RNS No 1230p
TISZAI VEGYI KOMBINAT LTD
8th May 1998
STOCK EXCHANGE REPORT
1. FINANCIAL STATEMENTS
Profit and Loss Account
(IAS, NON-AUDITED)
Q1 1997 Q1 1998 Q1 1997 Q1 1998
TVK RT. TVK RT. TVK TVK
(HUF (HUF GROUP GROUP
millions) millions) (HUF (HUF
millions) millions)
Sales 19,728 20,173 20,264 22,320
Cost of Sales 14,398 12,090 14,615 14,256
Gross Profit 5,330 7,264 5,649 8,064
Selling, General and Administrative 2,056 2,116 2,317 2,579
Expenses
Operating Income 3,274 5,148 3,332 5,485
Other Income 886 1,025 818 1,054
Other Expense 811 1,795 770 1,910
EBIT 3,349 4,378 3,380 4,629
Interest Income 177 1,062 180 1,078
Interet Expense 204 579 216 643
Profit Before Income tax and 3,322 4,843 3,344 5,064
Extraordinary Items
Income Tax 287 391 311 431
Profit Before Extraordinary Items 3,035 4,452 3,033 4,633
Minority Share of Profit After Taxes 1 10
Extraordinary Items
Net Profit 3,035 4,452 3,032 4,623
Balance Sheet
(IAS, Non-Audited)
31.03.1997 31.03.1998 31.03.1997 31.03.1998
TVK Rt. TVK Rt. TVK Group TVK Group
(HUF (HUF (HUF (HUF
millions) millions) millions) millions)
Long-term Assets 41,619 38,272 41,912 38,991
Net value of Tangible Assets 31,364 32,804 32,969 34,684
Net value of Intangible Assets 93 99 103 113
Investments 5,238 5,294 3,839 4,091
Treasuury Stock 4,869 4,946
Receivables 55 75 55 103
Current assets 23,864 48,955 25,923 53,839
Cash 2,013 5,760 2,548 6,629
Receivables, Net 12,672 12,415 13,046 14,959
Inventories 5,866 5,893 6,433 6,913
Accruals and Other Receivables 2,729 4,292 3,152 4,318
Securities Portfolio 584 16,247 744 16,299
Treasury stock 4,348 4,721
Short-term debt 12,270 14,603 14,071 19,522
Liabilities 5,258 5,319 5,467 8,004
Short-term debts 2,567 5,632 2,781 7,050
Current portion of long-term
debt and lease obligations 1,010 1,010
Other 3,435 3,652 4,813 4,468
Net current assets 11,594 34,352 11,852 34,317
Total assets Less
Current Liabilities 53,213 72,624 53,764 73,308
Long-term Liabilities 4,689 1,991 5,246 2,551
Long-term debt and
Lease Obligations 4,450 1,964 4,969 2,524
Deferrals 160 198
Early Retirement 79 27 79 27
Net Assets 48,524 70,633 48,518 70,757
Shareholders' Equity 48,524 70,633 48,518 70,757
Share Capital 24,000 24,000 24,000 24,000
Net Profit 3,035 4,452 3,032 4,623
Capital Reserve 5,180 5,180
Profit Reserve 21,385 36,897 21,326 36,724
Revaluation Reserve 104 104 104 104
Minority 56 126
Cash Flow Statement
(IAS, Non-Consolidated, Non-Audited)
Q1 1997 Q1 1998
(HUF millions) (HUF millions)
Operating activities
Income Before Extraordinaries 3,035 4,452
Changes resulted from facing
the Income Before Extraordinaries
and Net Cash from Opertaing Activities
Increase in Capital Reserve
Depreciation and Amortisation 892 1,016
Increase in Receivables -1,470 -1,355
Decrease/increase in Inventories -1,366 -567
Decrease/increase in Other Current Assets -647 585
Increase in Accounts Payable -730 -839
Decrease in Other Current Liabilities -98 349
Decrease/increase in Other Liabilities 0 0
Net Cash from Operating Activities -384 3,641
Investing Activities
Purchase of Intangible Assets 4 -6
Decrease/increase in Short-term Securities 1,554 -7,166
Proceeds from Purchase of Long-term Investments -1,027 4,183
Purchase of Tangible Fixed Assets -208 -1,846
Other change in Fixed Assets 8
Disposal of Fixed Assets 186 322
In-kind Contribution 51
Net Cash from Investing Activities 509 -4,454
Financing Activities
Proceeds from Borrowings 5,171 3,199
Repayment of Dept and Lease Obligations -5,673 -813
Dividends Paid 0 0
Increase in Long-term Receivables 0 0
Net Cash from Financing Activities -502 2,386
Increase/decrease in Cash -377 1,573
Cash at Beginning of Year 2,390 4,187
Cash at End of Year 2,013 5,760
Increase/decrease in Cash -377 1,573
2. ANALYSIS OF Q1 1998 OPERATIONS
The data in this Stock Exchange Report on Q1 1998 are not audited and should not
be interpreted as final.
