REG - Victrex PLC - Victrex plc – Preliminary Results 2021
06/12/2021 07:00
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RNS Number : 5968U Victrex PLC 06 December 2021
6 December
2021
Victrex plc - Preliminary Results 2021
'Solid & sustainable recovery: FY volumes +25%, strong cash generation
& 50p/share special dividend'
Victrex plc is an innovative world leader in high performance polymer
solutions, delivering sustainable products which support CO2 reduction and
bring environmental and societal benefit in multiple end-markets. Today's
announcement covers our preliminary results (audited) for the 12 months ended
30 September 2021.
FY 2021 FY 2020 % change (reported) % change
(constant currency)(1)
Group sales volume 4,373 tonnes 3,492 tonnes +25% N/A
Group revenue £306.3m £266.0m +15% +20%
Gross profit £165.3m £142.4m +16% +20%
Gross margin 54.0% 53.5% +50bps N/A
Underlying PBT1 £91.7m £75.5m +21% +30%
Reported PBT £92.5m £63.5m +46% +60%
Underlying EPS(1) 83.4p 75.3p +11%
EPS 84.3p 62.6p +35%
Dividend per share (regular & special dividends) 109.56p 46.14p +137% N/A
Highlights:
• Solid & sustainable recovery; FY volumes +25%
- FY sales volume up 25% driven by improving end-markets
- Double-digit YoY growth in Electronics, Energy & Industrial, VAR
- Improvement in Automotive with volumes +18% despite Semiconductor
challenges
- Medical revenue up 3% as elective surgeries gradually return
- 9% increase in new application targets
• Underlying PBT up 21% driven by strong volume growth & cost
management
- Underlying PBT up 21% at £91.7m, reported PBT up 46% at £92.5m
- Gross margin stable at 54.0% despite weaker sales mix, FX and
inventory unwind
• Further progress in 'mega-programme' growth pipeline &
additional milestones
- Strong validation of PEEK technology through sale of Magma interest to
TechnipFMC; opportunities in traditional & new energy including hydrogen
transportation
- Good progress in PEEK Knee clinical trial; 10 patients now implanted
- Meaningful revenue of c£1m in PEEK Gears
- Mega-programme potential for E-mobility, with 50% increase in
development programmes
- Good progress in Trauma joint developments
• Strong cash generation underpinning investment & returns; 50p
special dividend
- FY 2021 available cash(1) of £99.9m** underpinning c£40m capex;
further investment focused on China in FY 2022
- Operating cash conversion(1) 100%
- Civil construction progressing on plan for new PEEK facility in China;
commissioning in 2022
- Post-Brexit inventory unwind benefiting cashflow; total inventory down
£28m to £70m
- Dividends returned to pre-COVID-19 levels & special dividend of
50p/share
• Further enhanced ESG strategy; products bringing environmental
& societal benefit
- Signatory to Science Based Target initiative (SBTi), reflecting 2030
net zero goal***
- New ESG criteria added to Executive remuneration
1 Alternative performance measures are defined on page 16
**excludes £12.5m of cash ring-fenced in the Group's Chinese subsidiaries and
includes £37.5m in 95-day notice deposit accounts
*** Scope 1&2 emissions
Jakob Sigurdsson, Chief Executive of Victrex, said: "Victrex delivered a solid
and sustainable recovery during FY 2021, following the impact we saw from the
pandemic in FY 2020. We saw strong volume growth in several end-markets and
strong cash generation, supporting investment and shareholder returns.
"Automotive, Electronics and Value Added Resellers (VAR) were our standout end
markets, with new application growth in our core business and notable
milestones in our mega-programmes. These include TechnipFMC acquiring our
equity in Magma as they prepare for scale up in Brazil, validating the
technology for use in both traditional and new energy opportunities; good
progress in the PEEK Knee clinical trial, with ten patients implanted to date;
meaningful revenue in our PEEK Gears mega-programme; and a 50% increase in the
number of development programmes for E-mobility, which is now a
mega-programme.
"FY 2021 saw a continued strong focus on the health, safety and well-being of
our employees - with 80% of our global regions now seeing a return to site,
backed by our Global Flexible Working Policy - as we navigated our business
through the pandemic. We again delivered strong service levels for customers,
with sustainable products which bring environmental and societal benefits, as
reflected in our long-term ESG goals.
"With strong cash generation underpinning investment and shareholder returns,
we are pleased to declare dividends back to pre-COVID-19 levels, alongside a
special dividend for shareholders of 50p/share.
Outlook
"For FY 2022, at this early stage, our assumptions are for year-on-year
progress in full year sales volumes, with several end-markets expected to see
further recovery, including in Medical, which will support our sales mix. In
addition to a sizeable currency headwind, like most industrial companies, we
are facing increased raw material and energy costs, which will impact us
particularly in the first half, although mitigation plans are progressing. We
will increase our investment in innovation and will start to incur
commissioning costs in relation to our new China facility, although better
asset utilisation should support our margin. Overall, we plan to deliver
year-on-year growth in FY 2022.
"With an attractive portfolio of short, medium and long term growth
opportunities, a strong ESG agenda, including alignment to global megatrends
and sustainable products which help CO2 reduction and support environmental
and societal benefit, and a highly cash generative business model, the Group
remains well placed for the medium to long-term."
About Victrex:
Victrex is an innovative world leader in high performance polymer solutions,
focused on the strategic markets of automotive, aerospace, energy (including
manufacturing & engineering), electronics and medical. Every day, millions
of people use products and applications which contain our sustainable
materials - from smartphones, aeroplanes and cars to oil and gas operations
and medical devices. With over 40 years' experience, we develop world leading
solutions in PEEK and PAEK based polymers, semi-finished and finished parts
which shape future performance for our customers and our markets, provide
environmental and societal benefits, and drive value for our shareholders.
Find out more at www.victrexplc.com (http://www.victrexplc.com)
A presentation for investors and analysts will be held at 9.30am (GMT) this
morning via a conference call facility. To register, dial +44 (0) 3333
000804 and participant pin 91122185# Audio playback is available by dialling
+44 (0) 3333 000819 and participant pin 425015823# . The presentation will be
available to download from 8.30am (GMT) today on Victrex's website at
www.victrexplc.com (http://www.victrexplc.com) under the Investors/Reports
& Presentations section.
