SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2002.
Texon International plc
(Translation of Registrant's Name Into English)
SEC File Number: 333-49619
100 Ross Walk
Leicester LE4 5BX England
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
Not applicable
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes [] No [X]
TEXON INTERNATIONAL plc
Three Months Ended March 31, 2002
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Profit and Loss Accounts
Three months ended March 31, 2002 and 2001 3
Condensed Consolidated Balance Sheets
March 31, 2002 and December 31, 2001 4
Condensed Consolidated Cash Flow Statement
Three months ended March 30, 2002 and 2001 5
Reconciliation of Net Cash Flow to Movement in Debt
Three months ended March 31, 2002 and 2001 6
Reconciliation of Movements in Shareholders' Funds
Three months ended March 31, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8 - 9
Item 2 Operating and Financial Review and Prospects 10 -14
PART II Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits - Reports on Form 8-K 15
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(Pounds Sterling, In Thousands)
Unaudited
Three Months ended
--------------------------
March 31, March 31,
2002 2001
Sales turnover 32,918 37,249
Cost of sales (23,968) (27,955)
--------- ---------
Gross profit 8,950 9,294
Selling, general and administrative expenses (5,128) (5,962)
Goodwill amortisation (278) (326)
--------- ---------
Profit on ordinary activities before interest 3,544 3,006
Net interest payable (2,922) (3,031)
--------- ---------
Profit/(loss) on ordinary activities before taxation 622 (25)
Taxation on profit/(loss) on ordinary activities (413) (405)
--------- ---------
Profit/(loss) on ordinary activities after taxation 209 (430)
Minority equity interests (68) (66)
--------- ---------
Net profit/(loss) for the financial period 141 (496)
Finance charges in respect of non equity shares (1,189) (1,114)
--------- ---------
Retained (loss) for the financial period for equity shareholders (1,048) (1,610)
========= ==========
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEET
(Pounds Sterling, In Thousands)
Unaudited Audited
as at March 31, December 31,
Notes 2002 2001
----- --------------- ------------
FIXED ASSETS
Intangible assets 20,442 20,576
Tangible assets 20,220 19,984
Investment 1 1
---------- ---------
40,663 40,561
CURRENT ASSETS
Stocks 2 22,763 21,865
Debtors due within one year 24,053 23,743
Debtors due after one year 861 877
Cash 1,181 995
---------- ---------
48,858 47,480
CREDITORS
Amounts falling due within one year (37,521) (37,244)
---------- ---------
NET CURRENT ASSETS 11,337 10,236
---------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 52,000 50,797
CREDITORS
Amounts falling due after more than one year (105,423) (104,160)
Provisions for liabilities and charges (6,303) (6,746)
---------- ---------
(59,726) (60,109)
========== =========
CAPITAL AND RESERVES
Called up share capital 10,813 10,773
Share premium 49,276 49,276
Profit and loss account (138,173) (137,257)
Premium redemption reserve 16,918 15,729
---------- ---------
Shareholders' deficit
Equity interests (133,635) (132,759)
Non-equity interests 72,469 71,280
(61,166) (61,479)
Minority equity interests 1,440 1,370
---------- ---------
(59,726) (60,109)
========== =========
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Pounds Sterling, In Thousands)
Unaudited
Three Months ended
----------------------
March 31, March 31,
2002 2001
--------- ---------
Cash inflow from operating activities 4,600 7,391
Returns on investments and servicing of finance (4,387) (4,941)
Taxation 49 196
Net capital expenditure and financial investment (861) (167)
Acquisitions (510) (502)
------- -------
Cash (outflow)/inflow before financing (1,109) 1,977
Financing 1,327 (1,177)
------- -------
Increase in cash and overdrafts in the period 218 800
======= ======
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TEXON INTERNATIONAL plc
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Pounds Sterling, In Thousands)
Unaudited
Three Months ended
-------------------------
March 31, March 31,
2002 2001
--------- ---------
Increase in cash and overdrafts in the period 218 800
Cash (outflow)/inflow from debt and lease financing (1,327) 1,177
-------- --------
Change in net debt resulting from cash flows (1,109) 1,977
Issue of shares 40 -
Non cash movements in debt (268) (188)
Translation difference (501) 1,407
-------- --------
Movement in net debt in the period (1,838) 3,196
Net debt at the opening date (112,180) (117,648)
-------- --------
Net debt at the closing date (114,018) (114,452)
======== ========
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TEXON INTERNATIONAL plc
