11th Dec 2007 07:01
Victrex PLC11 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 theincreased volumes we achieved in August and September. While it is too early topredict the outcome for the year as a whole, we remain confident in theunderlying growth potential for the business. As we look ahead, we are excited, not only by the potential of all ourdevelopments, but also by the growing awareness of our expanding productportfolio by more end users. We will continue to address our customers'requirements so that we can provide new solutions and will continue to invest inour 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 LimitedNick 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%. Underlyingrevenue, 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 grossmargin of 64.5% of turnover (2006: 61.9%). This margin increase was partly dueto the previously announced closure of the small low margin fluorides business.Margin also benefited from an increased Invibio(R) contribution with the Groupgross margin excluding the fluorides business increasing to 65.0% from 64.1% in2006. Sales, marketing and administrative expenses increased by 8% to £33.2m (2006:£30.7m), primarily reflecting ongoing investment in product and applicationdevelopment. As expected, exchange rates have had an adverse impact of £2.0m on profit beforetax, compared to 2006, due to the strengthening of Sterling against our keytrading currencies (Yen, Euro and US Dollar). Resulting profit before tax was£52.0m, 13% up on 2006 (£46.1m). Underlying profit before tax excluding thiscurrency impact was £54.0m, an increase of 17% over 2006. Basic earnings per share were up 14% at 44.9p (2006: 39.4p). Underlying earningsper 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 arerecommending a final dividend of 12.6p (2006: 10.2p) per ordinary share, makinga total of 17.3p (2006: 14.4p) per ordinary share for the year, an increase of20% 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 ofimproved trading was offset by increased working capital, primarily tradereceivables and inventories. Capital expenditure cash payments amounted to £37.2m (2006: £21.5m). Taxationpaid was £12.2m (2006: £12.4m). At the year end, the Group had net cash of £13.7m (2006: £26.9m). The Grouprenewed its committed bank facility of £40m, all of which was undrawn at theyear 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 previousyear (724 tonnes) largely due to growth in the automotive, commercial aerospaceand oil and gas segments, partially offset by reduced semiconductor sales.Second half sales volume was 402 tonnes compared with 389 tonnes for the firsthalf. Asia-Pacific sales volume of 474 tonnes was up 13% on 2006 (419 tonnes). Thiswas mainly due to transport and electronics growth. Second half sales volume of233 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% on2006 excluding the adverse impact of exchange rates. This reflects continuedsales growth to our existing customers, coupled with successful development ofnew business across a broad range of end use markets. During the year we entered into a record 44 additional PEEK-OPTIMA(R) polymerlong-term supply assurance agreements with implantable medical devicemanufacturers. We continued to make good progress in further developingstrategic markets including arthroscopy, dental, orthopaedic andneurostimulation, while ongoing success in the spinal market continued withdevelopments in new areas of this rapidly growing market segment. Invibio established a Scientific Advisory Board to maximise our externaltechnical and surgical perspective by working closely with leading scientificand medical experts. We have opened our new Invibio Global Technology Centre in the UK. Thisstate-of-the-art research and technology facility expands our capabilities andincludes Class 10,000 clean room processing facilities ensuring contaminant freemanufacturing capabilities for research and development grades and prototypematerials. The Centre will enable Invibio to provide further knowledge basedbiomaterial solutions and expertise to our end users, while acceleratingresearch and development efforts for the commercialisation of novel PEEK-OPTIMAbased biomaterials. Product and market development We continued to make excellent progress in product and market developmentactivities in 2007. A record number of new applications were commercialisedwhile we continued to broaden our product offering and, as a result, ourpenetration 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 filmmanufacturing facility, marked a major milestone as we introduced one of thehighest performing and versatile films on the market. Our demonstrated abilityto manufacture to unprecedented tolerances and thicknesses is opening up newopportunities in aerospace and electronics. Commercial