2.1 Consolidation
We included six subsidiaries, two joint ventures, twenty-seven affiliated
ventures, and one subsidiary of a subisdiary of TVK Rt. in the consolidation.
For comparative analysis we relied IAS data of the consolidated company.
Corporate level data are not consolidated data.
2.2. Business Environment
World market tendencies took a favourable turn in the first quarter of the
year, and the Company exploited the favourable opportunities. The average world
market price of naphtha showed a drastic decline during the first quarter of the
year, USD 137 per ton, compared to USD 194 per tone average a year ago, this
represents a 29.4% decrease. Due to the price-erosion of the polymer products
the average main market price level decreased by 7 to 13.5%, year on year (by
divisions: LDPE: - 7.2% HDPE: -4.3%, PP: -13.4%).
In Q1 1998, the HUF/USD exchange rate was 208.16, while HUF/DEM was 114.47.
Compared to the Q1 1997, the HUF devaluated against the USD by 21%, and against
the DEM by 10.3%. During this period the average interest rate level on home
deposits was around 19.4%, this rate was 21.9% during the same period of the
previous year. In Q1 1998, the average borrowing rate was around 19%, while this
rate was 21.5% in Q1 1997. Interest on hard currency loans was at LIBOR + 0.2%,
while one years ago approximately LIBOR + 0.6%.
2.3 Company Operations by Divisions
2.3.1. Sales revenue by divisions
HUF millions
Q1 1997 Q1 1998
Total Total 1998/1997 (%) Export Domestic
Olefin Division (gross) 5,275 4,714 89.4 606 4,108
Purchased ethylene import -1,444 -1,444
Olefin Division 5,275 3,270 2,664
LDPE Division 3,026 3,906 129.08 2,233 1,673
HDPE Division 5,588 6,667 119.31 5,346 1,321
Polypropylene Division 3,991 4,199 105.21 2,409 1,790
Plastic Processing Division 1,682 2,026 120.45 599 1,427
Other Activities 166 105 63.25 7 98
Total Sales 19,728 20,173 102.26 11,200 8.973
2.3.2 Olefins
During Q1 1997, the Olefin Plant produced 71,100 tons of ethylene and 41,800
tons of propylene by processing 195,400 tons of naphtha and 48,900 tons of gas
oil. By comparison, the produced quantities of ethylene were 2.6 % and that of
propylene 4.4% lower than in Q1 1997, while the processed quantities were 4.4%
and 1% lower respectively. The utilization of capacity at the Olefin Plant
applied to ethylene production was 105%.
The average foreign currency price for naphtha purchased from MOL was USD 157
per ton, which is 28.3% lower than in the same period of the last year (13.3%
lower in HUF), which can be attributed mainly to the main market price changes.
In the period under review, the Company bought 15,300 tons of ethylene from the
Oriana Concern in the Ukraine which is 84% more than the quantity purchased in
the same period of the previous year. 15,500 tons of ethylene was sold to
BorsosChem supplying a part of the own ethylene production to make up for the
difference. In the same period of 1997, 16,600 tons of ethylene were delivered
to BorsodChem. The ethylene price was HUF 114,800 per tons, which is 4.1% higher
year on year. This is due to the aggregate effect of the 5.9% decrease of the
North-West contract price of ethylene, and the devaluation of the forint. In the
case of other olefin products, the decrease of the sale price was a result of
the main market price movements.
Revenue from the olefin products amounted to HUF 3,270 million, contributing
14.7% share of the total revenues.
2.33 Polymers
In Q1 1998, the polyolefin plants produced 27,300 tons of LDPE, 46,500 tons of
HDPE and 36,500 tons of PP pellets which came to 111%, 108% and 99% of the
quantities produced in the same period of 1997 respectively. The utilization of
capacities was 96% in the LDPE Plants, 99% in the HDPE Plant and 106% in the PP
Plants (the same factors in Q1 of 1997 wer 87%, 92% and 107% respectively). The
higher capacity utilization of the polymer plants is a result of the extra
ethylene, arrived from Kalush.
Sales from polymers amounted to HUF 14,772 million, which represents 66.2% of
total sales. In the first quarter of 1997 these figures were HUF 12,605 million
and 62.2%. Domestic sales of polymers comprised a 32% of the polymer divisions'
sales compared to 36% in the same period of 1997.
