Interim Results
Victrex PLC
07 June 2005
7th June 2005
Victrex plc
Results announcement for the six months ended 31st March 2005
• Volume up 14% to 988 tonnes (2004: 869 tonnes)
• Turnover up 19% to £49.3m (2004: £41.6m)
• Invibio turnover up 91% to £5.4m (2004: £2.8m)
• Profit before taxation up 26% to £17.4m (2004: £13.8m)
• Interim dividend per share up 13% to 2.7p (2004: 2.4p)
Chairman Peter Warry commented:
'I am pleased to report excellent progress at Victrex with record half year
sales and profits, further organic growth, continued success in developing new
product applications and markets and consolidation of our supply chain.
Sales volume has remained strong in the first two months of the second half.
However, given some uncertainty in our end user markets, particularly
electronics, second half sales volume may be slightly below the first half.
We expect another strong performance from Invibio in the second half, albeit not
matching the record achieved in the first half. This, combined with further
weakening in our effective exchange rates, will have some impact on gross margin
in the second half. However, gross margin for the year to 30 September 2006 will
be significantly enhanced by the recent acquisition of the BDF operations.
We remain confident in the underlying growth potential of our business.'
Enquiries
Victrex plc
-----------
David Hummel, Chief Executive 0207 357 9477 (7th June 2005)
Michael Peacock, Finance Director 01253 897700 (thereafter)
Hogarth Partnership Limited
---------------------------
Nick Denton / Barnaby Fry 0207 357 9477
CHAIRMAN'S STATEMENT
on the interim results for the six months ended 31 March 2005
I am pleased to report excellent progress at Victrex with record half year sales
and profits, further organic growth, continued success in developing new product
applications and markets and consolidation of our supply chain.
Results
Turnover was £49.3m (2004: £41.6m), an increase of 19% on last year's first
half. First half volume of 988 tonnes was 14% up on the first half of last year
(869 tonnes) and 6% ahead of last year's second half (933 tonnes).
Gross profit was £27.6m (2004: £22.8m), representing a gross margin of 56.0%
(2004: 55.0%). As expected, our ongoing investment programme in product
development and marketing, together with increased staff bonus provisions
resulted in sales, marketing and administrative expenses increasing to £10.8m
(2004: £9.4m).
Profit before tax was £17.4m (2004: £13.8m) and earnings per share were 14.6p
(2004: 11.6p), both up 26% on the first half of 2004.
Cash Flow
Cash flow from operating activities has been broadly maintained at £14.8m (2004:
£14.9m).
Capital expenditure payments were £2.6m (2004: £3.6m). Taxation paid was £4.8m
(2004: £3.2m) and the effective tax rate remained at 32.5%.
At 31 March 2005, the Group remained ungeared with net cash of £20.3m (2004:
£10.0m). 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
An interim dividend of 2.7p per share, representing an increase of 13% over last
year's interim dividend, will be paid on 1 August 2005 to all shareholders on
the register at the close of business on 24 June 2005.
Sales
Transport sales volume was 287 tonnes, up 11% on last year's second half of 259
tonnes. This was principally due to increased automotive sales in Asia-Pacific
and an upturn in aerospace volume in the United States. Industrial sales volume
was 289 tonnes, up 4% on last year's second half of 278 tonnes. This was largely
as a result of increased demand in the oil and gas and chemical processing
sectors. Electronics sales volume of 292 tonnes remained at the same level as
last year's second half of 290 tonnes. This reflected continued strong growth in
consumer electronics applications offset by reduced semiconductor sales.
Regionally, Asia-Pacific sales volume of 210 tonnes increased by 43% over the
second half of last year (147 tonnes), largely due to the continued penetration
of new consumer electronics applications as a result of our ongoing commercial
investment programme in this region.
Europe sales volume of 497 tonnes saw an increase of 4% over the second half of
last year (478 tonnes). United States sales volume of 281 tonnes decreased by 9%
on the second half of last year (308 tonnes), primarily due to softening demand
in the semiconductor sector, combined with some shifting of sales to Asia as end
users move to local sourcing.
Invibio(R) generated turnover of £5.4m, an increase of 89% compared with the
second half of last year (£2.9m). This reflected increased core product sales
and the continuing successful development of new business.
