Half Yearly Report

RNS Number : 5698N

Victrex PLC

19 May 2015

 

 

                                               

19 May 2015

Victrex plc - Interim Results 2015

Victrex plc, an innovative world leader in high performance polymer solutions, today announces its interim results for the six months ended 31 March 2015.

'Good first half progress'

	H1 2015	H1 2014	% change
Revenue	£130.3m	£120.0m	9%
Profit before tax	£53.9m	£48.9m	10%
EPS	49.8p	45.1p	10%
Gross margin	64.9%	64.0%	+90bps
Dividend per share	11.73p	11.39p	3%

Highlights:

•       Revenue up 9%, PBT up 10%

-      Strong performance in Victrex Polymer Solutions (VPS) offsetting weaker Oil and Gas

-      Strong Consumer Electronics volumes; further  potential through FY16

-      Invibio focused on second half growth

-      Gross margin improvement to 65% driven by volume and efficiency

•       New proven capacity online: underpin future growth programmes

-      Second Aptiv^® film line completed: ultra-thin film to support new opportunities

-      Third PEEK plant commissioned: underpin core demand and future growth opportunities

-      Further downstream capability: new Polymer Innovation Centre

•       Cash remains strong

-      H1 closing net cash £42.2m after capital investment cycle & special dividend payment

-      H1 dividend 3% ahead to 11.73p; maintain cover around 2x

-      Capital allocation and investment for growth plan in development

David Hummel, Chief Executive of Victrex, said: "Victrex made good progress in the first half, with VPS performing well and offsetting lower sales into Oil and Gas. Invibio's performance reflects some impact from industry consolidation in the first half, although we remain focused on second half improvement.

"Volume and plant efficiency helped drive improvement in our gross margins during the first half. Our new PEEK polymer capacity also came online and will help underpin our future growth programmes, alongside our downstream manufacturing capability.  Cash remains strong, helping to support an increase in our interim dividend to 11.73p. As previously communicated, we are progressing our capital allocation and investment for growth plan, and expect to update the market at the year end.

"For the second half year, we are mindful of the tougher comparatives and the ongoing caution in the Oil and Gas market. Foreign currency remains a considerable headwind although we still expect to fully overcome the impact through our positive growth momentum. Consequently, Victrex continues to be well positioned for profit progress over the full year."    

Enquiries

Victrex plc

Andrew Hanson, Head of Investor Relations & Communications                                            [phone]

Louisa Burdett, Group Finance Director                                                                                         [phone]

David Hummel, Chief Executive                                                                                                       [phone]

Pendomer Communications:

Charles Armitstead                                                                                                                             [phone]

About Victrex:

Victrex is an innovative world leader in high performance polymer solutions focused on the strategic markets of Automotive, Aerospace, Electronics, Energy and Medical. Every day, millions of people rely on products or applications which contain our materials, from smartphones, aeroplanes and cars to oil & gas operations and medical devices. With over 35 years' experience, we are investing in technology leadership to deliver new solutions to our customers and our markets, and to drive value for our shareholders. Find out more at www.victrexplc.com

A presentation for investors and analysts will be held at 9.30am (GMT) this morning at the Andaz Hotel, Liverpool Street, London, EC2M 7QN. A telephone dial in facility will be available for analysts and investors who are unable to attend the presentation, of which details are available from Laura Stewart at Pendomer Communications on [phone]. The presentation can be viewed on Victrex's website at www.victrexplc.com.

Interim results statement for the half year ended 31 March 2015

Group financial results

Good revenue and volume growth

Victrex made good progress in the first half year. VPS performed well, with growth in our markets offsetting lower sales into Oil and Gas. The weaker performance in Invibio reflects the impact of industry consolidation in the first half, although we remain focused on second half improvement. Group revenue for the period was 9% ahead of the prior year (H1 2014: £120.0m), with group volumes 28% ahead at 2,028 tonnes (H1 2014: 1,584 tonnes).

Core pricing stable

Our average selling price (ASP) of £64.2/kg (H1 2014: £76.0/kg) was broadly in line with the second half of 2014, where we also had a high contribution  from specific Consumer Electronics business (which did not feature in H1 2014). The first half of 2015 also reflects a softer sales mix, with a lower contribution from our higher priced Invibio medical business and an adverse impact from foreign currency.  Pricing remains stable in our core business and we were also able to make selected price increases during the period. Our average selling price, excluding volumes from the current Consumer Electronics opportunity and foreign currency, was £74.1/kg.

Gross margin improvement

Group gross margin of 64.9% (H1 2014: 64.0%) reflects better volume and manufacturing efficiency in our operations.  Our ongoing focus on cost of manufacture, with the aim of improving our medium term efficiency, continues to benefit us. On a full year basis, we anticipate our Group gross margin will be similar to the first half of last year, reflecting new plant costs coming through during the second half of 2015. We continue to focus on retaining strong Group gross margins, despite sales mix or potentially increased cost of goods from future downstream manufacturing.