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' FUNDS
(Pounds Sterling, In Thousands)
Unaudited
Three Months ended
----------------------
March 31, March 31,
2002 2001
--------- ---------
Retained profit/(loss) for the period 141 (496)
Finance charges in respect of non equity shares (1,189) (1,114)
------- -------
(1,048) (1,610)
Issue of shares 40 --
Premium on redemption reserve 1,189 1,114
Foreign exchange adjustments 132 1,175
------- -------
Net decrease/(increase) to shareholders' deficit 313 679
Opening shareholders' deficit (61,479) (59,224)
------- -------
Closing shareholders' deficit (61,166) (58,545)
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TEXON INTERNATIONAL plc
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Texon International plc and its subsidiaries ("the
Group") in accordance with UK generally accepted accounting principles
("UK GAAP"). The unaudited condensed consolidated financial statements and
condensed notes are presented in accordance with Form 10-Q and do not
contain all the information required in the Group's annual consolidated
financial statements and notes. The operating results for the three-month
periods are not necessarily indicative of the results, which may be
expected for the full year. In the opinion of management, all material
adjustments, consisting of items of a normal recurring nature, considered
necessary for a fair presentation of the results of operations, the
financial position and the cash flows for each period shown, have been
included.
Where necessary comparatives are adjusted to ensure consistency with
current periods.
2 STOCKS
Stock is stated at the lower of cost, including factory overheads where
applicable, and net realizable value on a first in first out basis.
Provision is made for slow-moving and obsolete items. Inventories are
summarised as follows:
March 31, 2001 December 31, 2000
Raw materials 5,151 5,528
Work in progress 2,192 2,259
Finished goods and goods for resale 15,420 14,078
------ -------
22,763 21,865
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3 CHANGES IN UK ACCOUNTING STANDARDS
The Accounting Standards Board (ASB) has issued FRS 17, Retirement
Benefits, which is mandatory for all accounting periods ending on or after
22 September 2003. FRS 17 replaces SSAP 24 and UITF 6 relating to
accounting for pension costs and other post-retirement benefits. The FRS
makes radical changes in respect of accounting for defined benefit
schemes, leading to increased volatility in the balance sheet as actuarial
gains and losses are recognized immediately and scheme assets are valued
at fair values. While companies with defined benefit schemes will be able
to continue applying SSAP 24 for periods ending before June 22, 2003, they
will need to make additional disclosure in accordance with FRS 17 for
periods ending on or after June 22, 2001. The Group has applied the
additional disclosure of FRS 17 from 2001.
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TEXON INTERNATIONAL plc
3 CHANGES IN UK ACCOUNTING STANDARDS (continued)
The ASB has issued FRS 18, Accounting Policies, which is effective for all
accounting periods ending on or after June 22, 2001. FRS 18 replaces SSAP
2. This replacement of SSAP 2 brings the assumptions and the criteria on
which entities select accounting policies, into line with the ASB's
statement of principles. FRS 18 re-iterates the going concern and accruals
bases, however the previous concepts of prudence and consistency have been
downplayed. In determining the most appropriate accounting policy the
emphasis is now on the four objectives of relevance, reliability,
comparability and understandability. The Group has applied the provisions
of FRS 18 in 2002. The implementation of FRS 18 did not have a significant
impact on the Group's financial statements.
The ASB has issued FRS 19, Deferred Tax, which is effective for all
accounting periods ending on or after January 23, 2002. Its main
objectives for the treatment of deferred tax to come more in line with
international practice. Although FRS 19 introduces a form of "full
provision" it has not harmonized with IAS 12. The general principle of FRS
19 is that deferred tax should be recognized in full in respect of
transactions or events that have taken place by the balance sheet date and
which give the entity an obligation to pay more or less tax in the future.
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TEXON INTERNATIONAL plc
ITEM 2 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report, in
the Annual Report on Form 20-F filed by the Group with the Securities and
Exchange Commission (the "Commission") on May 13, 2002 and in the Group's
periodic reports filed with the Commission.
