RNS No 2958m
TISZAI VEGYI KOMBINAT RT
17 May 1999
STOCK EXCHANGE REPORT
FOR Q1 1999
1
CONTENTS
1. FINANCIAL STATEMENTS 2
2. ANALYSIS OF Q1 1999 OPERATIONS 5
2.1 CONSOLIDATION ............. 5
2.2 BUSINESS ENVIRONMENT. 5
2.2.1 Olefins ...... 5
2.2.2 Polymers ...... 6
2.2.3 Plastics ........ 6
2.3 UNTERLAND AG... 7
2.4 FINANCIAL ANALYSIS ............ 8
2.4.1 Profit and Loss Account .... 10
2.4.2 Balance Sheet ............ 11
2.5 CAPITAL EXPENDITURES ... 11
2.5.1 Strategic capital expenditures ......................... 11
2.5.2 Other capital expenditures .............................. 11
3. CHANGES IN THE ORGANIZATIONAL STRUCTURE, THE GROUP OF
SENIOR OFFICIALS AND THE MAKE-UP OF THE WORK FORCE OF THE
COMPANY.................. 11
3.1 EMPLOYEES............... 11
4. OWNERSHIP STRUCTURE 12
5. MAJOR EVENTS........ 12
5.1 EVENTS AT TVK GROUP IN Q 1 1999..... 12
6. EXTRAORDINARY REPORTS WITU SUBJECT AND DATE INDICATED 12
2
1. FINANCIAL STATEMENTS
Profit and Loss Account
(IAS Non-Audited)
Q1 1998 Q1 1999 Q1 1998 Q1 1999
TVK Rt TVK Rt TVK Rt TVK Rt
(HUF (HUF Group Group
millions) millions) (HUF (HUF
millions) millions
Sales 20,173 16,898 22,320 25,655
Cost of Sales 12,909 11,660 14,256 19,360
Gross Profit 7,264 5,238 9,064 6,295
Selling, General and
Administrative Expenses 2,116 2,507 2,579 3,590
Operating Income 5,148 2,731 5,485 2,705
Other Income 1,025 1,024 1,054 1,326
Other Expense 1,795 1,187 1,910 1,464
EBIT 4,378 2,568 4,629 2,567
Interest Income 1,062 698 1,078 705
Interest Expense 597 289 643 494
Result on revaluation of
foreign exchange 0 0 0 197
Profit Before Income Tax and 4,843 2,977 5,064 2,975
Extraordinary Items
Income Tax 782 449 822 510
Profit Before Extraordinary
Items 4,061 2,528 4,242 2,465
Extraordinry Item 0 0 0 0
Minority Share of Profit After
Taxes (-,+) 0 0 10 60
Net Profit 4,061 2,528 4,232 2,525
Paid dividend 0 0 0 0
Retained Profit of the year 4,061 2,528 4,232 2,525
3
Balance Sheet
(TAS Non-Audited)
31.03.98 31.03.99 31.03.98 31.03.99
TVK Rt TVK Rt TVK TVK
(HUF (HUF Group Group
millions) millions) (HUF (HUF
millions) millions
Long-term Assets 38,272 63,406 38,991 74,196
Net value of Tangible Assets 32,804 46,162 34,684 65,778
Net value of Intangible Assets 99 154 113 558
Investments 5,294 16,288 4,091 7,649
Receivables 75 802 103 211
Current assets 48,564 48,199 53,448 65,459
Cash 5,760 945 6,629 5,287
Receivables, Net 12,415 12,083 14,959 17,712
Inventories 5,893 7,341 6,913 13,291
Accruals and Other Receivables 3,901 9,023 3,927 10,182
Securities Portfolio 16,247 14,480 16,299 14,536
Repurchased Treasury Stock 4,348 4,327 4,721 4,450
Current Liabilities 14,603 14,169 19,522 31,240
Accounts Receivable 5,319 5,029 8,004 9,874
Short term debt 5,632 1,176 7,050 9,039
Other current liabilities 3,652 7,964 4,468 12,327
Net current assets 33,961 34,030 33,926 34,218
Total assets Less Current 172,233 97,436 72,917 108,414
Liabilities
Long-term Liabilities 1,991 21,852 2,677 32,736
Loans 1,964 21,850 2,524 29,724
Early Retirement 27 2 27 2
Minority Interest 0 0 126 3,010
Net Assets 70,242 75,584 70,240 75,678
Shareholders' Equity 70,242 75,584 70,240 75,678
Share Capital 24,000 25,084 24,000 25,084
Net Profit 4,061 2,528 4,232 2,525
Capital Reserve 5,180 4,933 5,180 4,933
Profit Reserve 36,897 42,935 36,724 43,001
Revaluation Reserve 104 104 104 104
Valuation Difference 0 0 0 31
4
Cash Flow Statement
(IAS, Non-Consolidated, Non-Audited)
Q1 1998 Q1 1999
(HUF HUF
millions) millions)
Operating activities
Profit after tax 4,061 2,528
Items without flow of money
Depreciation 1,016 1,116
Increase in Provisions for Receivables
and Receivables -174 2
Revaluation of Foreign Debt at the end
of the quarter 46 238
Other Items without flow of money 88 -116
