Final Results - Year Ended 30 September 1999

Victrex PLC 8 December 1999 Victrex plc Results announcement for the year ended 30 September 1999 * Pre-tax profit of £12.7 million (1998: £13.1 million), on marginally reduced turnover; * Earnings per share of 11.8p (1998: 12.1p); * Final dividend increased 6% to 3.85p per share, making a total of 5.50p per share for the year (1998: 5.28p); * Continued growth in Europe driven by automotive market; lower sales in the US reflect short-term de-stocking and weakness in certain industrial and transportation markets; * Sales development pipeline increased; encouraging progress made on medical and fuel cell applications; * Key raw material supply secured since period end. Chairman Peter Warry commented:- '1999 was a year of two parts for Victrex. On the strategic front we made major strides in securing our raw material supplies, increasing capacity and developing the markets for our products, all of which cemented our strong base for the future. However, despite a record year in Europe, second half sales to the US were slow, yielding results for the year that were less than we would have liked. 'Victrex enters the next millennium with unique technology, a strong global market position and exciting growth opportunities on which we are focussing our resources. Early signs suggest the trading environment is beginning to turn in our favour, so improving the prospects for the Group's growth.' Enquiries Victrex plc David Hummel, Chief Executive 0171 357 9477 (8 December 1999) David Tilston, Finance Director 01253 897700 (thereafter) Hogarth Partnership Limited Nick Denton / John Olsen 0171 357 9477 Victrex plc Preliminary results statement for year to 30 September 1999 1999 was a year of two parts for Victrex. On the strategic front we made major strides in securing our raw material supplies, increasing capacity and developing the markets for our products, all of which cemented our strong base for the future. However, despite a record year in Europe, second half sales to the US were slow, yielding results for the year that were less than we would have liked. Results Profit before interest and taxation at £13.2m (1998: £13.4m) benefited from contribution from the new melt filtration facility but reflected marginally reduced turnover of £46.4m (1998: £47.3m), higher overhead costs from investment in the sales and marketing team and the impact of adverse exchange rates which reduced profits by £0.6m compared to the previous year. Operating margins were nevertheless in line with the previous year. Net interest costs increased to £0.4m (1998: £0.3m), reflecting higher average debt levels. Profit before tax for the year was £12.7m (1998: £13.1m) leading to earnings per share of 11.8p (1998: 12.1p). The Group's effective rate of taxation was reduced to 27.2% due to the continuing UK investment programme. Cashflow Cashflow from operating activities for the year was £10.0m (1998: £11.0m). Engineering to complete increased manufacturing capacity required an extended plant shutdown during October and November 1999, and stocks were increased prior to the year end to guarantee customer service over this period and ahead of 1 January 2000. Taxation payments increased to £4.2m (1998: £3.6m) due to the phasing in of UK legislation accelerating such payments. Capital expenditure payments fell to £4.7m (1998: £7.0m) as a number of projects were completed. Net debt at the year end stood at £8.1m (1998: £4.7m), representing net balance sheet gearing of 29%. Victrex now has £40 million of committed facilities to meet the completion payments to Laporte for their DFDPM business. As a result of the transaction gearing is expected to increase significantly and net interest cover is expected to fall but will nonetheless remain at a comfortable level. Dividend In recognition of the strategic steps that have been made the board is proposing a final dividend of 3.85p per ordinary share, an increase of 6% over last year, making a total of 5.50p per ordinary share for the year (1998:5.28p). Operational review Sales volumes were marginally below last year's level at 1,067 tonnes (1998: 1,100 tonnes). An estimated 40 tonnes of sales volume were generated from end users commercialising new applications from the development pipeline. This was offset by a decrease of approximately 70 tonnes of sales to our existing customer base as a result of slower international demand in their sectors. Overall Europe saw continued growth, with a 4% volume increase consolidating a 34% increase the previous year. Sales to the automotive sector were again very strong, up 28%, offsetting slightly weaker market segments elsewhere. USA sales volumes were down 11% compared to the previous financial year. Sales to the key segments of industrial and transportation were lower due to a combination of de-stocking and weakness in certain industrial and transportation sectors. Set against this we are beginning to see sales to the teletronics segment recover from last year's trough. Sales to the Rest of the World were up 5%, with most of this improvement being concentrated in second half sales to the teletronics sector in Japan. Average selling prices increased slightly on previous years due to the full year effect of earlier price increases. This more than offset the impact of worse currency rates. Our capital investment has continued to plan. The engineering work to increase the capacity of our existing plant has been completed since the year end, and the melt filtration facility commissioned earlier in the year made a useful contribution to profits, bringing in house a processing step previously out-sourced to a contractor. The facility was completed mid year and the benefits of this £3.7m investment were felt as costs were reduced by £0.2m. The recent announcement of our agreement with Laporte to purchase their DFDPM business at Rotherham, and to form a joint venture for the production of our key raw material, represents a major strategic development. It secures a cost-effective long term supply of BDF and thereby supports our future expansion opportunities. The joint venture agreement will start on 1st January 2000 and will run for a minimum of 7 years. The purchase of the DFDPM business and the new agreement will supersede the current arrangements which would have expired at the end of 2001. The current plant capacity at Rotherham should be sufficient, with limited