Victrex plc:
Andrew Hanson, Director of Investor Relations & Corporate
Communications
+44 (0) 7809 595831
Richard Armitage, Chief Financial
Officer
+44 (0) 1253 897700
Jakob Sigurdsson, Chief
Executive
+44 (0) 1253 897700
Preliminary results statement for the 12 months ended 30 September 2021
'Solid & sustainable recovery: FY volumes +25%, strong cash generation
& 50p/share special dividend'
Group financial results
FY sales volume up 25%
Group sales volume of 4,373 tonnes was 25% up on the prior year (FY 2020:
3,492 tonnes), reflecting a solid and sustainable recovery across most
end-markets, principally driven by Automotive, Electronics and Value Added
Resellers (VAR). We also enjoyed double-digit volume growth within Energy
& Industrial, with Industrial reflecting new applications and the strength
of the global recovery. VAR also benefited from some level of restocking
through the year, as global economies reopened, although we do not anticipate
a repeat of this during FY 2022. In the more challenging end market of
Aerospace, H2 2021 volumes grew 8% on H1 2021, although full year volumes
remained 20% lower than the prior year, reflecting a strong performance in
Aerospace prior to the initial impact from COVID-19.
H2 2021 sales volume of 2,287 tonnes was 52% ahead of H2 2020 (H2 2020: 1,500
tonnes) and 10% ahead sequentially, compared to the first half. As
anticipated, our final quarter remained strong but was slightly lower than
prior quarters due to the restocking impact being seen earlier in our
financial year.
Good growth in new application targets
We saw a 9% increase in our target application pipeline.
Group revenue up 15%, with gradual Medical recovery
Group revenue was £306.3m, up 15% on the prior year (FY 2020: £266.0m),
reflecting a strong performance in most Industrial end markets and a more
gradual improvement in Medical, as elective surgeries take longer to return,
following COVID-19 related lockdowns.
Group revenue in constant currency(1) was 20% up on the prior year (FY 2020:
£255.4m in constant currency).
ASP down 8% due to sales mix
Our Average Selling Price (ASP) of £70/kg was 8% lower than the prior year
(FY 2020: £76/kg), principally reflecting a weaker sales mix and the faster
growth in Industrial end markets compared to our Medical division. Currency
also impacted us at the revenue level as Sterling strengthened. With Medical
set to continue improving as surgery rates increase globally, offset by a
sizeable currency headwind of approximately £8m-£11m, our expectations are
that FY 2022 ASP will be slightly ahead of FY 2021.
Strong performance in Industrial; Medical improvement in H2 2021
Our Industrial division reported revenues of £255.2m, 18% up on the prior
year (FY 2020: £216.3m), with Electronics remaining strong as homeworking and
the demand for a range of smart devices supported use of our materials, as
well as a recovering Semiconductor sector. We also benefited from an
improvement in VAR, with Automotive and Energy & Industrial also ahead
compared to the prior year. As noted, Aerospace improved in the second half vs
the first half but remained lower than FY 2020 on a full year basis, primarily
reflecting a strong H1 2020, prior to the impact of COVID-19 on trading within
this end-market.
Medical revenues were £51.1m, up 3% on the prior year (FY 2020: £49.7m) and
9% ahead in constant currency(1). We continued to see recovery in this
end-market through the year, although we were still faced with a strong
comparative from H1 2020, due to a strong Medical performance prior to
COVID-19 related lockdowns. Whilst surgery rates in China and parts of Asia
returned to more normalised levels, surgeries in the US have not yet returned
to pre-COVID-19 levels, although they are expected to continue improving
through FY 2022. We continue to benefit from growth in non-Spine through
applications in Trauma, Arthroscopy and Cranio Maxillo Facial (CMF)
applications, with non-Spine now representing 45% of Medical revenues.
Gains & losses on foreign currency net hedging
Fair value gains and losses on foreign currency contracts, where net hedging
is applied on cash flow hedges, are required to be separately disclosed on the
face of the Income Statement. In FY 2021, a gain of £4.9m (FY 2020: loss of
£1.5m) has been recognised accordingly, largely from USD contracts where the
deal rate obtained (placed up to 12 months in advance in accordance with the
Group's hedging policy) was favourable to the average exchange rate prevailing
at the date of the related hedged transactions.
Gross margin stable
Group gross margin of 54.0% improved slightly compared to FY 2020 (FY 2020:
53.5%). We saw some improvement from increased PEEK production volumes and the
benefit from our cost savings plan announced in FY 2020, but these were offset
by our monomer production, where we carried out a period of extended
maintenance. A weaker sales mix - as our Medical business was slower to
recover from the impact of COVID-19 than Industrial - a small degree of price
erosion, and an increase in supply chain costs also held back margin.
With Brexit contingency inventories now unwound, we anticipate that FY 2022
will see production volume more aligned to sales volume, as well as an
improved sales mix. This should result in a recovery in gross margin, although
it will be offset by currency and commissioning costs associated with our new
Chinese facility, as well as raw material and energy inflation.
Inventory unwind
Inventory built up ahead of Brexit provided us with the ability to respond
flexibly to customer demand and maintain high service levels throughout the
pandemic. With the significant inventory unwind during FY 2021, our closing
inventory position of £70.3m (FY 2020: £98.5m) benefited cashflow. With some
uncertainties in global supply chains, we expect total inventory in FY 2022 to
fluctuate between £70m and £80m as we build contingency stocks from
time-to-time. With the commissioning of our China manufacturing subsidiary
expected during 2022, we also anticipate holding a slightly higher level of
raw material inventory.
Cost savings drive reduced overheads, excluding bonus
Operating overheads(1) excluding bonus were 2% lower, primarily reflecting the
benefit of cost savings announced in FY 2020, partly offset by an increase in
innovation investment. Operating overheads of £72.7m (FY 2020: £66.4m) were
9% ahead of the prior year, which includes the effect of the Group's All
Employee Bonus Scheme. Including both the annual incentive and long-term
incentive programmes, the year on year incremental reward totalled
approximately £9m.
As communicated in FY 2020, the All Employee Bonus Scheme is no longer based
primarily on profit growth, but is based on actual performance versus a
budget-based target, with a cap in place. We envisage this will reduce the
volatility of bonus payout year on year. Executives will also now be
incentivised on targets linked to our ESG goals (from FY 2022), with further
detail in our forthcoming Annual Report.