Operating Profit before Changes in Operating
Capital 5,037 3,768
Changes in Operating Capital
Changes in Inventones -578 -722
Changes in Payables -1,130 -1,602
Changes in Other Receivables 976 1,458
Changes in Accounts Receivable -843 -1,130
Changes in Other Current Liabilities 349 -3,992
Cash Flow of Changes in Operating Capital -1,226 -5,988
Net Cash from Operating Activities 3,811 -2,220
Investing Activities
Purchase of Tangible Fixed Assets -1,846 -4,663
Sales of Tangible Fixed Assets 203 4
Other changes of Tangible Fixed Assets 5 -259
Purchase of Investments -101 -1,368
Valuation of Investments 0 10
Changes in Long-term Securities and
Receivables -22 -771
Changes in Short term Securities -2,817 2,903
Casb from Investing Activities -4,578 -4,144
Financing Activities
Proceeds from Borrowings 3,199 13,423
Repayment of Borroynngs -859 -11,627
Cash from Financing Activities 2,340 1,796
Changes in Cash
Cash at Beginning of Year 4,187 5,513
Cash at End of Year 5,760 945
Increase in Cash 1,573 -4,568
5
2. ANALYSIS OF QI 1999 OPERATIONS
The data in this Stock Exchange Report for Q1 1999 is not audited and should
not be interpreted as final.
2.1 Consolidation
We included eight subsidiaries, two joint ventures, twenty-eight 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 quarter of 1999 world market trends led to significant price
erosion on input and output sides as well. The world market price of naphtha
decreased continuously in the first two months, then began to increase in
March. The average world market price of naphtha was USD 90 per ton, compared
to USD 137 per ton on average a year ago, this represents a 34.3% decrease. In
case of polymers in the first two months of the year there was a continuous
price erosion, then this decline stopped in March. Due to this the
average main market price level decreased by 30% to 32% year on year (by
divisions: LDPE: -30 %, HDPE: -30%, PP: - 32%).
In the first three months of 1999, the average HUF/USD exchange rate was
224.21, while the average HUF/DEM was 128.74. Compared to last year's figures
the HUF devalued against the USD by 7.7%, and against the DEM by 12.5%
During this period the average interest rate on domestic deposits was around 13%
- 14%, this rate was 19.5% during the same period of the previous year. The
average borrowing rate in HUF was around 16.45%. Interest on hard currency
loans was LIBOR + 0.35%, while one year ago the rate was approximately 19.3%
and LIBOR + 0.2% respectively.
2.2.1 Olefins
During Q1 1999, the Olefin Plant produced 82,500 tons of ethylene and 42,100
tons of propylene by processing 230,300 tons of naphtha and 33,000 tons of
gas oil. The processed quantity of naphtha was 18% higher, and that of
gas oil was 33% lower, the produced ethylene was 10% higher, and the produced
propylene was 1% higher than the last year's figures. The capacity utilization
of the Olefin Plant applied to ethylene was 115.4%
The average foreign currency price for naphtha purchased from MOL Rt was 105
USD/t, which is 33% lower than in Q1 1998 (calculated in HUF this is a 28%
price decrease).
6
In the period under review, the Company bought 8,200 tons of ethylene from
the Oriana Concern at a DEM 660 per ton average price, which represents a
46% decrease in quantity and a 29% decrease in price compared to the same
period of the last year. 17,100 tons of ethylene were sold to BorsodChem
at a HUF 90,850 per ton average price as opposed to 15,500 tons at HUF
108,500 per ton in the same period of last year (10% increase and 16%
decrease respectively). This is due to the effects of a 27% decrease in the
West European contract price of ethylene and the devaluation of the Hungarian
Forint.
