RNS Number:4229L
Technoplast Industries Ld
22 May 2003
Management Discussion and Analysis
for the three month period ended 31st March 2003
We take pleasure in presenting the consolidated financial statements of
Technoplast Industries Limited for the quarter ended 31st March 2003
(hereinafter - "the period under report"). The term "Company" as used in this
report refers to the parent company, Technoplast Industries Ltd. and the term "
Group" refers to the consolidation of the Company and its subsidiaries.
We present below a brief description of the main events that occurred during the
period under report.
* The financial results of the quarter point to a continuation of the
improving trend in Company activity for the fifth consecutive quarter since the
reorganization plan was implemented. The most outstanding characteristics of
this activity are portrayed below:
O The trend in sales increase continued for the fifth consecutive
quarter. The Company sales during the period under report amounted to NIS 26
million, an increase of 14% (an increase of NIS 3 million) over the same period
last year and an increase of 3.5% (an increase of NIS 1 million) over the prior
quarter.
O Since the first quarter of 2002, the Company showed a gross profit
that amounted during the quarter under review to NIS 4.2 million (16.1% of
sales) compared to NIS 2 million (8.6% of sales) during the same quarter last
year and to NIS 2.8 million (11.3% of sales) in the prior quarter.
O The Company showed a positive cash flow from current operations
totaling NIS 2.8 million, compared with a negative cash flow from current
operations in the same quarter last year in an amount of NIS 1.8 million.
O The closing of the Company's operations in its Barkan plant and the
consolidation of the Company's manufacturing network are part of the factors
which contributed to the improvement in the gross profit for the current
quarter.
* The results of the first quarter were affected by the NIS 0.7
million expense incurred in respect of shutting down the operation at the Barkan
plant.
* In February 2003, the Company signed a long-term rental agreement in
respect of property it owns in the Barkan industrial zone. The Company will
receive annual rents amounting to $ 140,000.
* Group sales during the quarter totalled NIS 39.4 million, compared
with NIS 46 million during the same quarter last year, a decrease of 14%.
Company sales during the quarter totalled NIS 26 million, compared with NIS 22.9
million during the same period last year (an increase of 14%). Sales of
subsidiaries totalled NIS 13.4 for the period, compared with NIS 23.1 million
during the same period last year. The sales decrease of the subsidiary is a
result of a change in selling method to a major customer. During 2002, the
sales were based on the FOB method and obliged the customer to stock up
inventory (mainly during the first quarter), for the spring and summer seasons.
* During the quarter, the Group had a consolidated loss of NIS 1.6
million, compared with NIS 2.8 million during the same period last year.
This loss is comprised of the NIS 0.9 million loss of the Company (compared to
NIS 4.3 million during the same period last year), plus the share of the Company
in the losses of subsidiaries in an amount of NIS 0.7 million (compared with
earnings of NIS 1.5 million last year).
* As at 31 March 2003, the Group had a deficit in consolidated working
capital in an amount of NIS 56.1 million.
The Company continued implementation of its rehabilitation plan which was begun
toward the end of 2001. Concurrently, the Company is continuing its
negotiations with the banks to expand its credit framework and to reschedule the
repayment dates of its long-term loans.
Company management estimates that the measures taken by the Company will enable
it to continue its business operations in an orderly fashion with an orderly
cash flow.
* On 1 June 2002, Mr. Daniel Stern was appointed as the Chief
Operating Officer of the Company. During the general shareholders' meeting,
held on 17 June 2002, a private allotment of options was approved, whereby
2,350,000 unquoted options were granted to Dekel Hagalil Ltd., a Company
wholly-owned by Mr. Daniel Stern. Commencing 1 June 2003 and on a quarterly
basis, the options can be exercised proportionally to the length of employment
of Mr. Daniel Stern. The exercise price of the options is NIS 1 per share, and
the options are exercisable only in respect of the net benefit component as of
the date of exercise.
* On 27 March 2003, Mr. David Shaham resigned from the Board of
Directors of the Company and on 1 April 2003, Mr. Eli Ben Mayer resigned from
the Board of Directors of the Company.
* On 27 April 2003, the general shareholders meeting of the Company
authorized an increase in the registered share capital of the Company in an
amount of NIS 100,000,000 by creating an additional 100,000,000 ordinary shares,
par value NIS 1 each.
The Group and its Business Environment
General
The Company is an industrial concern engaged in the manufacture of
injection-moulded and pressed plastic products. The Company has one active
plant in Migdal Ha'emek.
