Interim Results

Victrex PLC 08 June 2004 8th June 2004 Victrex plc Results announcement for the six months ended 31st March 2004 •Volume up 17% to 869 tonnes (2003: 743 tonnes) •Turnover up 15% to £41.6m (2003: £36.1m) •Gross margin 55.0% (2003: 54.7%) •Profit before taxation up 15% to £13.8m (2003: £12.0m) •Earnings per share up 15% to 11.6p (2003: 10.1p) •Dividend per share up 9% to 2.4p (2003: 2.2p) Chairman Peter Warry commented: 'I am pleased to report further progress at Victrex, with record half year profits based on continued good sales growth. Sales volume has remained strong in the second half. Provided electronics demand is sustained, overall volume is expected to be broadly in line with the first half.' Enquiries Victrex plc David Hummel, Chief Executive 0207 357 9477 (8th June 2004) 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 2004 I am pleased to report further progress at Victrex, with record half year profits based on continued good sales growth. Results A strong second quarter resulted in first half sales volume of 869 tonnes, some 17% ahead of both the first and second halves of last year (743 and 738 tonnes). Turnover was £41.6m (2003: £36.1m). Gross profit was £22.8m (2003: £19.7m), representing a gross margin of 55.0% (2003: 54.7%). As expected, our ongoing investment programme in product development and marketing, together with higher insurance costs and increased staff bonus provisions, have resulted in sales, marketing and administrative expenses increasing to £9.4m (2003: £7.7m). Profit before tax was £13.8m (2003: £12.0m) and earnings per share were 11.6p (2003: 10.1p) both up 15% on the first half of 2003. The effective tax rate remained at 32.5%. Cash Flow Cash flow from operating activities increased to £14.9m (2003: £13.3m) primarily as a result of improved trading. Capital expenditure payments were £3.6m (2003: £3.5m). Taxation paid was £3.2m (2003: £2.9m) due to increased profits. At 31 March 2004, the Group remained ungeared with net cash of £10.0m (2003: £1.0m). The Group has a committed bank facility of £40m which expires in September 2008, all of which was undrawn at the end of the first half. Dividend In recognition of the Group's continued strong performance, an interim dividend of 2.4p per share, representing an increase of 9% over last year's interim dividend, will be paid on 2 August 2004 to all shareholders on the register at the close of business on 25 June 2004. Sales We achieved our strongest sales volume growth in the electronics segment which, at 288 tonnes, was up 59% on last year's second half of 181 tonnes. This was due to a strengthening recovery in semiconductor sales and further growth in other electronics applications. Transport sales volume of 244 tonnes remained at the same level as last year's second half of 242 tonnes. The industrial segment, where sales volume was 232 tonnes, saw an increase of 7% on second half volumes of 218 tonnes, mainly as a result of further increased demand for industrial machinery and compressor applications. Regionally, Asia-Pacific sales at 144 tonnes saw a 49% increase over the second half of last year (97 tonnes). This step change was the result of our ongoing commercial investment and increased electronics demand in this region. In spite of an unclear economic outlook in Europe, first half sales volume was 428 tonnes, 7% up on the second half (398 tonnes). United States volume of 297 tonnes was up 22% on last year's second half (243 tonnes) largely due to strong electronics demand since January. Business Development During the first half, we commercialised 273 new applications with an estimated mature annualised volume ('MAV') of 163 tonnes compared with 186 commercialised applications with an MAV of 173 tonnes in the second half of 2003. In addition to this continued strong performance, the development pipeline, which measures the future potential of all of the specific applications we are working on with end users, has been maintained. It currently contains 1,442 developments (September 2003: 1,508 developments) with an MAV of 2,015 tonnes (September 2003: 2,081 tonnes), assuming all of the developments will be commercialised. Invibio(R), our medical implant materials business, continues to perform strongly. Turnover amounted to £2.8m compared with £1.9m and £1.3m respectively for the first and second halves of last year. Since the start of the new financial year we have entered into eleven additional long term agreements with medical device manufacturers and now have over sixty agreements in place. More than half of our customers have had at least one device comprising PEEK-OPTIMA(R) polymer cleared by regulatory authorities. Invibio has also launched PEEK-CLASSIXTM polymer which is designed and manufactured for short-term blood and tissue contact. Supply Chain As previously reported, we completed the uprate of our polymer plant last year to support a total of 2,800 tonnes per annum of VICTREX(R)PEEKTM polymer sales. We are