Final Results

Victrex PLC 06 December 2005 6th December 2005 Victrex plc Results announcement for the year ended 30th September 2005 O Turnover up 17% to Â£101.6m (2004: Â£86.6m) O Gross margin up 2% points to 57.1% (2004: 55.1%) O Profit before taxation up 23% to Â£35.1m (2004: Â£28.5m) O Final dividend of 9.3p making a total of 12.0p for the year, an increase of 40% Chairman Peter Warry commented: 'Victrex has continued to make excellent progress this year with record sales and profits, further organic growth, continued success in developing new product applications and markets, and consolidation of our supply chain. Sales volume has shown some strengthening since the year end. If this level of demand is sustained, first half volume will be higher than the second half of last year. Despite weakening in our effective exchange rates, we still expect further enhancement in our gross margin for the year to 30 September 2006, principally due to the benefits arising from the recent acquisition of the BDF operations.' Enquiries Victrex plc David Hummel, Chief Executive 0207 357 9477 (6th December 2005) Michael Peacock, Finance Director 01253 897700 (thereafter) Hogarth Partnership Limited Nick Denton / Barnaby Fry 0207 357 9477 Victrex plc Preliminary results statement for the year ended 30th September 2005 Victrex has continued to make excellent progress this year with record sales and profits, further organic growth, continued success in developing new product applications and markets, and consolidation of our supply chain. RESULTS Turnover for the year was Â£101.6m (2004: Â£86.6m). Gross profit increased by 21.7% to Â£58.0m (2004: Â£47.7m), representing 57.1% of turnover (2004: 55.1%). Sales, marketing and administrative expenses increased by 19.2% to Â£23.7m (2004: Â£19.9m), primarily as a result of our ongoing investment programme in product development and marketing, together with increased staff bonuses. Profit before tax was Â£35.1m (2004: Â£28.5m) up 23.3% and basic earnings per share were up 22.6% at 29.3p (2004: 23.9p). Compared with the previous year, exchange rates have had an adverse impact of Â£2.2m on profit, principally due to a weaker Dollar offset by a marginally stronger Euro. The overall effective tax rate (including deferred tax) remained at 32.5%. CASH FLOW Cash flow from operating activities increased to Â£37.2m (2004: Â£32.3m) primarily as a result of improved trading. The purchase on 1 April 2005 of the raw material manufacturing operations from Degussa resulted in a cash payment of Â£17.7m (including associated acquisition costs). Other capital expenditure for the year totalled to Â£6.0m (2004: Â£9.5m) and was mainly related to the design of our second powder plant, the extension of our UK technology centre and further investment in existing infrastructure. Taxation paid was Â£9.7m (2004: Â£6.1m) as a result of increased profits. At the year end, the Group had net cash of Â£15.8m (2004: Â£17.0m). The Group has a committed bank facility of Â£40m, all of which was undrawn at the year end. This facility expires in September 2008. DIVIDEND In recognition of the continuing strong performance of the Company and the clear path forward on our capital expenditure programme, the Directors are recommending a rebasing of the final dividend to 9.3p (2004: 6.2p) per ordinary share, making a total of 12.0p (2004: 8.6p) per ordinary share for the year, an increase of 40% over last year. This represents dividend cover of 2.4 times. INTERNATIONAL FINANCIAL REPORTING These results are the last to be published under UK Generally Accepted Accounting Practice ('UK GAAP'). The Group has adopted International Financial Reporting Standards ('IFRS') with effect from 1 October 2005. Accordingly, the Group's interim results and financial statements for the year to 30 September 2006 will be prepared in compliance with IFRS. In order to provide an indication of the main effects of IFRS implementation on the Group's results, an unaudited restated income statement for the year ended 30 September 2005, balance sheets as at 30 September 2004 and 2005 together with reconciliations from UK GAAP to IFRS are set out in a separate announcement made today. The impact on the results for the year ended 30 September 2005 is summarised below: UK GAAP IFRS Variance Profit before taxation Â£35.1m Â£35.3m Â£0.2m Earnings per share 29.3p 29.9p 0.6p Closing equity shareholders' funds Â£90.2m Â£92.2m Â£2.0m MARKETS Total sales volume increased by 9.4% to 1,972 tonnes (2004: 1,802 tonnes) with second half volume of 984 tonnes (2004: 933 tonnes) compared with 988 tonnes (2004: 869 tonnes) for the