sales have alreadycommenced in these industries, as they seek improved performance and lowerweight in applications such as thermal and electrical insulation. APTIV film'sunparalleled acoustic and mechanical properties have resulted in specificationat a number of leading speaker manufacturers in applications ranging from mobilephones to high end home sound systems. In addition, interest in APTIV film hasopened the doors to new potential end users worldwide for other products in ourportfolio. Our new range of VICOTE(R) Coatings was commercialised in a number of industriesas customers validated the properties of improved durability and long life. Inhigh performance applications, such as needle roller bearings for motorcycles,VICOTE Coatings was able to replace high cost metallic coatings at a fraction ofthe cost and still deliver the required performance. Elsewhere, VICOTE Coatingsreplaced other polymeric coatings to significantly extend the lifetime ofrelease coatings on tyre and shoe moulds, reducing downtime and enhancingproductivity 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 gainedspecifications in high performance sealing applications in the ever moredemanding oil and gas exploration market. This year, we launched our newestproduct family, VICTREX MAX-Series(TM) polymers, which is a blend of VICTREX(R)PEEK(TM) polymer and Extem(R) UH thermoplastic polyimide (TPI) from SABICInnovative Plastics. MAX-Series is focused on applications which demand thechemical resistance and processability of VICTREX PEEK, yet also require extremetemperature resistance with improved dimensional stability. We have commenced anumber of sampling programmes in the electronics and oil and gas segments.Finally, a new range of electrostatic dissipative (ESD) grades werecommercialised into various application areas in semiconductor manufacturing. Our global market development teams continued to develop record numbers of newapplications in our traditional markets. In automotive, VICTREX PEEK is a keymaterial for integral components in new transmission, fuel injection and brakingsystems in the latest cars from leading car companies in the United States,Europe and Asia. In addition, the proliferation of tyre pressure monitoringsystems has led to the specification of VICTREX PEEK in these devices to ensurethe systems could survive the extremes of environment and mechanical stressesduring the lifetime of a car. The new generation of commercial aircraft being developed demands significantlylower weight to gain fuel efficiency. As a result, VICTREX PEEK is providingsolutions for customers such as Boeing in many components of their nextgeneration airliners. Applications in electrical systems, insulation, andinteriors are helping them meet weight, structural and flammability requirementswithout sacrificing other performance criteria. In electronics, VICTREX PEEK is being specified in new generations of high speedprinters as performance requirements for gears and other critical componentsincrease. In consumer electronics, higher power levels in applications such asdigital light projectors and LED systems are driving an increased interest inVICTREX PEEK for improved device safety, performance and lifetime. We continue to see increased demand from oil and gas companies who requirehigher performing systems as further exploration takes them to more extremetemperature and chemical environments. Wire insulation, connectors andelectronics encapsulation are examples of applications in which VICTREX PEEKmaterials help provide reliability and performance which are essential toproductivity. Supply chain and capital expenditure We have completed the construction of our second VICTREX PEEK polymer powderplant on our main UK site, at a capital cost of approximately £32m, which willbe depreciated over its estimated useful life of 30 years. The plant has thecapacity to support a further 1,450 tonnes per annum of VICTREX PEEK sales inaddition to the first plant's existing capacity of 2,800 tonnes and is expectedto be fully operational by the end of the year. The uprate of the BDF supply chain to support this additional polymer capacityis ongoing with completion expected in autumn 2008 at an estimated capital costof £23m. We have also commenced an uprate of our melt filtration plant toincrease production capacity of our purified, granular product from 1,800 to3,450 tonnes per annum. This uprate is due for completion in autumn 2008 at anestimated capital cost of £8m. Total fixed asset additions amounted to £34.3m for the year (2006: £25.0m). Theadditions principally related to the construction of the polymer powder plantand the BDF uprate. Other items included the Invibio Global Technology Centre,the film manufacturing facility and the melt filtration plant uprate. We expectcapital