currently implementing a number of minor capital projects and processing improvements to the supply chain to support this increased polymer capacity in the short term. While this capacity is clearly sufficient for our near-term requirements, we have been reviewing the options for providing additional polymer capacity beyond 2,800 tonnes. These include a 1,000 tonnes per annum extension to the existing plant and a new stand-alone 2,000 tonne plant located in either the UK or Asia-Pacific. We expect to make a decision during 2005. The joint venture agreement with Degussa (under which they currently undertake the oxidation stage in the manufacture of BDF, our key raw material) is due to expire on 31 December 2006. We do not currently intend to extend this agreement. Accordingly, we have been working to become self-sufficient in oxidation and expect to make a final decision on the best route forward in the next few months. To support increased demand for our purified, granular product, we have commenced an uprate to increase the capacity of our melt filtration and granulation plant from 900 to 1,800 tonnes per annum at an estimated capital cost of £3m. This uprate is due for completion by the end of March 2005. We have also decided to bring production of standard grades of our VICTREX PEEK compounds in-house which is currently contracted-out. We will build our own compounding facility at an estimated capital cost of £4m in order to phase out toll manufacture in 2005. In-house compounding will allow much greater control over this key manufacturing step, improve product quality and provide efficiency benefits. Outlook Sales volume has remained strong in the second half. Provided electronics demand is sustained, overall volume is expected to be broadly in line with the first half. Peter Warry Chairman 7 June 2004 Consolidated Profit and Loss Account ----------------------- ----- ---------- ---------- --------- Note Unaudited Unaudited Audited six months six months year ended ended ended 30 September 31 March 2004 31 March 2003 2003 £'000 £'000 £'000 ----------------------- ----- ---------- ---------- --------- Turnover: Group and share of Japanese joint venture 44,831 38,733 76,616 Less: share of Japanese joint venture (3,277) (2,616) (5,116) ----------------------- ----- ---------- ---------- --------- Turnover 2 41,554 36,117 71,500 Cost of sales (18,718) (16,375) (32,131) ----------------------- ----- ---------- ---------- --------- Gross profit 22,836 19,742 39,369 Sales, marketing and administrative expenses (9,378) (7,726) (16,841) ----------------------- ----- ---------- ---------- --------- Group operating profit 13,458 12,016 22,528 Share of operating profit in Japanese joint venture 320 137 350 ----------------------- ----- ---------- ---------- --------- Total operating profit 13,778 12,153 22,878 Interest receivable 61 54 107 Interest payable (80) (231) (420) ----------------------- ----- ---------- ---------- --------- Profit on ordinary activities before taxation 13,759 11,976 22,565 Taxation on profit on ordinary activities 7 (4,472) (3,892) (7,334) ----------------------- ----- ---------- ---------- --------- Profit on ordinary activities after taxation 9,287 8,084 15,231 Equity dividends paid and proposed (1,881) (1,751) (5,989) ----------------------- ----- ---------- ---------- --------- Retained profit for the period 7,406 6,333 9,242 ----------------------- ----- ---------- ---------- --------- Earnings per ordinary - Basic 3 11.6p 10.1p 19.1p share - Diluted 3 11.5p 10.1p 19.0p -------------- ----------- ----- ---------- ---------- --------- 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 ------------------------- --------- --------- ---------- Restated Restated Unaudited unaudited audited as at as at as at 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------- --------- --------- ---------- Fixed assets Intangible assets 7,313 8,585 7,949 Tangible assets 44,859 41,264 42,992 Investment in Japanese joint venture: share of gross assets 2,083 1,537 1,643 share of gross liabilities (2,155) (1,952) (1,843) ------------------------- --------- --------- ---------- 52,100 49,434 50,741 ------------------------- --------- --------- ---------- Current assets Stock 15,790 14,005 16,415 Debtors 12,424 9,793 9,369 Cash at bank and in hand 9,955 4,987 6,040 ------------------------- --------- --------- ---------- 38,169 28,785 31,824 Creditors: amounts falling due within one year (15,688) (11,956) (16,169) ------------------------- --------- --------- ---------- Net current assets 22,481 16,829 15,655 ------------------------- --------- --------- ---------- Total assets less current liabilities 74,581 66,263 66,396 Creditors: amounts falling due after more than one year - (3,931) - Provisions for liabilities and charges (5,859) (4,828) (5,259) ------------------------- --------- --------- ---------- Net assets 68,722 57,504 61,137 ------------------------- --------- --------- ---------- Capital and reserves