Final Results

RNS Number : 4508X

Victrex PLC

07 December 2010

 



7 December 2010

 

Victrex plc

Final results announcement for the year ended 30 September 2010

Highlights

·           Group revenue up 82% to £189.5m

·           Earnings per share up 200% to 65.1p

·           Cash of £77.3m at 30 September 2010 and no debt

·           Full year dividend per ordinary share up 30% to 25.0p

·           Special dividend per ordinary share of 50.0p

Chairman Anita Frew commented:

"I am delighted to report excellent progress at Victrex with record revenue and profit, a significant increase in our underlying dividend and a special dividend return to shareholders.

The Group's strong recovery has continued into the first two months of the current financial year. We expect gross margins to improve as a consequence of operational gearing and more favourable exchange rates. Overheads will also increase as we maintain our investment in future growth opportunities.

We are vigilant of the continuing uncertainty in the global economy and the potential impact on our customers and markets. Nonetheless, we have strong underlying growth drivers across our end user markets. In addition, cash generation is robust and with no debt, even after allowing for the special dividend, the balance sheet remains strong. We are, therefore, well placed to pursue opportunities as they arise and remain confident in our ability to continue to grow the business."

Enquiries

 

Victrex plc
David Hummel, Chief Executive	0203 128 8100 (7 December 2010)
Peter Bream, Finance Director	01253 897700  (thereafter)
MHP Communications
Nick Denton / Barnaby Fry / Ian Payne	0203 128 8100

Victrex plc

Final results statement for the year ended 30 September 2010

I am delighted to report excellent progress at Victrex with record revenue and profit, a significant increase in our underlying dividend and a special dividend return to shareholders.

Group financial results

Group revenue for the year was up 82% to £189.5m (2009: £103.8m) primarily reflecting a 64% increase in sales volume to 2,535 tonnes (2009: 1,547 tonnes) together with the benefit of improved underlying effective exchange rates as sterling weakened against our major currencies during the year. Underlying revenue (at constant exchange rates) was up 47% on 2009. As previously reported, the second half sales volume was a half year record of 1,364 tonnes.

Gross profit increased by 87% to £120.6m (2009: £64.5m), representing a gross margin of 63.6% of turnover (2009: 62.1%). This increase of 1.5 percentage points is due to the positive impact of currency partially offset by an increase in cost per tonne because sales, particularly in the first half, were largely out of inventory produced in 2009. As previously reported, in 2009 significantly reduced production volumes resulted in increased fixed production costs per tonne. As anticipated, second half cost of sales per tonne reverted towards lower historic levels as second half sales utilised 2010 production when volumes were higher.

Sales, marketing and administrative expenses increased by 16% to £45.7m (2009: £39.4m) largely as a result of elements of staff remuneration being linked to financial performance. In addition, we continue to invest in resources to drive new application development across both divisions.

Group profit before tax was £74.9m, up 198% on 2009 (£25.1m), with underlying profit before tax, at constant exchange rates, increasing by 53%.

For clarity, a reconciliation of 2010 actual results to 2009 results restated at 2010 effective exchange rates is set out as follows:

	2010	2009	Growth
	£m	£m	%
Revenue
Actual	189.5	103.8	82%
Constant exchange rates	-	25.2
Restated	189.5	129.0	47%

	2010	2009	Growth
	£m	£m	%
Profit before tax
Actual	74.9	25.1	198%
Constant exchange rates	-	24.0
Restated	74.9	49.1	53%

The overall effective tax rate (including deferred tax) was 28% (2009: 29%).

Basic earnings per share were up 200% at 65.1p (2009: 21.7p). Underlying earnings per share, at constant exchange rates were up 53%.

Cash flow

Cash from operations increased to £90.9m (2009: £26.8m) which reflects the strong rebound in sales and increased operating profit.

Capital expenditure cash payments amounted to £4.5m (2009: £7.5m), which is lower than in recent years following the conclusion of the capacity investment programme.