Since the start of the new financial year we have entered into eight additional
PEEK-OPTIMA(R) polymer long-term supply assurance agreements with implantable
medical device manufacturers. Initial sales of PEEK-CLASSIX(TM) polymer
(designed and manufactured for short-term blood and tissue contact), which was
launched last year, have proved encouraging.
Business development
During the first half we commercialised 299 new applications with an estimated
mature annualised volume ('MAV') of 226 tonnes compared with 163 commercialised
applications with an MAV of 142 tonnes in the second half of 2004. The
development pipeline contained 1,369 developments (September 2004: 1,431) with
an estimated MAV of 2,116 tonnes (September 2004: 2,051) if all of the
developments were successfully commercialised.
Supply chain
On 1 April 2005 we completed the purchase of the operations owned by a
subsidiary of Degussa AG relating to the manufacture of BDF (the key raw
material from which VICTREX(R) PEEKTM polymer is produced) for cash
consideration of £16.3m. This transaction consolidates Victrex's control of the
BDF supply chain following the acquisition of the primary manufacturing stage of
BDF in 1999.
These newly acquired operations principally comprise an oxidation plant which
undertakes the secondary manufacturing stage of BDF and a plant that
manufactures fluoroboric acid (a key raw material for the primary manufacturing
stage). Self-sufficiency in oxidation and fluoroboric acid provides us even
greater control of quality, cost and capacity.
We expect this transaction to have a neutral effect on earnings in the current
financial year and to be significantly earnings enhancing in the year to 30
September 2006.
This acquisition represents a post balance sheet event and hence has not been
consolidated into the Group results in the first half.
The supply chain can currently support 2,800 tonnes per annum of VICTREX PEEK
polymer sales. While this is clearly sufficient for our near-term requirements,
as previously announced, we have concluded, in principle, that our next capacity
expansion should comprise a new polymer powder plant on our main UK site with a
capacity of approximately 1,000 tonnes per annum. In order to maximise security
of supply we plan to construct a largely stand alone plant. We are currently
carrying out the detailed design and costing process, including evaluating the
optimal capacity, and expect to make the final decision to proceed later this
year.
International Financial Reporting
International Financial Reporting Standards ('IFRS') are due to become mandatory
for all listed companies within the EU for accounting periods beginning on or
after 1 January 2005. Accordingly, the Group's interim results for the first six
months of the financial year ending 30 September 2006 will be prepared in
compliance with IFRS.
Guidance on the expected main effects of IFRS implementation has been set out in
a separate announcement made today. By way of example, if IFRS had been applied
to the results for the six months ended 31 March 2005 there would have been only
minor differences as summarised below.
Unaudited six months ended 31 March 2005:
UK GAAP IFRS Variance
Profit before taxation £17.4m £17.5m £0.1m
Earnings per share 14.6p 14.6p -
Closing equity shareholders' funds £84.2m £81.2m (£3.0m)
Outlook
Sales volume has remained strong in the first two months of the second half.
However, given some uncertainty in our end user markets, particularly
electronics, second half sales volume may be slightly below the first half.
We expect another strong performance from Invibio in the second half, albeit not
matching the record achieved in the first half. This, combined with further
weakening in our effective exchange rates, will have some impact on gross margin
in the second half. However, gross margin for the year to 30 September 2006 will
be significantly enhanced by the recent acquisition of the BDF operations.
We remain confident in the underlying growth potential of our business.
