Interim Results

Victrex PLC 11 June 2002 11th June 2002 Victrex plc Results announcement for the six months ended 31st March 2002 • Sales volume down 38% to 557 tonnes (2001: 900 tonnes) • Gross margin up 8 percentage points to 55.8% (2001: 47.6%) • Profit before taxation down 27% to £8.8m (2001: £12.0m) • Interim dividend of 2.1p, up 5% (2001: 2.0p) • Development pipeline at record level of 2,120 tonnes Chairman Peter Warry commented: 'I am encouraged to report that, in spite of challenging global economic conditions, Victrex has been able to demonstrate the resilience of its core business and to improve gross margins. We have also made significant progress in developing new applications and business areas. The recovery in sales we saw in the second quarter has been sustained and, as outlined in our interim trading update, if sales remain at current levels, we will achieve sales volume of around 1,200 tonnes for the full year. We also expect to maintain gross margins at levels close to those achieved in the first half. This, combined with the advances we are making in new business development, confirms our confidence in the outlook for the business.' Enquiries Victrex plc David Hummel, Chief Executive 0207 357 9477 (11th June 2002) Michael Peacock, Finance Director 01253 897700 (thereafter) Hogarth Partnership Limited 0207 357 9477 Nick Denton / Tom Leatherbarrow Chairman's Statement on the interim results of Victrex plc for the six months ended 31 March 2002 I am encouraged to report that, in spite of challenging global economic conditions, Victrex has been able to demonstrate the resilience of its core business and to improve gross margins. We have also made significant progress in developing new applications and business areas. Results Sales volume was 557 tonnes compared to last year's record first half of 900 tonnes. Volume was very weak in the first quarter but picked up in the second quarter to levels similar to last year's second half of 703 tonnes. Turnover was £27.2m (2001: £39.7m). Gross profit was £15.2m (2001: £18.9m), representing a record gross margin of 55.8% (2001: 47.6%). This margin improvement of 8.2 percentage points was principally due to the financial benefits of the BDF joint venture (which produces the key raw material from which PEEKTM is manufactured), favourable currency movements and an increased contribution from Invibio, our medical implant materials business. Sales, marketing and administrative expenses were reduced to £6.2m (2001: £6.6m). Net interest expense decreased to £0.2m (2001: £0.4m) as a result of lower average debt levels compared to the first half last year. Profit before tax was £8.8m (2001: £12.0m) down 27% and earnings per share were 7.5p (2001: 10.5p) down 29%. The effective tax rate was 32.5% (2001: 31.0%). This reflects a full deferred tax charge as a result of the adoption of FRS 19. Previously, the Group was only required to recognise deferred tax to the extent that there was a reasonable probability that an actual liability would crystallise. The results for the previous year have been restated accordingly. Cash Flow Cash flow from operating activities decreased to £2.1m (2001: £15.4m) primarily as a result of reduced trading and rebuilding stock to an appropriate ongoing level following the supply constraint we operated under in the second half of last year. Net debt at 31 March 2002 stood at £5.8m (2001: £2.4m). Our unutilised bank facilities were £34.0m. Dividend An interim dividend of 2.1p per share, representing an increase of 5% over last year's interim dividend, will be paid on 2 August 2002 to all shareholders on the register at the close of business on 28 June 2002. Sales Of our principal markets, transport sales volume was 189 tonnes, a reduction of 32% compared to the first half of last year. Transport sales have recovered in the second quarter, albeit not to the levels achieved in the second half of last year. The industrial segment, where sales volume was 146 tonnes, saw a decline of 43%. However, the segment has seen a strong recovery from a very weak position in the first quarter. Electronics volume, which was a key driver behind the record volume growth in the first half of last year, was down 47% at 138 tonnes but held up at similar levels to the second half of last year. Geographically, European volume (316 tonnes) saw a 24% decrease over the same period last year principally in the transport segment which has recovered strongly in the second quarter. United States volume (177 tonnes) showed a