Interim Results

Victrex PLC 03 June 2003 3rd June 2003 Victrex plc Results announcement for the six months ended 31st March 2003 • Turnover and volume up 33% • Gross margin 55% • Profit before taxation up 36% to £12.0m (2002: £8.8m) • Earnings per share up 35% to 10.1p (2002: 7.5p) • Interim dividend up 5% to 2.2p (2002: 2.1p) • Record level of new commercialised applications Chairman Peter Warry commented: 'I am pleased to report continued progress at Victrex, with increased sales and profits and further success in developing new product applications. The increased sales levels we achieved in the first half have continued in the first two months of the second half. However, future results will be influenced by world economic events which remain difficult to forecast. Overall, our first half performance, combined with the progress in business development, confirms our confidence in the underlying robustness and growth potential of our business.' Enquiries Victrex plc David Hummel, Chief Executive 0207 357 9477 (3rd June 2003) Michael Peacock, Finance Director 01253 897700 (thereafter) Hogarth Partnership Limited Nick Denton / Tom Leatherbarrow 0207 357 9477 Chairman's Statement on the interim results of Victrex plc for the six months ended 31 March 2003 I am pleased to report continued progress at Victrex, with increased sales and profits and further success in developing new product applications. Results First half sales volume of 743 tonnes was 33% up on the first half of last year (557 tonnes) and 15% ahead of last year's second half (648 tonnes). Turnover was £36.1m (2002: £27.2m). Gross profit was £19.7m (2002: £15.2m), representing a gross margin of 54.7% (2002: 55.8%). At our AGM on 11 February we announced additional investment in product development and marketing. The commencement of this programme, together with higher insurance costs and increased staff bonus provisions, has led to sales, marketing and administrative expenses increasing to £7.7m (2002: £6.2m). Profit before tax was £12.0m (2002: £8.8m) up 36% and earnings per share were 10.1p (2002: 7.5p) up 35%. The effective tax rate remained at 32.5%. Cash Flow Cash flow from operating activities increased to £13.3m (2002: £2.1m) primarily as a result of improved trading and a stable stock position since the planned stock rebuild undertaken in the first half of last year. Capital expenditure payments were £3.5m (2002: £3.0m). Taxation paid was £2.9m (2002: £2.0m) due to increased profits and accelerated payments arising from full implementation of the UK Corporation Tax quarterly payments on account system during last year. At 31 March 2003, the Group was ungeared with net cash of £1.0m (2002: net debt £5.8m). Our unutilised bank facilities were £36.0m. Dividend An interim dividend of 2.2p per share, representing an increase of 5% over last year's interim dividend, will be paid on 1 August 2003 to all shareholders on the register at the close of business on 27 June 2003. Sales Sales in all our market segments were ahead of last year's second half figures, which in turn were up on the previous first half. Transport sales volume was 242 tonnes (2002: 189 tonnes). This represented an increase of 8% over last year's second half and was principally due to increased automotive sales in Europe and Asia-Pacific. The industrial segment, where sales volume was 217 tonnes (2002: 146 tonnes), saw an increase of 12% on second half volumes, mainly as a result of increased demand for industrial machinery applications in Europe and the United States. At 170 tonnes (2002: 138 tonnes), electronics volume was up 18% on the second half of last year. This was primarily because of increased sales in semiconductor applications, albeit starting from a very low base. Geographically, Europe, with sales volume of 393 tonnes (2002: 316 tonnes) saw continued growth across all market segments with an increase of 18% over the second half of last year. United States volume of 253 tonnes (2002: 177 tonnes) showed an increase of 8% over last year's second half. Asia-Pacific volume was 97 tonnes (2002: 64 tonnes) which represented a 21% increase on last year's second half. Business Development The six months ended 31 March 2003 saw a significant increase in the rate at which we commercialised developments with 247 new applications (2002: 135) having an estimated mature annualised volume ('MAV') of 297 tonnes (2002: 133 tonnes). As a result of this exceptional performance, the development pipeline, which measures the future potential of all of the specific applications we are working on with end users, has been reduced. It currently contains 1,380 developments (September 2002: 1,488) with an MAV of 2,060 tonnes (September 2002: 2,316 tonnes), assuming all of the developments will be commercialised. InvibioTM, our medical implant materials