Our "front-end" functions of Sales, Marketing and R&D support existing
business growth and our mega-programmes. With some investment in these areas
deferred during FY 2020, we anticipate a modestly higher level of overhead
investment in FY 2022, with accrual for the All Employee Bonus Scheme expected
to be slightly lower. R&D investment of £15.5m (FY 2020: £16.7m)
represented approximately 5% of revenues(1). Of total R&D investment
focused on individual projects, ,approximately 83% of this is aligned to
programmes supporting sustainable products.
Underlying PBT up 21.5%
Underlying PBT of £91.7m was up 21.5% on the prior year (FY 2020: £75.5m),
reflecting a strong operating performance. Reported PBT of £92.5m was up
45.7% on the prior year (FY 2020: £63.5m). The exceptional credit in FY 2021
related to more favourable settlements than assumed, primarily in non-UK
regions, when making the restructuring charge in FY 2020.
Earnings per share up 35%
Basic earnings per share of 84.3p was 34.7% up on the prior year (FY 2020:
62.6p per share) as a result of the exceptional items in FY 2020, partly
offset by a higher tax charge. The effective tax rate was 21.3%, materially
higher than the prior year (FY 2020: 14.6%) which is mainly due to the
restatement of deferred tax balances in FY 2021 following the announcement the
UK Corporation tax rate would increase to 25% from April 2023. Whilst the UK
corporation tax rate is currently 19%, because of the availability of the
reduced rate on profits taxed under Patent Box, our mid-term guidance at this
stage remains for an effective tax rate of approximately 12%-15%, although we
continue to assess global taxation developments which may see this rate
slightly increase.
Currency headwind
Currency was a modest headwind of £4m at PBT level, reflecting the
strengthening of Sterling since the end of FY 2020. With Sterling having
re-rated through FY 2021, the impact of which was partially deferred by our
hedging policy, we note the implications for FY 2022, which is now
approximately £8m-£11m headwind at PBT level, with over 80% of hedging cover
in place for US Dollar and Euro exposure.
Our hedging policy seeks to substantially protect our cash flows from currency
volatility on a rolling twelve-month basis. The policy requires that at
least 80% of our US Dollar and Euro cash flow exposure is hedged for the first
six months, then at least 75% for the second six months of any twelve-month
period. The implementation of the policy is overseen by an Executive
Currency Committee which approves all transactions and monitors the policy's
effectiveness.
Proactive actions on COVID-19
The health, safety and well-being of Victrex employees and supporting our
customers continued to be our highest priority during FY 2021. Our COVID-19
committee, established at the start of 2020, remains in place, with a
proactive approach despite a Return to Site for approximately 80% of our
global regions, supported by our Global Flexible Working policy. Our approach
has been focused on several key areas:
People
A range of contingency plans were implemented, with a focus on the health,
safety and well-being of our people. We continue to follow governmental or
state guidance wherever we operate. Beyond our UK and US manufacturing
operations, approximately 80% of our global regions have now seen a Return to
Site, backed by our Global Flexible Working Policy. Broadly, our UK, US,
Europe, China and Korea regions are back in office locations, with a flexible
approach. Our UK Return to Site commenced in October 2021, although we
continue to maintain some specific COVID-19 controls such as face coverings
and room occupancy levels.
Essential industry & serving customers
The UK government defined Chemicals as an essential industry with essential
workers, with Victrex also having a long-standing history in supporting many
critical and "life-sustaining" applications for our customers, particularly in
Medical. This meant we continued to have a manufacturing, warehousing and
quality control presence throughout the pandemic. In the US, we continued to
operate on an ongoing modified basis, defined as being a 'life-sustaining'
organisation in several states.
Despite supply chain challenges during FY 2021, we continued to deliver strong
service levels for our customers, although we did incur some additional costs
including air-freighting. Our service levels for customers remained above
90%.
Dividends
With a highly cash generative business model, a solid recovery and the benefit
of inventory unwind on our cashflow, the Group reinstated dividends back to
pre-COVID-19 levels, following the cancellation of the H1 2020 interim
dividend.
Strong financial position
Overall, our financial position remains strong, including an available cash
position of £99.9m on 30 September 2021 and a committed undrawn RCF of £20m,
and a £20m accordion, to October 2024. We are in regular engagement with
our banks, with options available to access other capital, should this be
required.
Brexit
Following implementation of the Brexit trade agreement on 31 January 2021, the
Group saw no material impact on trade from the UK to the EU, reflecting our
proactive stock build and EU warehousing. We continued to hold Brexit steering
meetings for a period after the Brexit trade agreement, to assess any
immediate concerns through the transition period. As noted earlier, supply
chain and logistics challenges were seen during FY 2021, although these did
not materially impact on service levels to our customers.
Investment in capacity and to support downstream strategy
Cash capital expenditure was £41.9m (FY 2020: £24.9m), slightly lower than
our guidance as some investment, principally for our China manufacturing
subsidiary, was phased into FY 2022. We also expect to see a multi-year
investment to support the efficiency improvement of our UK manufacturing
assets, a project which was deferred during the pandemic. We anticipate this
will be approximately £15m, spread over the next four financial years and
built into the annual capital budget.
This investment in capacity is being developed in a more tailored way than
historic investments, with smaller increments providing an overall return on
investment similar to current Group Return on Capital Employed (ROCE)(1).
Following these investments, we do not anticipate any material large scale
capacity investment for several years.
Our China investment is progressing well, with commissioning anticipated to be
during 2022. With the challenge of managing some of the engineering work
remotely - due to COVID-19 restrictions on in-country access - we have had to
source additional regional engineering support and other facilities at an
increased cost. We achieved over 500,000 hours without a recordable injury,
with the investment reflecting continued growth in China across end-markets,
and the opportunities we see to support our customers in country and with a
quality PEEK offering.
As a consequence of some capital being phased into FY 2022, we now anticipate
capital expenditure for the year could exceed £60m. This also reflects some
additional capability we are planning to invest in, to support our growth
opportunities in China.
Mega-programme progress
To date, we have seen limited evidence of any material slowdown in our overall
growth portfolio of mega-programmes. Although individual timelines remain
subject to change, the long-term prospects in each programme continue to be
attractive. Our Knee programme has been the key area where timing towards
commercialisation has been impacted by COVID-19, following the pausing of the
clinical trial last year, which subsequently restarted with trial sites in
India, Italy and Belgium. Pleasingly, this programme has now moved forward
with ten patients implanted in India and Belgium, with no issues reported at
the 6-month follow up stage. We also envisage we may require less than the
original plan for 30 patients. Those patients now implanted will be
progressing through the trial over the next two years.