New capacity successfully commissioned

The first production stream of our third PEEK polymer facility was successfully commissioned during the period. Our investment will lift our nameplate capacity from 4,250 tonnes to 7,150 tonnes (although effective capacity will be slightly lower than this when maintenance and grade changes are factored in).  Current utilisation validates our decision to invest in new manufacturing assets, which will underpin the breadth of new and larger business opportunities we are focusing on.

At Victrex, we remain highly regarded for our PEEK manufacturing process and know-how, as well as our downstream focus and technical excellence, enabling us to differentiate versus competitors, as well as ensuring quality, consistency and repeatability of our products. In addition to our PEEK polymer capability, our downstream manufacturing has been enhanced, principally through commissioning of the second Aptiv^® film line, as well as in other speciality or medical segments, including manufacturing capability in pipe, tape and medical components. Capacity remains one component in our strategy, alongside our downstream focus and capability, and our intensive Research & Development and innovation focus. These three pillars help differentiate Victrex from competitors, supporting our vision of being a solutions provider.

Strong VPS with further Consumer Electronics potential through FY16

VPS revenue increased by 12% to £104.4m (H1 2014: £93.1m). Growth across Victrex Polymer Solutions (VPS) reflects lower sales into Oil and Gas being offset by growth in our other markets and the continuing positive contribution from Consumer Electronics.  Long term megatrends however, remain supportive in all of these markets. In the Consumer Electronics market, we now have visibility for the current opportunity to continue beyond 2015, with potential through our 2016 financial year. Volumes are likely to remain lumpy at a month to month level. More broadly, we are exploring opportunities in Consumer Electronics across OEMs (original equipment manufacturers), including new and unique product development opportunities.  We continue to work hard to use this opportunity as a platform into more sustainable and longer lifecycle business in the future.

More complementary pricing from our VPS Speciality Products and Invibio components businesses is expected to be a feature for our longer term mix, balancing business in the lower end of the pricing spectrum, such as Consumer Electronics. Speciality Products continued to perform steadily, reflecting tougher comparatives, with Aptiv^® film remaining the largest contributor here.  Aptiv^® film focuses principally on the Aerospace and Electronics markets, where its unique combination of properties helps overcome complex technical challenges. Our new film capacity will help both existing demand and new opportunities, including for ultra-thin film which aligns with the trend of thinner mobile devices or in complex aerospace or transport applications.

Invibio focused on improvement

Invibio saw a 4% decline in sales during the first half year to £25.9m (H1 2014: £26.9m). Sales were flat in constant currency. We saw some impact - largely during Q1 - from US medical consolidation, meaning that order patterns from several larger customers were impacted. However, emerging market growth continues to be strong including China and Korea, with Asia-Pacific sales growth of 26%.  The focus for the second half year remains on improvement, following a better Q2 performance. Spine remains the core part of our current business and our new premium product for the Spine market, PEEK-Optima HA Enhanced, has made steady adoption progress, following four regulatory approvals in both the US and EU secured at the end of 2014. We anticipate up to 20 regulatory approvals in total during the current year, with the focus being on adoption by surgeons following the first in the body implants earlier this year. Whilst the mature markets of the US were impacted by some consolidation, emerging market growth for Spine and execution of our mega-programmes in Dental, Trauma and Knee will be key drivers for  our future growth in medical.

Investment in the business and Research & Development

Growth in total indirect overheads was in line with the prior year, increasing by 9%, (8% increase seen in H1 2014), which also reflects provision for our profit growth linked bonus scheme. We continue to anticipate that overhead growth will be more moderate in the medium term. Our investment in technical excellence will continue, helping Victrex to maintain its competitive advantage and materials know-how, as well as applied application development, including for our pipeline of 'mega' and 'major' programmes. An example of this will be the proposed Polymer Innovation Centre, which will help prototype and scale up applications for customers. The facility, based on our main Hillhouse complex in the UK, could be in place during FY17. Research & Development (R&D) expenditure is likely to remain around 5% of annual sales. For full year 2015, some R&D investment will shift from core technical spend to customer focused expenditure, reflecting how each of our growth programmes move forward from the technical stage towards adoption.  

Strong and focused development pipeline

We continue to be focused on larger and more impactful targets, in line with our Product Leadership strategy. Our portfolio of medium to long term programmes now show seven 'mega-programmes' (FY 2014: 5 mega-programmes) of PEEK-OPTIMA^® HA-Enhanced (Spine), Juvora (Dental), Trauma, Knee, Magma (Oil & Gas), Mobile Devices and Aerospace brackets.  Each mega-programme, once technically and commercially proven, could offer revenue potential of at least £50m in its peak year, alongside several smaller 'major' programmes. The development pipeline represents a good balance of both industrial and medical programmes. Six of our seven mega-programmes are in Horizon 2 (2-5 years away from meaningful revenue) with our Knee programme in Horizon 3 (5+ years away from meaningful revenue). In the short term, our 'Horizon 1' (0-2 years from meaningful revenue) opportunities continue to perform well. We continue to report the Mature Annualised Volume (MAV) of 2,365 tonnes which was 10% ahead of the prior year (H1 2014: 2,141 tonnes) which is if all of the developments were successfully commercialised.