Except for the historical data set forth herein, the following discussion
contains certain forward-looking information. The Group's actual results may
differ significantly from the projected results. Factors that could cause or
contribute to such differences include, but are not limited to, levels of sales
to customers, actions by competitors, fluctuations in the price of primary raw
materials, foreign currency exchange rates and political and economic
instability in the Group's markets.
GENERAL
- -------
The Group believes it is the world's largest, in terms of sales, manufacturer
and marketer of structural materials that are essential in the manufacture of
footwear. The Group operates a global business, which generates sales that are
widely diversified by geographic region and product line. The Group's primary
products include: (1) materials for insoles, which form the structural
foundation of shoes; (2) stiffeners, which support and shape the toe and heel of
shoes; (3) other component products used in the manufacture of footwear, such as
linings, lasts, tacks, nails, steel shanks, steel toe caps, midsoles and
adhesives, and (4) Computer Aided Design ("CAD") solutions to the footwear
industry. While the products sold by the Group represent a small percentage of
the total cost of materials contained in footwear, they are critical to the
performance and manufacture of footwear and are not fashion sensitive. By
leveraging its expertise in the manufacture of these structural materials, the
Group has developed several related niche industrial products such as carpet
gripper pins and cellulose air freshener material. These industrial products are
sold to a wide range of industries.
The Group supplies most of the major footwear manufacturers in the world. The
Group supplies over 7,500 customers worldwide, servicing global athletic
footwear companies such as Nike and Adidas, designers and producers of casual
shoes including Timberland and R. Griggs & Co (Dr Martens) and manufacturers of
men's and women's formal shoes such as Church's and Bally. The Group has fifteen
manufacturing sites strategically located in Europe, the United States, Brazil,
China and Australia and sells its products in more than 90 countries through an
extensive marketing and distribution network. During the first three months of
2002, sales of insoles, stiffeners, other footwear materials, industrial
products and component products accounted for 37%, 28%, 8%, 8%, and 19% of total
sales, respectively. During this period, 45% of the Group's sales were made to
Europe, 37% to Asia, 14% to the Americas and 4% to the rest of the world.
SEGMENTAL REPORTING
- -------------------
The Group has five reportable segments based on geographic locations: United
Kingdom, Europe, America, Australasia and Asia. Where applicable, discussions of
sales by region relate to the geographical locations where the relevant products
are actually produced. In contrast, discussions of sales by area relate to the
geographical locations where the relevant products are actually sold.
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TEXON INTERNATIONAL plc
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE THREE MONTHS ENDED
MARCH 31, 2001
Sales Turnover: Sales for the three months ended March 31, 2002 were (pound)
32.9 million, a decrease of (pound) 4.3 million from (pound) 37.2 million in the
comparable period of 2001. There are three principal reasons for this decrease.
First, the European footwear market had a particularly slow quarter compared
with last year as a result of de-stocking in the supply chain in this region.
Second, the administration of the Cornwell businesses in the UK and the
restructuring of the Australian business during 2001 reduced sales of
components. Third, Texon continued its strategy to focus on higher margin
business that have delivered improvements in profits.
Sales by region varied across the Group's regions. In the UK region, sales
declined by (pound) 0.5 million to (pound) 8.8 million, principally as a result
of the administration of the Cornwall business in March 2002 and lower Crispin
sales of (pound) 0.5 million, offset by the transfer of the Foss production from
the Americas region. Sales in the European region, declined by (pound) 1.9
million to (pound) 14.3 million, as a result of the slow start in the European
footwear markets as some producers de-stocked. In the America region, sales
declined by (pound) 1.9 million to (pound) 5.3 million, as a result of
transferring an element of the Foss production to the UK. Sales in the
Australasia region declined by (pound) 0.2 million to (pound) 1.3 million as the
relocation of local footwear production to the Pacific region continued. In the
Asia region, sales increased by (pound) 0.2 million to (pound) 3.2 million, as a
result of increased activity in this region.
