| EVC International N.V. - Interim Results for 2004 Key Features Quarter Two - Group turnover of EUR 306.2 million (2003:
EUR 259.3 million) First Half Year - Group turnover of EUR 615.2 million (2003:
EUR 550.3 million) Market Conditions West European market prices for Suspension PVC (S-PVC) continued to increase through the second quarter of 2004 such that the average headline prices for the first half of 2004 were approximately EUR 100 per tonne (15%) higher than in the first half of 2003. S-PVC market prices in Quarter Two were 8.5% higher than in Quarter One. Ethylene quarterly contract prices for the second quarter were 4.6% higher than in Quarter One. Quarter Two market demand in Western Europe and Asia followed seasonal patterns which, together with a number of planned production shutdowns for maintenance purposes, lead to a tightening in the supply chain. Export sales continued to be affected by the strength of the Euro versus the US Dollar. As previously reported EVC's margins in 2003 were adversely impacted by a significant shortfall in supply of chlorine under one of its long term supply contracts and the extra cost of Ethylene Dichloride (an intermediate of the VCM production) to replace the contract chlorine supplies for the first half of 2003 was EUR 9.0 million. The direct costs for the whole of 2003 were estimated in the 2003 EVC Group financial statements at EUR 10.8 million. In April 2004 EVC received an initial payment of EUR 8.0 million from its insurers in respect of this claim. EVC continues in discussion with its insurers on the total quantum of the claim. EVC has treated both the EUR 9.0 million direct extra costs incurred in 2003 and the EUR 8.0 million credit received in 2004 as exceptional items within cost of turnover. Financial Review Quarter Two Result of Operations Group turnover at EUR 306.2 million in the second quarter of 2004 was 18.1% higher than the equivalent period in 2003, due to higher PVC resin prices and volumes and higher turnover in the Compounds and Film business. Vinyl Chloride Monomer (VCM) and PVC production outputs during the second quarter were limited by scheduled plant shutdowns. At Runcorn, UK, and Porto Torres, Italy, the VCM units were shutdown in June to allow planned maintenance programmes to take place. At Wilhelmshaven, Germany the VCM unit was shutdown for a short period to allow Phase 1 of a debottlenecking project to be completed, the second phase being planned for October 2004. Overall, cost of turnover increased by 11.3% principally as a result of raw material price increases offset to a small extent by a reduction in the depreciation charge. For the quarter the Group returned a gross margin of EUR 25.4 million, a EUR 18.4 million increase versus 2003. Operating expenses at EUR 15.4 million were EUR 16.1 million higher than the equivalent period in 2003 (which benefited from the conclusion of a product liability claim process); the second quarter 2004 costs have also been impacted by further rationalisation costs over and above the "Horizon" restructuring programme initiated in 2001. The rationalisation costs have been treated as exceptional items within operating expenses. There was a net reduction in operating expenses from Quarter Two 2003 to 2004 of EUR 0.9 million excluding these exceptional items. The Advisory Agreement between EVC and INEOS, entered into in 2001 when INEOS acquired its majority control of EVC, expired at the end of Quarter One. The results for the second quarter are reported without this cost. As a result Group operating profit increased by EUR 2.3 million to EUR 10.0 million compared with EUR 7.7 million in the second quarter of 2003. The Compounds and Film business continues to suffer from increasing PVC input prices, a highly competitive market in Europe and the effects of the strong Euro in its overseas markets. As a result the downstream business produced a lower operating profit than the second quarter of 2003. The Polymers business made an operating gain of EUR 6.2 million, a notable improvement on the equivalent period in 2003 as a direct result not only of the EUR 8.0 million insurance receipt received in the second quarter of 2004 and the absence of the supply problems experienced during 2003, but also because of increases in volumes and unitary margins. Net financial expenses at EUR 5.1 million were EUR 0.9 million higher than 2003 as a direct result of the higher borrowings and interest rates due to the refinancing in November 2003. The Group produced a profit on ordinary operations before taxation of EUR 4.9 million (Q2 2003: EUR 3.5 million) and EUR 2.2 million (Q2 2003: EUR 3.3 million) after taxation. Taxation for the quarter was EUR 2.7 million, up EUR 2.5 million on 2003 as a result of increased charges in Germany where new tax legislation came into effect on 1 January 2004. The net result for the second quarter was a profit of EUR 2.1 million compared to EUR 3.2 million for the same period in 2003. First Half Year Result of Operations Group turnover at EUR 615.2 million for the first half of 2004 was 11.8% higher than the equivalent period in 2003, due to higher PVC resin prices and volumes and higher turnover in the Compounds and Film business. Overall, cost of turnover increased by 7.7% principally as a result of raw material price increases partly offset by a reduction in the depreciation charge. For the half year the Group returned a gross margin of EUR 42.5 million, a EUR 23.8 million increase versus 2003. Operating expenses at EUR 28.6 million were EUR 11.7 million higher than the equivalent period in 2003 which had benefited from the conclusion of product liability claim processes; the 2004 costs have also been impacted by further rationalisation costs over and above the "Horizon" restructuring programme initiated in 2001. There was a net reduction in operating expenses from 2003 to 2004 of EUR 5.3 million excluding these exceptional items. As a result Group operating profit increased
by EUR 12.1 million to EUR 13.9 million compared with EUR
1.8 million in 2003. Net financial expenses at EUR 10.8 million
were EUR 2.0 million higher than 2003 as a direct result of
the higher borrowings and interest rates due to the refinancing
in November 2003. The Group produced a profit on ordinary
operations before taxation of EUR 3.1 million (2003: EUR 7.0
million loss) and a loss of EUR 1.2 million (2003: EUR 7.7
million loss) after taxation. Taxation for the first half
of 2004 was EUR 4.3 million, up EUR 3.6 million on 2003 as
a result of increased charges in Germany due to new tax legislation.
The net result for the half year was a loss of EUR 1.4 million
compared to a loss of EUR 7.9 million in 2003. Financial Position As at 30 June 2004, the Group had gross borrowings of EUR 273.8 million, down EUR 5.0 million compared to 31 December 2003. After deducting cash balances of EUR 52.0 million, the net debt position as at 30 June 2004 was EUR 221.8 million, a decrease of EUR 1.2 million on the December 2003 position.
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