Taxation paid was £13.7m (2009: £11.1m), which increased in line with improved trading.

As at 30 September 2010, the Group had cash of £77.3m and no debt (2009: £18.6m and no debt). The Group has a committed bank facility of £40m, all of which was undrawn at the year end. This facility expires in September 2012.

Dividend

In recognition of the Group's strong performance and our confidence in the strength and growth potential of our business, we are recommending a final dividend of 18.6p (2009: 14.0p) per ordinary share making a total of 25.0p (2009:19.2p) per ordinary share for the year, an increase of 30% over last year. Dividend cover is 2.6 times (2009: 1.1 times).

During the year we completed our review of the requirement for capital in the strategic development of our business. As a result and taking into account our strong cash position and exceptional return on capital, we are also recommending a special dividend of 50.0p per ordinary share.

Victrex Polymer Solutions ('VPS')

	2010	2009	Change
	£m	£m	%
Revenue	145.3	69.6	109%
Gross profit	80.9	34.4	135%
Operating profit	48.3	6.3	670%

VPS has had an excellent year with record revenue and profits.

Revenue for the year was £145.3m (2009: £69.6m) representing an increase of 109% over 2009. All of our major markets have seen a significant recovery during the year and we have had continued success in closing new business. Revenue also benefited significantly in 2010 as a result of improved effective exchange rates with the underlying year on year increase in revenue being 61%.

The sharp recovery in sales volume and the need to adjust inventory levels in line with demand resulted in production volume increasing significantly compared to 2009. New annual production volume records have been achieved on all our major assets. Our recent investment in capacity for monomer and polymer production, and the dedication of our employees across all sites, allowed us to provide security of supply to our customers during this challenging period.

Gross margin improved to 55.7% for the year (2009: 49.5%) with second half margin at 61.5% (H1: 48.9%). The improvement over the period reflects the favourable effective exchange rates together with a lower underlying cost of sales per tonne in the second half resulting from lower fixed costs per tonne as production volume increased.

Sales, marketing and administrative expenses increased by 16% to £32.6m (2009: £28.1m). The increase predominantly reflects increased staff costs as elements of staff remuneration are linked to underlying performance of the division. We have also continued to invest in resources to support new application development and have undertaken a strategic review during the year to deploy resources to key areas of future growth.

Resulting operating profit at £48.3m (2009: £6.3m) increased by 670% over the prior year. Underlying growth in operating profit adjusted for effective exchange rates increased by 86%.

Trading

All of our major markets, geographical and industrial, have seen a strong rebound during the year with second half global sales volume being a new record. A recovery in end user demand for our products has led to higher manufacturing rates and inventory levels, both at our customers and throughout the supply chain. In addition, we have continued to have success in developing and closing new business during the year.

Industrial sales volume at 1,028 tonnes increased by 53% compared to 2009 reflecting a strong recovery across all sub markets. The main growth areas were the industrial machinery sector, driven mainly by increased activity in Asia, and renewed investment in exploration and production in the oil and gas sector resulting from increasing demand and higher prices for these resources.

Transport sales volume at 674 tonnes increased by 59% over 2009 with the recovery dominated by the automotive sector. Whilst manufacturing is not yet back to 2008 levels, we have benefited globally from a strong recovery in vehicle production and sales as well as a higher proportion of sales being luxury cars where technology is more advanced and more of our products are used. In addition, we continue to close new business for applications driven by the trends for improved fuel efficiency and lower CO₂ emissions. Aerospace also showed strong growth due to a combination of higher production levels and new aircraft orders driven by positive trends and forecasts for both business and tourism travel and new application development for our products to help meet the demands for weight reduction across all platforms.

Electronics sales volume at 558 tonnes increased by 96% over 2009 which reflected strong sales into the consumer electronics and semiconductor manufacturing sectors. In consumer electronics, innovation and new product launches have continued to drive growth and manufacturing activity. In the semiconductor manufacturing sector, investment activity is recovering as forecasts for the industry improve.

