| EVC International N.V. - Financial Results 2004 Key Features Quarter Four Full Year Market Conditions West European market prices for Suspension PVC (S-PVC) continued to increase through the fourth quarter of 2004 such that the average headline price for 2004 was approximately 236 EUR per tonne (33 %) higher than in the same period of 2003. S-PVC market prices in Quarter Four were 7.2 % higher than in Quarter Three 2004. The positive sales price effect was partially offset by higher prices for the key raw materials of ethylene and chlorine but unitary margins continued to increase in Quarter Four. Ethylene prices were 10.9 % higher in Quarter Four than in Quarter Three. Chlorine prices have fallen by 19.9 % from Quarter Three to Quarter Four. Compounds and Film prices have increased but not to the level necessary to compensate the raw material price increases and therefore margins remained depressed. Margins and volumes have also been affected by the weakening US Dollar. The tough environment has led to some rationalisation of the supply base including rationalisation of capacity, manpower and market penetration. Production Incidents The Porto Torres VCM unit was affected in January 2004 when a third party vessel caught fire and damaged the offloading jetty and systems at the port. Major problems were encountered on the recommissioning of EVC's VCM plant at Runcorn, UK, following the extensive six week planned shutdown in June and July. In addition at Porto Marghera, Italy, a failure on an HCl (Hydrochloric acid) condenser in August resulted in the plant being shutdown for two weeks. Both plants became fully operational in mid September. There have been no further significant EVC planned or unplanned production problems in the remainder of 2004 and despite the outages full year production and sales volumes were broadly in line with 2003. Financial Review Result of Operations Quarter Four Group Turnover for the fourth quarter 2004 was EUR 319.8 million, up 78.7 million on the equivalent quarter last year. The increase was driven by higher sales prices (S-PVC market prices were some 33 % higher) and higher turnover in the Compounds and Film segment. Cost of turnover at EUR 332.1 million was EUR 103.2 million higher than Quarter Four 2003 due primarily to higher raw material prices, high maintenance costs due to shutdown and an asset write off in Germany. The Board has updated its review of the carrying value of the Group's tangible fixed assets in the light of current projections of future cash flow. This has resulted in a substantial asset impairment charge reflecting the excess of book value of the Group's VCM/S-PVC business over its estimated recoverable amount. Operating expenses were EUR 23.9 million, up 8.2 million compared to Quarter Four 2003. Quarter Four 2004 includes EUR 1.9 million of extra rationalisation costs and a foreign exchange impact of EUR 2.2 million. Operating loss before taxation for the Quarter was EUR 36.2 million compared with EUR 3.5 million in the previous year. The operating profit/loss in the fourth quarter for Polymers and the Compounds and Film segment was EUR 34.4 million loss and EUR 1.8 million loss respectively. Polymers operating loss in Quarter Four 2004 was EUR 25.8 million worse than the corresponding period in 2003 due to an impairment charge of EUR 32.3 million and an asset write off of EUR 4.5 million. Excluding the "one off" impairment and asset write off Polymers would have shown an improvement of EUR 11.0 million primarily due to improved unitary margins. The Compounds and Film business performance was EUR 6.9 million worse than in 2003 because of the continued increase in PVC input prices which it has not been possible to recover in full from customers in a highly competitive market. The strength of the Euro also continues to impact returns from overseas sales. Net financial expenses, at EUR 4.7 million were EUR 0.5 million higher than in Quarter Four 2003 as a direct result of the higher borrowing and interest rates due to the refinancing in November 2003. Taxation at EUR 2.0 million is EUR 2.1 million better than the equivalent period in 2003 due to deferred tax in Germany. The Group net result was a loss of EUR 39.0 million in the quarter, a EUR 31.3 million increased loss versus the previous year. Full Year Results Group turnover for 2004 increased by EUR 189.8 million, or 18.4 %, to EUR 1,222.0 million due to higher PVC resin prices and higher turnover in the Compounds and Film division. S-PVC sales volumes were broadly in line with 2003. Overall, base raw material costs were higher in 2004 compared to 2003. The European quarterly contract price for ethylene was some 20 % higher in 2004. For the full year the Group returned a gross margin of EUR 38.2 million as in 2003. The 2003 results were impacted by a major shortfall in the supply of chlorine under one of its long term supply contracts and in 2004 EVC received a payment of EUR 13.0 million from its insurers. Consistent with 2003 EUR 10.8 million of this receipt has been treated as an exceptional item within cost of turnover. Operating expenses at EUR 64.2 million were EUR 22.4 million higher than the equivalent period of 2003, this being primarily due to a EUR 16.7 million exceptional credit received in 2003 following the conclusion of a product liability claim process. Excluding exceptional items operating expenses increased by EUR 2.4 million year on year. The Group delivered an operating loss of EUR 26.0 million compared to an operating loss of EUR 3.6 million last year. For the full year 2004 the Polymers segment recorded an operating loss of EUR 33.6 million which was EUR 9.5 million better than the equivalent period of 2003. This improvement is due to the higher average unitary margins available in the market place more than offsetting the asset impairment charge and the negative impact on the 2003 results of the chlorine supply problems. Compounds and Film delivered an operating profit of EUR 7.6 million (2003: EUR 39.5 million). Excluding the EUR 16.7 million exceptional gain from customer and supplier settlements in 2003 Compounds and Film delivered EUR 15.2 million less than 2003. Net financial expense increased by EUR 3.2 million to EUR 20.8 million as a result of higher borrowings and interest rates. Taxation was a charge of EUR 5.6 million for 2004 compared to EUR 4.1 million in 2003. The increase is driven both by improved results in Germany and the effect of the change in German tax legislation. The net result for the full year 2004 was a loss of EUR 53.1 million compared to a loss of EUR 25.6 million in 2003. Cash Flow Group net cash flow before financing activities was an inflow of EUR 14.9 million for the full year compared with a EUR 15.1 million outflow in the previous year. The positive movement has been achieved via careful control of working capital and capital expenditure coupled with the benefit of the EUR 13.0 million insurance receipt. Financial Position At the end of December 2004 the Group had gross borrowings of EUR 270.3 million, down EUR 8.5 million from December 2003. After deducting cash balances of EUR 60.8 million the net debt position at the end of December was 209.5 million, down EUR 13.5 million compared to the EUR 223.0 million at the end of 2003. During the year EVC has changed its accounting policy relating to maintenance shutdown programmes. The 2003 balance sheet has been restated to reflect this; the 2003 profit and loss account is unaffected. Covenant Compliance As a result of the production difficulties in Quarter Three the banking syndicate approved a waiver of one of the Group's covenant tests. The Group has met its covenant tests as at 31 December 2004. Share Offer Following the recent share offer INEOS has now honoured all shares tendered at 24 January 2005 and holds 2,774,150 EVC Class A Shares and 32,623,014 EVC Shares, representing approximately 92.3 % of the issued share capital of EVC. The share offer remains open until
16 February 2005 at a price of EUR 4.45 per share.
|
