Final Results
Victrex PLC
11 December 2007
11 December 2007
Victrex plc
Results announcement for the year ended 30 September 2007
• Volume up 7% to 2,508 tonnes (2006: 2,339 tonnes)
• Revenue up 7% to £131.0m (2006: £122.5m)
• Profit before taxation up 13% to £52.0m (2006: £46.1m)
• Earnings per share up 14% to 44.9p (2006: 39.4p)
• Final dividend of 12.6p making a total of 17.3p for the year, an
increase of 20%
Chairman Peter Warry commented:
'Once again, I am pleased to report another year of good progress for the Group.
Since the year end, sales volume has been sustained at levels similar to the
increased volumes we achieved in August and September. While it is too early to
predict the outcome for the year as a whole, we remain confident in the
underlying growth potential for the business.
As we look ahead, we are excited, not only by the potential of all our
developments, but also by the growing awareness of our expanding product
portfolio by more end users. We will continue to address our customers'
requirements so that we can provide new solutions and will continue to invest in
our people and our infrastructure to meet our customers' needs. This, in turn,
will provide the basis for further business growth.'
Enquiries
Victrex plc
David Hummel, Chief Executive 0207 357 9477 (11 December 2007)
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 30 September 2007
Once again, I am pleased to report another year of good progress for the Group.
FINANCIAL RESULTS
Revenue for the year was £131.0m (2006: £122.5m), an increase of 7%. Underlying
revenue, excluding the adverse impact of exchange rates, was up 10% on 2006.
Gross profit increased by 11% to £84.5m (2006: £75.8m), representing a gross
margin of 64.5% of turnover (2006: 61.9%). This margin increase was partly due
to the previously announced closure of the small low margin fluorides business.
Margin also benefited from an increased Invibio(R) contribution with the Group
gross margin excluding the fluorides business increasing to 65.0% from 64.1% in
2006.
Sales, marketing and administrative expenses increased by 8% to £33.2m (2006:
£30.7m), primarily reflecting ongoing investment in product and application
development.
As expected, exchange rates have had an adverse impact of £2.0m on profit before
tax, compared to 2006, due to the strengthening of Sterling against our key
trading currencies (Yen, Euro and US Dollar). Resulting profit before tax was
£52.0m, 13% up on 2006 (£46.1m). Underlying profit before tax excluding this
currency impact was £54.0m, an increase of 17% over 2006.
Basic earnings per share were up 14% at 44.9p (2006: 39.4p). Underlying earnings
per share, excluding the adverse currency impact, were up 18%.
The overall effective tax rate (including deferred tax) was 30% (2006: 31%).
Dividend
In recognition of another year of strong performance, the Directors are
recommending a final dividend of 12.6p (2006: 10.2p) per ordinary share, making
a total of 17.3p (2006: 14.4p) per ordinary share for the year, an increase of
20% over last year. This represents dividend cover of 2.6 times.
Cash flow
Cash flow generated from operations was £50.7m (2006: £54.8m) as the impact of
improved trading was offset by increased working capital, primarily trade
receivables and inventories.
Capital expenditure cash payments amounted to £37.2m (2006: £21.5m). Taxation
paid was £12.2m (2006: £12.4m).
At the year end, the Group had net cash of £13.7m (2006: £26.9m). The Group
renewed its committed bank facility of £40m, all of which was undrawn at the
year end. This facility expires in September 2012.
OPERATIONAL REVIEW
Markets
Sales volume for the year grew by 7% to 2,508 tonnes (2006: 2,339 tonnes).
Second half sales volume of 1,222 tonnes was in line with the previous second
half (1,226 tonnes) but 5% down on the first half (1,286 tonnes). However, Group
sales volume in August and September increased to levels similar to those
achieved in the first half.
Of our three principal market segments, industrial sales volume was up 16% at
885 tonnes (2006: 761 tonnes), largely due to increased demand from oil and gas
and chemical processing customers. The strong first half performance (439
tonnes) was maintained in the second half (446 tonnes).