Product and market development

We commercialised 634 new VICTREX^® PEEK^TM polymer applications with an estimated mature annualised volume ('MAV') of 308 tonnes compared with 533 commercialised applications with an MAV of 314 tonnes in 2009.

The development pipeline has also strengthened as new opportunities have been generated and at the year end contained 3,267 potential developments (2009: 2,942) with an estimated MAV of 2,271 tonnes (2009: 1,966 tonnes) if all of the developments were successfully commercialised.

We continue to see growth opportunities across all of our major geographies and industries through further penetration and broader acceptance of existing applications and technologies. Furthermore, trends and innovation in many of our markets continue to broaden the range of opportunities for our products to help our customers and end users overcome their challenges.

Within industrial, the oil and gas sector is developing deeper and more chemically aggressive wells operating at higher temperatures and pressures which is opening up new opportunities for our product range. Within the processing industries, our products are helping to develop longer life components and belting that are able to withstand more demanding processing and cleaning conditions. Innovation in the alternative energy sector is growing and we are exploring opportunities for our products in the wind, geothermal and nuclear sectors.

Within transport, opportunities in the automotive sector for our products include further replacement of metal components, providing weight reduction without compromising performance, as well as the translation of existing technology and safety features from the luxury car market to a broader range of vehicles. We are also exploring opportunities for our products in the development of hybrid technology. In aerospace the acceptance and awareness of our products as an enabler for weight reduction, whilst providing a broad range of performance properties, is increasing and has led to a number of development opportunities both on new aircraft platforms and also for retrofitting existing platforms.

Within electronics, the rate of innovation in the consumer electronics industry continues apace. Many of the trends, including miniaturisation, play to the strengths of our products and we continue to work closely with customers and end users to understand their challenges. Investment in the semiconductor manufacturing sector is forecast to steadily increase and our products are well positioned both in existing and potential future technologies.

New product development is an important part of our growth strategy. We work closely with customers and end users to understand the challenges they are facing to innovate in their markets and identify where existing products need to be improved to enable or optimise the opportunity. Typically we look to develop our product range by enhancing one or more existing properties to meet specific requirements. Recent examples include products that provide better wear performance as well as materials that offer higher temperature performance.

Invibio Biomaterial Solutions ('Invibio')

	2010	2009	Change
	£m	£m	%
Revenue	44.2	34.2	29%
Gross profit	39.7	30.1	32%
Operating profit	28.1	20.0	40%

Invibio had a strong year and generated record revenue of £44.2m, an increase of 29% over 2009 (£34.2m). Underlying revenue (at constant exchange rates) increased by 15%. Gross margins have remained strong and broadly stable at 89.7% (2009: 88.0%).

Sales, marketing and administrative expenses increased by £1.5m to £11.5m, primarily due to targeted investment in resources to drive growth. As planned, Invibio ended 2010 with 58 employees (2009: 47) as a result of its ongoing recruitment programme.

Operating profit increased to £28.1m, up 40% compared to 2009 (£20.0m). Underlying operating profit (at constant exchange rates) increased by 16%.

The results in 2010 were driven by continued growth and innovation within spinal fusion and arthroscopy applications. Other targeted markets such as orthopaedics and bariatric continue to yield successes and lay the foundation for future growth. Since its introduction over ten years ago, more than 2.5 million devices containing Invibio's PEEK-OPTIMA^® polymer have been implanted in patients.

Invibio continues to work closely with medical device manufacturers, surgeons and clinicians. A network of relationships with key opinion leaders has enabled increased research collaborations with world leading organisations. Invibio has been awarded several EU government funded research grants to support material and device innovation.

During 2010, Invibio entered into 53 additional long-term supply assurance agreements with implantable medical device manufacturers. These agreements were with manufacturers based in Europe and the United States and increasingly in emerging geographic markets including Asia-Pacific and South America.

