Final Results

RNS Number : 1836K

Victrex PLC

16 December 2008

 



16 December 2008

Victrex plc

Results announcement for the year ended 30 September 2008

Financial Highlights

 

·           Revenue up 8% to £141.1m (2007: £131.0m)

 - Underlying revenue up 11%*

 

·           Profit before tax up 6% to £55.0m (2007: £52.0m)

 - Underlying PBT up 18%*

 

·           Earnings per share up 6% to 47.8p (2007: 44.9p)

 - Underlying EPS up 18%*

 

·          Final dividend of 13.1p making a total of 18.3p for the year, an increase of 6%

 

·          Invibio^® revenue up 29% to £24.9m (2007: £19.3m)

-Underlying revenue up 34%*

 

·          Cash of £23.5m as at 30 September 2008 and no debt (2007: net cash: £13.7m)

 

 

            * at constant exchange rates

 

Operational Highlights

 

·           Strong new business generation

 

·           Strong application development pipeline containing 2,978 developments at year end (2007: 2,411)

 

·           Successful completion of construction of a second polymer plant and uprates of our raw material production facilities and melt filtration plant

 

 

Chairman Anita Frew commented:

'2008 was a good year for Victrex. Looking ahead, as outlined in our trading update announced on 1 December 2008, it is clear that 2009 is going to be a challenging year. However, the Group remains in a strong financial position with a healthy balance sheet and good cash generation. 

Additionally, although the current economic climate is impacting sales in the short term, the underlying growth drivers remain in place across our end use markets and our development pipeline of potential new applications is strong. Accordingly, we remain committed to the key objective of growth through new application development. We will continue to generate new business in 2009 as we penetrate existing markets with new applications, pioneer innovative applications in new markets, and expand our geographic presence.' 

Enquiries

Victrex plc

David Hummel, Chief Executive	0207 357 9477	(16 December 2008)
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 2008

In my first statement to shareholders as Chairman, I am pleased to report another good year for Victrex.

FINANCIAL RESULTS

Revenue for the year grew by 8% to £141.1m (2007: £131.0m). Underlying revenue (at constant exchange rates) was up 11% on 2007. Gross profit increased by 8% to £91.6m (2007: £84.5m), representing a gross margin of 64.9% of turnover (2007: 64.5%).

Sales, marketing and administrative expenses increased by 11% to £37.0m (2007: £33.2m), primarily reflecting ongoing investment in sales and marketing resources and the inclusion of local expenses in Victrex Japan, Inc since it became a wholly owned subsidiary with effect from 30 March 2007.

Effective exchange rates had an adverse impact of £6.1m on profit before tax, compared to 2007. In spite of this, profit before tax was £55.0m, 6% up on 2007 (£52.0m). Underlying profit at constant exchange rates was £61.1m, an increase of 18% over 2007.

Basic earnings per share were up 6% at 47.8p (2007: 44.9p). Underlying earnings per share, at constant exchange rates, were up 18%.

The overall effective tax rate (including deferred tax) was 29% (2007: 30%).

Dividend

In recognition of another successful year and the Group's strong financial position, the Directors are recommending a final dividend of 13.1p (2007: 12.6p) per ordinary share, making a total of 18.3p (2007: 17.3p) per ordinary share for the year, an increase of 6% over last year. This represents dividend cover of 2.6 times (2007: 2.6 times).

Cash flow

Cash flow generated from operations increased to £61.9m (2007: £50.7m) primarily as a result of increased operating profit and depreciation together with a lower increase in working capital compared with 2007.

Capital expenditure cash payments amounted to £25.0m (2007: £37.2m) principally reflecting the investment in additional supply chain capacity. Taxation paid was £15.7m (2007: £12.2m).

As at 30 September 2008, the Group had cash of £23.5m and no debt (2007: net cash £13.7m). The Group has a 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 5% to 2,626 tonnes (2007: 2,508 tonnes). Second half sales volume of 1,332 tonnes was 9% up on the previous second half (1,222 tonnes) and 3% up on the first half (1,294 tonnes).

Transport sales volume was up 10% at 723 tonnes (2007: 658 tonnes) principally as a result of increased automotive sales in Japan and the United States. We also saw increased commercial aerospace sales in the United States and Europe. Second half sales volume of 367 tonnes was up 3% on the first half of 356 tonnes primarily as a result of increased commercial aerospace sales in the United States.