Net sales revenue from olefin products was HUF 3,504 million,
contributing a 13.7% share to the total sales revenues of the Group.
2.2.2 Polymers
In the first quarter of 1999, the polyolefin plants produced 26,000 tons
of LDPE, 46,800 tons of HDPE and 33,300 tons of PP which came to 5% decrease,
0.6% increase and 9% decrease respectively. The utilization of capacities was
91.5% in the LDPE plants, 99.8% in the HDPE plant and 96.5% in the PP plants.
The same factors in Q1 1998 were 96%, 99.3% and 105.7% respectively.
The decrease of the capacity utilization in case of LDPE was due to that the
ethylene purchasing from Kalus (Oriana Concern) suspended in January, while in
case of PP it was due to that the production of the older plant was hold in
a lower level because of business political reasons.
HUF based domestic sales prices decreased by 15% for LDPE, by 17% for HDPE
and by 23% for PP, while export prices decreased by 25%, 23% and 27%
respectively.
USD based prices (Q1 1999/ Q1 1998)
Change in main Change in domestic Change in export
market price price price
LDPE -30% -22% -31%
HDPE -30% -23% -29%
PP -32% -29% -32%
Sales revenues of polymers contributed 45% to the total sales of the TVK Group.
This figure was 66% a year ago.
2.2.3 Plastics
In Q1 1999, the four plastic processing divisions of the Company produced
7,000 tons of finished plastic products at a 60.3% capacity utilization rate,
compared to 7,400 tons at a 59.2% capacity utilization rate a year ago. Revenue
of the four plastic processing divisions had a 10.7% share of company's total
sales at a corporate level, while a year ago this figure was 10%.
7
Sales revenue by divisions (IAS, not consolidated, HUF millions)
QI 1998 Q1 1999
Total Total Q1 1999/ Export Domestic
Q1 1998 (%)
Olefin Division (gross) 5,107 4,614 90 558 4,056
(Purchased) Ethylene import -1,444 -711 49 0 -711
(Purchased) Tar import* -360 -399 1ll 0 -399
Olefin Division 3,303 3,504 106 558 2,946
LDPE Division 3,906 2,931 75 1,675 1,256
HDPE Division 6,667 5,133 77 3,783 1,350
Polypropylene Division 4,199 3,430 82 2,173 1,257
Plastic Processing Division 2,026 1,807 89 607 1,200
Other Activities 72 93 129 12 81
Total Sales 20,173 16,898 84 8,808 8,090
* This item according to the above accounting, affects the sales of Olefin
Division, in the interest of comparability we show the items of Q1 1998 in the
same way.
2.3 Unterland AG
In Q1 1999, Unterland AG produced 19,950 plastic products. TVK Rt supplied
4% of the needed feedstock. Net sales were HUF 6,547 million. Average sales
price and raw material margin (average sales price - granule average price)
showed stability in the first quarter. The main part of the sales came from
the Western European markets which represented the 24.8% of TVK Group total
sales. Direct sales cost was HUF 6,094 million, the 42% of this was the costs
of the used granules. Selling, general and administrative costs amounted
to HUF 610 million, therefore EBITDA was HUF 452 million. The HUF 577 million
amount of depreciation resulted in an operating income of HUF -128 million.
The net interest income was HUF -149 million, which was mainly influenced by
the interests paid on short and long term loans.
Thus the resulting net profit was HUF -277 million in Q1 1999.
On March 31, 1999 the balance sheet total amounted to HUF 31,184 million. Due
to the above mentioned short and long term loans the leverage ratio was above
5. Acid test was 1.19. In the first quarter of 1999, average accounts
payable was 54 days, average accounts receivables was 38 days.
In Q1 1999, capex budget of Unterland AG was HUF 566 million. The main
part of the capital expenditures was spent on three extruders, approved in
1998 and commissioned in the period under review.
8
2.4 Financial Analysis
2.4.1 Profit and Loss Account
In the first quarter of 1999, net sales of the TVK Group amounted to HUF 25,655
million, which is 15 % higher than in the same period of the last year.
Corporate sales however decreased by 16 % Domestic sales accounted for 48 % of
the corporate net sales (44 % year on year). The increase in the TVK Group's
sales figure is explained by the HUF 6,547 millions sales of Unterland AG, this
is the first-time consolidation of Unterland AG.