Called up share capital 805 799 802 Own shares held (2,295) (1,693) (1,693) Share premium account 13,292 12,209 12,743 Profit and loss account 56,920 46,189 49,285 ------------------------- --------- --------- ---------- Equity shareholders' funds 68,722 57,504 61,137 ------------------------- --------- --------- ---------- The prior periods have been restated to reflect the adoption of UITF Abstract 38 Accounting for ESOP trusts and a revision of Abstract 17 Employee share schemes (see note 1). Consolidated Cash Flow Statement Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 Note ----------------------- ------- -------- --------- ---------- Net cash inflow from operating activities 4 14,934 13,347 26,104 ----------------------- ------- -------- --------- ---------- Return on investment and servicing of finance Interest received 61 53 107 Interest paid (27) (169) (373) ----------------------- ------- -------- --------- ---------- Net cash inflow/(outflow) from return on investment and servicing of finance 34 (116) (266) ----------------------- ------- -------- --------- ---------- Taxation (3,156) (2,928) (6,243) Taxation paid ----------------------- ------- -------- --------- ---------- Net cash outflow from capital expenditure (3,647) (3,474) (6,505) Purchase of tangible fixed assets ------- -------- --------- ---------- ----------------------- Equity dividends paid (4,200) (3,870) (5,615) ----------------------- ------- -------- --------- ---------- Cash inflow before financing 3,965 2,959 7,475 ----------------------- ------- -------- --------- ---------- Financing Issue of ordinary shares exercised under option 3 3 6 Premium on issue of ordinary shares exercised under option 549 324 858 Share purchase (602) (640) (640) Debt due after more than one year - decrease in long term borrowing - (4,000) (8,000) ----------------------- ------- -------- --------- --------- Net cash outflow from financing (50) (4,313) (7,776) ----------------------- ------- -------- --------- ---------- Increase/(decrease) in cash 5 3,915 (1,354) (301) ----------------------- ------- -------- --------- ---------- Consolidated Statement of Total Recognised Gains and Losses ---------------------- ----------- ----------- ---------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ---------------------- ----------- ----------- ---------- Profit for the period 9,287 8,084 15,231 Exchange gain/(loss) on consolidation 11 - (14) ---------------------- ----------- ----------- ---------- Total recognised gains for the period 9,298 8,084 15,217 ---------------------- ----------- ----------- ---------- Reconciliation of Movements in Shareholders' Funds ------------------------- ---------- ---------- --------- Restated Restated Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------- ---------- ---------- --------- Profit for the period 9,287 8,084 15,231 Equity dividends paid and proposed (1,881) (1,751) (5,989) ------------------------- ---------- ---------- --------- Retained profit for the period 7,406 6,333 9,242 Exchange gain/(loss) on consolidation 11 - (14) Issue of ordinary shares exercised under option 3 3 6 Premium on issue of ordinary shares exercised under option 549 324 858 Purchase of own shares held (602) (640) (640) Movement in accrual for LTIP scheme 218 120 321 ------------------------- ---------- ---------- --------- Net addition to shareholders' funds 7,585 6,140 9,773 Opening shareholders' funds 61,137 51,364 51,364 ------------------------- ---------- ---------- --------- Closing shareholders' funds 68,722 57,504 61,137 ------------------------- ---------- ---------- --------- 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 with the exception of the adoption of UITF Abstract 17 (revised) and UITF Abstract 38 as detailed below. The financial information for the year ended 30 September 2003 has been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The auditors' report on these accounts was unqualified. UITF Abstract 38 Accounting for ESOP trusts and a revision of UITF Abstract 17 Employee share schemes are effective for accounting periods ending on or after 22 June 2004. As a result the Group's own shares held by employee trusts, which are held at the lower of purchase cost or net realisable value and have previously been shown as tangible fixed asset investments, are now deducted in arriving at shareholders' funds. In addition, the accrual for the LTIP scheme, which was previously shown within creditors, has been added back in arriving at shareholders' funds. There has been no effect on the profit and loss account from this change. The Group has taken advantage of the exemption permitted under UITF Abstract 17 (revised 2003) and not applied it to Inland Revenue approved SAYE schemes. 