Industrial sales volume was up 7% at 945 tonnes (2007: 885 tonnes), largely due to increased demand from oil and gas customers, primarily in the United States. Second half volume was up 5% at 485 tonnes compared with the first half (460 tonnes).

Electronics sales volume for the year was down 3% at 625 tonnes (2007: 645 tonnes). The modest recovery in both semicon and consumer electronics sales since the second half of last year was sustained throughout this year, with second half volume (322 tonnes) up 6% on the first half (303 tonnes). However, as expected, sales were below the record levels seen in the first half of 2007. 

Regionally, United States sales volume of 848 tonnes was 7% up on the previous year (791 tonnes) helped by growth in the oil and gas, automotive and commercial aerospace segments. Second half volume was up 3% at 430 tonnes, compared with 418 tonnes for the first half, primarily reflecting increased demand from commercial aerospace and oil and gas customers, partially offset by a softening in demand from semicon applications.

At 1,302 tonnes, European sales volume was 5% up on the previous year (1,243 tonnes) as a result of increased sales into all market segments, except semicon. Second half sales volume of 656 tonnes was 2% up on the first half of this year (646 tonnes). 

Asia-Pacific sales volume of 476 tonnes was maintained in line with 2007 (474 tonnes) as increased sales to Japanese automotive customers were offset by reduced demand from semicon applications. The record second half sales volume of 246 tonnes was 7% higher than the first half (230 tonnes) primarily due to increased demand from both consumer electronics and automotive customers in Japan.

Invibio 

Invibio, our biomaterials business, continued to grow strongly with revenue of £24.9m, an increase of 29% over 2007 (£19.3m). Underlying revenue (at constant exchange rates) was up 34% on 2007. This reflects further sales growth to existing customers, coupled with successful development of new business across a broad range of end use markets.

During the year Invibio entered into a record 49 additional PEEK-OPTIMA® polymer long-term supply assurance agreements with implantable medical device manufacturers. We continued to make good progress in further developing strategic markets including arthroscopy, orthopaedics and cranial maxillofacial, while ongoing success in the spinal market was sustained with developments in new areas including motion preservation and dynamic stabilisation.

  Product and market development

We continued to successfully generate new business in 2008. During the year we commercialised a record 723 new applications (2007: 580) having an estimated mature annualised volume ('MAV') of 487 tonnes (2007: 494 tonnes). At the year end, the pipeline contained 2,978 developments (2007: 2,411) with an estimated MAV of 2,910 tonnes (2007: 2,949 tonnes) if all of the developments were successfully commercialised. 

As the automotive industry pursues fuel efficiency, performance and safety, VICTREX® PEEKTM polymer is in demand to provide solutions in these areas. New applications include advanced exhaust treatments, sensors and safety systems. The aerospace market continues to specify VICTREX PEEK for structural and electrical applications in next generation passenger aircraft. The use of VICTREX PEEK to replace metal is providing a significant weight advantage while utilising mechanical properties at elevated temperatures and outstanding flame and smoke emission properties.

The oil and gas industry is increasingly using VICTREX PEEK in new ways in umbilical hoses, which convey power and other utilities to sub-sea wells. During the year a novel umbilical hose system was commercialised to replace metal and thereby reduce the weight and improve the lifetime and efficiency of these highly technical applications. In addition, we continued our penetration of existing applications in areas such as connectors, seals and sensors as the drilling environments continue to become more severe.

Other initiatives in the energy sector included the launch of a dedicated website as well as the development and commercialisation of several new application areas in the wind and nuclear sectors where our momentum in alternative energy solutions continues to grow.

An intensive focus on the industrial machinery markets has yielded an array of new applications replacing metals and other materials in both the textile machinery and food processing markets.

Electronics application development continues to be driven by the need for higher performance materials which maintain mechanical properties through lead-free solder temperatures. New applications commercialised this year include high performance radio frequency identification systems, high performance connectors for flexible printed circuit boards and mobile phones, as well as data storage systems. 

APTIVTM films, a range of high performance thermoplastic films based on VICTREX PEEK, are making significant inroads into many key markets. The unique acoustic and mechanical-thermal properties of APTIV films are leading to specification and significant penetration in audio components across a broad range of speaker applications, and APTIV films are currently being used by many of the world's leading mobile phone manufacturers. In addition, APTIV films are qualified as a lighter weight option for thermal acoustic insulation blankets in aircraft, as well as passing more stringent burn-through standards required by the Federal Aviation Administration after 2009. As a result, leading commercial aircraft customers are actively evaluating and specifying APTIV films in these applications. In other markets, the unique properties of APTIV films are leading to developments in circuit substrates, batteries and other electronic and industrial components.