In Q1 1999, corporate level export sales decreased by 21 % to HUF 8,808
million, that is due to the corporate export prices which decreased on HUF base
by 23-27 % The quantity of polymers exported decreased by 3 % Europe had a 91 %
share (89 % year on year) including Central and Eastern Europe with 8 % (11 %
year on year), Middle East with 5 % (6 % year on year), Africa with 2 % (2 %
year on year), and North America with 2 % (3 % year on year).
Direct sales costs show a 36 % increase to HUF 19,360 million, which is equal to
76 % of net sales (64 % year on year). The cost increased, in spite of the 28 %
decrease (on HUF base) in the price of naphtha purchased from MOL, because of
the direct costs of Unterland AG with 6,094 million HUR
According to HAS, corporate level material costs, represented 64 % of the total
costs (year on year: 67% ). The stake of naphtha and gas-oil decreased from
45 % to 39 % during the period examined while total energy costs increased from
9.8 % to 12 %. In total, material related costs decreased by 15 % 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 of the TVK
group in Q1 was HUF 6,295 million, 22 % lower than in the same period of last
year. Gross margin decreased from 36 % to 25 % The fall is mainly explained by
the consolidation of Unterland AG as it contributed to the sales revenue by 26 %
while to the costs of sales by 32 % The corporate level fall was the consequence
of the decrease in polymer prices.
Selling general and administrative cost of sales was 3.590 million HUF in Q1
1999 which amounts to 14 % of the net sales (year-on-year: 12 %) and indicates a
39 % nominal increase. The most significant cost factor was the one-time cost of
organizational development program and the HUF 610 million SG&A cost of the
Unterland.
Corporate level HAS based personnel expenditures represented 10.3 % of total
cost, compared to 8.3 % year on year. The increase of the percentage is due to
changes in the cost structure, as the increase of personnel cost itself was 12%.
9
In Q1 of 1999, TVK Rt's depreciation was HUF 1,116 million (IAS) (year on year:
HUF 1,016 million), that of Unterland AG was HUF 577 million.
Operating income was HUF 2,705 million in Q1, as opposed to HUF 5,485 million
year on year, showing a 51% decrease. The decrease of operating income is
explained by the fall of the polymer prices.
The company's internal prices for ethylene and propylene were equal to the 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 decreased by 7 %, that of the LDPE division by 51 %, HDPE
division by 66 % and the operating income of the PP division increased by 31 %
The decrease at the LDPE and HDPE divisions is partially the accounting effect
of accumulating inventories for the shut-down period and partially due to the
worsening of PE-ethylene price ratio.
Other income amounted to HUF 1,326 million compared to HUF 1,054 million year
on year indicating a 26 % increase. Most important factors were exchange rate
gains with HUF 599 million (HUF 538 million year on year). Other expenditures
reached HUF 1,464 million, which is 23 % lower than in Q1 of 1998. Important
factor was the foreign exchange loss amounting to HUF 402 million.
Interest income exceeded interest expenditure by HUF 211 million, compared to a
HUF 435 million year on year, reflecting a 51 % decrease. The reason for this
decrease is the decrease in securities and cash. The income from financial
activities was increased by a HUF 197 million amount of foreign currency
reevaluation which is the result of a significant change in the HUF/LEI exchange
rate since the consolidation of Plastico S.A.
TVK Group's profit before tax was HUF 2,975 million as opposed to HUF 5.064
million in Q1 of 1998, reflecting a 41 % decrease. The main factors of the
decrease were raw material and product prices.
The resulting net profit was HUF 2,525 million, compared to HUF 4,232 million
year on year. 1AS, consolidated
IAS, consolidated
Q1 1998 Q1 1999 Change
HUF million HUF million (%)
Gross Profit 8,064 6,295 78
Operating Income 5,485 2,705 49
Net Profit 4,232 2,525 60
10
2.4.2 Balance Sheet
In Q1 1999, the balance sheet total for TVK Group was HUF 139,654 million (HUF
92,439 million year on year) which is 51 % higher than in the QI of 1998. This
resulted mainly from the 90 % increase in the long-term assets. Within this
category the 90 % increase of tangible assets, 394 % increase of intangible
assets, and the 87 % increase of investments are the results of acquiring new
units and establishing new affiliates. The receivables increased by 105 % due to
a loan granted to a joint venture (with 50 % TVK stake).