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 six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------- ----------- ---------- ---------- Europe 21,519 17,515 36,100 United States of America 13,906 14,112 26,547 Asia-Pacific 6,129 4,490 8,853 ------------------------ ----------- ---------- ---------- 41,554 36,117 71,500 ------------------------ ----------- ---------- ---------- 3 Earnings per share ------------------------ ----------- ---------- ---------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------ ----------- ----------- ---------- ---------- Earnings per share - Basic 11.6p 10.1p 19.1p - Diluted 11.5p 10.1p 19.0p ------------------ ----------- ----------- ---------- ---------- Earnings per ordinary share is based on the Group's profit for the financial period of £9,287,000 (2003: £8,084,000). The weighted average number of shares used in the calculations are: - basic 80,284,884 (2003: 79,678,762); - diluted 80,929,279 (2003: 79,923,866). Notes to the Interim Report continued 4 Reconciliation of operating profit to net cash inflow from operating activities ------------------------ ---------- ---------- ---------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------ ---------- ---------- ----------- Total operating profit 13,778 12,153 22,878 Depreciation and amortisation charge 2,311 2,184 4,329 ----------------------- ----------- ------------- ----------- Earnings before interest, taxation, depreciation and amortisation 16,089 14,337 27,207 Decrease/(increase) in stocks 625 (59) (2,469) Increase in debtors (3,061) (1,730) (1,142) Increase in creditors 1,555 792 2,861 Japanese joint venture profit in stock elimination 35 144 11 Share of operating profit in Japanese joint venture (320) (137) (350) Effect of foreign exchange rate changes 11 - (14) ------------------------ ---------- ---------- ----------- Net cash inflow from operating activities 14,934 13,347 26,104 ------------------------ ---------- ---------- ----------- 5 Reconciliation of net cash flow to movement in net debt ------------------------ ---------- ---------- --------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------ ---------- ---------- --------- Increase/(decrease) in cash in period 3,915 (1,354) (301) Cash outflow from decrease in debt - 4,000 8,000 ------------------------ ---------- ---------- --------- Movement in net cash in period 3,915 2,646 7,699 Net cash/(debt) at beginning of period 6,040 (1,659) (1,659) ------------------------ ---------- ---------- --------- Net cash at end of period 9,955 987 6,040 ------------------------ ---------- ---------- --------- 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 six months six months year Unaudited Unaudited Audited ended ended ended as at as at as at 31 March 31 March 30 September 31 March 31 March 30 September 2004 2003 2003 2004 2003 2003 ------- ----------- ---------- ---------- -------- -------- -------- US Dollar 1.61 1.41 1.46 1.58 1.54 1.54 Euro 1.48 1.59 1.54 1.43 1.55 1.48 Yen 187 177 179 186 164 188 ------- ----------- ---------- ---------- -------- -------- -------- 7 Taxation Taxation on profit on ordinary activities in respect of the half year ended 31 March 2004 has been provided at the estimated effective rates chargeable for the full year in the respective jurisdictions. ------------------------- ---------- ---------- ---------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------- ---------- ---------- ---------- UK corporation taxation 3,538 2,972 5,699 Overseas taxation 334 470 754 Deferred taxation 600 450 881 ------------------------ ---------- ---------- ---------- 4,472 3,892 7,334 ------------------------- ---------- ---------- ---------- The deferred taxation charge on the profit on ordinary activities comprises of the following: ------------------------ ---------- ---------- ---------- Unaudited Unaudited Audited six months six months year ended ended ended 31 March 31 March 30 September 2004 2003 2003 £'000 £'000 £'000 ------------------------ ---------- ---------- ---------- Timing differences 660 500 936 Effect of discounting (60) (50) (55) ------------------------ ---------- ---------- ---------- Charge in the period 600 450 881 ------------------------ ---------- ---------- ---------- Independent Review Report by KPMG Audit Plc to Victrex plc 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. 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 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 as presented for the six months ended 31 March 2004. KPMG Audit Plc Chartered Accountants Manchester 7 June 2004 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 23 June 2004 Record date for interim dividend 25 June 2004 Payment of interim dividend 2 August 2004 2004 year end 30 September 2004 Announcement of 2004 full year results December 2004 Annual General Meeting February 2005 Payment of final dividend March 2005 -------------------- --------------------------- Company Secretary and Registered Office M W Peacock Victrex plc, Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire FY5 4QD, United Kingdom This information is provided by RNS The company news service from the London Stock Exchange

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