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