Under current assets cash increased by 20 % and securities decreased by 11 % The
significant, 92 % increase in inventories resulted from the preparation process
for the 5 week cracker shutdown which will also influence the petrochemical
units, and from the consolidation of the HUF 4,669 million inventory of the
Unterland.
The accruals and other items rose up to HUF 10,182 million versus last year's
HUF 3,927 million, which is due to a 552 % increase in payment in advance on
investments and a 347 % increase in collected dividend payment.
In the increase of current liabilities the most important item was the 176 %
increase of other current liabilities which is mainly due to a 218 % increase in
the dividend payable to shareholders. The 28 % increase of short term debt is
due to the consolidation of the Unterland AG.
The sindicated loan facility for financing the capital expenditure projects and
the consolidation of Unterland increased the outstanding loans by 1,078 % From
the DEM 260 million facility a total of DEM 150 million was drown down by 31st
of March, 1999, out of which DEM 30 million was used in QI of 1999.
In the shareholders' equity, the 17 % growth of the profit reserves included the
1998 net profit after dividend payment.
2.4.3. Cash flow statement (not consolidated)
In the first 3 months of 1999 the Company's net profit amounted to HUF 2,528
million. The HUF 1,116 million depreciation and the negative working capital
reduced the corporate profit to HUF 2,220 million. This is a 58 % million drop
compared to the same period of last year.
Within working capital the decrease of other current liabilities by HUF 4,341
million and the 34 % increase of accounts payable played the main role.
A considerable part of the decrease in cash position is due to the payments
related to strategic investments (capacity increase of the cracker, BOPP III.,
PP IV.)
11
The cash flow resulting from financing activities decreased by HUF 544 million,
which is due the repayment of debts.
In 1999 Q1, the cash position deteriorated by HUF 4,568 million.
The value of net cash was HUF 945 million.
2.5 Capital expenditures
The capex budget of the Company in Q1 1999 was HUF 4,663 million versus last
year's HUF 1,846 million, which indicates a 153 % growth. In the period under
review, the payment in advance on investments amounted to HUF 3,949 million.
Thus the total amount of capex was HUF 8,612 million in Q1 1999.
2.5.1 Strategic capital expenditures
The Company invested HUF 8,116 million in strategic, production-increasing
capex, of which HUF 3,840 million appear as payment in advance versus last
year's HUF 1.880 million of total payments on strategic investments. From this
amount HUF 2,244 million and an advance of HUF 1,265 million was spent on the
20 % capacity increase of the cracker, which will come on stream in May, 1999.
HUF 410 million and an advance of HUF 293 million was spent on the new BOPP
plant with 15,000 tons of capacity, which will start next summer. HUF 1,622
million and an advance of HUF 2,282 million on the new PP plant with a capacity
of 140,000 tons, which will come on line at the end of 1999.
2.5.2 Other capital expenditures
The company spent HUF 387 milon (and an amount of HUF 109 million payment in
advance) on other capex versus last year's HUF 498 million, which represents a
22 % fall. 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 3,304 as of March 31, 1999 versus 3,267
on December 31, 1998. The average number of employees in the first quarter of
the year of 1999 was 3,293. Year-on-year the number of employees was 3,238 and
the average number was 3,265.
12
4. OWNERSHIP STRUCTURE
As indicated by the Share Register, the ownership structure of TVK Rt as of
March 31, 1999 is as follows.-
Shareholder % of Share Capital
Domestic Retail 21.41%
TVK Rt 10.99%
Domestic Institutional 28.21%
Non Registered Shareholders 0.48%
International Institutional 38.83%
International Retail 0.08%
TOTAL (24,234,843 shares): 100,00%
Employees' shares 606.472
The treasury stock was 2,665,698 shares both as of January 1, 1999 and
March 31, 1999.
5. MAJOR EVENTS
5.1 Events at TVK Group in Q1 1999
* The equity capital of Unterland Flexible Packaging AG was raised by
the owners from ATS 100 million to ATS 200 million. TVK's stake did
not change.
* As of March 31, 1999 Immobil Kft was wound up by closing settlement
and was cancelled from the investments of TVK Rt.
6. EXTRAORDINARY REPORTS WITH SUBJECT AND DATE INDICATED
There was no extraordinary reports in the first quarter of 1999.
Tiszaujvaros, May 17, 1999
END
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