Outlook

The Group's strong recovery has continued into the first two months of the current financial year. We expect gross margins to improve as a consequence of operational gearing and more favourable exchange rates. Overheads will also increase as we maintain our investment in future growth opportunities.

We are vigilant of the continuing uncertainty in the global economy and the potential impact on our customers and markets. Nonetheless, we have strong underlying growth drivers across our end user markets. In addition, cash generation is robust and with no debt, even after allowing for the special dividend, the balance sheet remains strong. We are, therefore, well placed to pursue opportunities as they arise and remain confident in our ability to continue to grow the business.

Anita Frew

Chairman

6 December 2010

CONSOLIDATED INCOME STATEMENT
For the year ended 30 September		2010	2009
	Note	£000	£000
Revenue	2	189,473	103,822
Cost of sales		(68,921)	(39,307)
Gross profit		120,552	64,515
Sales, marketing and administrative expenses		(45,657)	(39,420)
Operating profit	2	74,895	25,095
Financial income		139	91
Financial expenses		(93)	(60)
Profit before tax		74,941	25,126
Income tax expense		(20,984)	(7,287)
Profit for the year attributable to owners of the parent		53,957	17,839

Earnings per share
Basic	3	65.1p		21.7p
Diluted	3	64.4p		21.6p

Dividend per ordinary share
Interim		6.4p		5.2p
Final	6	18.6p		14.0p
Special	6	50.0p		-
		75.0p		19.2p

A final dividend in respect of 2010 of 18.6p and a special dividend of 50.0p per ordinary share have been recommended by the Directors for approval at the Annual General Meeting in February 2011.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September		2010	2009
		£000	£000
Profit for the year		53,957	17,839
Other comprehensive income
Currency translation differences for foreign operations		160	1,935
Effective portion of changes in fair value of cash flow hedges		217	(19,923)
Net change in fair value of cash flow hedges transferred to profit or loss		2,233	25,366
Defined benefit pension schemes actuarial losses		(846)	(7,210)
Tax on other comprehensive income		(89)	(2,178)
Total other comprehensive income for the year		1,675	(2,010)
Total comprehensive income for the year attributable to owners of the parent		55,632	15,829

CONSOLIDATED BALANCE SHEET
As at 30 September	2010	2009
	£000	£000
Assets
Non-current assets
Property, plant and equipment	125,335	129,484
Intangible assets	10,110	10,263
Deferred tax assets	9,653	7,096
	145,098	146,843
Current assets
Inventories	34,520	37,168
Current income tax assets	741	1,015
Trade and other receivables	19,114	15,663
Derivative financial instruments	2,240	1,702
Cash and cash equivalents	77,271	18,563
	133,886	74,111
Total assets	278,984	220,954
Liabilities
Non-current liabilities
Deferred tax liabilities	(15,654)	(15,587)
Retirement benefit obligations	(9,501)	(10,831)
	(25,155)	(26,418)
Current liabilities
Derivative financial instruments	(2,269)	(6,303)
Current income tax liabilities	(15,106)	(5,424)
Trade and other payables	(25,150)	(14,582)
	(42,525)	(26,309)
Total liabilities	(67,680)	(52,727)
Net assets	211,304	168,227
Equity
Share capital	836	831
Share premium	24,268	21,653
Translation reserve	2,565	2,405
Hedging reserve	115	(1,651)
Retained earnings	183,520	144,989
Total equity attributable to owners of the parent	211,304	168,227

These financial statements of Victrex plc, registered number 2793780, were approved by the Board of Directors on 6 December 2010 and were signed on its behalf by:

D R Hummel                                P E Bream

Chief Executive                           Finance Director

CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September		2010	2009
	Note	£000	£000
Cash flows from operating activities
Cash generated from operations	5	90,919	26,804
Interest and similar charges paid		(106)	(50)
Interest received		84	91
Tax paid		(13,682)	(11,156)
Net cash flow from operating activities		77,215	15,689
Cash flows from investing activities
Acquisition of property, plant and equipment		(4,558)	(7,468)
Net cash flow from investing activities		(4,558)	(7,468)
Cash flows from financing activities
Issue of ordinary shares exercised under option		5	2
Premium on issue of ordinary shares exercised under option		2,615	930
Purchase of own shares held		-	(977)
Dividends paid		(16,895)	(15,080)
Net cash flow from financing activities		(14,275)	(15,125)
Net increase/(decrease) in cash and cash equivalents		58,382	(6,904)
Effect of exchange rate fluctuations on cash held		326	1,935
Cash and cash equivalents at beginning of year		18,563	23,532
Cash and cash equivalents at end of year		77,271	18,563

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share	Share	Translation	Hedging	Retained
	capital	premium	reserve	reserve	earnings	Total
	£000	£000	£000	£000	£000	£000
Equity at 1 October 2008	829	20,723	470	(5,570)	150,342	166,794
Total comprehensive income for the year
Profit	-	-	-	-	17,839	17,839
Other comprehensive income
Currency translation differences for foreign      operations	-	-	1,935	-	-	1,935
Effective portion of changes in fair value of cash flow   hedges	-	-	-	(19,923)	-	(19,923)
Net change in fair value of cash flow hedges      transferred to profit or loss	-	-	-	25,366	-	25,366
Defined benefit pension schemes actuarial losses	-	-	-	-	(7,210)	(7,210)
Tax on other comprehensive income	-	-	-	(1,524)	(654)	(2,178)
Total other comprehensive income for the year	-	-	1,935	3,919	(7,864)	(2,010)
Total comprehensive income for the year	-	-	1,935	3,919	9,975	15,829
Contributions by and distributions to owners of      the Company
Share options exercised	2	930	-	-	-	932
Equity-settled share-based payment transactions	-	-	-	-	729	729
Purchase of own shares held	-	-	-	-	(977)	(977)
Dividends to shareholders	-	-	-	-	(15,080)	(15,080)
Equity at 30 September 2009	831	21,653	2,405	(1,651)	144,989	168,227
Total comprehensive income for the year
Profit	-	-	-	-	53,957	53,957
Other comprehensive income
Currency translation differences for foreign      operations	-	-	160	-	-	160
Effective portion of changes in fair value of cash flow   hedges	-	-	-	217	-	217
Net change in fair value of cash flow hedges      transferred to profit or loss	-	-	-	2,233	-	2,233
Defined benefit pension schemes actuarial losses	-	-	-	-	(846)	(846)
Tax on other comprehensive income	-	-	-	(684)	595	(89)
Total other comprehensive income for the year	-	-	160	1,766	(251)	1,675
Total comprehensive income for the year	-	-	160	1,766	53,706	55,632
Contributions by and distributions to owners of      the Company
Share options exercised	5	2,615	-	-	-	2,620
Equity-settled share-based payment transactions	-	-	-	-	1,720	1,720
Dividends to shareholders	-	-	-	-	(16,895)	(16,895)
Equity at 30 September 2010	836	24,268	2,565	115	183,520	211,304

 NOTES TO THE FINANCIAL STATEMENTS

1. Financial statements and 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:

·   As a result of the adoption of IAS 1 (Revised), the Consolidated Statement of Recognised Income and Expense has been replaced with the Consolidated Statement of Comprehensive Income, and the Consolidated Statement of Changes in Equity is now presented separately as a primary statement;

·   The amendment to IFRS 2 Share-based Payment: Vesting Conditions and Cancellations was adopted. The principal effect of this amendment is that when an award to an employee under a share option scheme lapses due to cancellation of the scheme then the full cost of the award will be expensed in the period in which the option lapses. The amendment also stipulates that an individual ceasing to pay contributions is classed as a cancellation, unless a replacement award is issued. Under the previous interpretation the lapsing of the award through employee cancellation would have resulted in the fair value of the option charged to date being reversed in the income statement. The amendment to IFRS 2 affects the Group's Save as You Earn ('SAYE') schemes. This interpretation is required to be applied fully retrospectively. The implementation of the interpretation has had no material impact on either the current or prior year financial statements;