Our Aerospace Loaded Brackets programme - which successfully secured over £1m
of meaningful revenue in FY 2020 - increased commercial revenues above £2m in
FY 2021, despite this end market remaining subdued. Although timing for some
milestones has slipped as a result of the impact of COVID-19, we continue to
see good long-term opportunities, with mega-trends aligned to light-weighting,
CO2 reduction and faster processing supporting the use of our PEEK based
composite materials. We also continue to explore opportunities in eVTOL
(Electric Vehicle Take-off and Landing) which could support medium to long
term growth.
In PEEK Gears, which now have several initial contracts 'on the road'
following a first supply agreement in 2018, we secured meaningful revenue of
approximately £1m in FY 2021. We also have over 20 development programmes
with tier 1 suppliers or OEMs (Original Equipment Manufacturers). Gears
continue to have application uses across both traditional internal combustion
engines (ICEs) and electric vehicles (EVs) and we have recent opportunities
progressing in both the US and Asia.
Within 'Aerospace Structures' which links to our development alliance with
Airbus, we are now delivering prototype revenue via large scale test parts.
The alliance will support the development and commercialisation of
thermoplastic composites in Aerospace, with a focus on both larger primary and
secondary Aerospace structures, such as wings and fuselage parts. A long term
agreement was also signed to support the use of our composite materials which
underpins the opportunity. Aerospace Structures remains incremental to
Victrex's Aerospace Loaded Brackets programme, with our AE(TM)250 composites
grade being integral to both of these opportunities.
In our Magma composite pipe programme, our minority equity interest in Magma
Global Limited was sold to TechnipFMC in October 2021, with a gain of £0.9m
from our initial investment of £10m in 2016 (our initial shareholding was
subsequently diluted in 2018 when TechnipFMC first acquired a shareholding).
TechnipFMC is seeking to accelerate the significant opportunities for
thermoplastic composite pipe, which is clear validation of the technology that
is based on Victrex PEEK polymer and Victrex's composite tape. Victrex will
continue to work in close collaboration with TechnipFMC as a strategic supply
partner, with multi-year supply agreements in place and industry
qualifications based on Victrex PEEK. TechnipFMC has indicated its intention
to accelerate the use of this technology and scale up manufacturing in Brazil
as required, to support use in traditional energy applications. It has also
indicated the potential to further develop the technology for use in carbon
capture and storage, and hydrogen transportation. Separately, Victrex has made
a small investment to form Enoflex, a combination and collaboration of
previous shareholders in Magma Global Limited, which seeks to utilise this
technology, based on Victrex PEEK, and broaden its use for the 'energy
transition'. This will include targeting a wider number of industry players
involved in hydrogen and other new energy opportunities.
Pre-qualification work as part of TechnipFMC's bid programmes in Brazilian oil
& gas fields continue, based on the Hybrid Flexible Pipe (HFP) model. We
expect to see continued development revenues as the 6 inch qualification pipe
progresses - extruded by Victrex - through the supply chain in the short term,
with TechnipFMC's significant commitment offering the potential for revenues
to begin stepping up over the medium term. The high technical and subsea
engineering requirements in Brazil and elsewhere continue to support the
proposition, including light-weighting, durability, CO2 and chemical
resistance.
Our E-mobility programme, which focuses on applications across electric
vehicles, in particular for high-voltage next generation programmes, is
expected to achieve commercial success over the medium term. PEEK will be used
in specific applications where durability, heat resistance and light-weighting
are all key. We saw a 50% increase in development programmes, with FY 2022 and
FY 2023 expected to see greater commercialisation. Our assessment of the PEEK
content per vehicle has also been increased to more than 100g (from
approximately 10g today), as we focus on the high performance needs of next
generation electric vehicles. E-mobility is now a mega-programme.
In Medical, following good progress in our next generation PEEK-OPTIMA™ HA
Enhanced product for Spine during FY 2020 to £2m, revenues were lower (but
remained above £1m) due to the challenges of lower elective surgeries and new
product launches, as a result of COVID-19. However, with elective surgeries
expected to gradually increase through FY 2022, we anticipate seeing some
improvement. During the year, we secured first US FDA approval for this
product in ankle wedge systems, complementing other extremity applications
such as hammertoe. We also continue to innovate within Medical to secure
revenues in non-Spine, which are now 45% of Medical revenues. These include
Cranio Maxilo Facial (CMF), European regulatory approval for a total PEEK
heart application and sternal devices. We are also making good progress in our
Porous PEEK offering thanks to our investment in Bond 3D and the 3D printing
opportunities that offers.
Our Trauma pipeline continues to build, following the agreement with US based
In2Bones for composite plating, and we also secured our first Asia customer
product launch for FY 2022.
Our focus to grow our non-Spine business in Dental continues to be slower than
we anticipated, with COVID-19 disruption being particularly notable in this
end market. Whilst the technical proposition remains strong, like other
participants or competitors in this market, we are focused on
commercialisation through partnerships or other vehicles. Clinical data,
including infection rates compared to metal prosthetics, remains positive.
Strategically, we have also reined back on resource commitments in this area,
to reflect the adoption challenge and prioritisation elsewhere. Dental is now
no longer a mega-programme but continues to offer a sizeable revenue
opportunity.
Strong balance sheet
Our strong balance sheet underpins our ability to invest and support security
of supply for customers. Net assets at 30 September 2021 totalled £511.7m (FY
2020: £481.0m). Inventories reduced to £70.3m (FY 2020: £98.5m), which
reflects sales inventory being unwound at pace after Brexit. With the expected
commissioning of our China facility during FY 2022, our expectation is that
raw material inventory will increase, meaning total full year inventory is
expected to be slightly higher than FY 2021.
Robust cash generation
Cash generated from operations was £135.5m (FY 2020: £86.6m), an operating
cash conversion(1) of 100% (FY 2020: 101%). Cash and other financial assets
(with no debt) at 30 September 2021 was £112.4m (FY 2020: £73.1m). This
includes £12.5m ring-fenced in our China subsidiaries and other financial
assets of £37.5m, representing cash which was held on 95-day deposit at 30
September 2021, therefore the Group had £99.9m available cash(1) as at the
year-end date. In February 2021 we paid the 2020 full year final dividend of
46.14p/share and following reinstatement of the interim dividend, we paid the
H1 2021 interim dividend of 13.42p/share in July 2021.