Currency

Victrex will see a high adverse impact from foreign currency this year. As a UK-based global exporter, currency is expected to have an adverse impact in the region of £8m at PBT level for the full year, based on current rates and hedging in place, in line with previous guidance. We continue to expect that we will fully overcome the currency impact for the full year and make profit progress.

Profit before tax and EPS

Group profit before tax of £53.9m was 10% ahead of the prior year (2014: £48.9m). Basic earnings per share of 49.8p per share (H1 2014: 45.1p per share) also reflects the lower effective tax rate of 21% (H1 2014: 22%) resulting from the lower UK corporation tax rate.

Balance sheet strength

Our balance sheet supports our ability to flexibly invest for future growth, to provide security of supply to our customers and to support appropriate shareholder return.

Total dividends during the period increased to £71.2m (H1 2014: £27.6m), reflecting the increase in the FY 2014 final dividend and the special dividend paid in February 2015.  Despite the first half being a period of high capital expenditure, cash generation remained strong and the closing Group cash balance was £42.2m with no debt (H1 2014: £79.4m; no debt).

Net assets at 31 March 2015 totalled £325.9m (H1 2014: £326.0m). Our working capital reflects how we choose to differentiate ourselves through product leadership and security of supply for both existing and future customers and end users. Inventories moved slightly ahead at £49.5m (H1 2014: £47.9m), in line with our new available PEEK capacity.

Cash flow and capacity investment

Cash generated from operations was £60.9m (H1 2014: £53.1m) representing an operating cash conversion* of 113% (H1 2014: 109%). The first half saw the majority of the remaining capital spend as part of our major asset investment programme (the first production stream for our third PEEK plant was commissioned at the end of our first half year, with our second stream to be commissioned later in the year; investment also includes Aptiv 2 which was commissioned in our first quarter). On a full year basis, we anticipate capital investment will be approximately £45m. Going forward, capital investment is likely to become more moderate, moving to approximately £25m-£30m next year, shifting from assets to projects or in supporting our pipeline and innovation programmes.

Taxation

Taxation paid during the period was £13.1m (H1 2014: £12.2m), which reflects the increase in profits. The effective tax rate was 21% (H1 2014: 22%)

Dividend and returns

Our interim dividend of 11.73p (H1 2014: 11.39p) represents a 3% increase and reflects our cash generation, alongside our underlying confidence in the prospects for our business. With our ongoing strong performance in generating cash, we expect to communicate a more formal capital allocation framework at the end of our financial year.

Victrex Polymer Solutions (VPS)

	Six months	Six months
	ended	ended
	31 March	31 March
	2015	2014
	£m	£m	Change
Revenue	104.4	93.1	12%
Gross profit	61.6	53.2	16%

VPS delivered a strong performance in the first half. The division generated revenue 12% ahead of the prior year of £104.4m (H1 2014: £93.1m), which was principally driven by strong volumes in Consumer Electronics, alongside steady market growth in Automotive and Aerospace. Growth in these markets offset a 9% decline in sales within Oil and Gas (which for the last full year comprised about one-third of volumes in the Energy & Industrial segment). VPS Speciality Products continued to perform steadily. Speciality Products now represents approximately 11% of VPS sales, the majority of which is Aptiv^® film. Our other Speciality Products include pipe, tape and coatings.

Gross margin at 59.0% (H1 2014: 57.1%) was driven principally by volume and manufacturing efficiency.  As previously communicated, from the current financial year going forward, management of sales, marketing and administration functions servicing both VPS and Invibio were consolidated. Accordingly, segmental performance is reported to the gross profit level, with overheads reported at Group level.

VPS market overview

In Asia, sales volume of 747 tonnes was 158% ahead of the prior year (290 tonnes). Sales volume in Europe (886 tonnes) and the US (395 tonnes) were broadly in line with the prior year (H1 2014: 884 tonnes and 410 tonnes respectively).

Energy/Industrial

Energy/Industrial sales volume of 575 tonnes was 2% lower than the prior year (584 tonnes), impacted by the falling oil price and capex reduction across global energy markets. We remain cautious for the short term outlook in this market, although approximately two-thirds of this segment is non-Oil and Gas volumes. Long term megatrends remain supportive as deeper water and harder to extract reserves require more demanding and durable materials. PEEK remains well proven in this market. Our partnership with Magma Global (one of our seven mega-programmes) has made progress since 2014, with further test orders shipped to a range of majors and service companies. We anticipate that the oil price slump could present an opportunity as Oil and Gas companies focus on cost reduction, using more durable materials that require less intervention.