·   During the period IFRS 8 - Operating Segments was adopted. IFRS 8 requires operating segments to be identified and reported upon that are consistent with the level at which results are regularly reviewed by the entity's chief operating decision maker. The chief operating decision maker for the Group is the Victrex plc Board. In February 2009 the Group's business was strategically reorganised into two divisions: Victrex Polymer Solutions ('VPS') and Invibio Biomaterial Solutions ('Invibio'). VPS manufactures high performance thermoplastic polymers for customers in the transport, industrial and electronics markets. Invibio is the provider of biocompatible PEEK based polymers to medical device manufacturers. Divisional information is the primary basis on which information is reported to the Victrex plc Board and as such the segmental information in note 2 reflects this divisional structure. The performance of the divisions is assessed based on segmental operating profit; and

·   IFRS 7 revised - Financial Instruments: Disclosures was adopted. Accordingly, disclosure is given regarding the level of the fair value hierarchy within which the fair values of the Group's forward foreign exchange contracts are categorised and the maturity analysis required in relation to the timing of cash flows.

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

The financial information presented does not comprise full financial statements within the meaning of the Companies Act 2006. The results for the year ended 30 September 2010 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 2009 have been extracted from the full accounts for that year, which were unqualified and have been delivered to the Registrar of Companies.

Sections of this results statement 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 which are summarised in note 7.

The accounts for the year ended 30 September 2010 will be posted to shareholders on 17 December 2010 and will be available from the Company's Registered Office at Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire, FY5 4QD, United Kingdom.

2. Segment reporting

The Group's business is strategically organised as  two divisions: Victrex Polymer Solutions, which focuses on our transport, industrial and electronics markets and Invibio Biomaterial Solutions, which focuses on providing specialist solutions for medical device manufacturers.

	Victrex Polymer Solutions 2010	Invibio Biomaterial Solutions 2010	Group 2010	Victrex Polymer Solutions 2009	Invibio Biomaterial Solutions 2009	Group 2009
	£000	£000	£000	£000	£000	£000
Revenue from external sales	145,265	44,208	189,473	69,626	34,196	103,822
Segment operating profit	48,329	28,109	76,438	6,276	20,040	26,316
Unallocated central costs			(1,543)			(1,221)
Operating profit			74,895			25,095
Net financing income			46			31
Profit before tax			74,941			25,126
Income tax expense			(20,984)			(7,287)
Profit for the year attributable to      owners of the parent			53,957			17,839
Other information
Segment assets	259,494	19,490	278,984	203,770	17,184	220,954
Segment liabilities	56,249	8,431	67,680	45,852	6,875	52,727
Capital expenditure	3,224	1,216	4,440	7,100	263	7,363
Depreciation	8,293	215	8,508	8,074	223	8,297
Amortisation	153	-	153	610	-	610

Entity wide disclosures

Information about products and services

The Group derives its revenue from the sale of high performance thermoplastic polymers.

Information about geographical areas

The Group's country of domicile is the United Kingdom. Revenues are attributed to customers based on the customer's location. Geographical information about non-current assets excludes deferred tax assets and is based on the location of the assets. The location of intangible assets is the location of the Registered Office of the company to which they relate.

		Revenue from          external sales
		2010	2009
		£000	£000
United Kingdom		3,846	3,666
Europe, Middle East and Africa ('EMEA')		85,592	43,545
Americas		67,974	45,834
Asia-Pacific		32,061	10,777
		189,473	103,822
		Non-current assets
		2010	2009
		£000	£000
United Kingdom		132,152	136,134
Other countries		3,293	3,613
		135,445	139,747

Information about major customers

Revenue derived from one of the Group's customers amounted to £22.7m (2009: £8.5m) of the Group's total revenue from external customers and is included in both segmental revenues.