additional investment, to supply the predicted capacity requirements of Victrex's existing PEEK plant. Development pipeline Victrex measures future potential by the size of the development pipeline, or mature annualised volume (MAV), which represents our best estimate of the volume that could be generated by the applications we are currently working on. If they all come to fruition, this figure now stands at approximately 1,800 tonnes per annum of MAV. Our European development pipeline is over 750 tonnes, 40% of the group total. Significant opportunities exist in the transportation and medical markets. Our strong position could not have been achieved without the investment in our European team since 1996. Since the formation of Victrex-MC, Inc. in 1997 we have seen the size of the Japanese development pipeline increase six fold to over 600 tonnes, one third of the group total. This rapid increase has supported our view that PEEK was not being fully exploited in this market and further has justified our strategic joint venture partnership with Mitsui Chemicals Inc. In addition, we have continued to strengthen our representation in the Asia Pacific region and expect to see a growing sales position in Taiwan, South Korea and Singapore. More recently we have recruited a number of new developers to our USA team and have seen our pipeline there increase to almost 400 tonnes, almost 20% of the group total. All of the key market segments are showing growth especially in areas of teletronics, transportation and medical. Additional focus on personnel, key distribution channels and development partnerships should continue to show sales and development results. The launch of PEEK-OPTIMA LT has generated considerable interest from the medical profession. As the stiffness of PEEK-OPTIMA LT can be tailored to match that of human bone it is being considered as a potential upgrade to current implant materials. Our first sales contracts in this area have been signed and a number of new devices have entered clinical trials. We referred in the interim statement to our encouraging progress in the area of fuel cell technology. A number of our speciality grades are under test for use as membrane material. Feedback continues to be positive and commercial negotiations have been initiated. In addition, Victrex has developed a highly efficient powder coating process and is working with a number of international companies to commercialise this new technology in areas of the teletronics and industrial markets. We are beginning to see enquiries from the food processing industry in the USA following the FDA approval of PEEK. Last year PEK was launched commercially as planned with initial interest in the automotive sector. We have continued to re-direct staff to focus a greater proportion of our resources on growth projects. In this way we are seeking to drive growth as fast as possible whilst efficiently managing our cost base. Year 2000 The Group has completed its plans for Year 2000 readiness and final contingency plans have been put in place. Outlook Victrex enters the next millennium with unique technology, a strong global market position and exciting growth opportunities on which we are focussing our resources. Early signs suggest the trading environment is beginning to turn in our favour, so improving the prospects for the Group's growth. Peter Warry Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT ------------------------------------------------------------------------ 1999 1998 Year ended 30 September 1999 Note £000 £000 ------------------------------------------------------------------------ Turnover: Group and share of joint venture 48,735 49,037 Less: share of joint venture (2,330) (1,741) ------------------------------------------------------------------------ Turnover 2 46,405 47,296 Cost of sales (25,257) (26,594) ------------------------------------------------------------------------ Gross profit 21,148 20,702 Administrative expenses (8,029) (7,327) ------------------------------------------------------------------------ Group operating profit 13,119 13,375 Share of operating profit in joint venture 52 16 ------------------------------------------------------------------------ Total operating profit 13,171 13,391 Interest receivable 70 117 Interest payable (512) (403) ------------------------------------------------------------------------ Profit on ordinary activities before taxation 12,729 13,105 Tax on profit on ordinary activities (3,462) (3,665) ------------------------------------------------------------------------ Profit on ordinary activities after taxation 9,267 9,440 Equity dividends paid and proposed (4,306) (4,141) ------------------------------------------------------------------------ Retained profit for the financial year 4,961 5,299 The Company 7,640 1,024 Group undertakings and joint venture (2,679) 4,275 ------------------------------------------------------------------------ 4,961 5,299 Earnings per ordinary share - basic 3 11.8p 12.1p - diluted 11.8p 12.0p ------------------------------------------------------------------------ CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ------------------------------------------------------------------------ 1999 1998 For the year ended 30 September 1999 £000 £000 ------------------------------------------------------------------------ Profit for the financial year 9,267 9,440 Exchange gain on consolidation 1 5 ------------------------------------------------------------------------ Total recognised gains and losses relating to the 9,268 9,445 financial year ------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEET ------------------------------------------------------------------------- 1999 1998 As at 30 September 1999 £000 £000 ------------------------------------------------------------------------- Fixed assets Tangible assets 24,276 20,869 Investments 140 1 Investment in joint Share of gross assets 1,355 1,030 venture: Share of gross liabilities (1,687) (1,034) ------------------------------------------------------------------------- 24,084 20,866 ------------------------------------------------------------------------- Current assets Stocks 13,925 9,928 Debtors: amounts falling due within one year 6,700 7,247 Cash at bank and in hand - 1,021 ------------------------------------------------------------------------- 20,625 18,196 Creditors: amounts falling due within one year (9,249) (10,428) ------------------------------------------------------------------------- Net current assets 11,376 7,768 ------------------------------------------------------------------------- Total assets less current liabilities 35,460 28,634 Creditors: amounts falling due after more than one (7,400) (5,600) year ------------------------------------------------------------------------- Net assets 28,060 23,034 ------------------------------------------------------------------------- Capital and reserves Called up share capital 785 784 Share premium account 10,155 10,092 Profit and loss account 17,120 12,158 ------------------------------------------------------------------------- Equity shareholders' funds 28,060 23,034 ------------------------------------------------------------------------- RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS ------------------------------------------------------------------------- 1999 1998 For the year ended 30 September 1999 £000 £000 ------------------------------------------------------------------------- Profit for the financial year 9,267 9,440 Dividends (4,306) (4,141) ------------------------------------------------------------------------- Retained profit for the financial year 4,961 5,299 Exchange gain on consolidation 1 5 Issue of ordinary shares exercised under option 1 2 Premium on issue of ordinary shares under option 113 23 Share issue costs (50) (50) ------------------------------------------------------------------------- Net addition to shareholders' funds 5,026 5,279 Opening shareholders' funds 23,034 17,755 Closing shareholders' funds 28,060 23,034 ------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT ------------------------------------------------------------------------- 1999 1998 For the year ended 30 September 1999 Note £000 £000 ------------------------------------------------------------------------- Net cash inflow from operating activities 4 10,046 11,027 ------------------------------------------------------------------------- Return on investments and servicing of finance Interest received 70 117 Interest paid (508) (351) ------------------------------------------------------------------------- Net cash outflow from returns on investment and (438) (234) servicing of finance ------------------------------------------------------------------------- Taxation - taxation paid (4,160) (3,559) ------------------------------------------------------------------------- Net cash outflow from capital expenditure (4,678) (6,960) - Purchase of tangible fixed assets ------------------------------------------------------------------------- Net cash outflow from acquisitions - (59) - Purchase of shares in joint venture ------------------------------------------------------------------------- Equity dividends paid (4,129) (3,874) ------------------------------------------------------------------------- Cash outflow before financing (3,359) (3,659) ------------------------------------------------------------------------- Financing Issue of ordinary share capital 1 25 Share purchase (139) - Premium on issue of ordinary shares under 113 - option Debt due after one year - increase in long term 1,800 4,102 borrowing ------------------------------------------------------------------------- Net cash inflow from financing 1,775 4,127 ------------------------------------------------------------------------- (Decrease)/increase in cash in the period (1,584) 468 ------------------------------------------------------------------------- NOTES TO THE ACCOUNTS 1 Basis of preparation The financial statements have been prepared on the basis of the accounting policies set out in the Group's last Annual Report and Accounts. 2 Analysis of turnover Analysis of turnover by geographical market is as follows: ---------------------------------------------------------------------- 1999 1998 £000 £000 ---------------------------------------------------------------------- Europe 22,043 20,618 United States of America 20,626 23,144 Rest of World 3,736 3,534 ---------------------------------------------------------------------- 46,405 47,296 ---------------------------------------------------------------------- 3 Earnings per share ---------------------------------------------------------------------- 1999 1998 p p ---------------------------------------------------------------------- Earnings per ordinary share - basic 11.8 12.1 - diluted 11.8 12.0 ---------------------------------------------------------------------- Earnings per ordinary share is based on the Group's profit on ordinary activities after taxation of £9,267,000 (1998 : £9,440,000). The weighted average number of shares used in the calculation is : - basic 78,453,630 (1998 : 78,294,885) - diluted 78,577,969 (1998 : 78,824,760) 4 Reconciliation of operating profit to net cash flow ---------------------------------------------------------------------- 1999 1998 £000 £000 ---------------------------------------------------------------------- Operating profit 13,119 13,375 Depreciation charge 1,271 948 Increase in stocks (3,997) (942) Increase in debtors (152) (1,107) Decrease in creditors (532) (1,365) Joint venture profit in stock elimination 337 118 ---------------------------------------------------------------------- Net cash inflow 10,046 11,027 ---------------------------------------------------------------------- 5 Dividend The proposed final dividend will be paid on 3 February 2000 to ordinary shareholders on the share register at the close of business on 24 December 1999. The Annual General Meeting of the Company will be held on 27 January 2000 at Cazenove & Co, Conference Suite, 4 King's Arms Yard, London, EC2R 7AN. 6 Financial Statements The above financial information does not comprise full financial statements within the meaning of the Companies Act 1985. The results for the years ended 30 September 1999 and 1998 have been extracted from the full accounts of those periods. The auditors have given an unqualified report on the accounts for both years. The accounts for the year ended 30 September 1998 have been delivered to the Registrar of Companies. The accounts for the year ended 30 September 1999 are to be posted to shareholders on 17 December 1999 and will be available from the Company's registered office at Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire, FY5 4QD.

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