Peter Warry
Chairman
6 June 2005
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Note Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
------------------------------------------------------------------------------------------------------------
Turnover: Group and share of Japanese joint venture 53,305 44,831 93,497
Less: share of Japanese joint venture (4,000) (3,277) (6,921)
------------------------------------------------------------------------------------------------------------
Turnover 2 49,305 41,554 86,576
Cost of sales (21,718) (18,718) (38,915)
------------------------------------------------------------------------------------------------------------
Gross profit 27,587 22,836 47,661
Sales, marketing and administrative expenses (10,807) (9,378) (19,905)
------------------------------------------------------------------------------------------------------------
Group operating profit 16,780 13,458 27,756
Share of operating profit in Japanese joint venture 417 320 570
------------------------------------------------------------------------------------------------------------
Total operating profit 17,197 13,778 28,326
Interest receivable 286 61 271
Interest payable (86) (80) (138)
------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before taxation 17,397 13,759 28,459
Taxation on profit on ordinary activities 7 (5,654) (4,472) (9,249)
------------------------------------------------------------------------------------------------------------
Profit on ordinary activities after taxation 11,743 9,287 19,210
Equity dividends paid and proposed (2,136) (1,881) (6,853)
------------------------------------------------------------------------------------------------------------
Retained profit for the period 9,607 7,406 12,357
------------------------------------------------------------------------------------------------------------
Earnings per ordinary share - Basic 3 14.6p 11.6p 23.9p
- Diluted 3 14.5p 11.5p 23.7p
------------------------------------------------------------------------------------------------------------
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 31 March 30 September
2005 2004 2004
£000 £000 £000
-------------------------------------------------------------------------------------------------------------
Fixed assets
Intangible assets 6,041 7,313 6,677
Tangible assets 49,507 44,859 49,347
Investment in Japanese joint venture: share of gross assets 2,700 2,083 2,089
share of gross liabilities (2,619) (2,155) (1,800)
-------------------------------------------------------------------------------------------------------------
55,629 52,100 56,313
-------------------------------------------------------------------------------------------------------------
Current assets
Stock 18,494 15,790 18,833
Debtors 14,669 12,424 10,578
Cash at bank and in hand 20,312 9,955 17,004
-------------------------------------------------------------------------------------------------------------
53,475 38,169 46,415
Creditors: amounts falling due within one year (18,485) (15,688) (22,704)
-------------------------------------------------------------------------------------------------------------
Net current assets 34,990 22,481 23,711
-------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 90,619 74,581 80,024
Provisions for liabilities and charges (6,420) (5,859) (6,070)
-------------------------------------------------------------------------------------------------------------
Net assets 84,199 68,722 73,954
-------------------------------------------------------------------------------------------------------------
Capital and reserves
Called up share capital 807 805 805
Share premium account 13,876 13,292 13,383
Profit and loss account 69,516 54,625 59,766
-------------------------------------------------------------------------------------------------------------
Equity shareholders' funds 84,199 68,722 73,954
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
Note Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
----------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 4 14,798 14,934 32,336
----------------------------------------------------------------------------------------------------------------------
Return on investment and servicing of finance
Interest received 288 61 273
Interest paid (43) (27) (36)
----------------------------------------------------------------------------------------------------------------------
Net cash inflow from return on investment and servicing of finance 245 34 237
----------------------------------------------------------------------------------------------------------------------
Taxation (4,818) (3,156) (6,070)
Taxation paid
----------------------------------------------------------------------------------------------------------------------
Net cash outflow from capital expenditure
Purchase of tangible fixed assets (2,587) (3,647) (9,468)
----------------------------------------------------------------------------------------------------------------------
Equity dividends paid (4,825) (4,200) (6,112)
----------------------------------------------------------------------------------------------------------------------
Cash inflow before financing 2,813 3,965 10,923
----------------------------------------------------------------------------------------------------------------------
Financing
Issue of ordinary shares exercised under option 2 3 3
Premium on issue of ordinary shares exercised under option 493 549 640
Purchase of own shares held - (602) (602)
----------------------------------------------------------------------------------------------------------------------
Net cash inflow/(outflow) from financing 495 (50) 41
----------------------------------------------------------------------------------------------------------------------
Increase in cash 5 3,308 3,915 10,964
----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
----------------------------------------------------------------------------------------------------------------------
Profit for the period 11,743 9,287 19,210
Exchange (loss)/gain on consolidation (138) 11 (24)
----------------------------------------------------------------------------------------------------------------------
Total recognised gains for the period 11,605 9,298 19,186
----------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
----------------------------------------------------------------------------------------------------------------------
Profit for the period 11,743 9,287 19,210
Equity dividends paid and proposed (2,136) (1,881) (6,853)
----------------------------------------------------------------------------------------------------------------------
Retained profit for the period 9,607 7,406 12,357
Exchange (loss)/gain on consolidation (138) 11 (24)
Issue of ordinary shares exercised under option 2 3 3
Premium on issue of ordinary shares exercised under option 493 549 640
Purchase of own shares held - (602) (602)
LTIP charge 281 218 443
----------------------------------------------------------------------------------------------------------------------
Net addition to shareholders' funds 10,245 7,585 12,817
Opening shareholders' funds 73,954 61,137 61,137
----------------------------------------------------------------------------------------------------------------------
Closing shareholders' funds 84,199 68,722 73,954
----------------------------------------------------------------------------------------------------------------------
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 2004 has been
extracted from the statutory accounts, which have been filed with the
Registrar of Companies. The auditors' report on these accounts was
unqualified.