The second-tier subsidiary, B'Ma'asaf Plastics (1994) Ltd., has a plant in the
industrial zone of Kibbutz Gezer for the manufacture of plastic product under
the extrusion method.
Developments in Group activity
The Company has been continuing its efforts to develop new products and markets
in order to reduce its dependency on a major customer, the sales to which in
2000, 2001, and 2002 comprised 53%, 53%, and 45% of total company sales,
respectively.
During the quarter, Company sales to the major customer were only 38% of total
sales.
Subsidiaries, associated undertakings and other companies
Smart Modular Storage Ltd. (hereafter - "SMS")
The Company holds 56.5% of the issued and outstanding share capital of SMS.
SMS is engaged in the development and marketing of plastic do-it-yourself
storage rooms, manufactured under the extrusion method, for sale in Israel and
abroad.
Approximately 46% of SMS's sales turnover during the quarter was made to a major
customer in the U.S. - Home Depot, compared with 71% in all of 2002. The
subsidiary has been investing efforts in expanding its customer base, mainly in
Europe and in the local market.
During the last quarter of 2002, the terms of the agreement with a major
customer in the U.S. were changed, commencing on 1 January 2003. As a result of
the change in method, commencing in January 2003, SMS has begun selling its
products in the U.S. through a subsidiary set up just for that purpose.
The total investment of the Company in SMS (including shareholders' loans) as at
the balance sheet date amounted to NIS 0.6 million, net of the Company's share
in the losses of SMS from the date of investment in an amount of NIS 6 million.
In addition, the Company placed at the disposal of SMS a bank guarantee in an
amount of U.S.$ 0.5 million.
B'Ma'asaf Plastics (1994) Ltd. (hereafter - "B'Ma'asaf")
As at the balance sheet date, the subsidiary, SMS, holds 100% of the issued and
outstanding shares of B'Ma'asaf, a company engaged in the manufacture of plastic
products using the extrusion method and manufactures PVC profiles for the
construction, electricity and agriculture industries.
Since the beginning of 2000, the manufacture of storage rooms has been gradually
transferred from SMS to B'Ma'asaf. At present, B'Ma'asaf manufactures all of
the storage rooms consumed by SMS.
CD Anywhere Innovative Storagee Solutions Ltd. (hereafter - "CD")
In September 2001, the Company sold its investment in CD for an amount of U.S.$
350 thousand (at cost), of which it received half (an amount of NIS 0.6
million). The second half has not yet been paid, and the Company is making
efforts to receive the payment.
AFIC Printing Products Ltd. (hereafter - "AFIC")
The Company holds 25.1% of AFIC's shares. AFIC is engaged in the production and
marketing of cartridges for printers and cash registers.
At the end of 2001, the Company set up a provision to write off the entire
investment in AFIC, in an amount NIS 1.1 million.
There was a significant increase of AFIC activity during 2002, and the company
made the transition from loss to profit. This trend continued into the first
quarter of the year.
Sales of AFIC during the quarter totalled NIS 6.4 million, compared with NIS 4.6
million during the same quarter of last year. Net earnings for the quarter
amounted to NIS 0.6 million, compared with NIS 0.3 million during the same
quarter last year. The company's shareholders' equity amounted to NIS 4.6
million.
On 27 March, Itamar Patishi and Moshe Katz were appointed as directors in AFIC.
In view of the above, and in light of the continued improvement in the
operations of AFIC, Company management decided to include its investment in AFIC
in the financial statements.
As at 31 March 2003, the Company recorded its investment in AFIC at an amount of
NIS 1.1 million, 25.1% of the shareholders' equity of AFIC at that date.
Financial Position (consolidated)
31st March 2003 31st March 2002 31st December 2002
% of balance % of balance % of balance
NIS'000 sheet NIS'000 sheet NIS'000 sheet
Total balance sheet 181,128 200,004 173,983
Current assets 65,271 35% 75,679 38% 57,386 33%
Long-term debit balances 1,215 1% 51 0% 72 0%
Funded amounts in respect of 70 0% -- -- -- --
redundancy provision
Tangible assets 102,965 57% 112,646 56% 105,496 61%
Goodwill 10,405 6% 11,628 6% 10,710 6%
Deferred taxes 240 0% -- -- -- --
Minority receivable 962 1% -- -- 319 0%
Current liabilities 122,435 68% 116,730 58% 110,609 64%
Long-term liabilities 32,258 18% 38,953 19% 35,312 20%
Capital notes 5,615 3% 5,626 3% 5,643 3%
Minority rights -- -- 1,796 1% -- --
Shareholders' funds 20,820 11% 36,899 19% 22,419 13%
The explanations below pertain to the changes in the consolidated balance sheet
which took place during the reporting period.