first half. Of our three principal market segments, industrial sales volume was up 22.7% on 2004 at 626 tonnes, largely due to increasing demand from oil and gas and chemical processing customers. Second half sales of 337 tonnes were up 16.6% on the first half of 289 tonnes. Transport sales volume was 552 tonnes, an increase of 9.7% over the previous year, as a result of increased automotive sales in Europe and Asia-Pacific and an upturn in commercial aerospace volume in the United States. The second half saw a slight softening in automotive sales and, as a result, volume was 265 tonnes, 7.7% down on the first half (287 tonnes). Electronics sales volume for the year was down 3.6% on 2004 at 557 tonnes as a result of a 15.7% reduction in semiconductor sales, which was partially offset by a 16.9% increase in sales volume for consumer electronics applications. Second half sales volume of 265 tonnes was 9.2% below the first half of 292 tonnes. This was due to consumer electronics volume running below record first half levels offset by some recovery in semiconductor sales. Regionally, we achieved another year of significant growth in Asia-Pacific where volume increased to 395 tonnes, up 35.7% on last year's record levels. This was largely due to the continued penetration of new consumer electronics applications in the first half combined with a recovery in semiconductor sales in the second half. Second half sales volume (185 tonnes) was 12% lower than the record first half (210 tonnes) due to lower Japanese sales. Europe also achieved record sales volume which, at 969 tonnes for the year, was 7.0% up on 2004. Growth came mainly from the automotive and industrial segments. Second half volume (472 tonnes) was 5% down on the strong first half performance (497 tonnes). At 608 tonnes, United States volume was in line with the previous year. There was a strong recovery in the second half with sales volume of 327 tonnes, up 16.4% on the first half (281 tonnes) due to increased demand in the oil and gas and chemical processing segments. BUSINESS DEVELOPMENT Victrex continues to invest in new products and platforms to extend the market range of products derived from our core polyketone technology. In 2005, we further expanded our grade range and successfully realised initial sales of new platforms such as VICTREX High Flow PEEK (into thin-walled automotive applications) and VICTREX Ultra-High Purity PEEK (into the semiconductor market). In addition, we significantly expanded both our application pipeline and sales into the coating and film areas which we believe offer major new market opportunities for Victrex. In coating products, we commercialised new VICTREX PEEK coating applications for industrial and consumer components, leveraging VICTREX PEEK's unique combination of excellent wear and outstanding abrasion resistance. In film, we are developing a broad range of new applications, including speaker components, wire insulation, and substrates in consumer electronic components. Our focus on major markets continues, as we define the next generation of applications where VICTREX PEEK not only improves performance but, in many cases, can reduce total system costs. In transport, we continue to focus on electro-mechanical components which demand superior performance in applications such as emergency brakes and ABS systems; while driving new opportunities such as electronic exhaust sensor systems to ensure emission standards are met. In oil and gas, VICTREX PEEK is enabling oil companies and their suppliers to develop downhole systems to access oil reserves where extreme temperature and chemical environments preclude the use of most other polymers. We support these evolving industry needs with both materials and applications knowhow, assisting the end user in developing complete systems solutions to accelerate the adoption of VICTREX PEEK. The continuing effectiveness of our development programmes is best demonstrated by our ongoing success in delivering new applications. During the year we commercialised 475 new applications (2004: 436) having an estimated mature annualised volume ('MAV') of 351 tonnes (2004: 305 tonnes). At the year end, the pipeline contained 1,433 developments (2004: 1,431) with an estimated MAV of 2,344 tonnes (2004: 2,051 tonnes) if all of the developments were successfully commercialised. As part of our continual effort to better meet customers' needs and drive further growth in Asia, we are investing in a new Asian Innovation and Technology Centre which will be located in Shanghai, China. The Centre, scheduled to open in Summer 2006, will provide customers with