Transport

Transport sales volume increased 6% to 512 tonnes (H1 2014: 485 tonnes). Despite tougher comparatives in Automotive, this segment saw volume growth of 6%. Megatrends of fuel efficiency and CO2 reduction remain strong. Our future growth programmes include Gears, where we have a number of testing programmes for PEEK gears underway with global customers. In Aerospace, volumes were 5% ahead, with build rates steadily increasing. We are focusing on future programmes including Loaded Brackets, where PEEK's processability and injection moulding uses would be a cost saver for the industry. Our current business in Unloaded Brackets and Thermal Acoustic Blankets (TABs) continues to perform well across the main global manufacturers.

Electronics

Strong volumes in Consumer Electronics lifted this segment to 778 tonnes (H1 2014: 331 tonnes) alongside steady growth in Semiconductor. We now have visibility for the current Consumer Electronics opportunity to continue beyond 2015, with potential through our 2016 financial year although volumes are likely to remain lumpy at a month to month level. We continue to explore other opportunities in Consumer Electronics across OEMs, including new and unique product development opportunities.  As mobile devices continue to get thinner, smaller and smarter, the pathway is increasingly leading to the use of high performance polymers like PEEK. Securing specification from customers for next generation products remains key and Victrex's innovation and intensive testing capability makes us well placed for the longer term in this market.

Invibio Biomaterial Solutions

	Six months	Six months
	ended	ended
	31 March	31 March
	2015	2014
	£m	£m	Change
Revenue	25.9	26.9	-4%
Gross profit	22.9	23.6	-3%

Invibio revenue was 4% down on the prior year to £25.9m (H1 2014: £26.9m) although our performance was flat in constant currency, principally reflecting the largely US dollar denominated sales. Performance reflects consolidation within the US medical industry, with a number of mergers and integration impacting sales order patterns, although emerging market growth continues to be strong including China and Korea, with Asia-Pacific sales 26% ahead. An improving picture emerged during Q2 - which was sequentially ahead of Q1 and ahead of Q2 2014 - and we remain focused on delivering a better second half.   Gross margins remained strong at 88.4% (H1 2014: 87.7%) and with continued future high value opportunities we remain focused on retaining our profitability over the years ahead. As previously communicated, from the current financial year going forward, management of sales, marketing and administration functions servicing both VPS and Invibio were consolidated. Accordingly, segmental performance is reported to the gross profit level, with overheads reported at Group level.

Invibio market overview

The Spine market generated sales of £19.2m, a decrease of £0.9m (4%) on the prior year. Our PEEK-OPTIMA^® HA-ENHANCED product, which promotes bone-on growth, successfully secured regulatory approvals in Europe and in the US late last year. The first devices using this premium material were implanted during the first half and we are targeting up to 20 regulatory approvals by the end of 2015. PEEK-OPTIMA^® HA-ENHANCED remains a premium product which reflects the innovation and development put into its offering for our customers, as well as the work we have undertaken with surgeons in its development.

In our emerging medical markets of Dental, Trauma and Knee, we continue to make progress. Dental revenue continues to build and we are targeting meaningful revenue of £1m-£2m sales within three years. Our PEEK solution offers aesthetic and comfort benefits, although the fragmented market remains a challenge. We continue to explore other distribution and partnership options, which could help accelerate adoption.

Trauma is a solution with regulatory approval for our PEEK based plates and nails, using PEEK-Optima Ultra Reinforced. We anticipate being able to secure further beta-sites (for testing) during the current financial year, in addition to the two already secured during the first half. Trauma surgery continues to demand more innovative materials compared to the historic use of metal. Our focus remains on adoption with surgeons and creating demand for our product to drive forward into meaningful revenue.   

Knee remains a medium to long term programme. Knee is in our Horizon 3 pipeline category where meaningful revenue is 5 or more years away. Nevertheless, the partnership agreements signed last year mean that attention in our solution is steadily building and we are focused on working towards clinical trials within the next two years.

Investment for growth

Investment, through sales, marketing, technology and administration in both Invibio and VPS increased moderately, to reflect investment to progress our growth programmes. As communicated elsewhere in today's announcement, management of sales, marketing and administration functions servicing both VPS and Invibio were consolidated and overheads are reported at a Group level.

Sustainability

Our clear and measurable targets around our three areas of Sustainable Solutions, Resource Efficiency and Social Responsibility were communicated in our 2014 Annual Report, alongside our 2023 Vision (timed for the 30^th anniversary of Victrex's creation). By the end of 2015 we are targeting having an independent assessment of our CO2 measurement, which will help us on our journey to become carbon neutral.

People

Victrex continues to rely on the skills, experience and competence of our people to drive our business into new applications and new geographies, as well as operating our assets to the highest standards of safety and with the highest regard for the environment. Our Product Leadership strategy is focused on 'Shaping Future Performance' and our people remain integral to this.