Current assets increased during the period under report by approximately NIS 7.9
million. This increase resulted from the increase of approximately NIS 5
million in trade debtors (mainly due to the increase in the activity of the
subsidiary during the quarter under review, compared with the fourth quarter of
2002), the increase of NIS 3.3 million in inventory (mainly of the subsidiary),
the increase of NIS 1.3 million in cash and cash equivalents, offset by the NIS
1.7 million decrease in other accounts receivable.
The NIS 1.1 million increase in long-term debit balances derives from the
recording of the investment in AFIC.
The NIS 2.5 million decrease in tangible fixed assets originated from
depreciation for the period in an amount of NIS 3.5 million, less purchases of
fixed assets in an amount of NIS 1.7 million, and the sale of fixed assets, the
depreciated cost of which amounted to NIS 0.7 million.
Current liabilities increased by approximately NIS 11.8 million, as a result of
the increase in short-term credit from banking institutions in an amount of NIS
7.4 million, and the increase in trade and other creditors of approximately NIS
4.4 million.
The NIS 3 million decrease in long-term liabilities derived mainly from the net
repayment of loans which were made during the reporting period.
The NIS 1.6 million decrease in shareholders' funds derived from the loss for
the period under report.
Results of Consolidated
Quarter Ended 31st March Year Ended 31st December
2003 2002 2002
NIS'000 % of sales NIS'000 % of sales NIS'000 % of sales
Turnover 39,471 -- 46,038 -- 153,492 --
Gross profit 7,437 18% 7,606 17% 19,079 12%
Operating loss (2,196) (5%) (124) (0%) (13,431) (9%)
Financing expenses 1,229 3% 1,457 3% 3,927 (3%)
Operating loss after financing (3,425) (8%) (1,581) (3%) (17,358) (11%)
Other (income) expenses 839 2% 41 0% (778) (1%)
Tax benefit 198 0% -- -- 1 0%
Company share in earnings of 146 0% -- -- -- --
investee companies
Minority share in (earnings) 643 2% (1,268) (3%) 847 1%
losses of subsidiaries
Net loss (1,599) (4%) (2,808) (6%) (17,288) (11%)
Results of Company
Quarter Ended 31st March Year Ended 31st December
2003 2002 2002
NIS'000 % of sales NIS'000 % of sales NIS'000 % of sales
Turnover 26,028 22,857 96,275
Gross profit 4,248 16% 1,972 9% 7,535 8%
Operating loss (872) (3%) (3,133) (14%) (13,969) (15%)
Financing expenses 1,022 4% 1,179 5% 2,170 2%
Operating loss after financing (1,894) (6%) (4,311) (19%) (16,137) (17%)
Other (income) expenses 841 3% 31 0% (607) (1%)
Tax benefit -- -- -- -- (34) 0%
Company share in earnings of 146 0% -- -- -- --
investee companies
Minority share in (earnings) (692) (3%) 1,472 6% (510) (1%)
losses of subsidiaries
Net loss (1,599) (6%) (2,808) (13%) (17,288) (18%)
Analysis of the results of consolidated operations for the quarter ended 31
March 2003
Turnover
Group sales during the quarter decreased by NIS 6.6 million (14%) compared with
sales of the first quarter of 2002, and totalled NIS 46 million for the quarter.
Company sales totalled NIS 26 million during the period under report, an
increase of NIS 3.1 million (14%) over the same quarter last year. The downward
trend in Company sales not only ceased, but turned around in the third quarter
of 2002 as a result of the increase in the sale of the Company's
self-manufactured products, which offset the decrease in revenues from
sub-contractors and sales to Z.A.G.
Sales of subsidiaries amounted to NIS 13.4 million during the quarter, compared
with NIS 23.1 million in the same quarter last year. The decrease in sales of
the subsidiary is partially explained by the change in the method of selling to
customers in the U.S., and from a seasonal reduction in sales to the major
customer, Home Depot.
Gross profit
Consolidated gross profit during the quarter decreased from NIS 7.6 million (17%
of sales) in the same quarter last year, to NIS 7.4 million (18% of sales).