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.

				2010	2009
Earnings per share	- basic			65.1p	21.7p
	- diluted			64.4p	21.6p
Profit for the financial year				£53,957,000	£17,839,000
Weighted average number of shares used:
Issued ordinary shares at beginning of year				83,122,301	82,897,093
Effect of own shares held				(470,695)	(642,042)
Effect of shares issued during the year				271,119	74,814
Basic weighted average number of shares				82,922,725	82,329,865
Effect of share options				917,675	384,567
Diluted weighted average number of shares				83,840,400	82,714,432

4. Exchange rates

The most significant sterling exchange rates used in the accounts under the Group's accounting policies are:

	Year ended 30 September 2010 Average	Year ended 30 September 2010 Closing	Year ended 30 September 2009 Average*	Year ended 30 September 2009 Closing
US Dollar	1.58	1.58	1.85	1.60
Euro	1.15	1.15	1.31	1.09
Yen	153	132	181	143

* Excluding adverse impact from buyout of surplus forward exchange contracts.

5. Reconciliation of profit to cash generated from operations

		2010	2009
		£000	£000
Profit after tax for the year		53,957	17,839
Income tax expense		20,984	7,287
Net financing income		(46)	(31)
Operating profit		74,895	25,095
Adjustments for:
Depreciation		8,508	8,370
Amortisation		153	610
Decrease/(increase) in inventories		2,919	(5,493)
(Increase)/decrease in trade and other receivables		(3,239)	2,532
Increase/(decrease) in trade and other payables		10,210	(2,726)
Equity-settled share-based payment transactions		1,720	729
Changes in fair value of derivative financial instruments		(2,121)	444
Retirement benefit obligations charge less contributions		(2,126)	(2,757)
Cash generated from operations		90,919	26,804

6. Dividend and Annual General Meeting

The proposed final and special dividends will be paid on 25 February 2011 to all shareholders on the register on 11 February 2011. The Annual General Meeting of the Company will be held at 11am on 8 February 2011, at the Andaz Hotel, Liverpool Street, London, EC2M 7QN.

7. Risks, trends, factors and uncertainties

Victrex's business and share price may be affected by a number of risks, trends, factors and uncertainties, not all of which are in our control.

The specific principal risks, trends, factors and uncertainties (which could impact the Group's revenues, profits and reputation) and relevant mitigating factors, as currently identified by Victrex's risk management process, are described below. However, other risks may also adversely affect the Group.

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.

Principal Risks

Economic environment

The global economic environment and the levels of activity in the markets and territories in which the Group operates could adversely affect the Group's revenues, profitability and cash flow.

Mitigating factors

The diverse nature of the Group's markets and the territories in which each division operates, together with appropriate contingency planning, help to mitigate the impact of a global economic downturn.

Technological change

Victrex's business is dependent on manufacturing and selling high quality products into advanced applications. Demand for these applications and, consequently, for our products could be impacted as new technologies and materials are developed.

Mitigating factors

We employ specialists covering the major market segments for our products to maintain and advance our skills and knowledge. This enables us to develop new applications for our products, so that we maintain our position as a leading solutions provider to designers and engineers at our customers and end users.

Operational disruption

The Group's business is dependent on the ongoing operation of our various manufacturing facilities. A significant operational disruption could adversely affect our ability to make and supply products.

Mitigating factors

We have implemented policies and procedures to efficiently and safely manage all our operations and to maintain our supply of products to our customers. In particular, we employ a dedicated and empowered Safety, Health and Environment ('SHE') department to assist line management and to provide expert guidance.  

Additionally we hold significant stocks of raw materials and finished goods which should enable us to maintain supplies during any short-term disruption. Furthermore, our two polymer manufacturing plants are able to operate independently, thereby reducing the impact of any operational disruption on our ability to continue manufacturing products.