Outlook

For the second half year, we are mindful of the tougher comparatives and the ongoing caution in the Oil and Gas market. Foreign currency remains a considerable headwind although we still expect to fully overcome the impact through our positive growth momentum. Consequently, Victrex continues to be well positioned for profit progress over the full year.   

David Hummel

Chief Executive

19 May 2015

Condensed Consolidated Income Statement

	Six months ended 31 March 2015			Six months ended 31 March 2014		Year ended 30 September 2014
	Note	£m		£m		£m
Revenue	5	130.3		120.0		252.6
Cost of sales		(45.8)		(43.2)		(89.4)
Gross profit		84.5		76.8		163.2
Sales, marketing and administrative expenses		(30.8)		(28.2)		(61.0)
Operating profit	5	53.7		48.6		102.2
Financial income		0.3		0.4		0.6
Financial expenses		(0.1)		(0.1)		(0.1)
Profit before tax		53.9		48.9		102.7
Income tax expense	6	(11.5)		(10.7)		(22.5)
Profit for the period attributable to owners of the parent		42.4		38.2		80.2
Earnings per share
Basic	7	49.8p		45.1p		94.6p
Diluted	7	49.6p		45.0p		94.3p
Dividends
Year ended 30 September 2013:
Final dividend paid February 2014 at 32.65p per share				27.6		27.6
Year ended 30 September 2014:
Interim dividend paid July 2014 at 11.39p per share				-		9.7
Final dividend paid February 2015 at 33.76p per share		28.7		-		-
Special dividend paid February 2015 at 50.00p per share		42.5
		71.2		27.6		37.3

An interim dividend of 11.73p per share will be paid on 30 June 2015 to shareholders on the register at the close of business on 12 June 2015. This dividend will be recognised in the period in which it is approved.

Condensed Consolidated Statement of Comprehensive Income

	Six months ended 31 March 2015	Six months ended 31 March 2014	Year ended 30 September 2014
	£m	£m	£m
Profit for the period	42.4	38.2	80.2
Items that will not be reclassified to profit or loss
Defined benefit pension schemes' actuarial losses	(0.4)	(0.7)	(5.2)
Income tax on items that will not be reclassified to profit or
loss	0.1	0.1	1.0
	(0.3)	(0.6)	(4.2)
Items that may be subsequently reclassified to profit or
loss
Currency translation differences for foreign operations	1.2	(0.4)	(0.7)
Effective portion of changes in fair value of cash flow hedges	(2.4)	3.5	5.1
Net change in fair value of cash flow hedges
transferred to profit or loss	0.1	(3.8)	(8.2)
Income tax on items that may be reclassified to profit or loss	(0.2)	(0.2)	0.5
	(1.3)	(0.9)	(3.3)
Total other comprehensive expense for the period	(1.6)	(1.5)	(7.5)
Total comprehensive income for the period    attributable to owners of the parent	40.8	36.7	72.7

Condensed Consolidated Balance Sheet

		31 March 2015	31 March 2014	30 September 2014
		£m	£m	£m
Assets
Non-current assets
Property, plant and equipment		250.2	200.8	227.6
Intangible assets		10.1	10.1	10.1
Deferred tax assets		7.4	5.3	7.1
		267.7	216.2	244.8
Current assets
Inventories		49.5	47.9	44.2
Current income tax assets		2.9	2.2	0.7
Trade and other receivables		31.2	29.8	33.0
Derivative financial instruments		6.2	5.6	4.0
Cash and cash equivalents		42.2	79.4	89.6
		132.0	164.9	171.5
Total assets		399.7	381.1	416.3
Liabilities
Non-current liabilities
Deferred tax liabilities		(18.3)	(16.4)	(17.8)
Retirement benefit obligations		(7.4)	(3.4)	(7.8)
		(25.7)	(19.8)	(25.6)
Current liabilities
Derivative financial instruments		(8.3)	(0.1)	(2.3)
Current income tax liabilities		(8.0)	(8.7)	(7.9)
Trade and other payables		(31.8)	(26.5)	(27.1)
		(48.1)	(35.3)	(37.3)
Total liabilities		(73.8)	(55.1)	(62.9)
Net assets		325.9	326.0	353.4
Equity
Share capital		0.9	0.9	0.9
Share premium		36.5	34.0	34.4
Translation reserve		2.0	1.1	0.8
Hedging reserve		(0.9)	3.1	0.9
Retained earnings		287.4	286.9	316.4
Total equity attributable to owners of the parent		325.9	326.0	353.4

Condensed Consolidated Cash Flow Statement

 