The gross profit of the Company increased from NIS 2 million (9% of sales) in
the same quarter last year, to NIS 4.3 million (16% of sales) during the quarter
under review. The increase in gross profit was achieved notwithstanding the
significant increase in raw material prices during the quarter, and it derived
from an increase in sales turnover and from the effects of the efficiency
measures taken by the Company.
The subsidiary, SMS, decreased its gross profit during the current quarter by an
amount of NIS 2.4 million compared with the same quarter last year. This was
mainly due to the decrease in sales turnover and the increase in raw material
prices.
Operating loss
The Company significantly reduced its operating loss, from NIS 3.1 million in
the same quarter last year to NIS 0.9 million during the reported quarter, as a
result of the increase in gross profit and form the continued reduction in
general and administrative expenses.
The consolidated operating loss for the quarter amounted to NIS 2.2 million (5%
of sales), compared with an amount of NIS 0.1 million during the first quarter
of last year.
The increase in the operating loss derived from the reduction in the activity of
the subsidiary.
Selling and marketing expenses totalled NIS 6.3 million (15% of sales) for the
first quarter of the year, compared with NIS 4.7 million (10% of sales) in the
same quarter last year.
This increase is the result of strong marketing efforts, the increase in the
direct exports of the Company, and the change in the operating method employed
by the subsidiary in the U.S. market.
General and administrative expenses amounted to NIS 3.4 million (8% of sales),
compared with NIS 1.5 million in the same period last year.
Finance expenses
Consolidated financing expenses decreased and amounted to NIS 1.2 million,
compared with NIS 1.5 million in the same quarter of last year.
Liquidity and cash flows
Liquidity data (consolidated) 31/3/03 31/3/02 31/12/02
Net working capital (57,164) (41,051) (53,223)
Cash, bank deposits and short-term trade investments 2,248 1,522 952
Liquidity ratios (consolidated)
Cash, bank deposits and short-term trade investments/current 0.03 0.02 0.02
assets
Current ratio 0.54 0.65 0.52
Quick ratio 0.35 0.49 0.35
Cash flows (consolidated)
Company cash flows provided by current operations totalled approximately NIS 2.8
million, compared with an outflow of NIS 1.8 million for same quarter last year.
The significant increase in the operations of the subsidiary which required an
increase in inventory and trade debtors, resulted in a negative cash flow of NIS
5.7 million for the quarter.
Current operations generated a negative consolidated cash flow of NIS 2.9
million during the quarter, identical to the negative cash flow from operations
during the same quarter last year.
The factors contributing to the cash flows from current operations were: the
loss in an amount of NIS 1.6 million, offset by expenses not constituting a cash
flow in a net amount of NIS 0.8 million, the increase in inventory in an amount
of NIS 3.4 million, the increase in trade debtors in an amount of NIS 5 million,
offset by the decrease in other debtors in an amount of NIS 1.7 million and the
increase in trade creditors in an amount of NIS 4.5 million.
Cash flows used in investment activity totalled an outflow of approximately NIS
1 million, compared with NIS 1.6 million in the same period last year. The
outflow was used mainly for the purchase of fixed assets in an amount of NIS 1.7
million, offset by cash proceeds from the sale of fixed assets in an amount of
NIS 0.7 million.
Cash flows from financing activity amounted to an inflow of approximately NIS
5.1 million during the period under report, compared with NIS 5.2 million in the
same quarter last year. The inflow resulted mainly from the receipt of
short-term bank credit in a net amount of NIS 8.4 million, offset by the
repayment of long-term loans in an amount of NIS 3.3 million.
Sources of finance
The Group's current financing needs are covered by credit lines granted by
banks.
During 2002, the Company signed agreements whereby it recorded a floating charge
in favor of banks and a fixed charge on the building and property in Barkan and
a fixed charge on the building and property in Migdal Ha'emek in favor of one of
the banks, which increased the Company's credit framework by an amount of NIS
4.5 million.
Concurrently, the Group is continuing its negotiations with the banks to expand
its credit framework and to reschedule the repayment dates of its long-term
loans. The Group requested the increased credit in order to finance its working
capital needs and to make necessary investments. Group Management believes that
the negotiations will provide it with the credit framework necessary to continue
with the implementation of the recovery plan.
Donations
Contributions
Company policy is to contribute to the community, especially in the areas
surrounding its plants, based on the financial ability to do so.
During the period under report, in accordance with this policy, the Company made
contributions of NIS 5 thousand to various institutions and organizations.