Supply chain and capital expenditure

We have now successfully completed the major programme to increase our supply chain capacity that we commenced in 2005. At the beginning of the year we completed construction of the second VICTREX PEEK polymer powder plant on our main UK site at a capital cost of £32m. 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 fully operational.

We have also completed the uprate of the BDF supply chain to support this additional polymer capacity at a capital cost of approximately £22m (compared with an estimated cost of £23m). In addition, we have completed 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 at a capital cost of approximately £6m (compared with an estimated cost of approximately £8m).

Total fixed asset additions amounted to £24.2m for the year (2007: £34.3m). The additions principally related to the BDF and melt filtration plant uprates. Following completion of this major supply chain capacity uprate, we expect capital expenditure for 2009 to amount to approximately £10m, subject to phasing of projects. This will be funded from the Group's cash resources.

CURRENT TRADING

Sales volume remained strong in October at 218 tonnes, in line with average run rates achieved for the year ended 30 September 2008 (annual sales volume - 2,626 tonnes). Sales volume continued at this level in the early part of November. However, we have since experienced a slowdown in orders as our customers have responded to the deteriorating global economic climate. Accordingly, November sales volume amounted to 118 tonnes. 

In contrast to our VICTREX PEEK business, Invibio, our biomaterials business, continued to move ahead in line with our expectations, with revenues for both October and November at higher levels than the average run rate we achieved in 2008 (annual sales revenue - £24.9m).

OUTLOOK

Traditionally, December sales run at seasonally low levels as our customers look to their year end shutdowns. As a result we do not expect December sales volume to show an improvement over November. However, we believe that this current reduction in sales is, to some extent, caused by customers reducing inventories due to the uncertain global economic outlook. We anticipate having a clearer view of the likely level of ongoing demand for 2009 when we have seen January sales volume, which we will report on in February. 

While still fully committed to driving forward the growth of the business, we are currently progressing a full review of our cost base in the light of current trading to ensure our resources are prioritised and focused on maximising volume from new business. 

Looking ahead, as outlined in our trading update announced on 1 December 2008, it is clear that 2009 is going to be a challenging year. However, the Group remains in a strong financial position with a healthy balance sheet and good cash generation. Additionally, although the current economic climate is impacting sales in the short term, the underlying growth drivers remain in place across our end use markets and our development pipeline of potential new applications is strong. Accordingly, we remain committed to the key objective of growth through new application development. We will continue to generate new business in 2009 as we penetrate existing markets with new applications, pioneer innovative applications in new markets, and expand our geographic presence.

  Currency impact and gross margin

As previously reported, trading results for 2009 will be positively affected by the weakening of Sterling against our key trading currencies. Based on our forecast sales volume, current hedging already in place and spot exchange rates as at 25 November 2008, we currently estimate the following average rates will apply:

	Year to  30 September  2008	Year to  30 September  2009
	Actual	Estimate
US Dollar	1.99	1.87
Euro	1.47	1.36
Yen	229	227

As a result of these improved rates, we expect to see a significant increase in effective Sterling average selling price which will have a positive impact on revenues and profit. However, this will be partially offset by increased input costs, additional depreciation on our new plants and higher effective fixed costs per tonne as a result of reduced production and therefore we expect Group gross margin to be similar to 2008.

Anita Frew

Chairman

15 December 2008

  CONSOLIDATED INCOME STATEMENT

For the year ended 30 September		2008	2008	2007	2007
	Note	£000	£000	£000	£000
Revenue	2		141,117		131,025
Cost of sales			(49,495)		(46,552)
Gross profit			91,622		84,473
Sales, marketing and administrative expenses			(37,041)		(33,237)
Operating profit	2		54,581		51,236
Financial income		577		702
Financial expenses		(127)		(105)
Net financing income			450		597
Share of profit of Japanese joint venture			-		196
Profit before tax			55,031		52,029
Income tax expense			(15,959)		(15,609)
Profit for the year attributable to equity shareholders of the parent			39,072		36,420

Earnings per share
Basic	3		47.8p		44.9p
Diluted	3		47.4p		44.4p

Dividend per share
Interim			5.2p		4.7p
Final			13.1p		12.6p
			18.3p		17.3p

A final dividend in respect of 2008 of 13.1p per share has been recommended by the Directors for approval at the Annual General Meeting in February 2009.