reduction of 54% over the first half of last year mainly as a result of declining sales in electronics (which have shown a modest increase in the second quarter) and industrial (which have recovered strongly in the second quarter). Asia-Pacific volume (64 tonnes) was down 34%, again largely due to reduced electronics business which has also picked up in the second quarter. Business Development We have continued to successfully build our development pipeline beyond the record level achieved at the end of last year and increased the rate at which we commercialise new applications. The pipeline currently contains 1,253 developments (September 2001: 1,039) with an estimated mature annualised volume ('MAV') of 2,120 tonnes (September 2001: 1,982 tonnes), assuming all of the developments are commercialised. For the six months ended 31 March 2002 we commercialised 135 new applications (2001: 104) with an MAV of 133 tonnes (2001: 87 tonnes). Invibio is performing ahead of our expectations, with nine additional long-term supply agreements with device manufacturers entered into so far this year. Markets covered by these new agreements include cardiovascular, orthopaedic and arthroscopy. A number of medical devices incorporating PEEK-OPTIMA(R) have been cleared by regulatory bodies and have now been commercialised. Technical development of the Victrex proprietary ionomer under our fuel cell membrane alliance with Ballard Power Systems Inc. is progressing well and Ballard have decided not to proceed with further development of their own ionomer for the time being. Investment Following the increase in supply chain capacity last October to support 2,300 tonnes per annum of PEEKTM sales, the further uprate to 2,800 tonnes is on track for completion by October 2003. Board Changes Paul Syms, who, as previously announced, has given notice of his intention to resign from the Company, is stepping down as Commercial Director with effect from today. We are continuing to progress the appointment of a new Commercial Director. In the meantime David Hummel will take on the duties of Commercial Director in addition to his role as Chief Executive. Outlook The recovery in sales we saw in the second quarter has been sustained and, as outlined in our interim trading update, if sales remain at current levels, we will achieve sales volume of around 1,200 tonnes for the full year. We also expect to maintain gross margins at levels close to those achieved in the first half. This, combined with the advances we are making in new business development, confirms our confidence in the outlook for the business. Peter Warry Chairman 10 June 2002 Consolidated Profit and Loss Account Unaudited Restated Restated six months ended unaudited audited 31 March 2002 six months ended year ended £'000 31 March 2001 30 September 2001 Note £'000 £'000 Turnover: Group and share of Japanese joint 29,304 43,328 78,252 venture Less: share of Japanese joint venture (2,072) (3,661) (6,172) Turnover 2 27,232 39,667 72,080 Cost of sales (12,036) (20,790) (36,104) Gross profit 15,196 18,877 35,976 Sales, marketing and administrative expenses (6,176) (6,609) (13,301) Group operating profit 9,020 12,268 22,675 Share of operating profit in Japanese joint - 173 211 venture Total operating profit 9,020 12,441 22,886 Interest receivable 22 88 141 Interest payable (220) (511) (686) Profit on ordinary activities before taxation 8,822 12,018 22,341 Taxation on profit on ordinary activities 7 (2,867) (3,725) (6,978) Profit on ordinary activities after taxation 5,955 8,293 15,363 Equity dividends paid and proposed (1,672) (1,585) (5,294) Retained profit for the period 4,283 6,708 10,069 Earnings per ordinary share - Basic 3 7.5p 10.5p 19.4p - Diluted 3 7.4p 10.4p 19.2p The Group's turnover and operating profit arise from continuing operations in both the current and preceding periods. There were no material differences between reported profits and historical cost profits on ordinary activities before taxation in the above periods. The prior periods have been restated to reflect the adoption of FRS 19 - Deferred taxation (see note 1). Consolidated Balance Sheet Unaudited Restated Restated as at unaudited audited 31 March as at as at 2002 31 March 2001 30 September 2001 Note £'000 £'000 £'000 Fixed assets Intangible assets 9,857 11,129 10,493 Tangible assets 35,173 30,658 33,261 Investments 1,053 749 749 Investment in Japanese joint venture: share of gross assets 1,538 2,098 1,668 share of gross liabilities (1,817) (2,212) (1,972) 45,804 42,422 