Sales by area declined in all areas with the exception of Asia. In Europe, sales
declined by 19% to (pound) 14.9 million, reflecting the slow start in the
European footwear markets as some producers de-stocked, as well as, competitive
pressures in the Esjot businesses and the administration of the Cornwell
businesses in 2002. Sales in the Americas declined by 25% to (pound) 4.4
million, as result of invoicing direct from the UK to a third party industrial
customer, which in 2001 was invoiced from the US as well as the devaluation of
the Brazilian Real to the pound. Sales in Asia increased by 7% to (pound) 10.7
million, as confidence in the US economy led to increased production in the
region. Sales in the rest of the world were flat at (pound) 2.9 million.
Gross Profit: Gross profit for the three months ended March 31, 2002 decreased
by (pound) 0.3 million to (pound) 9.0 million compared to (pound) 9.3 million in
the comparable period in 2001. When expressed as a percentage of sales, gross
profit was 27.2% for the three months ended March 31, 2002 an increase of 2.2%
from the comparable period in 2001. This improvement is the result of a more
favorable sales mix towards higher margin businesses, the benefits of
restructuring the Australia business and exiting the Cornwell business in the UK
and favorable raw material prices.
Gross profit percentage in the UK region increased from 26% to 33%, principally
due to the sales mix, where there has been a lower level of sales for the low
margin Cornwell business. The European region gross profit percentage was
constant at 26%, with the benefit of lower pulp raw material prices purchases
offset by an element of margin erosion in the Esjot businesses due to
competitive pressures in the marketplace. The Americas region gross profit
percentage increased from 17% to 25% again due to the sales mix where in 2001
the Foss business, which earned a distributor margin has been transferred to the
UK. In Australasia, the gross profit percentage declined from 17% in 2001 to 6%
in 2002 reflecting the impact the relocation of local footwear production to the
Pacific region has had on prices and volumes. The Asia region margin decreased
from 39% to 27% principally due to the sales mix as Texon made a decision to
compete for some lower margin business in this region.
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TEXON INTERNATIONAL plc
Selling, General and Administrative Costs: Selling, general and administrative
costs for the three months ended March 31, 2002 were (pound) 5.1 million
compared with (pound) 6.0 million in the comparable period in 2001. These costs
have decreased as a result of a continuing cost reduction program being
implemented throughout the group.
Operating Profit. Operating profit for the three months ended March 31, 2002 was
(pound) 3.5 million, (pound) 0.5 million above the comparable period in 2001 due
to the improvement in gross profit percentage and a reduction in selling,
general and administrative costs.
Earnings before Interest Depreciation and Amortisation ("EBITDA"): EBITDA for
the three months ended March 31, 2002 was (pound) 4.8 million as compared with
(pound) 4.4 million in the comparable period in 2001.
Interest Expense: Net interest expense was (pound) 2.9 million for the three
months ended March 31, 2002 compared to (pound) 3.0 million for the three month
ended March 31, 2001. Included in the interest charge is the amortization of
debt insurance costs of (pound) 0.3 million for the three months ended March 31,
2002 as compared with (pound) 0.2 million in the comparable period in 2001.
Taxation: The tax charge for the three months ended March 31, 2002 is based on
the estimated percentage tax rate the Group will incur for the full year.
LIQUIDITY AND CAPITAL RESOURCES
The Group's liquidity needs arise primarily from debt service obligations on the
indebtedness incurred in connection with the notes and the revolving credit
facility, working capital needs and the funding of capital expenditures. Total
liabilities at March 31, 2002 were (pound) 149.2 million, including consolidated
indebtedness of (pound) 114.0 million as compared to total assets of (pound)
89.5 million.
The Group's primary sources of liquidity are cash flows from operations and
borrowings under the Group's financing agreements, which provides the Group with
a (Euro) 37.2 million (pound) 23.2 million 6-year euro term loan and a (Euro)
10.2 million (pound) 6.4 million revolving credit facility, as well as several
local facilities in Germany, Italy, Spain, France, China, Australia, New
Zealand, Brazil and the UK.
The net cash inflow from operating activities for the three months ended March
31, 2002 was (pound) 4.6 million compared to (pound) 7.4 million for the
comparable period in 2001. This decrease of (pound) 2.8 million is primarily
attributable to the benefit that was achieved in 2001 from improvements in the
management of working capital, which was a one off effect.
Returns on investments and servicing of finance for the three months ended March
31, 2002 were (pound) 4.4 million compared to (pound) 4.9 million for the three
months ended March 31, 2001. The key reason for this reduction is due to the
refinancing in November 2001, where a scheduled repayment in January 2001, was
paid in November 2001 instead.
