash at the end of the period was HUF 2,878 million.
3. CHANGES IN THE ORGANIZATIONAL STRUCTURE, THE GROUP
OF SENIOR OFFICIALS AND THE MAKE-UP OF THE WORK FORCE
OF THE COMPANY
3.1 Organizational Structure
As part of the overall business strategy, the Company made organizational
changes in the area of technical services. Effective flom January 1 1997 five
technical service affiliates were established. The Company's fully owned hotel
was transferred into a joint venture in the first half of 1997 (see later).
3.2 Senior Offlicials
There was no change in the Senior Management in H1 1997.
3.3 Work Force
As of March 31 1997 the number of employees stood at 3535, by June 30 1997 it
was 3436 and the average number over H1 was 3515. During H1 310 employees were
transferred to TVK Rt's related companies.
4. OWNERSHIP STRUCTURE
The ownership structure of TVK Rt recorded in the Book of Shares, as of June
30, 1997.
Shareholder % of Share Capital
APV Rt 3,33
Employees 5.54
Domestic Private 9.53
TVK Rt 12.53
Domestic Institutional 13.91
Shareholders not registered in Book of Shares 14.53
International Institutional 40.62
TOTAL: 100.00
5. MAJOR EVENTS
5.1 Hedging Transaction
In June 1997 WK Rt. signed a hedging agreement relating to 50 % of the total
value of its two Main raw materials' yearly consumption (in the same value of
crude oil) and the main cross-rates (USD/DEM, USD/ITL, USD/GBP) which influence
the Company's performance. The agreement has a monthly calculation period.
5.2 Management Share Option Scheme
112 top managers of the Company participate in the Management Share Option
Scheme approved by the June 14 Extraordinary General Assembly. Each year, from
1997 to 1999 upon the anniversary of closing of the Hungarian Retail Offering,
options will be granted with respect to 400,000 shares at the equivalent HUF
price of the original issue price in USD terms. The first option period will
close on August 18 1997.
5.3 Events at the WK Group
5.3. 1 Foundation of New Enterprises
TW Rt contributed its fully owned hotel into an outside joint venture. The
other partners are a strategic investor and the Tiszaujvaros Town Council. The
name of the joint venture is Civis Phonix Kft, with a HUF 155 million
registered capital. TVK's stake is 41.9 %.
On May 15 1997 WK established its fifth foreign trade company, under the name
of TVK-MOL-Chemn Kft, headquartered in Paris (France). Its registered
capital is FRF 500.000, Partner is MOL-Chem Kft. with 50 % ownership share.
5.3.2 Reduction of Capital at TiszaTextil Kfl
On July 16 1997 the Owners reduced the registered capital of TiszaTextil Kft
with HUF 500 million to the present HUF 792.6 Million by a resolution
without a Members Meeting. This step is related to the sale of Kender-, Juta
and Politextil Rt (registered capital HUF 375 million) which was sold through a
closed bid tender to the Dutch-Hungarian Intraho Kfl. This reduction effects
only the Company's H2 balance sheet.
5.3.3 Development plans at TVK Plastic Cup Maniffiacturing Kft
In order to improve its competitiveness the Kft (registered capital: HUF 71.6
Million, H1 1997 sales revenue. HUF 95.6 million) drew up a production
modernization and expansion program with a four-year pay-back period,
requiring a phased, HUF 250 million increase of capital. TVK RT as
leading owner approved the capital increase.
6. EXTRAORDINARY REPORTS WITH SUBJECT AND DATE
INDICATED
March 7 1997 Joint extraordinary MOL Rt - WK Rt announcement on the
signing of the four-year supply agreement,
June 26 1997 APV Rt and WK Rt concluded an agreement on the settlement
of TVK's share of the privatization revenues.
Tiszaujvaros, June 30, 1997
END
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