business, continues to perform strongly. We entered into seven additional long term agreements with medical device manufacturers during the period. An increasing number of device manufacturers have had implantable devices incorporating PEEK-OPTIMA(R) cleared by regulatory bodies. Technical development of the Victrex proprietary ionomer is continuing under our fuel cell membrane alliance with Ballard Power Systems Inc. We continue to believe that the key to future growth lies in developing new applications and market areas for our products. Our new investment programme referred to above will provide further impetus to achieving this objective. Particular areas of focus are Asia-Pacific (where we see significant growth potential), delivery of an increasingly global approach to our sales channels, and additional resource to drive faster development of new products and applications. We anticipate that this ongoing investment will add approximately £1m to overheads in the second half compared to the first half of this year. Outlook The increased sales levels we achieved in the first half have continued in the first two months of the second half. However, future results will be influenced by world economic events which remain difficult to forecast. Overall, our first half performance, combined with the progress in business development, confirms our confidence in the underlying robustness and growth potential of our business. Peter Warry Chairman 2 June 2003 Consolidated Profit and Loss Account Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 Note £'000 £'000 £'000 Turnover: Group and share of Japanese joint 38,733 29,304 63,268 venture Less: share of Japanese joint venture (2,616) (2,072) (4,181) Turnover 2 36,117 27,232 59,087 Cost of sales (16,375) (12,036) (26,634) Gross profit 19,742 15,196 32,453 Sales, marketing and administrative expenses (7,726) (6,176) (13,011) Group operating profit 12,016 9,020 19,442 Share of operating profit in Japanese joint 137 - 70 venture Total operating profit 12,153 9,020 19,512 Interest receivable 54 22 75 Interest payable (231) (220) (538) Profit on ordinary activities before taxation 11,976 8,822 19,049 Taxation on profit on ordinary activities 7 (3,892) (2,867) (6,191) Profit on ordinary activities after taxation 8,084 5,955 12,858 Equity dividends paid and proposed (1,751) (1,672) (5,539) Retained profit for the period 6,333 4,283 7,319 Earnings per ordinary share - Basic 3 10.1p 7.5p 16.2p - Diluted 3 10.1p 7.4p 16.0p 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. Consolidated Balance Sheet Unaudited Unaudited Audited as at as at as at 31 March 2003 31 March 2002 30 September Note £'000 £'000 2002 £'000 Fixed assets Intangible assets 8,585 9,857 9,221 Tangible assets 41,264 35,173 39,919 Investments 1,693 1,053 1,053 Investment in Japanese joint venture: share of gross assets 1,537 1,538 1,483 share of gross liabilities (1,952) (1,817) (1,826) 51,127 45,804 49,850 Current assets Stock 14,005 14,476 13,946 Debtors 9,793 9,617 8,167 Cash at bank and in hand 4,987 211 6,341 28,785 24,304 28,454 Creditors: amounts falling due within one year (12,736) (11,761) (14,257) Net current assets 16,049 12,543 14,197 Total assets less current liabilities 67,176 58,347 64,047 Creditors: amounts falling due after more than one (3,931) (5,892) (7,912) year Provisions for liabilities and charges 1 (4,828) (3,778) (4,378) Net assets 58,417 48,677 51,757 Capital and reserves Called up share capital 799 795 796 Share premium account 12,209 11,803 11,885 Profit and loss account 45,409 36,079 39,076 Equity shareholders' funds 58,417 48,677 51,757 Consolidated Cash Flow Statement Unaudited Unaudited Audited six months six months year ended ended ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Note Net cash inflow from operating activities 4 13,347 2,090 17,143 Returns on investment and servicing of finance Interest received 53 22 75 Interest paid (169) (194) (500) Net cash outflow from returns on investments and (116) (172) (425) servicing of finance Taxation Taxation paid (2,928) (1,971) (5,202) Net cash outflow from capital expenditure Purchase of tangible fixed assets (3,474) (2,952) (8,811) Equity dividends paid (3,870) (3,716) (5,379) Cash inflow/(outflow) before financing 2,959 (6,721) (2,674) Financing Issue of ordinary shares exercised under option 3 1 1 Premium on issue of ordinary shares exercised under 324 197 280 option Share purchase (640) (304) (304) Debt due after more than one year - (decrease)/increase in long term borrowing (4,000) 6,000 8,000 Net cash (outflow)/inflow from financing (4,313) 5,894 7,977 (Decrease)/increase in cash 5 (1,354) (827) 5,303 Consolidated Statement of Total Recognised Gains and Losses Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 Note £'000 £'000 £'000 Profit for the period 8,084 5,955 12,858 