expenditure for 2008 to amount to approximately £25m, subject to phasingof projects. This will be funded from the Group's cash resources and committedborrowing facility. OUTLOOK Sales volume Since the year end, sales volume has been sustained at levels similar to theincreased volumes we achieved in August and September. While it is too early topredict the outcome for the year as a whole, we remain confident in theunderlying growth potential for the business. Currency impact As previously reported, trading results for 2008 will be adversely affected bythe strengthening of Sterling against our key trading currencies compared with2007. Based on our forecast sales volume, current hedging already in place andspot exchange rates as at 30 November 2007, we currently estimate the followingaverage 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 1.99Euro 1.45 1.46 1.44 1.45Yen 202 221 226 223 By way of illustration, if the estimated 2008 rates had applied in 2007, thiswould 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 ourdevelopments, but also by the growing awareness of our expanding productportfolio by more end users. We will continue to address our customers'requirements so that we can provide new solutions and will continue to invest inour people and our infrastructure to meet our customers' needs. This, in turn,will provide the basis for further business growth. Peter WarryChairman10 December 2007 CONSOLIDATED INCOME STATEMENT -------- ------ ------ ------For the year ended 30 September 2007 2007 2006 2006 Note £000 £000 £000 £000 -------- ------ ------ ------Revenue 2 131,025 122,516Cost of sales (46,552) (46,708) -------- ------ ------ ------Gross profit 84,473 75,808Sales, marketing and administrative expenses (33,237) (30,743) -------- ------ ------ ------ Operating profit 2 51,236 45,065Financial income 702 688Financial expenses (105) (88) -------- ------ ------ ------Net financing income 597 600Share of profit of Japanese joint venture 196 474 -------- ------ ------ ------ Profit before tax 52,029 46,139Income tax expense (15,609) (14,303) -------- ------ ------ ------Profit for the year attributableto equity shareholders of the parent 36,420 31,836 -------- ------ ------ ------ Earnings per shareBasic 3 44.9p 39.4pDiluted 3 44.4p 38.9p Dividend per shareInterim 4.7p 4.2pFinal 12.6p 10.2p ------ ------ 17.3p 14.4p ------ ------ A final dividend in respect of 2007 of 12.6p per share has been recommended bythe Directors for approval at the Annual General Meeting on 5 February 2008. BALANCE SHEET -------- -------As at 30 September 2007 2006 £000 £000 -------- -------AssetsNon-current assetsProperty, plant and equipment 112,787 84,009Intangible assets 11,483 9,404Investment in Japanese joint venture - 370Deferred tax assets 5,753 7,201 -------- ------- 130,023 100,984 -------- -------Current assetsInventories 27,867 22,969Current income tax assets 416 774Trade and other receivables 15,887 12,139Derivative financial instruments 2,137 2,776Cash and cash equivalents 17,120 26,860 -------- ------- 63,427 65,518 -------- -------Total assets 193,450 166,502 -------- ------- LiabilitiesNon-current liabilitiesDeferred tax liabilities (12,666) (12,385)Retirement benefit obligations (7,110) (12,159) -------- ------- (19,776) (24,544) -------- -------Current liabilitiesDerivative 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 -------- ------- EquityShare capital 822 817Share premium 18,148 16,549Translation reserve (628) (229)Hedging reserve 39 1,325Retained 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 activitiesCash generated from operations 5 50,690 54,791Interest and similar charges paid (309) (20)Interest received 702 688Tax paid (12,177) (12,357) ------- -------- --------Net cash flow from operating activities 38,906 43,102 ------- -------- -------- Cash flows from investing activitiesAcquisition 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 activitiesIssue of ordinary shares exercised under option 5 5Premium on issue of ordinary shares exercisedunder 1,599 1,306optionPurchase 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) 11,392equivalentsExchange differences on net investmenttranslation of (399) (279)foreign operationsCash 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 26,860Short-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 299Net change in fair value of cash flow hedges transferred toincome statement (4,710) 1,366Exchange differences on net investment translation offoreign 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 yearattributable 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 17,789 153,317Less inter-segmentsales (88) (32,484) (5,864) (38,436) (158) (29,974) (669) (30,801)--------------- ------ ------ ------ ------ ------ ------ ------ ------Revenue