At 658 tonnes, transport sales volume was up 6% on 2006 (619 tonnes) principally
as a result of increased commercial aerospace sales. We also saw increased
automotive sales in the United States and Japan partially offset by marginally
lower sales in Europe. Second half sales volume of 324 tonnes was in line with
the first half of 334 tonnes.
Electronics sales volume for the year was down 2% at 645 tonnes(2006: 658 tonnes)
as a result of a decrease in second half sales which, at 292 tonnes, were 17%
below the record first half of 353 tonnes. This was largely due to reduced
demand from European processors for use in Asia-Pacific applications.
Regionally, United States sales volume of 791 tonnes was 9% up on the previous
year (724 tonnes) largely due to growth in the automotive, commercial aerospace
and oil and gas segments, partially offset by reduced semiconductor sales.
Second half sales volume was 402 tonnes compared with 389 tonnes for the first
half.
Asia-Pacific sales volume of 474 tonnes was up 13% on 2006 (419 tonnes). This
was mainly due to transport and electronics growth. Second half sales volume of
233 tonnes compared well with the record first half performance of 241 tonnes.
At 1,243 tonnes, European sales volume was 4% up on the previous year
(1,196 tonnes) although second half sales volume of 587 tonnes was 11% down on
the strong first half of this year (656 tonnes). As noted above, this was
principally due to reduced electronics sales.
Invibio
Invibio, our biomaterials business, enjoyed a record year with turnover of
£19.3m, an increase of 25% over 2006 (£15.4m). Underlying revenue was up 27% on
2006 excluding the adverse impact of exchange rates. This reflects continued
sales growth to our existing customers, coupled with successful development of
new business across a broad range of end use markets.
During the year we entered into a record 44 additional PEEK-OPTIMA(R) polymer
long-term supply assurance agreements with implantable medical device
manufacturers. We continued to make good progress in further developing
strategic markets including arthroscopy, dental, orthopaedic and
neurostimulation, while ongoing success in the spinal market continued with
developments in new areas of this rapidly growing market segment.
Invibio established a Scientific Advisory Board to maximise our external
technical and surgical perspective by working closely with leading scientific
and medical experts.
We have opened our new Invibio Global Technology Centre in the UK. This
state-of-the-art research and technology facility expands our capabilities and
includes Class 10,000 clean room processing facilities ensuring contaminant free
manufacturing capabilities for research and development grades and prototype
materials. The Centre will enable Invibio to provide further knowledge based
biomaterial solutions and expertise to our end users, while accelerating
research and development efforts for the commercialisation of novel PEEK-OPTIMA
based biomaterials.
Product and market development
We continued to make excellent progress in product and market development
activities in 2007. A record number of new applications were commercialised
while we continued to broaden our product offering and, as a result, our
penetration into new industries.
During the year we commercialised a record 580 new applications (2006: 517)
having an estimated mature annualised volume ('MAV') of 494 tonnes
(2006: 345 tonnes). At the year end, the pipeline contained 2,411 developments
(2006: 1,764) with an estimated MAV of 2,949 tonnes (2006: 2,754 tonnes) if all
of the developments were successfully commercialised.
The launch of Victrex APTIV(TM) film, following completion of our film
manufacturing facility, marked a major milestone as we introduced one of the
highest performing and versatile films on the market. Our demonstrated ability
to manufacture to unprecedented tolerances and thicknesses is opening up new
opportunities in aerospace and electronics. Commercial sales have already
commenced in these industries, as they seek improved performance and lower
weight in applications such as thermal and electrical insulation. APTIV film's
unparalleled acoustic and mechanical properties have resulted in specification
at a number of leading speaker manufacturers in applications ranging from mobile
phones to high end home sound systems. In addition, interest in APTIV film has
opened the doors to new potential end users worldwide for other products in our
portfolio.
Our new range of VICOTE(R) Coatings was commercialised in a number of industries
as customers validated the properties of improved durability and long life. In
high performance applications, such as needle roller bearings for motorcycles,
VICOTE Coatings was able to replace high cost metallic coatings at a fraction of
the cost and still deliver the required performance. Elsewhere, VICOTE Coatings
replaced other polymeric coatings to significantly extend the lifetime of
release coatings on tyre and shoe moulds, reducing downtime and enhancing
productivity in these highly competitive industries.