Insufficient capacity

Our customers' businesses depend on maintaining a consistent supply of high quality products. Any unexpected upsurge in demand could lead to insufficient capacity to fulfil customers' needs. Additionally, any delays in the implementation of major capital expenditure programmes could create a capacity shortage, leading to customers seeking alternative products.

Mitigating factors

Our stocks of finished goods enable us to supply any short-term surge in demand from our customers. Additionally, it is our policy to keep capacity well ahead of demand, by investing in our supply chain, so that our customers can be confident that we can meet their requirements.

Product specifications

The Group's products are used in highly demanding end use applications. Any failure to supply products in accordance with their specifications could lead to loss of business and, potentially, a product liability claim.

Mitigating factors

VICTREX PEEK is manufactured within a quality management system approved to ISO 9001:2008. Invibio PEEK-OPTIMA polymer is additionally manufactured within the requirements of ISO 13485:2003, a system of good manufacturing practice often used by the pharmaceutical industry and by medical companies.

Competitor activity

Victrex operates in competitive markets, both in terms of competitors offering directly comparable materials (other polyaryletherketone products) and alternative materials. Failure to compete successfully could negatively impact the business.

Mitigating factors

We continue to work closely with our customers to provide high quality products as required and to invest in resources to bring cost effective, high quality application solutions to our customers.

Currency exposure

Currently, the Group exports 98% of sales from the UK. Primarily, these sales are denominated in US Dollar, Euro and Yen. Fluctuations in exchange rates between sterling and these other currencies could cause profit and balance sheet volatility.

Mitigating factors

The Group hedging policy to mitigate this risk is to defer the impact on profits of currency movements by hedging:

·        a minimum of 90% and a maximum of 100% of projected transaction exposures arising from trading in the forthcoming six month period; and

·        a minimum of 75% and a maximum of 100% of projected transaction exposures arising in the following six month period.

Profitability can nevertheless vary due to the impact of fluctuating exchange rates on the uncovered portion of the transaction exposures and from revised forecasts of future trading, which can lead to an adjustment of currency cover in place.

Relationships with customers and suppliers

We have essential relationships with our customers, suppliers, employees, shareholders and the environment. All our relationships are managed in accordance with the Group's global ethics policies. Relationships with our customers and suppliers are described in further detail below:

Customers

Our customers are a combination of polymer processors and end users located worldwide. We have long-term supply assurance agreements in place with all of the implantable medical device manufacturers that comprise Invibio's PEEK-OPTIMA polymer customers. These agreements guarantee the specification of, and production methods for, the biomaterial over the term of the agreements. We also have supply agreements in place with the majority of our major processing customers and supply to other customers on an order by order basis in accordance with the Group's applicable terms and conditions of sale. The loss of a major processing customer or a worsening of commercial terms could have a material impact on the Group's results, accordingly we devote significant resources to supporting our customer global ethics policies, including maintaining regular contact with major customers and undertaking surveys of customer satisfaction, with a global customer survey being carried out by both VPS and Invibio divisions in 2010.

Suppliers

Victrex is self sufficient in the manufacture of BDF (the key raw material from which VICTREX PEEK is produced). The provision of other key raw materials and services remain essential to the operation of our various manufacturing facilities and we seek to maintain appropriate contracts, where available, with suppliers for the supply of key raw materials. In addition to the steps taken to manage the risk of operational disruption caused by a shortage of key raw materials as described above, we devote significant resources to maintaining our supplier relationships to ensure they continue to operate satisfactorily, including regular audits of and performance reviews with key suppliers. 

FINANCIAL CALENDAR

Annual General Meeting                                                     8 February 2011

Ex dividend date                                                                   9 February 2011

Record date *                                                                     11 February 2011

Payment of final and special dividend                          25 February 2011

Announcement of 2011 half-yearly results                                 May 2011

Payment of interim dividend                                                          July 2011

* The date by which shareholders must be recorded on the share

   register to receive the dividend

 

END

 

 

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