fromexternal sales 65,333 45,045 20,647 131,025 64,918 40,478 17,120 122,516--------------- ------ ------ ------ ------ ------ ------ ------ ------ Segmentoperating profit 29,904 18,136 6,926 54,966 29,753 14,670 4,754 49,177Unallocatedcentral costs (3,730) (4,112)--------------- ------ ------ ------ ------ ------ ------ ------ ------Operating profit 51,236 45,065Net financing income 597 600Share of profit ofJapanese jointventure 196 474--------------- ------ ------ ------ ------ ------ ------ ------ ------Profit before tax 52,029 46,139Income taxexpense (15,609) (14,303)--------------- ------ ------ ------ ------ ------ ------ ------ ------Profit for the yearattributableto equityshareholdersof 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 Capitalexpenditure 33,806 206 272 34,284 23,637 33 1,365 25,035Depreciation 5,402 50 125 5,577 4,772 30 34 4,836Amortisation 609 - - 609 611 - - 611--------------- ------ ------ ------ ------ ------ ------ ------ ------ Secondary business segments ------ ------ 2007 2006 £000 £000 ------ ------SalesVICTREX PEEK 111,732 107,076Invibio 19,293 15,440--------------- ------ ------ 131,025 122,516 ------ ------Total assetsVICTREX PEEK 179,849 159,049Invibio 13,601 7,453--------------- ------ ------ 193,450 166,502 ------ ------Capital expenditureVICTREX PEEK 31,735 23,581Invibio 2,549 1,454--------------- ------ ------ 34,284 25,035 ------ ------ Analysis of sales by category--------------- ------ ------ 2007 2006 £000 £000 ------ ------Product sales 126,390 118,670Other 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 ordinaryshareholders and a weighted average number of ordinary shares outstanding duringthe 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 81,235,566Effect 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 80,773,463Effect 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 theGroup's accounting policies are: Year ended Year ended 30 September 30 September 2007 2006 --------------- --------------- Average Closing Average ClosingUS Dollar 1.83 2.04 1.82 1.87Euro 1.45 1.43 1.43 1.47Yen 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 31,836Income tax expense 15,609 14,303Share of profit of Japanese joint venture (196) (474)Net financing income (597) (600)--------------------------- ------ --------Operating profit 51,236 45,065Adjustments for:Depreciation 5,577 4,836Amortisation 609 611Increase 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) 5,595Equity-settled share-based payment transactions 1,465 1,122Japanese joint venture profit in stock adjustment 269 59Changes 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) 11,392Exchange differences on net investment translation offoreign operations (399) (279)Movement in short-term borrowings (3,419) --------------------------------- ------- --------Movement in net cash in year (13,159) 11,113Net 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 onthe register on 8 February 2008. The Annual General Meeting of the Company willbe 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 statementswithin the meaning of the Companies Act 1985. The results for the year ended 30September 2007 have been extracted from the full accounts for that period. Theauditors have given an unqualified report on the accounts for this year. Theresults for the year ended 30 September 2006 have been extracted from the fullaccounts for that year, which were unqualified and have been delivered to theRegistrar of Companies. The accounts for the year ended 30 September 2007 will be posted to shareholderson 21 December 2007 and will be available from the Company's registered officeat Victrex Technology Centre, HiIlhouse International, Thornton Cleveleys,Lancashire, FY5 4QD, United Kingdom. 9 Forward-looking statements Sections of this preliminary results announcement contain forward-lookingstatements, including statements relating to: future demand and markets for theGroup's products and services; research and development relating to new productsand services, and liquidity and capital resources. These forward-lookingstatements involve risks and uncertainties because they relate to events thatmay or may not occur in the future. Accordingly, actual results may differ materially from anticipated resultsbecause of a variety of risk factors, including: changes in interest andexchange rates; changes in global, political, economic, business, competitiveand market forces; changes to legislation and tax rates; future businesscombinations or disposals; relations with customers and customer credit risk;events affecting international security, including global health issues andterrorism; changes in regulatory environment, and the outcome of litigation. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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