We continued to expand our product range to open up new application areas.
VICTREX T-Series(TM) polymers, introduced last year, have already gained
specifications in high performance sealing applications in the ever more
demanding oil and gas exploration market. This year, we launched our newest
product family, VICTREX MAX-Series(TM) polymers, which is a blend of VICTREX(R)
PEEK(TM) polymer and Extem(R) UH thermoplastic polyimide (TPI) from SABIC
Innovative Plastics. MAX-Series is focused on applications which demand the
chemical resistance and processability of VICTREX PEEK, yet also require extreme
temperature resistance with improved dimensional stability. We have commenced a
number of sampling programmes in the electronics and oil and gas segments.
Finally, a new range of electrostatic dissipative (ESD) grades were
commercialised into various application areas in semiconductor manufacturing.
Our global market development teams continued to develop record numbers of new
applications in our traditional markets. In automotive, VICTREX PEEK is a key
material for integral components in new transmission, fuel injection and braking
systems in the latest cars from leading car companies in the United States,
Europe and Asia. In addition, the proliferation of tyre pressure monitoring
systems has led to the specification of VICTREX PEEK in these devices to ensure
the systems could survive the extremes of environment and mechanical stresses
during the lifetime of a car.
The new generation of commercial aircraft being developed demands significantly
lower weight to gain fuel efficiency. As a result, VICTREX PEEK is providing
solutions for customers such as Boeing in many components of their next
generation airliners. Applications in electrical systems, insulation, and
interiors are helping them meet weight, structural and flammability requirements
without sacrificing other performance criteria.
In electronics, VICTREX PEEK is being specified in new generations of high speed
printers as performance requirements for gears and other critical components
increase. In consumer electronics, higher power levels in applications such as
digital light projectors and LED systems are driving an increased interest in
VICTREX PEEK for improved device safety, performance and lifetime.
We continue to see increased demand from oil and gas companies who require
higher performing systems as further exploration takes them to more extreme
temperature and chemical environments. Wire insulation, connectors and
electronics encapsulation are examples of applications in which VICTREX PEEK
materials help provide reliability and performance which are essential to
productivity.
Supply chain and capital expenditure
We have completed the construction of our second VICTREX PEEK polymer powder
plant on our main UK site, at a capital cost of approximately £32m, which will
be depreciated over its estimated useful life of 30 years. The plant has the
capacity to support a further 1,450 tonnes per annum of VICTREX PEEK sales in
addition to the first plant's existing capacity of 2,800 tonnes and is expected
to be fully operational by the end of the year.
The uprate of the BDF supply chain to support this additional polymer capacity
is ongoing with completion expected in autumn 2008 at an estimated capital cost
of £23m. We have also commenced an uprate of our melt filtration plant to
increase production capacity of our purified, granular product from 1,800 to
3,450 tonnes per annum. This uprate is due for completion in autumn 2008 at an
estimated capital cost of £8m.
Total fixed asset additions amounted to £34.3m for the year (2006: £25.0m). The
additions principally related to the construction of the polymer powder plant
and the BDF uprate. Other items included the Invibio Global Technology Centre,
the film manufacturing facility and the melt filtration plant uprate. We expect
capital expenditure for 2008 to amount to approximately £25m, subject to phasing
of projects. This will be funded from the Group's cash resources and committed
borrowing facility.
OUTLOOK
Sales volume
Since the year end, sales volume has been sustained at levels similar to the
increased volumes we achieved in August and September. While it is too early to
predict the outcome for the year as a whole, we remain confident in the
underlying growth potential for the business.
Currency impact
As previously reported, trading results for 2008 will be adversely affected by
the strengthening of Sterling against our key trading currencies compared with
2007. Based on our forecast sales volume, current hedging already in place and
spot exchange rates as at 30 November 2007, we currently estimate the following
average rates will apply:
Year to Six months to Six months to Year to
30 September 31 March 30 September 30 September
2007 2008 2008 2008
Actual Estimate Estimate Estimate
US Dollar 1.83 1.97 2.00 1.99
Euro 1.45 1.46 1.44 1.45
Yen 202 221 226 223
By way of illustration, if the estimated 2008 rates had applied in 2007, this
would have had an adverse impact of £4.1m on profits.