		Six months ended 31 March 2015	Six months ended 31 March 2014	Year ended 30 September 2014
	Note	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	9	60.9	53.1	118.3
Interest and similar charges paid		(0.1)	-	-
Interest received		0.3	0.3	0.6
Tax paid		(13.1)	(12.2)	(21.1)
Net cash flow from operating activities		48.0	41.2	97.8
Cash flows from investing activities
Acquisition of property, plant and equipment		(26.8)	(28.2)	(65.6)
Net cash flow from investing activities		(26.8)	(28.2)	(65.6)
Cash flows from financing activities
Premium on issue of ordinary shares exercised under option		2.1	2.7	3.2
Dividends paid		(71.2)	(27.6)	(37.3)
Net cash flow from financing activities		(69.1)	(24.9)	(34.1)
Net decrease in cash and cash equivalents		(47.9)	(11.9)	(1.9)
Effect of exchange rate fluctuations on cash held		0.5	(0.3)	(0.1)
Cash and cash equivalents at beginning of period		89.6	91.6	91.6
Cash and cash equivalents at end of period		42.2	79.4	89.6

Condensed Consolidated Statement of Changes in Equity

	Share capital	Share premium	Translation reserve	Hedging reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m
Equity at 1 October 2014	0.9	34.4	0.8	0.9	316.4	353.4
Total comprehensive income for the period
Profit	-	-	-	-	42.4	42.4
Other comprehensive income
Currency translation differences for foreign operations	-	-	1.2	-	-	1.2
Effective portion of changes in fair value of cash flow      hedges	-	-	-	(2.4)	-	(2.4)
Net change in fair value of cash flow hedges transferred to profit or loss	-	-	-	0.1	-	0.1
Defined benefit pension schemes' actuarial losses	-	-	-	-	(0.4)	(0.4)
Tax on other comprehensive income	-	-	-	0.5	(0.6)	(0.1)
Total other comprehensive income/(expense) for the	-	-	1.2	(1.8)	(1.0)	(1.6)
period
Total comprehensive income/(expense) for the	-	-	1.2	(1.8)	41.4	40.8
period
Contributions by and distributions to owners of the Company
Share options exercised	-	2.1	-	-	-	2.1
Equity-settled share-based payment transactions	-	-	-	-	0.8	0.8
Dividends to shareholders	-	-	-	-	(71.2)	(71.2)
Equity at 31 March 2015	0.9	36.5	2.0	(0.9)	287.4	325.9

	Share capital	Share premium	Translation reserve	Hedging reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m
Equity at 1 October 2013	0.8	31.3	1.5	3.3	276.8	313.7
Total comprehensive income for the period
Profit	-	-	-	-	38.2	38.2
Other comprehensive income
Currency translation differences for foreign operations	-	-	(0.4)	-	-	(0.4)
Effective portion of changes in fair value of cash flow     hedges	-	-	-	3.5	-	3.5
Net change in fair value of cash flow hedges transferred to profit or loss	-	-	-	(3.8)	-	(3.8)
Defined benefit pension schemes' actuarial losses	-	-	-	-	(0.7)	(0.7)
Tax on other comprehensive income	-	-	-	0.1	(0.2)	(0.1)
Total other comprehensive (expense)/income for the
period	-	-	(0.4)	(0.2)	(0.9)	(1.5)
Total comprehensive (expense)/income for the period
period	-	-	(0.4)	(0.2)	37.3	36.7
Contributions by and distributions to owners of the Company
Share options exercised	0.1	2.7	-	-	-	2.8
Equity-settled share-based payment transactions	-	-	-	-	0.4	0.4
Dividends to shareholders	-	-	-	-	(27.6)	(27.6)
Equity at 31 March 2014	0.9	34.0	1.1	3.1	286.9	326.0

	Share capital	Share premium	Translation reserve	Hedging reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m
Equity at 1 October 2013	0.8	31.3	1.5	3.3	276.8	313.7
Total comprehensive income for the year
Profit	-	-	-	-	80.2	80.2
Other comprehensive income
Currency translation differences for foreign operations	-	-	(0.7)	-	-	(0.7)
Effective portion of changes in fair value of cash flow hedges	-	-	-	5.1	-	5.1
Net change in fair value of cash flow hedges transferred to profit or loss	-	-	-	(8.2)	-	(8.2)
Defined benefit pension schemes' actuarial losses	-	-	-	-	(5.2)	(5.2)
Tax on other comprehensive income	-	-	-	0.7	0.8	1.5
Total other comprehensive (expense)/income for the
year	-	-	(0.7)	2.4	(4.4)	(7.5)
Total comprehensive (expense)/income for the year
year	-	-	(0.7)	2.4	75.8	72.7
Contributions by and distributions to owners of the Company
Share options exercised	0.1	3.1	-	-	-	3.2
Equity-settled share-based payment transactions	-	-	-	-	1.1	1.1
Dividends to shareholders	-	-	-	-	(37.3)	(7.3)
Equity at 30 September 2014	0.9	34.4	0.8	0.9	316.4	353.4

Notes to the Half-yearly Financial Report

1.   Reporting entity

Victrex plc (the 'Company') is a limited liability company incorporated and domiciled in the United Kingdom. The address of the Registered Office is Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire, FY5 4QD, United Kingdom. The Company is listed on the London Stock Exchange.