In the first quarter of 1998 our prices followed the price changes on the world
market. Within the period, from January to February the monthly average main
market prices in USD and LDPE products decreased by 4%, the HDPE products by 1%,
and for PP products by 1%, and for PP products by 0.3%. From February to March
the monthly average market prices decreased by 7% and 3% for LDPE and HDPE
products respectively, and by 9% for PP products. Compared to Q1 1997, main
market prices calculated in USD decreased by 7% in the case of LDPE, by 4% in
the case of HDPE, and by 16% in the case of PP products during the first three
months of 1998.
The quarterly average export prices expressed in USD were respectively 5.9%,
4.9% and 12.9% lower for LDPE, HDPE and PP on a year on year basis. As a result
of the exchange rate changes the Company's average export prices of LDPE, HDPE
and PP products in HUF terms increased by 15.7%, 16.8%, and 7.1% respectively.
The average domestic prices of LDPE, HDPE and PP products increased by 12.2%,
10.1%, and 6.9% respectively, year-on-year.
2.3.4 Plastics
In Q1 1998, the four plastics processsing divisions of the Company produced
7,400 tons of finished plastic products, compared to 6,900 ton (not including
privatized activities) in the same period of 1997. The sales income from the
finished plastics was HUF 2,026 million representing 9.1% of the total sales
revenue of TVK. These figures were HUF 1,682 million and 8.3% in 1997. The
domestic sales represented 70% of the sales income from finished plastics, while
year on year this proportion was 68%. The capacity utilization was 59.2%,
showing an almost 25% increase against the 47.4% in Q1 1997.
2.4 Financial Analysis
2.4.1. Profit and Loss Account
In the first quarter of 1998, the net sales of the TVK Group amounted to HUF
22,320 million, 10% higher than in the same period of 1997. This number is a
result of changes in both quantity and prices. Corporate-level domestic sales
represented 44% of the total sales compared to 53% in Q1 1997. The decrease is
mainly explained by modifications in the acounting practice. Ater the first half
of 1997, the ethylene-accounting was changed which had a decreased effect on the
domestic component of sales.
In the first quarter of 1998, corporate level exports were 20.4% higher than in
the respective period of 1997. Europe had a 89% shares (83% in the previous
period) including Central-Easter Europe with 11% (6% in the previous period);
Middle East had 6% (7% in the previous period), North America had 3% (4% in the
previous period), and Africa had 2% (6% in the previous period.
Direct sales cost were HUF 14,256 million, which reflects a 2.5% fall year on
year. (On corporate-level the decrease was 10.3%). The decrease was a result of
a significant fall in naptha prices, that is 29.4% fall on the main markets
compared to the same period of 1997.
As a result of the foregoing, the gross profit of the first quarter of 1998 was
42.8% higher than in Q1 1997, as a result of which the gross margin increased to
36.1% (same period last year: 27.9%).
On a corporate-level, material costs represented 67.2% of total costs (71.1% in
the previous period). The proportion of naphtha and natural gas from the total
material cost was 42.1%, compared to 45.6% year on year.
Selling, general and administrative costs amounted to HUF 2.579 million, which
is 11.6% of the group's sales (previous period 11.4%). This was only 11.3%
higher in nominal terms than in the same period of last year. On a corporate
level, the increase was only 2.9% between the two periods (10.5% of the total
sales).
The operating income of the TVK Group was HUF 5,485 million which is 64.6%
higher than the Q1 1997 amount.
Other income amounted to HUF 1.054 million with a 28.9% increase year on year
(HUF 818 million). THis increase was mostly due to exchange rate gains. Other
expenditures reached HUF 1,910 million compared to the last year HUF 770
million, and this represented a 148.1% increase. The most important factor of
this rise was a hedging contract, effective as of July 1997, which due to low
oil prices had a negative effect during the first three months of 1998.
Personnel expenditures represented 8.3% of total costs, compared top 7.7% in the
same period of 1997. Depreciation was HUF 1,060 million (previous period: HUF
892 million). Interest received increased to 498.9% due to a significant rise
in investments. Interest paid was HUF 643 million which shows a 197.7% growth
year on year. Income from financial operations was HUF 435 million as opposed
to a HUF 36 million loss in Q1 1997.
TVK Group's profit before tax was HUF 5,064 million as opposed to HUF 3,344
million in the same period of last year which reflects a 51.4% increase. Taxes
payable were HUF 431 million and the net profit was HUF 4,623 million compared
to the net profit of HUF 3,032 million realised in Q1 1997 (taxes payable in
both years are calculated with a 50% tax holiday).