44,199 Current assets Stocks 14,476 6,074 7,893 Debtors 9,617 9,654 10,825 Cash at bank and in hand 211 578 1,038 24,304 16,306 19,756 Creditors: amounts falling due within one year (11,761) (12,325) (16,511) Net current assets 12,543 3,981 3,245 Total assets less current liabilities 58,347 46,403 47,444 Creditors: amounts falling due after more than (5,892) (2,853) - one year Provisions for liabilities and charges 1 (3,778) (2,815) (3,178) Net assets 48,677 40,735 44,266 Capital and reserves Called up share capital 795 794 795 Share premium account 11,803 11,433 11,605 Profit and loss account 36,079 28,508 31,866 Equity shareholders' funds 48,677 40,735 44,266 The prior periods have been restated to reflect the adoption of FRS 19 - Deferred taxation (see note 1). Consolidated Cash Flow Statement Unaudited Unaudited Audited six months six months year ended ended ended 31 March 2002 31 March 2001 30 September 2001 Note £'000 £'000 £'000 Net cash inflow from operating activities 4 2,090 15,428 27,819 Returns on investment and servicing of finance Interest received 22 91 141 Interest paid (194) (855) (1,005) Net cash outflow from investments and servicing (172) (764) (864) of finance Taxation- taxation paid (1,971) (1,882) (5,848) Net cash outflow from capital expenditure Purchase of tangible fixed assets (2,952) (1,292) (4,750) Equity dividends paid (3,716) (3,378) (4,957) Cash (outflow)/inflow before financing (6,721) 8,112 11,400 Financing Issue of ordinary shares exercised under option 1 8 9 Premium on issue of ordinary shares exercised 197 1,190 1,362 under option Share purchase (304) (608) (609) Debt due after more than one year - increase/(decrease) in long term borrowing 6,000 (9,500) (12,500) Net cash inflow/(outflow) from financing 5,894 (8,910) (11,738) Decrease in cash in the period 5 (827) (798) (338) Consolidated Statement of Total Recognised Gains and Losses Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 Note £'000 £'000 £'000 Profit for the period 5,955 8,293 15,363 Exchange (loss)/gain on consolidation (70) 40 37 Total recognised gains relating to the period 5,885 8,333 15,400 Prior year adjustment 1 (3,178) - - Total recognised gains for the period 2,707 8,333 15,400 The prior periods have been restated to reflect the adoption of FRS 19 - Deferred taxation (see note 1). Reconciliation of Movements in Shareholders' Funds Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Profit for the period 5,955 8,293 15,363 Equity dividends paid and proposed (1,672) (1,585) (5,294) Retained profit for the period 4,283 6,708 10,069 Exchange (loss)/gain on consolidation (70) 40 37 Issue of ordinary shares exercised under option 1 8 9 Premium on issue of ordinary shares exercised under 197 1,190 1,362 option Net movement in shareholders' funds 4,411 7,946 11,477 Opening shareholders' funds 44,266 32,789 32,789 Closing shareholders' funds 48,677 40,735 44,266 The prior periods have been restated to reflect the adoption of FRS 19 - Deferred taxation (see note 1). Opening shareholders' funds were originally £47,444,000 before deducting prior year adjustment of £3,178,000 (see note 1). Notes to the Interim Report 1. Basis of preparation With the exception of the adoption of FRS19 - Deferred taxation, the effect of which is set out below, the interim results have been prepared on the basis of the accounting policies set out in the Group's last Annual Report and Accounts. The financial information for the year ended 30 September 2001 has been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The auditors' report on these accounts was unqualified. FRS19 became effective for all accounting periods ending on or after 23 January 2002. As a result of the adoption of FRS19, the Group's tax charge now fully reflects taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes (previously only recognised to the extent that there was a reasonable probability that an actual liability would crystallise). The Group has opted to calculate deferred taxation on a discounted basis. As required by the standard, the comparative figures have been restated. The figures included in the accounts relating to deferred taxation are as follows: Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Profit and loss charge for deferred taxation 600 360 723 Deferred taxation liability (decrease in 3,778 2,815 3,178 shareholders' funds) The Interim Report for the six months ended 31 March 2002 was approved by the Board on 10 June 2002. 