We are in the final stages of securing a RMB300m borrowing facility (£34.5m
equivalent translated at the FY 2021 year-end rate of 8.7) in China in support
of our investments there.
Taxation
The Group's effective tax rate reflects the associated benefit from Victrex
filing patents as part of its unique chemistry and IP, through the UK
government's 'Patent Box' scheme. The effective tax rate was 21.3% (FY 2020:
14.6%), higher than the prior year period to reflect the increase in the
future UK Corporation Tax rate, resulting in a one-off deferred tax charge in
the region of £6.1m which has increased the effective tax rate for FY 2021 by
approximately 7% points, and adversely impacts earning per share for the
financial year. Our anticipated effective tax rate in the medium term is
expected to be in the 12-15% range, although we continue to assess tax
policies which may see this rate slightly increase.
This includes an allowance for the increase in the UK corporation tax rate
over the coming years and reflects our continued use of the Patent Box scheme
which promotes investment in UK Research & Development and intellectual
property (IP).
Dividends
With positive cash generation and a strong trading performance, the Group has
seen dividends return to pre-COVID-19 levels. We have proposed a final
dividend of 46.14p/share (FY 2020: final dividend 46.14p/share) taking the
full year dividend to 59.56p (FY 2020: 46.14p) which reflects the expectation
of growth in FY 2022, despite the significant currency and inflation
headwinds.
As a result of the Group's available cash(1) balance exceeding the £85m
threshold set out in our capital allocation policy for additional returns to
shareholders, we are also proposing a 50p/share special dividend.
Outlook
For FY 2022, at this early stage, our assumptions are for year-on-year
progress in full year sales volumes, with several end-markets expected to see
further recovery, including in Medical, which will support our sales mix. In
addition to a sizeable currency headwind, like most industrial companies, we
are facing increased raw material and energy costs, which will impact us
particularly in the first half, although mitigation plans are progressing. We
will increase our investment in innovation, and will start to incur
commissioning costs in relation to our new China facility, although better
asset utilisation should support our margin. Overall, we plan to deliver
year-on-year growth in FY 2022.
With an attractive portfolio of short, medium and long term growth
opportunities, a strong ESG agenda, including alignment to global megatrends
and sustainable products which help CO2 reduction and support environmental
and societal benefit, and a highly cash generative business model, the Group
remains well placed for the medium to long-term.
Jakob Sigurdsson
Chief Executive
6 December 2021
(1) Alternative performance measures are defined on page 16.
DIVISIONAL REVIEW
Industrial
12 months 12
months
Ended ended %
30 Sept 30 Sept % Change
2021 2020 Change (constant
£m £m (reported) currency)
Revenue 255.2 216.3 +18% +22%
Gross profit 119.7 99.3 +21% +25%
Group performance is reported through the Industrial and Medical divisions
although we continue to provide a market-based summary of our performance and
growth opportunities. The Industrial division includes the markets of Energy
& Industrial, Value Added Resellers (VAR), Transport (Automotive &
Aerospace) and Electronics.
Our Industrial business delivered revenue of £255.2m (FY 2020: £216.3m), 18%
up on the prior year, reflecting a strong performance across most end-markets,
with Automotive, Electronics, Energy & Industrial and VAR being the
standout performers. Revenue in constant currency was up 22%. Gross margin
improved slightly to 46.9% (FY 2020: 45.9%), primarily reflecting the impact
of higher production volumes. Electronics and VAR were the notable drivers
of growth, with volumes 33% and 39% ahead in these end markets respectively,
supported by an extension of applications including for Semiconductor and 5G
applications.
Energy & Industrial
Our Energy & Industrial segment includes volumes for oil & gas and new
energy applications, including renewables, and an array of applications across
General Industrial. These include in food processing, machinery and robotics.
Energy & Industrial saw sales volume of 760 tonnes, which was up 22% on
the prior year (FY 2020: 622 tonnes), with Oil & Gas up 11% overall. H2
2021 saw an acceleration in this end market as activity levels started to
return. Our products continue to offer durability and performance in many
demanding applications including in both exploration and processing, where the
reliability of PEEK can mean less intervention or downtime, thereby supporting
efficiency of operation.
Industrial focuses on new or incremental applications in fluid handling, food
contact materials and manufacturing equipment applications, including the
emerging opportunities in compressors where metal replacement requirements are
increasing. Application growth in this end market helped drive volume growth
of 47% compared to the prior year.
Value Added Resellers (VAR)
Full clarity on the exact route to market for all of our polymer business is
not always possible, however, our analysis suggests that VAR shows a similar
alignment to our Industrial end-markets, with the exception of Aerospace,
where sales volumes and largely direct to OEMs or tier suppliers.
PEEK materials are used for parts or component manufacturing specified by end
users and OEMs to processors and compounding specialists, as the "pull" from
Industrial markets using Victrex(TM) PEEK continues to grow. VAR remains an
important part of our Industrial division and enjoyed strong growth this year
as societies emerged from the worst impact of the pandemic. Sales volume of
1,900 tonnes was 39% up on the prior year (FY 2020: 1,368 tonnes), principally
reflecting the macro-improvement, as well as good growth in end markets such
as Electronics, Automotive, Energy & Industrial.
The VAR channel also typically sees greater levels of restocking and
destocking as processors or compounders typically reduce inventories in higher
value materials when end market demand drops and do the opposite when it
increases. Our second and third quarters benefited from the restocking effect
as societies began to open up, with demand normalising in our final quarter.
We do not expect this restocking effect to repeat in FY 2022.
Transport (Automotive & Aerospace)
Emerging from the worst impact of COVID-19, structural megatrends including
lightweighting, CO2 reduction, durability, comfort, electrification and heat
resistance remain strong.
Following a strong performance for both Automotive & Aerospace in H1 2020
(prior to the impact of COVID-19), Automotive saw a good recovery as societies
began to open up, whilst Aerospace remained subdued, with most industry data
suggesting a multi-year recovery. Semiconductor shortages weighed on
Automotive in the second half, slightly slowing momentum, although we recorded
growth on a full year basis. In Aerospace, long term trends remain supportive
and we note that OEM forecast build rates have only marginally reduced over
the next 15-20 years (Airbus forecasts 39,000 new or replacement planes by
2040).
Overall Transport sales volume grew 8% to 926 tonnes (FY 2020: 858 tonnes),
with Automotive volumes up 18% and Aerospace volumes down 20%, reflecting the
strong comparative for the first half of FY 2020.