expertise in material specification, testing, research and application development. INVIBIO(R) Invibio has enjoyed another excellent year with turnover of Â£11.1m, showing an increase of 97.2% over 2004 (Â£5.7m). This reflects continued core product sales growth and successful development of new business across a broad range of end use markets. During the year we entered into 33 additional PEEK-OPTIMA(R) polymer long-term supply assurance agreements with implantable medical device manufacturers. Important developments were realised in strategic market areas including arthroscopy, dental, orthopaedic, trauma and neurostimulation. Initial sales of PEEK-CLASSIX(R) polymer (launched last year), designed and manufactured for short term blood and tissue contact, have been ahead of expectations. Invibio also recently launched ENDOLIGN(TM) polymer, a continuous carbon fibre reinforced product, for use in orthopaedic applications where strengths comparable to implantable metals are required. Historically, Invibio's business has been focused on the US and European markets. We are now expanding into Asia-Pacific and are opening our first Asian office in Hong Kong. Long-term implantable devices that utilise PEEK-OPTIMA polymer have already been approved in China, Taiwan and, most recently, Japan. SUPPLY CHAIN The acquisition of the operations of Degussa AG relating to the manufacture of BDF (the key raw material from which VICTREX PEEK is produced) during the year has consolidated Victrex's control of the BDF supply chain following our previous acquisition of the primary manufacturing stage in 1999. The 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). The supply chain can currently support 2,800 tonnes per annum of VICTREX PEEK sales. To allow us to meet our growth expectations and demonstrate further security of supply to our customers, we have commenced construction of a second VICTREX PEEK polymer powder manufacturing plant on our main UK site at Thornton Cleveleys, Lancashire. With an estimated capital cost of Â£29m, the new plant will have the capacity to support an additional 1,450 tonnes per annum of VICTREX PEEK sales. Construction is expected to be completed in late 2007. To utilise this additional polymer capacity fully we will also need to uprate our BDF supply chain. We are currently carrying out a review of the supply chain before proceeding to detailed design and costing. The investments outlined above will enable us to increase capacity and further improve product quality and customer service while giving us even greater control of costs. OUTLOOK Sales volume has shown some strengthening since the year end. If this level of demand is sustained, first half volume will be higher than the second half of last year. Despite weakening in our effective exchange rates, we still expect further enhancement in our gross margin for the year to 30 September 2006, principally due to the benefits arising from the recent acquisition of the BDF operations. Peter Warry Chairman 5 December 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT 2005 2004 For the year ended 30 September Note Â£000 Â£000 --------------------------- ------- ------- ------- Turnover: Group and share of Japanese joint venture 108,741 93,497 Less: share of Japanese joint venture (7,126) (6,921) --------------------------- ------- ------- ------- Turnover 2 101,615 86,576 Cost of sales (43,628) (38,915) --------------------------- ------- ------- ------- Gross profit 57,987 47,661 Sales, marketing and administrative expenses (23,733) (19,905) --------------------------- ------- ------- ------- Group operating profit 34,254 27,756 Share of operating profit in Japanese joint venture 549 570 --------------------------- ------- ------- ------- Total operating profit 34,803 28,326 Interest receivable 419 271 Interest payable and other similar charges (143) (138) --------------------------- ------- ------- ------- Profit on ordinary activities before taxation 35,079 28,459 Taxation on profit on ordinary activities (11,401) (9,249) --------------------------- ------- ------- ------- Profit on ordinary activities after taxation 23,678 19,210 Equity dividends paid and proposed 8 (9,682) (6,853) --------------------------- ------- ------- ------- Retained profit for the financial year 13,996 12,357 --------------------------- ------- ------- ------- The Company 2,856 6,005 Group undertakings and joint venture 11,140 6,352 --------------------------- ------- ------- ------- 13,996 12,357 --------------------------- ------- ------- ------- Earnings per ordinary share Basic 3 29.3p 23.9p Diluted 3 29.0p 23.7p --------------------------- ------- ------- ------- The Group's turnover and operating profit arise from continuing operations in both the current and preceding year. There were no material differences between reported profits and historical cost profits on ordinary activities before taxation in either of the above financial years. CONSOLIDATED BALANCE SHEET 2005 2004 As at 30 September Â£000 Â£000 ------------------ ----------------- -------- ------ Fixed assets Intangible assets 9,155 6,677 Tangible assets 63,812 49,347 Investment in Japanese joint venture : share of gross assets 2,291 2,089 share of gross liabilities (2,266) (1,800) ---------------- ----------------- -------- ------- 72,992 56,313 ---------------- ----------------- -------- ------- Current assets Stocks 19,936 18,833 Debtors 13,049 10,578 Cash at bank and in hand 15,821 17,004 -------------- -------------------- -------- ------- 48,806 46,415 Creditors: amounts falling due within one year (24,854) (22,704) -------------- -------------------- -------- ------- Net current assets 23,952 23,711 -------------------------------- -------- ------- Total assets less current liabilities 96,944 80,024 Provisions for liabilities and charges (6,770) (6,070) -------------- -------------------- -------- ------- Net assets 90,174 73,954 -------------- -------------------- -------- ------- Capital and reserves Called up share capital 812 805 Share premium account 15,243 13,383 Profit and loss account 74,119 59,766 -------------------------------- -------- ------- Equity shareholders' funds 90,174 73,954 -------------------------------- -------- ------- These financial statements were approved by the Board of Directors on 5 December 2005 and were signed on its behalf by: D R Hummel Chief Executive M W Peacock Finance Director CONSOLIDATED CASH FLOW STATEMENT 2005 2004 For the year ended 30 September Note Â£000 Â£000 ---------------------------------- ----- ------- ------- Net cash inflow from operating activities 4 37,158 32,336 ---------------------------------- ----- ------- ------- Return on investments and servicing of finance Interest received 419 273 Interest paid (49) (36) ---------------------------------- ----- ------- ------- Net cash inflow from returns on investment and servicing of finance 370 237 ---------------------------------- ----- ------- ------- Taxation - Taxation paid (9,734) (6,070) ---------------------------------- ----- ------- ------- Net cash outflow from capital expenditure - Purchase of (6,017) (9,468) tangible fixed assets ----- ------- ------- ---------------------------------- Acquisitions Purchase of business (including opening inventory) 5 (16,300) - Associated acquisition costs including stamp duty 5 (1,447) - ---------------------------------- ----- ------- ------- Net cash outflow from acquisition (17,747) - ---------------------------------- ----- ------- ------- Equity dividends paid (6,996) (6,112) ---------------------------------- ----- ------- ------- Net cash (outflow)/inflow before financing (2,966) 10,923 ---------------------------------- ----- ------- ------- Financing Issue of ordinary shares exercised under option 7 3 Premium on issue of ordinary shares exercised under option 1,860 640 Purchase of own shares held (84) (602) ---------------------------------- ----- ------- ------- Net cash inflow from financing 1,783 41 ---------------------------------- ----- ------- ------- (Decrease)/increase in cash in the year 6 (1,183) 10,964 ---------------------------------- ----- ------- ------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2005 2004 For the year ended 30 September Â£000 Â£000 --------------------------------- ------- ------- Profit for the financial year 23,678 19,210 Exchange loss on consolidation (114) (24) --------------------------------- ------- ------- Total recognised gains and losses relating to the financial year 23,564 19,186 --------------------------------- ------- ------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2005 2004 For the year ended 30 September Â£000 Â£000 --------------------------------- ------- ------- Profit for the financial year 23,678 19,210 Equity dividends paid and proposed (9,682) (6,853) --------------------------------- ------- ------- Retained profit for the financial year 13,996 12,357 Exchange loss on consolidation (114) (24) Issue of ordinary shares exercised under option 7 3 Premium on issue of ordinary shares exercised under option 1,860 640 Purchase of own shares held (84) (602) LTIP charge 555 443 --------------------------------- ------- ------- Net movement in shareholders' funds 16,220 12,817 Opening shareholders' funds 73,954 61,137 --------------------------------- ------- ------- Closing shareholders' funds 90,174 73,954 --------------------------------- ------- ------- NOTES TO THE FINANCIAL STATEMENTS 1 Basis of preparation The financial statements have been prepared on the basis of the accounting policies set out in the Group's last Annual Report and Accounts. 