2. Analysis of turnover All turnover and profit before taxation are derived from the Group's principal activity, being the manufacture and sale of high performance materials. An analysis of turnover by origin and customer location is as follows: Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Europe 13,944 16,718 31,107 United States of America 9,562 17,959 31,830 Asia-Pacific 3,726 4,990 9,143 27,232 39,667 72,080 3. Earnings per share Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 Earnings per ordinary share - Basic 7.5p 10.5p 19.4p - Diluted 7.4p 10.4p 19.2p Earnings per ordinary share is based on the Group's profit for the financial period of £5,955,000 (2001: restated £8,293,000). The weighted average number of shares used in the calculations are: - basic 79,499,749 (2001: 78,889,095). - diluted 80,059,679 (2001: 79,682,903). 4. Reconciliation of operating profit to net cash inflow from operating activities Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Total operating profit 9,020 12,441 22,886 Depreciation and amortisation charge 1,862 1,768 3,542 Earnings before interest, taxation, depreciation and 10,882 14,209 26,428 amortisation (Increase)/decrease in stocks (6,583) 4,765 2,946 Decrease/(increase) in debtors 1,194 (2,513) (3,684) (Decrease)/increase in creditors (3,294) (790) 2,210 Japanese joint venture profit in stock (39) (109) 86 elimination Share of operating profit in Japanese joint - (173) (211) venture Effect of foreign exchange rate changes (70) 39 44 Net cash inflow from operating activities 2,090 15,428 27,819 5. Reconciliation of net cash flow to movement in net debt Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Decrease in cash in the period (827) (798) (338) Cash (inflow)/outflow from (increase)/decrease in (6,000) 9,500 12,500 debt Movement in net (debt)/cash in the period (6,827) 8,702 12,162 Net cash/(debt) at beginning of the period 1,038 (11,124) (11,124) Net (debt)/cash at end of the period (5,789) (2,422) 1,038 6. Exchange rates The most significant sterling exchange rates used in the accounts under the Group's accounting policies are: Average exchange rate Closing exchange rate Unaudited Unaudited Audited Unaudited Unaudited Audited six months six months year ended as at as at as at ended 31 March ended 31 March 30 September 31 March 31 March 30 September 2002 2001 2001 2002 2001 2001 US Dollar 1.44 1.55 1.53 1.42 1.53 1.48 Euro 1.59 1.60 1.62 1.59 1.60 1.61 Yen 137 161 155 158 154 152 7. Taxation Tax on profit on ordinary activities in respect of the half year ended 31 March 2002 has been provided at the estimated effective rates chargeable for the full year in the respective jurisdictions. Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 UK corporation taxation 2,209 2,917 5,676 Overseas taxation 58 448 579 Deferred taxation 600 360 723 2,867 3,725 6,978 The deferred taxation charge on the profit on ordinary activities comprises of the following: Restated Restated Unaudited unaudited audited six months ended six months ended year ended 31 March 2002 31 March 2001 30 September 2001 £'000 £'000 £'000 Timing differences 609 505 1,012 Effect of discounting (9) (145) (289) Charge in the period 600 360 723 Independent Review Report by the Auditor Introduction We have been instructed by the Company to review the financial information set out on pages 4 to 10 and we have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' Responsibilities The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review Work Performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4: Review of Interim Financial Information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review Conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information presented as for the six months ended 31 March 2002. KPMG Audit Plc Chartered Accountants Manchester 10 June 2002 Shareholder Information Copies of this Interim Report will be sent to all shareholders and will be available from the Registered Office detailed below. Financial Calendar Ex-dividend date for interim dividend 26 June 2002 Record date for interim dividend 28 June 2002 Payment of interim dividend 2 August 2002 2002 year end 30 September 2002 Announcement of 2002 full year results December 2002 Annual General Meeting February 2003 Payment of final dividend February 2003 Company Secretary and Registered Office M W Peacock Victrex plc, Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire FY5 4QD This information is provided by RNS The company news service from the London Stock Exchange

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