Automotive
Performance was strong through FY 2021, with some impact in the second half
from the Semiconductor chip shortage. Core applications include braking
systems, bushings & bearings and transmission equipment, with increasing
opportunities in electric vehicles including impending e-mobility business.
In PEEK Gears, we delivered meaningful revenue of approximately £1m for the
first time in this mega-programme, with over 20 programmes we are seeking to
commercialise over the next three years. PEEK gears based on Victrex(TM) HPG
PEEK can offer a 50% performance and noise vibration and harshness (NVH)
benefit compared to metal gears, as well as contributing to the trend for
minimising CO2 emissions through weight & inertia reduction, and quicker
manufacturing compared to metal. A PEEK Gear offers the potential of
approximately 20 grams per application.
In E-mobility, our focus on next generation high-voltage vehicles is expected
to deliver initial revenues in FY 2022. PEEK remains well placed for both
internal combustion engines, hybrids and electric vehicles (EVs).
Aerospace
Aerospace volumes were down 20%, reflecting the significant impact on plane
build through COVID-19. Whilst 2020 was recognised as having the sharpest
decline in aviation history with demand (revenue passenger kilometres or RPKs)
down by 66% on the prior year, 2021 to date has seen some limited recovery as
build rates have recovered across several models.
Sequentially, Aerospace volumes were up 8% in the second half as we progressed
from trough levels, although we note the current industry challenges and
expected multi-year recovery.
Long term trends remain strong however. Our Loaded Brackets and Aerospace
Structures mega-programmes both grew revenues over the year, with Loaded
Brackets exceeding £2m revenue as the use of composites and differentiated
products remain in demand. These include interior structural components, and
we anticipate a continuation of revenue build in both of these programmes,
reflecting their niche and differentiated offering. Light-weighting,
recyclability and the ability to reduce manufacturing cycle time by up to 40%
remains a key selling point for our PEEK and PAEK polymers. The ability to
support CO2 reduction through PEEK materials which are typically 60% lighter
than metals also remains strong, with our assessment that over 50 million
tonnes of CO2 could be saved over the next 15 years if all new single aisle
planes were produced with over 50% PEEK composite content. These attractions
play to our Aerospace Structures mega-programme, working with Airbus to
support their Clean Sky 2 and Wing/Fuselage of Tomorrow programmes.
Electronics
Electronics volumes rebounded strongly, up 33% at 602 tonnes (FY 2020: 454
tonnes). With Asia being a key geography for much of this end-market, the
COVID-19 recovery in Asia and return to operations for many countries in the
region provided support, alongside application growth.
Semiconductor chip demand - driven by internet of things, 5G applications,
cloud computing and Automotive - supported our growth, with core applications
like CMP rings and other extended application areas growing, including a new
PEEK nut application. We also benefited from greater implementation of 5G
alongside the greater homeworking trend during the pandemic. This provided
good momentum for our Aptiv(TM) film business and small space acoustic
applications and we continue to see a positive outlook for this end market
into FY 2022.
Sales of home appliances and our impeller application business in high-end
brands are also performing well across a number of product areas, including
vacuum cleaners and hairdryers.
Regional trends
As Asian economies gradually opened up first, with a recovery from COVID-19,
sales volume in that region saw the greatest improvement, with Asia-Pacific up
19% at 1,134 tonnes (FY 2020: 953 tonnes). Asia is now larger than the US as
a geographic market, reflected in our investments in China to support growth
over the coming years.
Europe was up 30%, with 2,432 tonnes (FY 2020: 1,876 tonnes), reflecting
improvement in Automotive and the strong performance in VAR. US volumes were
up 22% at 807 tonnes (FY 2020: 663 tonnes) as Energy saw a steady recovery,
although Aerospace remained subdued.
Medical
12 months 12
months
Ended ended %
30 Sept 30 Sept % Change
2021 2020 Change (constant
£m £m (reported) currency)
Revenue 51.1 49.7 +3% +9%
Gross profit 45.6 43.1 +6% +8%
Revenue in Medical was up 3% at £51.1m (FY 2020: £49.7m) as we saw a gradual
but steady return to elective surgeries in most regions, principally
Asia-Pacific. The US - which represents 53% of divisional revenues - remained
slower in the return of patient surgeries compared to Asia-Pacific, with the
latest data indicating the turn of the calendar year 2021/2022 will see
surgery rates return to pre-COVID-19 levels. This data supports our assumption
of an improved sales mix in FY 2022.
In constant currency, Medical revenue was up 9%. Gross profit was £45.6m (FY
2020: £43.1m) and gross margin was up at 89.2% (FY 2020: 86.7%) reflecting a
slightly better sales mix within this division. Overall Medical volume
(implantable and non-implantable) was down 3%, reflecting the demand for
non-implantable business in ventilators and related equipment during FY 2020.
In the prior year period, the strong comparative in H1 2020 should be noted,
as the supply chain and a number of major customers pre-bought product ahead
of COVID-19 related lockdowns. Geographically, Asia-Pacific revenues were up
10% year on year, with Medical revenues in the US flat and Europe up 4%.
Asia-Pacific continues to reflect revenues in Spine, as new approvals are
secured, and non-Spine areas such as Cranio Maxillo-Facial (CMF), Arthroscopy
& Sports Medicine as well as emerging or incremental opportunities in
heart components. On a medium-term view, we continue to target high
single-digit million revenue from each of our non-Spine areas, for example
CMF, Cardio. Non-Spine overall now represents 45% of divisional revenues.
Medical market overview
Spine is our historic end-market which, whilst it has become more mature in
recent years, is one we continue to diversify through focusing on emerging
geographies and new innovative products. Our premium and differentiated
PEEK-OPTIMA(TM) HA Enhanced product (POHAE) - to drive next generation Spine
procedures - is one part of our strategy to grow our Medical business.
Following good growth during FY 2020, the decrease in elective surgeries
impacted revenues during H1 2021, although we saw improvement in the second
half. Full year revenues were lower] than the £2m seen in the prior year. We
are also innovating within the application uses for PEEK-OPTIMA™ HA
Enhanced, for example in ankle wedge systems where we gained US FDA approval,
which complements other extremity applications such as hammertoe.
Our Porous PEEK opportunity, where the benefit of bone-in growth is added to
bone-on growth for Spinal applications, is moving forward on plan thanks to
our Bond 3D investment, where our ability to 3D print spinal cages will be
important. Following successful feasibility work, we entered into a joint
development agreement with a medical device customer to progress development
of the first FDA approved porous PEEK additive manufactured spinal cage, for
projected launch in 2022. A number of other customer discussions are ongoing.