The future
As we look ahead, we are excited, not only by the potential of all of our
developments, but also by the growing awareness of our expanding product
portfolio by more end users. We will continue to address our customers'
requirements so that we can provide new solutions and will continue to invest in
our people and our infrastructure to meet our customers' needs. This, in turn,
will provide the basis for further business growth.
Peter Warry
Chairman
10 December 2007
CONSOLIDATED INCOME STATEMENT
-------- ------ ------ ------
For the year ended 30 September 2007 2007 2006 2006
Note £000 £000 £000 £000
-------- ------ ------ ------
Revenue 2 131,025 122,516
Cost of sales (46,552) (46,708)
-------- ------ ------ ------
Gross profit 84,473 75,808
Sales, marketing and administrative
expenses (33,237) (30,743)
-------- ------ ------ ------
Operating profit 2 51,236 45,065
Financial income 702 688
Financial expenses (105) (88)
-------- ------ ------ ------
Net financing income 597 600
Share of profit of Japanese joint
venture 196 474
-------- ------ ------ ------
Profit before tax 52,029 46,139
Income tax expense (15,609) (14,303)
-------- ------ ------ ------
Profit for the year attributable
to equity shareholders of the parent 36,420 31,836
-------- ------ ------ ------
Earnings per share
Basic 3 44.9p 39.4p
Diluted 3 44.4p 38.9p
Dividend per share
Interim 4.7p 4.2p
Final 12.6p 10.2p
------ ------
17.3p 14.4p
------ ------
A final dividend in respect of 2007 of 12.6p per share has been recommended by
the Directors for approval at the Annual General Meeting on 5 February 2008.
BALANCE SHEET
-------- -------
As at 30 September 2007 2006
£000 £000
-------- -------
Assets
Non-current assets
Property, plant and equipment 112,787 84,009
Intangible assets 11,483 9,404
Investment in Japanese joint venture - 370
Deferred tax assets 5,753 7,201
-------- -------
130,023 100,984
-------- -------
Current assets
Inventories 27,867 22,969
Current income tax assets 416 774
Trade and other receivables 15,887 12,139
Derivative financial instruments 2,137 2,776
Cash and cash equivalents 17,120 26,860
-------- -------
63,427 65,518
-------- -------
Total assets 193,450 166,502
-------- -------
Liabilities
Non-current liabilities
Deferred tax liabilities (12,666) (12,385)
Retirement benefit obligations (7,110) (12,159)
-------- -------
(19,776) (24,544)
-------- -------
Current liabilities
Derivative financial instruments (1,464) (244)
Short-term borrowings (3,419) -
Current income tax liabilities (11,077) (7,549)
Trade and other payables (16,231) (20,714)
-------- -------
(32,191) (28,507)
-------- -------
Total liabilities (51,967) (53,051)
-------- -------
-------- -------
Net assets 141,483 113,451
-------- -------
Equity
Share capital 822 817
Share premium 18,148 16,549
Translation reserve (628) (229)
Hedging reserve 39 1,325
Retained earnings 123,102 94,989
-------- -------
Total equity 141,483 113,451
-------- -------
CASH FLOW STATEMENT
------- -------- --------
For the year ended 30 September 2007 2006
Note £000 £000
------- -------- --------
Cash flows from operating activities
Cash generated from operations 5 50,690 54,791
Interest and similar charges paid (309) (20)
Interest received 702 688
Tax paid (12,177) (12,357)
------- -------- --------
Net cash flow from operating activities 38,906 43,102
------- -------- --------
Cash flows from investing activities
Acquisition of property, plant and equipment (37,189) (21,470)
Purchase of business including acquisition costs (1,036) -
Dividends received - 112
------- -------- --------
Net cash flow from investing activities (38,225) (21,358)
------- -------- --------
Cash flows from financing activities
Issue of ordinary shares exercised under option 5 5
Premium on issue of ordinary shares exercised
under 1,599 1,306
option
Purchase of own shares held (821) (767)
Increase in short-term borrowings 1,264 -
Dividends paid (12,069) (10,896)
------- -------- --------