There was a taxation refund of (pound) 0.1 million for the three months ended
March 31, 2002, compared to taxation refund of (pound) 0.2 million for the
comparable period in 2001.
Net capital expenditures, for the three months ended March 31, 2002 were (pound)
0.9 million, as compared to (pound) 0.2 million for the comparable period in
2001.
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TEXON INTERNATIONAL plc
FINANCIAL INSTRUMENTS AND MARKET RISKS
The Group's operations are conducted by entities in many countries and the
primary market risk exposures of the Group are interest rate risk and foreign
currency exchange risk. The exposure to market risk for changes in interest
rates relates to its debt obligations, upon which interest is paid at both
short-term fixed and variable rates, and local bank borrowings, upon which
interest is paid at variable rates. The Group does not use any instruments by
which to hedge against fluctuations in interest rates, as it is believed that
interest rates are low in the currencies in which debt is denominated and that
the risk of major fluctuations in such interest rates is low.
The results of the Group's operations are subject to currency translation risk
and currency transaction risk. Regarding currency translation risk, the
operating results and financial position of each entity is reported in the
relevant local currency and then translated into Sterling at the applicable
exchange rate for inclusion in the financial statements of the Group. The
fluctuation of Sterling against foreign currencies will therefore have an impact
upon the reported profitability of the Group and may also affect the value of
the Group's assets and the amount of the Company's shareholders equity.
Regarding currency transaction risk, fluctuations in exchange rates may affect
the operating results of the Group because many of each entities costs are
incurred in currencies different from the revenue currencies and there is also a
time lag between incurrence of costs and the collection of related revenues. To
protect against currency transaction risk the Group engages in hedging its net
transaction exposure by the use of foreign exchange forward contracts to cover
exposures arising from outstanding sales and purchase invoices. It has not
covered outstanding sales or purchase orders unless they are firm commitments.
At present hedging covers all traded currencies to which the Group is exposed
and in which forward contracts may be undertaken. This includes the Euro and the
US, Hong Kong, Australian and New Zealand Dollar. In addition the Group hedges
against certain non-trading exposures by using foreign exchange forward
contracts, these exposures being short-term loans between entities and interest
payable (within one year) on the senior notes. Short-term loans may fluctuate in
value depending upon the daily cash position of the various entities and may be
denominated in any of the currencies stated above.
INTERNATIONAL OPERATIONS
The Group conducts operations in countries around the world including through
manufacturing facilities in the UK, the United States, France, Germany, Italy,
Australia, Brazil and China. The Group's global operations may be subject to
some volatility because of currency fluctuations, inflation and changes in
political and economic conditions in these countries.
The financial position and results of operations of the Group's businesses
outside the UK are measured using the local currency as the functional currency.
Most of the revenues and expenses of the Group's operations are denominated in
local currencies whereas the majority of raw material purchases are denominated
in US dollars. Assets and liabilities of the Group's subsidiaries outside the UK
are translated at the balance sheet exchange rate and statement of operations
accounts are translated at the average rate prevailing during the relevant
period.
The Group's financial performance in future periods may be impacted as a result
of changes in the above factors which are largely beyond the control of the
Group.
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TEXON INTERNATIONAL plc
EXCHANGE RATE INFORMATION
The table below shows the major exchange rates, expressed per pound sterling,
used in the preparation of the condensed consolidated financial statements
included herewith.
2002 Average Rate Period End Rate
----------------- ---------------
US Dollar 1.43 1.42
Euro 1.63 1.63
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TEXON INTERNATIONAL plc
PART II OTHER INFORMATION
Item 1 Legal Proceedings
From time to time, the Group is involved in routine litigation
incidental to its business. The Group is not a party to any
threatened legal proceedings, which the Group believes would have a
material adverse effect on the Group's results or operations or
financial condition.
Item 2 Changes in Securities and Use of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits and Report on Form 8 - K
None.
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TEXON INTERNATIONAL plc
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Texon International plc
---------------------------------
(Registrant)
Date May 31, 2002 By /s/ J. Neil Fleming
-------------------------------
J. Neil Fleming
Finance Director and
Chief Accounting Officer
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