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
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-----------------------------------------------------------------------------------------------------------------
Europe 26,479 21,519 45,469
United States of America 14,062 13,906 28,799
Asia-Pacific 8,764 6,129 12,308
-----------------------------------------------------------------------------------------------------------------
49,305 41,554 86,576
-----------------------------------------------------------------------------------------------------------------
3 Earnings per share
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-----------------------------------------------------------------------------------------------------------------
Earnings per share - Basic 14.6p 11.6p 23.9p
- Diluted 14.5p 11.5p 23.7p
-----------------------------------------------------------------------------------------------------------------
Earnings per ordinary share is based on the Group's profit for the financial
period of £11,743,000 (2004: £9,287,000).
The weighted average number of shares used in the calculations are:
- basic 80,612,301 (2004: 80,284,884);
- diluted 81,239,175 (2004: 80,929,279).
4 Reconciliation of operating profit to net cash inflow from operating
activities
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-----------------------------------------------------------------------------------------------------------------
Total operating profit 17,197 13,778 28,326
Depreciation and amortisation charge 2,475 2,311 4,860
-----------------------------------------------------------------------------------------------------------------
Earnings before interest, taxation, depreciation and
amortisation 19,672 16,089 33,186
Decrease/(increase) in stocks 339 625 (2,418)
Increase in debtors (4,096) (3,061) (1,221)
(Decrease)/increase in creditors (1,133) 1,337 3,130
LTIP charge 281 218 443
Japanese joint venture profit in stock elimination 290 35 (190)
Share of operating profit in Japanese joint venture (417) (320) (570)
Effect of foreign exchange rate changes (138) 11 (24)
-----------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 14,798 14,934 32,336
-----------------------------------------------------------------------------------------------------------------
5 Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-----------------------------------------------------------------------------------------------------------------
Movement in net cash in period 3,308 3,915 10,964
Net cash at beginning of period 17,004 6,040 6,040
-----------------------------------------------------------------------------------------------------------------
Net cash at end of period 20,312 9,955 17,004
-----------------------------------------------------------------------------------------------------------------
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
six months six months Audited Unaudited Unaudited Audited
ended ended year ended as at as at as at
31 March 31 March 30 September 31 March 31 March 30 September
2005 2004 2004 2005 2004 2004
----------------------------------------------------------------------------------------------------
US Dollar 1.74 1.61 1.61 1.77 1.58 1.70
Euro 1.43 1.48 1.45 1.45 1.43 1.41
Yen 184 187 186 188 186 176
----------------------------------------------------------------------------------------------------
7 Taxation
Taxation on profit on ordinary activities in respect of the half year ended
31 March 2005 has been provided at the estimated effective rates chargeable
for the full year in the respective jurisdictions.
-------------------------------------------------------------------------------------------------
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-------------------------------------------------------------------------------------------------
UK corporation taxation 4,572 3,538 7,285
Overseas taxation 732 334 1,153
Deferred taxation 350 600 811
-------------------------------------------------------------------------------------------------
5,654 4,472 9,249
-------------------------------------------------------------------------------------------------
The deferred taxation charge on the profit on ordinary activities comprises
of the following:
-------------------------------------------------------------------------------------------------
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 March 2005 31 March 2004 30 September 2004
£000 £000 £000
-------------------------------------------------------------------------------------------------
Timing differences 795 660 999
Effect of discounting (445) (60) (188)
-------------------------------------------------------------------------------------------------
Charge in the period 350 600 811
-------------------------------------------------------------------------------------------------
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 2005.
KPMG Audit Plc
Chartered Accountants
Manchester
6 June 2005
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 22 June 2005
Record date for interim dividend 24 June 2005
Payment of interim dividend 1 August 2005
2005 year end 30 September 2005
Announcement of 2005 full year results December 2005
Annual General Meeting February 2006
Payment of final dividend March 2006
--------------------------------------------------------------------------------
Company Secretary and Registered Office
M W Peacock
Victrex plc, Victrex Technology Centre, Hillhouse International, Thornton
Cleveleys, Lancashire FY5 4QD, United Kingdom
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