  BALANCE SHEET 

As at 30 September			2008	2007
			£000	£000
Assets
Non-current assets
Property, plant and equipment			129,909	112,787
Intangible assets			10,873	11,483
Deferred tax assets			8,078	5,753
			148,860	130,023
Current assets
Inventories			31,675	27,867
Current income tax assets			244	416
Trade and other receivables			18,195	15,887
Derivative financial instruments			855	2,137
Cash and cash equivalents			23,532	17,120
			74,501	63,427
Total assets			223,361	193,450
Liabilities
Non-current liabilities
Deferred tax liabilities			(14,651)	(12,666)
Retirement benefit obligations			(6,378)	(7,110)
			(21,029)	(19,776)
Current liabilities
Derivative financial instruments			(10,455)	(1,464)
Short-term borrowings			-	(3,419)
Current income tax liabilities			(8,263)	(11,077)
Trade and other payables			(16,820)	(16,231)
			(35,538)	(32,191)
Total liabilities			(56,567)	(51,967)
Net assets			166,794	141,483
Equity
Share capital			829	822
Share premium			20,723	18,148
Translation reserve			470	(628)
Hedging reserve			(5,570)	39
Retained earnings			150,342	123,102
Total equity attributable to equity shareholders of the parent			166,794	141,483

The financial statements were approved by the Board of Directors on 15 December 2008 and were signed on its behalf by:

D R Hummel Chief Executive

M W Peacock Finance Director

  CASH FLOW STATEMENT 

For the year ended 30 September		2008	2007
	Note	£000	£000
Cash flows from operating activities
Cash generated from operations	5	61,858	50,690
Interest and similar charges paid		(176)	(309)
Interest received		577	702
Tax paid		(15,703)	(12,177)
Net cash flow from operating activities		46,556	38,906
Cash flows from investing activities
Acquisition of property, plant and equipment		(25,014)	(37,189)
Purchase of business including acquisition costs		-	(1,036)
Net cash flow from investing activities		(25,014)	(38,225)
Cash flows from financing activities
Issue of ordinary shares exercised under option		7	5
Premium on issue of ordinary shares exercised under option		2,575	1,599
Purchase of own shares held		(858)	(821)
(Decrease)/increase in short-term borrowings		(4,207)	1,264
Dividends paid		(14,533)	(12,069)
Net cash flow from financing activities		(17,016)	(10,022)
Net increase/(decrease) in cash and cash equivalents		4,526	(9,341)
Exchange differences on net investment translation of foreign operations		1,886	(399)
Cash and cash equivalents at beginning of year		17,120	26,860
Cash and cash equivalents at end of year		23,532	17,120
Components of net cash
As at 30 September		2008	2007
		£000	£000
Cash and cash equivalents		23,532	17,120
Short-term borrowings		-	(3,419)
Net cash	6	23,532	13,701

STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 September		2008	2007
		£000	£000
Net change in fair value of cash flow hedges:
Transferred to equity		(14,509)	2,871
Transferred to income statement		6,719	(4,710)
Exchange differences on net investment translation of foreign operations		1,098	(399)
Actuarial gains on defined benefit plans		867	5,729
Tax on items taken directly to or transferred from equity		3,238	(2,058)
Net (expense)/income recognised directly in equity		(2,587)	1,433
Profit for the year		39,072	36,420
Total recognised income and expense for the year attributable to equity shareholders of the parent		36,485	37,853

  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 except for the application of relevant new standards.

IFRS 7- Financial Instruments: Disclosures and Amendment to IAS 1 - Capital Disclosures were adopted during the year. As these standards are concerned only with disclosures, their adoption had no impact on the balance sheet or the consolidated income statement.

A number of standards, amendments and interpretations have been issued during the period which are not yet effective, and accordingly the Group has not yet adopted. The cumulative impact of the adoption of these standards is not deemed to be significant.