Progress in our non-Spine business continues to be impressive, with non-Spine
revenues now 45% of the division. A number of emerging opportunities made
good progress during FY 2021, these include one of our customers gaining
regulatory approval in Europe (CE mark) for the first PEEK total artificial
heart. We also saw the first FDA approval of a PEEK based cervical disk and
developed new products in sternal applications. Cranio Maxillo Facial (CMF)
continues to be a growth opportunity and we saw 25% growth compared to FY
2020.
Mega-programmes
In Knee, we saw positive progress through the year, with the first patients
implanted in India as part of the clinical trial and a total of 10 implants
now having successfully passed the 6 month follow up phase. Clinical trials
are now operating in Belgium, India and Italy, although the European trials
remain slower to emerge from the impact of COVID-19 than the trial in India.
Although the Knee programme has shifted its timeline backwards by
approximately 12 months due to the impact of COVID-19, the long term
opportunity - in what is a $10 billion global market - remains attractive.
Further news flow is expected during FY 2022 and we anticipate the trial sites
will run for approximately two years.
As previously communicated, the focus for our Invibio Dental (Juvora(TM))
branded products is for adoption to be driven by partners and industry players
- similar to other competitor products - with Invibio continuing to support
and build on existing clinical data, including that through the Malo Clinic,
which further validates our Dental proposition. Adoption in this end market
has remained challenging, and our resources have been tailored appropriately.
Strategically, we are prioritising our investment and resources in other
programmes.
Our emphasis remains on the prosthetic dental market - frames, bridges and
partials - rather than the full jaw-based implant, with the Invibio Dental
offering focused on improving quality of life and clinical outcomes for
patients, whilst offering manufacturing efficiency benefits.
In Trauma, we announced an agreement during the year with US based In2Bones
for composite plating in higher and lower extremities and concluded our first
Asia customer product launch plan, scheduled for FY 2022.
Our PEEK composite Trauma plates offer the potential for 50 times better
fatigue resistance compared to a metal plate, with awareness of composites as
a viable metal alternative growing. Whilst we have the manufacturing
capability to meet initial demand, we may also choose to consider partnerships
to support scale-up, particularly for geographies in Asia-Pacific and China
specifically.
Alternative performance measures:
We use alternative performance measures to assist in presenting information in
an easily comparable, analysable and comprehensible
form. The measures presented in this report are used by the Board in
evaluating performance. However, this additional information presented is not
required by IFRS or uniformly defined by all companies. Certain measures are
derived from amounts calculated in accordance with IFRS but are not in
isolation an expressly permitted GAAP measure. The measures are as follows:
- Operating profit before exceptional items (referred to as
underlying operating profit) is based on operating before the impact of
exceptional items. This metric is used by the Board to assess the underlying
performance of the business excluding items that are, in aggregate, material
in size and / or unusual or infrequent in nature. Exceptional items for FY
2021 are a credit of £0.8m; details are disclosed in note 5;
- Profit before tax and exceptional items (referred to as
underlying profit before tax) is based on Profit before tax before the impact
of exceptional items. This metric is used by the Board to assess the
underlying performance of the business excluding items that are, in aggregate,
material in size and / or unusual or infrequent in nature.
- Constant currency metrics are used by the Board to assess the
year on year underlying performance of the business excluding the impact of
foreign currency rates, which can by nature be volatile. Constant currency
metrics are reached by applying current year (FY 2021) weighted average spot
rates to prior year (FY 2020) transactions;
- Underlying EPS is earnings per share based on profit after tax
but before exceptional items divided by the weighted average number of shares
in issue. This metric is used by the Board to assess the underlying
performance of the business excluding items that are, in aggregate, material
in size and/or unusual or infrequent in nature;
- Operating cash conversion is used by the Board to assess the
business's ability to convert operating profit to cash effectively, excluding
the impact of investing and financing activities. Operating cash conversion is
operating profit before exceptional items adjusted for depreciation and
amortisation, working capital movements and capital expenditure / operating
profit before exceptional items;
- Available cash is used to enable the Board to understand the
true cash position of the business when determining the use of cash under the
capital allocation policy. Available cash is cash and cash equivalents plus
other financial assets (cash invested in term deposits greater than three
months in duration) less cash ring-fenced in the Group's Chinese subsidiaries
which is committed to capital investment or additional capability and
therefore not available to the wider group;
- Research and development expenditure as a % of Group sales is
used by the Board because R&D spend is considered to be a leading
indicator of the Group's ability to innovate into new applications, supporting
future growth. The Group targets spend at c5%-6% of Group revenues;
- Sales from New Products as a percentage of Group sales is used
by the Board to measure the success of driving adoption of the new product
pipeline. It measures Group sales generated from mega-programmes, new
differentiated polymers and other pipeline products that were not sold before
FY 2014 as a percentage of total Group sales;
- Return on Capital Employed (ROCE) is used by the Board to assess
the return on investment at a Group level. ROCE is profit after tax / total
equity attributable to shareholders at the year end;
- Operating overheads is made up of sales, marketing and
administrative expenses before exceptional items.; this metric is used by the
Board to assess the underlying performance of the business excluding items
that are, in aggregate, material in size and/or unusual or infrequent in
nature; and
- Research and Development spend on sustainable products is
calculated as the percentage of project-based R&D spend on sustainable
products or sustainable programmes. This metric, which is new in FY 2021, is
used by the Board to assess progress against the sustainability strategy and
vision of being Carbon Net Zero by 2030 (scope 1 & 2 emissions).
Sustainable products are currently defined as revenue from Aerospace,
Automotive and Medical end markets.
Consolidated Income Statement
Year ended Year ended
30 September 2021 30 September 2020
Note £m £m
Revenue 4 306.3 266.0
Gains/(Losses) on foreign currency net hedging 4.9 (1.5)
Cost of sales (145.9) (122.1)
Gross profit 4 165.3 142.4
Sales, marketing and administrative expenses - (71.9) (78.4)
Operating profit before exceptional items 92.6 76.0
Exceptional items 5 0.8 (12.0)
Operating profit 4 93.4 64.0
Financial income 0.2 0.3
Finance costs (0.2) (0.3)
Share of loss of associate (0.9) (0.5)
Profit before tax and exceptional items 91.7 75.5
Exceptional items 5 0.8 (12.0)
Profit before tax 92.5 63.5
Income tax expense 6 (19.7) (9.3)
Profit for the period 72.8 54.2
Attributable to:
Owners of the Company 73.2 54.2
Non-controlling interests (0.4) -
Earnings per share
Basic 7 84.3p 62.6p
Diluted 7 84.0p 62.5p
Dividends (pence per share)
Interim 13.42 -
Final 46.14 46.14
Special 50.00 -
109.56 46.14
A final dividend in respect of 2021 of 46.14p and a special dividend of 50.00p
per ordinary share has been recommended by the Directors
for approval at the Annual General Meeting on 11 February 2022.