2 Analysis of turnover An analysis of turnover by origin and customer location is as follows: 2005 2004 Â£000 Â£000 ---------------------- --------- ---------- Europe 52,671 45,469 United States of America 32,444 28,799 Asia-Pacific 16,500 12,308 ---------------------- --------- ---------- 101,615 86,576 ---------------------- --------- ---------- 3 Earnings per share 2005 2004 ---------------------- --------- ---------- Basic 29.3p 23.9p Diluted 29.0p 23.7p ---------------------- --------- ---------- Earnings per ordinary share is based on the Group's profit on ordinary activities after taxation of Â£23,678,000 (2004: Â£19,210,000). The weighted average number of shares used in the calculation is: Basic 80,821,490 (2004: 80,394,636); Diluted 81,692,949 (2004: 80,945,671). 4 Reconciliation of operating profit to net cash inflow from operating activities 2005 2004 Â£000 Â£000 ------------------------ -------- --------- Operating profit 34,803 28,326 Depreciation and amortisation charge 5,508 4,860 ------------------------ -------- --------- Earnings before interest, taxation, depreciation and amortisation 40,311 33,186 Increase in stocks (203) (2,418) Increase in debtors (2,483) (1,221) (Decrease)/increase in creditors (838) 3,130 LTIP charge 555 443 Japanese joint venture profit in stock elimination 479 (190) Share of operating profit in Japanese joint venture (549) (570) Effect of foreign exchange rate changes (114) (24) ------------------------ -------- --------- Net cash inflow from operating activities 37,158 32,336 ------------------------ -------- --------- 5 Purchase of business On 1 April 2005 the BDF manufacturing operations were acquired from Degussa AG. Net assets acquired Â£000 ------------------------ --------- Tangible fixed assets 12,900 Goodwill 2,500 Stock 900 ------------------------ --------- 16,300 Associated acquisition costs including stamp duty 1,447 ------------------------ --------- Total cash consideration 17,747 ------------------------ --------- The resulting goodwill was capitalised and is being amortised to the profit and loss account over its estimated useful economic life of 10 years. This acquisition was funded from existing cash resources and borrowing facilities. No fair value adjustments were made in relation to the acquired assets. Profit before tax attributable to these assets for the year ended 31 December 2004 amounted to Â£4.9m. 6 Reconciliation of net cash flow to movement in net cash ---------------------- ---------- --------- 2005 2004 Â£000 Â£000 ---------------------- ---------- --------- (Decrease)/increase in cash in year (1,183) 10,964 Cash outflow from decrease in debt - - ---------------------- ---------- --------- Movement in net cash in year (1,183) 10,964 Net cash at beginning of year 17,004 6,040 ---------------------- ---------- --------- Net cash at end of year 15,821 17,004 ---------------------- ---------- --------- 7 Exchange rates The Sterling exchange rates used in the accounts under the Group's accounting policies are: Average Closing exchange rate exchange rate 2005 2004 2005 2004 --------------- -------- -------- -------- -------- US Dollar 1.76 1.61 1.81 1.70 Euro 1.44 1.45 1.41 1.41 Yen 186 186 189 176 --------------- -------- -------- -------- -------- 8 Dividend and Annual General Meeting The proposed final dividend will be paid on 1 March 2006, to all shareholders on the register on 3 February 2006. The Annual General Meeting of the Company will be held on 7 February 2006, at The Great Eastern Hotel, Liverpool Street, London, EC2M 7QN. 9 Financial Statements The above financial information does not comprise full financial statements within the meaning of the Companies Act 1985. The results for the years ended 30 September 2005 and 2004 have been extracted from the full accounts for those periods. The auditors have given an unqualified report on the accounts for both years. The accounts for the year ended 30 September 2004 have been delivered to the Registrar of Companies. The accounts for the year ended 30 September 2005 are to be posted to shareholders on 16 December 2005 and will be available from the Company's registered office at 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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