This Half-yearly Financial Report is an interim management report as required by DTR 4.2.3 of the Disclosure and Transparency Rules of the UK Financial Conduct Authority.

These condensed consolidated interim financial statements as at and for the six months ended 31 March 2015 comprise those of the Company and its subsidiaries (together referred to as the 'Group').

The comparative figures for the financial year ended 30 September 2014 are extracted from the Company's statutory financial statements for that year. Those financial statements have been reported on by the Company's auditor, filed with the Registrar of Companies and are available on request from the Company's Registered Office or to download from www.victrex.com. The auditor's report on those financial statements was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain any statement under sections 498 (2) or (3) of the Companies Act 2006.

These condensed consolidated interim financial statements are unaudited, but have been reviewed by KPMG LLP and its report is set out on page 20.

2.   Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ('IAS') 34 - Interim Financial Reporting as adopted by the European Union. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 September 2014.

This Half-yearly Financial Report was approved by the Board of Directors on 19 May 2015.

Risks and uncertainties

The principal risks and uncertainties which could impact the Group's long-term performance remain those detailed on pages 18, 19, 84 and 85 of the Group's 2014 Annual Report and Financial Statements, a copy of which is available on the Group's website, www.victrexplc.com. No new risks have been identified. These risks remain valid as regards their potential to impact the Group during the second half of the current financial year. The Group has a comprehensive system of risk management installed within all parts of its business to mitigate these risks as far as is possible. 

3.   Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied in the Company's published consolidated financial statements for the year ended 30 September 2014 except for the application of relevant new standards.

A number of new standards and amendments to existing standards are effective for the financial year ending 30 September 2015. None of these have had a material impact and accordingly the 31 March 2014 and 30 September 2014 comparatives have not been restated.

A number of amendments to standards and interpretations have been issued during the period, which are either not yet endorsed, or are endorsed but not yet effective, and accordingly the Group has not yet adopted them.

Going concern

The Directors have performed a robust assessment, including review of the forecast for the year ending September 2015 and longer term strategic forecasts and plans, including consideration of the principal risks faced by the company, as detailed in the Group's Annual Report 2014.  Following this review the Directors are satisfied that the Company and the Group have adequate resources to continue to operate and meet its liabilities as they fall due for the foreseeable future, a period considered to be at least 12 months from the date of signing these financial statements.  For this reason they continue to adopt the going concern basis for preparing the interim financial statements. 

4.   Estimates

The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 September 2014.

5.   Segment reporting

The Group's business is strategically organised as two business units: Victrex Polymer Solutions, which focuses on our transport, industrial and electronics markets; and Invibio Biomaterial Solutions, which focuses on providing specialist solutions for medical device manufacturers.

	Six months ended 31 March 2015			Six months ended 31 March 2014			Year ended 30 September 2014
	Victrex Polymer Solutions	Invibio Biomaterial Solutions	Group	Victrex Polymer Solutions	Invibio Biomaterial Solutions	Group	Victrex Polymer Solutions	Invibio Biomaterial Solutions	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue from external sales	104.4	25.9	130.3	93.1	26.9	120.0	199.2	53.4	252.6
Segment gross profit	61.6	22.9	84.5	53.2	23.6	76.8	77.2	29.6	163.2
Sales, marketing and administrative expenses			(30.8)			(28.2)			(61.0)
Operating profit			53.7			48.6			102.2
Net financing income			0.2			0.3			0.5
Profit before tax			53.9			48.9			102.7
Income tax expense			(11.5)			(10.7)			(22.5)
Profit for the period attributable to owners of the parent			42.4			38.2			80.2

6.   Income tax expense

Taxation of profit before tax in respect of the six months ended 31 March 2015 has been provided at the estimated effective rates chargeable for the full year in the respective jurisdiction.

	Six months ended 31 March 2015 £m	Six months ended 31 March 2014 £m	Year ended 30 September 2014 £m
UK corporation tax	11.0	7.9	17.2
Overseas tax	1.0	1.2	3.1
Deferred tax	(0.5)	1.6	2.2
	11.5	10.7	22.5

In the 2013 Budget, the Chancellor announced that the main rate of corporation tax for UK companies would reduce from 23% to 21% with effect from 1 April 2014, with a further reduction from 21% to 20% with effect from 1 April 2015.

In accordance with IAS 12 - Income Taxes, the deferred tax liabilities and assets have been calculated using a rate of 20%, being the rate being the expected applicable rate when these assets and liabilities are realised / settled. 