Exchange loss on consolidation - (70) (109) Total recognised gains relating to the period 8,084 5,885 12,749 Prior year adjustment 1 - (3,178) (3,178) Total recognised gains for the period 8,084 2,707 9,571 Reconciliation of Movements in Shareholders' Funds Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Profit for the period 8,084 5,955 12,858 Equity dividends paid and proposed (1,751) (1,672) (5,539) Retained profit for the period 6,333 4,283 7,319 Exchange loss on consolidation - (70) (109) Issue of ordinary shares exercised under option 3 1 1 Premium on issue of ordinary shares exercised under 324 197 280 option Net addition to shareholders' funds 6,660 4,411 7,491 Opening shareholders' funds 51,757 44,266 44,266 Closing shareholders' funds 58,417 48,677 51,757 Notes to the Interim Report 1 Basis of preparation 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 2002 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 taxation 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: Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Profit and loss charge for deferred taxation 450 600 1,200 Deferred taxation liability (decrease in 4,828 3,778 4,378 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 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Europe 17,515 13,944 28,693 United States of America 14,112 9,562 22,784 Asia-Pacific 4,490 3,726 7,610 36,117 27,232 59,087 3 Earnings per share Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 Earnings per share - Basic 10.1p 7.5p 16.2p - Diluted 10.1p 7.4p 16.0p Earnings per ordinary share is based on the Group's profit for the financial period of £8,084,000 (2002: £5,955,000). The weighted average number of shares used in the calculations are: - basic 79,678,762 (2002: 79,499,749). - diluted 79,923,866 (2002: 80,059,679). 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 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Total operating profit 12,153 9,020 19,512 Depreciation and amortisation charge 2,184 1,862 3,785 Earnings before interest, taxation, depreciation and 14,337 10,882 23,297 amortisation Increase in stocks (59) (6,583) (6,053) (Increase)/decrease in debtors (1,730) 1,194 2,658 Increase/(decrease) in creditors 792 (3,294) (2,657) Japanese joint venture profit in stock 144 (39) 77 elimination Share of operating profit in Japanese joint (137) - (70) venture Effect of foreign exchange rate changes - (70) (109) Net cash inflow from operating activities 13,347 2,090 17,143 5 Reconciliation of net cash flow to movement in net debt Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 (Decrease)/increase in cash in period (1,354) (827) 5,303 Cash outflow/(inflow) from decrease/(increase)in debt 4,000 (6,000) (8,000) Movement in net cash/(debt) in period 2,646 (6,827) (2,697) Net (debt)/cash at beginning of period (1,659) 1,038 1,038 Net cash/(debt) at end of period 987 (5,789) (1,659) 6 Exchange rates The most significant sterling 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 31 March 31 March 30 September 2003 2002 September 2003 2002 2002 2002 US Dollar 1.41 1.44 1.39 1.54 1.42 1.36 Euro 1.59 1.59 1.59 1.55 1.59 1.61 Yen 177 137 154 164 158 173 7 Taxation Taxation on profit on ordinary activities in respect of the half year ended 31 March 2003 has been provided at the estimated effective rates chargeable for the full year in the respective jurisdictions. Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 UK corporation taxation 2,972 2,209 5,001 Overseas taxation 470 58 (10) Deferred taxation 450 600 1,200 3,892 2,867 6,191 The deferred taxation charge on the profit on ordinary activities comprises of the following: Unaudited Unaudited Audited six months ended six months ended year ended 31 March 2003 31 March 2002 30 September 2002 £'000 £'000 £'000 Timing differences 500 609 1,073 Effect of discounting (50) (9) 127 Charge in the period 450 600 1,200 Independent Review Report by KPMG Audit Plc to Victrex plc Introduction We have been engaged 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. 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 Listing Rules of the Financial Services Authority. 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 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 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 as presented for the six months ended 31 March 2003. KPMG Audit Plc Chartered Accountants Manchester 2 June 2003 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 25 June 2003 Record date for interim dividend 27 June 2003 Payment of interim dividend 1 August 2003 2003 year end 30 September 2003 Announcement of 2003 full year results December 2003 Annual General Meeting February 2004 Payment of final dividend March 2004 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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