Net cash flow from financing activities (10,022) (10,352)
------- -------- --------
Net (decrease)/increase in cash and cash (9,341) 11,392
equivalents
Exchange differences on net investment
translation of (399) (279)
foreign operations
Cash and cash equivalents at beginning of year 26,860 15,747
------- -------- --------
Cash and cash equivalents at end of year 17,120 26,860
------- -------- --------
Components of net cash
------- -------- --------
As at 30 September 2007 2006
£000 £000
------- -------- --------
Cash and cash equivalents 17,120 26,860
Short-term borrowings (3,419) -
------- -------- --------
Net cash 6 13,701 26,860
------- -------- --------
STATEMENT OF RECOGNISED INCOME AND EXPENSE
-------- --------
For the year ended 30 September 2007 2006
£000 £000
-------- --------
Changes in fair value of cash flow hedges 2,871 299
Net change in fair value of cash flow hedges transferred to
income statement (4,710) 1,366
Exchange differences on net investment translation of
foreign operations (399) (279)
Actuarial gains/(losses) on defined benefit plans 5,729 (4,050)
Tax on items taken directly to or transferred from equity (2,058) 1,262
-------- --------
Net income/(expense) recognised directly in equity 1,433 (1,402)
Profit for the year 36,420 31,836
-------- --------
Total recognised income and expense for the year
attributable to equity shareholders of the parent 37,853 30,434
-------- --------
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 Segment reporting
Primary geographical segments
Results
Europe USA Asia-Pacific Group Europe USA Asia-Pacific Group
2007 2007 2007 2007 2006 2006 2006 2006
£000 £000 £000 £000 £000 £000 £000 £000
------ ------ ------ ------ ------ ------ ------ ------
Total segment sales 65,421 77,529 26,511 169,461 65,076 70,452 17,789 153,317
Less inter-segment
sales (88) (32,484) (5,864) (38,436) (158) (29,974) (669) (30,801)
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Revenue from
external sales 65,333 45,045 20,647 131,025 64,918 40,478 17,120 122,516
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Segment
operating profit 29,904 18,136 6,926 54,966 29,753 14,670 4,754 49,177
Unallocated
central costs (3,730) (4,112)
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Operating profit 51,236 45,065
Net financing income 597 600
Share of profit of
Japanese joint
venture 196 474
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Profit before tax 52,029 46,139
Income tax
expense (15,609) (14,303)
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Profit for the year
attributable
to equity
shareholders
of the parent 36,420 31,836
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Other information
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Segment assets 172,557 11,086 9,807 193,450 152,341 8,788 5,373 166,502
Segment
liabilities 39,779 8,174 4,014 51,967 43,418 9,482 151 53,051
Capital
expenditure 33,806 206 272 34,284 23,637 33 1,365 25,035
Depreciation 5,402 50 125 5,577 4,772 30 34 4,836
Amortisation 609 - - 609 611 - - 611
--------------- ------ ------ ------ ------ ------ ------ ------ ------
Secondary business segments
------ ------
2007 2006
£000 £000
------ ------
Sales
VICTREX PEEK 111,732 107,076
Invibio 19,293 15,440
--------------- ------ ------
131,025 122,516
------ ------
Total assets
VICTREX PEEK 179,849 159,049
Invibio 13,601 7,453
--------------- ------ ------
193,450 166,502
------ ------
Capital expenditure
VICTREX PEEK 31,735 23,581
Invibio 2,549 1,454
--------------- ------ ------
34,284 25,035
------ ------
Analysis of sales by category
--------------- ------ ------
2007 2006
£000 £000
------ ------
Product sales 126,390 118,670
Other income 4,635 3,846
--------------- ------ ------
131,025 122,516
------ ------
3 Earnings per share
Earnings per share is based on the Group's profit attributable to ordinary
shareholders and a weighted average number of ordinary shares outstanding during
the year, excluding own shares held.