7.   Earnings per share

			Six months ended 31 March 2015	Six months ended 31 March 2014	Year ended 30 September 2014
Earnings per share	- basic		49.8p	45.1p	94.6p
	- diluted		49.6p	45.0p	94.3p
Profit for the financial period (£m)			42.4	38.2	80.2
Weighted average number of shares used		- basic	85,116,667	84,593,019	84,758,627
		- diluted	85,345,828	84,888,647	85,062,847

8.   Exchange rates

The most significant Sterling exchange rates used in the financial statements under the Group's accounting policies are:

	Six months ended 31 March 2015		Six months ended 31 March 2014		Year ended 30 September 2014
	Average	Closing	Average	Closing	Average	Closing
US Dollar	1.66	1.48	1.56	1.67	1.60	1.62
Euro	1.23	1.38	1.19	1.21	1.19	1.28
Yen	172	178	150	172	155	178

9.   Reconciliation of profit to cash generated from operations

	Six months ended 31 March 2015 £m	Six months ended 31 March 2014 £m	Year ended 30 September 2014 £m
Profit after tax for the period	42.4	38.2	80.2
Income tax expense	11.5	10.7	22.5
Net financing income	(0.2)	(0.3)	(0.5)
Operating profit	53.7	48.6	102.2
Adjustments for:
Depreciation	5.5	4.8	10.0
Loss on disposal of non-current assets	0.1	-	1.3
(Increase)/decrease in inventories	(3.1)	2.5	6.7
Decrease/(increase) in trade and other receivables	1.2	(2.6)	(6.5)
(Decrease)/increase in trade and other payables	2.0	1.2	4.5
Equity-settled share-based payment transactions	0.8	0.4	1.1
Changes in fair value of derivative financial instruments	1.5	(1.0)	(0.1)
Retirement benefit obligations charge less contributions	(0.8)	(0.8)	(0.9)
Cash generated from operations	60.9	53.1	118.3

10.   Related party transactions

The Group's related parties are as disclosed in the Annual Report and Financial Statements 2014. There were no material differences in related parties or related party transactions in the six months ended 31 March 2015 except for transactions with key management personnel. The most significant of these was on 15 December 2014, under the 2009 Long Term Incentive Plan ('LTIP'), when 29,749, 15,848 and 13,735 share option awards were granted to D R Hummel, L S Burdett and T J Cooper respectively at an option price of nil p per share when the market price was 1,943p per share.

Responsibility Statement of the Directors

The Directors confirm that to the best of their knowledge:

·     The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting as adopted by the European Union; and

·     The Interim Management Report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Conduct Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)  DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Conduct Authority, being:

i.  related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and

ii. any changes in the related party transactions described in the last Annual Report that have done so.

The Directors of Victrex plc are detailed on pages 32 and 33 of the Victrex plc Annual Report 2014. In addition Martin Court joined the Board as an Executive Director, along with Andrew Dougal joining as Non-executive Director, in March 2015.

By order of the Board

Louisa Burdett

Group Finance Director

19 May 2015

Forward-looking Statements

Sections of this Half-yearly Financial Report contain forward-looking statements, including statements relating to: future demand and markets for the Group's products and services; research and development relating to new products and services; and liquidity and capital resources. These forward-looking statements involve risks and uncertainties because they relate to events that may or may not occur in the future. Accordingly, actual results may differ materially from anticipated results because of a variety of risk factors, including: changes in interest and exchange rates; changes in global, political, economic, business, competitive and market forces; changes in raw material pricing and availability; changes to legislation and tax rates; future business combinations or disposals; relations with customers and customer credit risk; events affecting international security, including global health issues and terrorism; changes in regulatory environment; and the outcome of litigation.

Independent Review Report to Victrex plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Half-yearly Financial Report for the six months ended 31 March 2015 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Cash Flow Statement, Condensed Consolidated Statement of Changes in Equity and the related explanatory notes. We have read the other information contained in the Half-yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA'). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The Half-yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-yearly Financial Report in accordance with the DTR of the UK FCA.

The annual financial statements of the Company are prepared in accordance with IFRS as adopted by the EU. The condensed set of financial statements included in this Half-yearly Financial Report has been prepared in accordance with IAS 34 - Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-yearly Financial Report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-yearly Financial Report for the six months ended 31 March 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Stuart Burdass (Senior Statutory Auditor)

for and on behalf of KPMG LLP

Chartered Accountants

1 St Peter's Square

Manchester

M2 3AE

19 May 2015

Shareholder Information

The Company's Annual Reports and Half-yearly Financial Reports are available on request from the Company's Registered Office or to download from our corporate website, www.victrexplc.com.

Financial calendar
Ex-dividend date for interim dividend	11 June 2015
Record date for interim dividend **	12 June 2015
Payment of interim dividend	30 June 2015
2015 year end	30 September 2015
Announcement of 2015 full year results	December 2015
Annual General Meeting	February 2016
Payment of final dividend	February 2016

Victrex plc

Registered in England

Number 2793780

Registered Office:

Victrex Technology Centre

Hillhouse International

Thornton Cleveleys

Lancashire FY5 4QD

United Kingdom

Tel:   [phone]

Fax:  [phone]

Web: www.victrexplc.com

* Operating cash conversion: Cash generated from operations/operating profit

** The date by which shareholders must be recorded on the share register to receive the dividend

 

END

 

 

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