Exposure to market risks and risk management
General
The Group's activity in competitive international markets for consumer goods
exposes the Company to risks deriving from changes in exchange rates and prices
of raw materials, to the risks of granting credit to customers in Israel and
abroad, and to the risks of being dependent on major customers.
The Company's board of directors discusses market risks and the manner in which
they are handled, at its quarterly meetings.
The chief financial officer of the Company is the party in charge of managing
the Company's risks to changes in exchange rates and the risks of granting
credit to customers.
The general manager is responsible for managing risks deriving from changes in
raw material prices (changing selling prices in accordance with the up-to-date
prices of raw materials) and from dependency on major customers.
The Company is exposed to the following market risks:
Exchange rate fluctuations
Approximately 90% of the Company's sales are denominated in the dollar or
European currencies (hereinafter - "foreign currency"). In addition, 90% of the
raw material costs are foreign currency denominated and about 20% of the Group's
other expenses are foreign currency linked.
As at 31 March 2003, the excess of the Group's liabilities in foreign currency
over its assets in foreign currency amounted to NIS __ million.
The above data show that the Company is exposed to two opposing foreign currency
effects - on the one hand, a devaluation of the shekel results in financing
expenses because of the outstanding foreign currency liabilities. On the other
hand, since the percentage of foreign currency linked expenses is lower than the
percentage of foreign currency linked revenues, the Company's operating income
increases as a result of the same devaluation.
Changes in raw material prices
In accordance with the Company's agreement with ZAG, the Company's major
customer (approximately 38% of all Company sales during the quarter), any change
in the price of raw materials is immediately and entirely transferred to the
prices of products.
With regard to other customers, the Company has no obligation to fixed prices
over the long-term. As a result, no forward transactions are entered into, to
guarantee raw material prices. Nevertheless, it is difficult to raise product
prices every time raw material prices increase and under the best of
circumstances, compensation is only partial.
Recently raw material prices rose by more than 50%, but the Company and its
competitors have not raised the prices of merchandise they sell to their
customers.
Customer credit risks
As indicated below, the Group has two primary customers (Z.A.G., comprising 24%
of the consolidated sales turnover, and Home Depot, the major customer of the
subsidiary SMS in the U.S., comprising 17% of the consolidated sales turnover).
Management estimates that the credit risk in respect of these customers is not
high and does not justify taking out credit insurance. Therefore, the Group
does not insure itself for credit risks.
The Company entered into an agreement with an international provider of business
and financial data regarding companies around the world, and it will use the
data it obtains in conducting initial and ongoing credit risk evaluations of
both its new and existing customers.
Dependency on a major customer
The Company has a major customer - Z.A.G., to which it sold during the period,
24% of the total Group sales.
The dependency on this customer is declining and the Company carries a policy of
diverse products and multiplicity of customers.
The subsidiary has a major customer - Home Depot, to which it sold, during the
reporting period, 17% of the total sales of the Group.
In order to reduce the risk of dependency on a sole customer, the Company has
stepped up its marketing and development efforts. The subsidiary has, to date,
developed 8 models of storage rooms which are marketed in the U.S., Europe and
Israel. The Company has been investing efforts in expanding its customer base,
primarily in Europe and the local market.
Linked balance sheet as at 31 March 2003 (NIS '000)
Linked to the Denominated in Unlinked Non-monetary Total
ICPI or linked to items
Foreign currency
Assets
Cash and cash equivalents - 2,081 167 - 2,248
Trade debtors 540 25,737 9,635 - 35,912
Other debtors 983 - 4,204 - 5,187
Stocks - - - 21,924 21,924
Investments - 12 60 1,143 1,215
Funded amounts in respect of 70 - - - 70
redundancy provision
Tangible assets - - - 102,965 102,965
Deferred taxes - - 240 - 240
Intangible assets - - - 10,405 10,405
Minority debt - - - 962 962
Total assets 1,593 27,830 14,306 137,399 181,128
Liabilities
Bank loans and overdrafts 4,816 25,700 30,783 - 61,299
(excluding current maturities)
Trade creditors - 4,836 33,535 - 38,371
Other creditors 906 - 12,314 - 13,220
Long-term loans 2,980 38,422 - - 41,402
Redundancy provision - - 197 - 197
Deferred income - - - 204 204
Capital note 5,615 - - - 5,615
Total liabilities 14,317 68,958 76,829 204 160,038
Surplus (deficit) of assets over (12,724) (41,128) (62,523) 137,195 20,820
liabilities
Itamar Patishi Daniel Stern
Chairman of the Board General Manager
20 May 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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