2007 2006
-------- --------
Earnings per share - basic 44.9p 39.4p
- diluted 44.4p 38.9p
-------- --------
Profit for the financial year £36,420,000 £31,836,000
-------------------- -------- --------
Weighted average number of shares used:
Issued ordinary shares at beginning of year 81,740,045 81,235,566
Effect of own shares held (793,012) (720,157)
Effect of shares issued during the year 200,069 258,054
-------------------- -------- --------
Basic weighted average number of shares 81,147,102 80,773,463
Effect of share options 898,177 1,064,721
-------------------- -------- --------
Diluted weighted average number of shares 82,045,279 81,838,184
-------------------- -------- --------
4 Exchange rates
The most significant Sterling exchange rates used in the accounts under the
Group's accounting policies are:
Year ended Year ended
30 September 30 September
2007 2006
--------------- ---------------
Average Closing Average Closing
US Dollar 1.83 2.04 1.82 1.87
Euro 1.45 1.43 1.43 1.47
Yen 202 234 188 221
------------------ -------- -------- -------- --------
5 Reconciliation of profit to cash generated from operations
------ --------
2007 2006
£000 £000
------ --------
Profit after tax for the year 36,420 31,836
Income tax expense 15,609 14,303
Share of profit of Japanese joint venture (196) (474)
Net financing income (597) (600)
--------------------------- ------ --------
Operating profit 51,236 45,065
Adjustments for:
Depreciation 5,577 4,836
Amortisation 609 611
Increase in inventories (2,774) (3,030)
(Increase)/decrease in trade and other receivables (4,511) 675
(Decrease)/increase in trade and other payables (1,881) 5,595
Equity-settled share-based payment transactions 1,465 1,122
Japanese joint venture profit in stock adjustment 269 59
Changes in fair value of derivative financial instruments 20 (440)
Retirement benefit obligations charge less contributions 680 298
--------------------------- ------ --------
Cash generated from operations 50,690 54,791
--------------------------- ------ --------
6 Reconciliation of net cash to movements in net cash
------- --------
2007 2006
£000 £000
------- --------
(Decrease)/increase in cash and cash equivalents in year (9,341) 11,392
Exchange differences on net investment translation of
foreign operations (399) (279)
Movement in short-term borrowings (3,419) -
-------------------------------- ------- --------
Movement in net cash in year (13,159) 11,113
Net cash at beginning of year 26,860 15,747
-------------------------------- ------- --------
Net cash at end of year 13,701 26,860
-------------------------------- ------- --------
7 Dividend and Annual General Meeting
The proposed final dividend will be paid on 3 March 2008, to all shareholders on
the register on 8 February 2008. The Annual General Meeting of the Company will
be held on 5 February 2008, at Threadneedles Hotel, 5 Threadneedle Street,
London, EC2R 8AY.
8 Financial statements
The above financial information does not comprise full financial statements
within the meaning of the Companies Act 1985. The results for the year ended 30
September 2007 have been extracted from the full accounts for that period. The
auditors have given an unqualified report on the accounts for this year. The
results for the year ended 30 September 2006 have been extracted from the full
accounts for that year, which were unqualified and have been delivered to the
Registrar of Companies.
The accounts for the year ended 30 September 2007 will be posted to shareholders
on 21 December 2007 and will be available from the Company's registered office
at Victrex Technology Centre, HiIlhouse International, Thornton Cleveleys,
Lancashire, FY5 4QD, United Kingdom.
9 Forward-looking statements
Sections of this preliminary results announcement contain forward-looking
statements, including statements relating to: future demand and markets for the
Group's products and services; research and development relating to new products
and services, and liquidity and capital resources. These forward-looking
statements involve risks and uncertainties because they relate to events that
may or may not occur in the future.
Accordingly, actual results may differ materially from anticipated results
because of a variety of risk factors, including: changes in interest and
exchange rates; changes in global, political, economic, business, competitive
and market forces; changes to legislation and tax rates; future business
combinations or disposals; relations with customers and customer credit risk;
events affecting international security, including global health issues and
terrorism; changes in regulatory environment, and the outcome of litigation.
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