               2.    Segment reporting

Primary geographical segments

Results

	Europe	USA	Asia-Pacific	Group	Europe	USA	Asia-Pacific	Group
	2008	2008	2008	2008	2007	2007	2007	2007
	£000	£000	£000	£000	£000	£000	£000	£000
Total segment sales	68,824	89,200	34,386	192,410	65,421	77,529	26,511	169,461
Less inter-segment sales	(76)	(38,483)	(12,734)	(51,293)	(88)	(32,484)	(5,864)	(38,436)
Revenue from external sales	68,748	50,717	21,652	141,117	65,333	45,045	20,647	131,025
Segment operating profit	31,529	21,357	5,534	58,420	29,904	18,136	6,926	54,966
Unallocated central costs				(3,839)				(3,730)
Operating profit				54,581				51,236
Net financing income				450				597
Share of profit of Japanese joint venture				-				196
Profit before tax				55,031				52,029
Income tax expense				(15,959)				(15,609)
Profit for the year attributable to equity shareholders of the parent				39,072				36,420

Other information

Segment assets	201,565	12,385	9,411	223,361	172,557	11,086	9,807	193,450
Segment liabilities	44,623	11,079	865	56,567	39,779	8,174	4,014	51,967
Capital expenditure	23,673	68	447	24,188	33,806	206	272	34,284
Depreciation	6,688	94	282	7,064	5,402	50	125	5,577
Amortisation	610	-	-	610	609	-	-	609

Secondary business segments

							2008	2007
							£000	£000
Sales
VICTREX PEEK							116,217	111,732
Invibio							24,900	19,293
							141,117	131,025
Total assets
VICTREX PEEK							210,193	179,849
Invibio							13,168	13,601
							223,361	193,450
Capital expenditure
VICTREX PEEK							23,828	31,735
Invibio							360	2,549
							24,188	34,284

Analysis of sales by category

							2008	2007
							£000	£000
Product sales							136,409	126,390
Royalty and other income							4,708	4,635
							141,117	131,025

  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.

				2008	2007
Earnings per share	- basic			47.8p	44.9p
	- diluted			47.4p	44.4p
Profit for the financial year				£39,072,000	£36,420,000
Weighted average number of shares used:
Issued ordinary shares at beginning of year				82,227,271	81,740,045
Effect of own shares held				(823,922)	(793,012)
Effect of shares issued during the year				298,232	200,069
Basic weighted average number of shares				81,701,581	81,147,102
Effect of share options				653,722	898,177
Diluted weighted average number of shares				82,355,303	82,045,279

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 2008		30 September 2007
	Average	Closing	Average	Closing
US Dollar	1.99	1.78	1.83	2.04
Euro	1.47	1.27	1.45	1.43
Yen	229	189	202	234

5.    Reconciliation of profit to cash generated from operations

		2008	2007
		£000	£000
Profit after tax for the year		39,072	36,420
Income tax expense		15,959	15,609
Share of profit of Japanese joint venture		-	(196)
Net financing income		(450)	(597)
Operating profit		54,581	51,236
Adjustments for:
Depreciation		7,064	5,577
Amortisation		610	609
Increase in inventories		(3,808)	(2,774)
Increase in trade and other receivables		(2,308)	(4,511)
Increase/(decrease) in trade and other payables		1,466	(1,881)
Equity-settled share-based payment transactions		1,635	1,465
Japanese joint venture profit in stock adjustment		-	269
Changes in fair value of derivative financial instruments		2,483	20
Retirement benefit obligations charge less contributions		135	680
Cash generated from operations		61,858	50,690

6.    Reconciliation of net cash to movements in net cash

	2008	2007
	£000	£000
Increase/(decrease) in cash and cash equivalents in year	4,526	(9,341)
Exchange differences on net investment translation of foreign operations	1,098	(399)
Movement in short-term borrowings	4,207	(3,419)
Movement in net cash in year	9,831	(13,159)
Net cash at beginning of year	13,701	26,860
Net cash at end of year	23,532	13,701

7.     Dividend and Annual General Meeting

The proposed final dividend will be paid on 27 February 2009 to all shareholders on the register on 13 February 2009. The Annual General Meeting of the Company will be held at 11am on 10 February 2009, at The London Chamber of Commerce, Thames Suite, 33 Queen Street, London, EC4R 1AP.

  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 2008 have been extracted from the full accounts for that period. The Auditor has given an unqualified report on the accounts for this year. The results for the year ended 30 September 2007 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 2008 will be posted to shareholders on 23 December 2008 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 in raw material pricing and availability; 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.

 

END

 

 

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