Comparing the results of the period under review to the first quarter of 1997,
operating income was HUF 2,153 million higher. The result from other operation
and financial operations modified the difference between the two periods by
HUF -904 million and HUF +471 million respectively, due to which the net profit
increased by HUF 1,591 million (52.5% increase).
2.4.2 Balance Sheet
As of March 31, 1998, the balance sheet was HUF 92,830 million which is 36.8%
higher than last year's figure. This is mostly explained by a 107.7% increase
in current assets on the asset side, and a 72% increase in profit reserves on
the liability side.
The transfer of treasury stock from the long-term assets category to the current
assets had a significant contribution to the increase in current assets.
Under current assets, securities' holdings increased considerably - by
approximately 2191% - which was the result of investing the increased revenues.
These revenues included the transfers from the APV Rt. and the profit brought
forward from previous years.
On the liability side, the 154% increase of the short-term loans, and the 49%
and 51% decrease of long term liabilities and loans respectively played the main
role. The changes of these factors were the result of rearranging the three
year - long term - loans to short term ones.
The 46.4% increase in receivables was the result of factoring activities carried
out by TVK with two of its subsidiaries.
In equity capital the 72% increase of the profit reserve contained the net
profit. The HUF 5,180 million growth of the capital reserve refers to the
transfers from the APV Rt.
2.4.3 Cash flow statement
The HUF 1,016 million depreciation and the working capital modified the HUF
4,452 million profit after tax to HUF 3,641 million. The total of corporate
investments was HUF 1,846 million, of which approximately 70% is connected to
strategic developments. The value of net cash was HUF 5,760 million.
3.CHANGES IN THE ORGANIZATION STRUCTURE, THE GROUP OF SENIOR OFFICIALS AND THE
MAKE-UP OF THE WORK FORCE OF THE COMPANY
3.1 Organizational Structure
As a part of the overall business strategy, the Company made organizational
changes in the area of technical services during Q1 1998. Two technical service
affiliates in the field of construction and forwarding were established with TVK
holding a minority stake.
3.2 Senior Officials
On the Supervisory Board the mandate of the employees' delegate, Istvan Hamori
expired on January 12, 1998, he was replaced by Tamas Magyar as of March 13,
1998.
3.3 Employees
The total number of employees stood at 3,301 as of December 31, 1997; this
number was reduced to 3,238 by March 31, 1998, making an average of 3,265 for
the first three months of the year. During this quarter of the year 56 emplyees
were transferred to TVK's related companies. Year-on-year the number of
employees was 3,535 and the average number was 3,543.
4. OWNERSHIP STRUCTURE
According to the Shareholder Registry Book, the ownership structure of TVK Rt.
as of March 31, 1998 was as follows:
Shareholder % of Share Capital
----------------------------------------------------------
Employees 5.54
Domestic Retail 9.90
TVK Rt 11.16
Domestic Institutional 13.78
Non Registered Shareholders 17.82
International Institutional 41.80
TOTAL: 100.00
5. MAJOR EVENTS
5.1 Capital increase in Plastico S.A.
TVK Rt. increased the capital of Plastico SA by LEI 15 billion (HUF 375 million)
on February 5, 1998. Out of this amount, LEI 12 billion was devoted to
production capacity transfer and LEI 3 billion was devoted to finance current
assets, loss and debt redemption. As a result of the capital increase the
ownership structure of the company has changed as follows:
TVK Rt. 90.87%
Employees 8.69%
Domestic Retail 0.44%
5.2 Events at TVK Group
Foundation of new enterprises
TBG Tisza Beton Kft., operating in the field of construction, was established on
January 29, 1998 with TVK Rt's 20.8% stake, TBG Hungaria Kft's 66.7% stake and a
TVK Group company's 12.5% stake. The registered capital of the TBG Tisza Beton
Kft. is HUF 120 million.
REVESZ Trans Kft. was established on January 31, 1998 with HUF 134.84 million
registered capital. TVK Rt. has a 48% stake and Revesz Eurotrans Kft. has a 52%
stake in the company. The company carries out transporting services for TVK.
6. EXTRAORDINARY REPORTS WITH SUBJECT AND DATE INDICATED
January 6, 1998 Decision on the development of the BOPP-film (Biafol)
producing capacity and strategic alliance with Mobil Plastic
Europe
February 9, 1998 Capital increase at Plastico S.A.
February 25, 1998 Letter of intent concerning the long-term co-operation of TVK
and MOL
March 26, 1998 Signing a contract with Tecnimont-Montell consortium in
connection with the building of PP IV plant
March 26, 1998 The election of the Supervisory Board's new member, the
employees delegate, Tamas Magyar
Tiszaujvaros, May 7, 1998
Miklos Varhegyi
CEO
Chairman of the Board
END
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