Consolidated Statement of Comprehensive Income
Year ended Year ended
30 September 2021 30 September 2020
£m £m
Profit for the period 72.8 54.2
Items that will not be reclassified to profit or loss
Defined benefit pension schemes' actuarial losses 4.5 (3.0)
Income tax on items that will not be reclassified to profit or loss (1.1) 0.6
3.4 (2.4)
Items that may be subsequently reclassified to profit or
loss
Currency translation differences for foreign operations (2.0) (2.8)
Effective portion of changes in fair value of cash flow hedges 5.7 3.7
Net change in fair value of cash flow hedges
transferred to profit or loss (4.9) 1.5
Income tax on items that may be reclassified to profit or loss (0.2) (1.0)
(1.4) 1.4
Total other comprehensive expense for the period 2.0 (1.0)
Total comprehensive income for the period 74.8 53.2
Total comprehensive income for the period attributable to:
Owners of the Company 75.2 53.2
Non-controlling interests (0.4) -
Consolidated Balance Sheet
30 September 2021 30 September 2020
Note £m £m
Assets
Non-current assets
Property, plant and equipment 305.7 273.7
Intangible assets 24.8 26.4
Investment in associated undertakings 8 11.4 12.3
Financial assets held at fair value through profit and loss 8, 9 12.7 8.0
Deferred tax assets 8.9 10.7
Retirement benefit asset 10 14.2 7.5
377.7 338.6
Current assets
Inventories 70.3 98.5
Current income tax assets 2.9 4.3
Trade and other receivables 49.1 32.1
Derivative financial instruments 11 2.9 2.9
Other financial assets 12 37.5 -
Cash and cash equivalents 74.9 73.1
237.6 210.9
Total assets 615.3 549.5
Liabilities
Non-current liabilities
Deferred tax liabilities (31.6) (24.9)
Long term lease liabilities (8.2) (5.6)
Long term loans 13 (5.9) -
Retirement benefit obligations 10 (1.9) -
(47.6) (30.5)
Current liabilities
Derivative financial instruments 11 (1.9) (3.3)
Current income tax liabilities (2.9) (2.7)
Trade and other payables (49.4) (30.5)
Current lease liabilities (1.8) (1.5)
(56.0) (38.0)
Total liabilities (103.6) (68.5)
Net assets 511.7 481.0
Equity
Share capital 0.9 0.9
Share premium 61.1 55.0
Translation reserve 1.7 3.7
Hedging reserve 0.1 (0.5)
Retained earnings 445.4 419.0
Equity attributable to owners of the Company 509.2 478.1
Non Controlling Interest 13 2.5 2.9
Total equity 511.7 481.0
Consolidated Cash Flow Statement
Year ended Year ended
30 September 2021 30 September 2020
Note £m £m
Cash flows from operating activities
Cash generated from operations 15 135.5 86.6
Interest received 0.2 0.3
Interest paid - (0.3)
Tax paid (8.6) (17.2)
Net cash flow generated from operating activities 127.1 69.4
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (41.9) (24.9)
(Increase)/decrease in other financial assets (37.5) 0.3
Investment in subsidiary - (3.2)
Loan to associated undertakings (3.8) -
Cash consideration of acquisitions of associated undertakings and unquoted - (4.6)
investments
Cash received from non-controlling interest - 2.9
Net cash flow used in from investing activities (83.2) (29.5)
Cash flows from financing activities
Proceeds from issue of ordinary shares exercised under option 6.1 2.7
Repayment of lease liabilities (1.8) (1.5)
Loan received from non-controlling interest 5.6 -
Dividends paid (51.6) (39.9)
Net cash flow used in financing activities (41.7) (38.7)
Net increase in cash and cash equivalents 2.2 1.2
Effect of exchange rate fluctuations on cash held (0.4) (0.6)
Cash and cash equivalents at beginning of period 73.1 72.5
Cash and cash equivalents at end of period 74.9 73.1
Consolidated Statement of Changes in Equity
Share capital Share premium Translation reserve Hedging reserve Retained earnings Total attributable to owners of parent Non-controlling interest
Total
£m £m £m £m £m £m £m £m
Equity at 1 October 2019 0.9 52.3 6.5 (4.7) 406.6 461.6 - 461.6
Total comprehensive income for the period
Profit for the period - - - - 54.2 54.2 - 54.2
Other comprehensive (expense)/income
Currency translation differences for foreign operations - - (2.8) - - (2.8) - (2.8)
Effective portion of changes in fair value of cash flow hedges - - - 3.7 - 3.7 - 3.7
Net change in fair value of cash flow hedges transferred to profit or loss - - - 1.5 - 1.5 - 1.5
Defined benefit pension schemes' actuarial gains - - - - (3.0) (3.0) - (3.0)
Tax on other comprehensive (expense)/income - - - (1.0) 0.6 (0.4) - (0.4)
Total other comprehensive (expense)/income for the period - - (2.8) 4.2 (2.4) (1.0) - (1.0)
Total comprehensive (expense)/ income for the period - - (2.8) 4.2 51.8 53.2 - 53.2
Contributions by and distributions to owners of the Company
Adjustment arising from inception of non-controlling interest - - - - - - 2.9 2.9
Share options exercised - 2.7 - - - 2.7 - 2.7
Equity-settled share-based payment transactions - - - - 0.5 0.5 - 0.5
Dividends to shareholders - - - - (39.9) (39.9) - (39.9)
Equity at 30 September 2020 0.9 55.0 3.7 (0.5) 419.0 478.1 2.9 481.0
Share capital Share premium Translation reserve Hedging reserve Retained earnings Total attributable to owners of parent Non-controlling interest
Total
£m £m £m £m £m £m £m £m
Equity at 1 October 2020 0.9 55.0 3.7 (0.5) 419.0 478.1 2.9 481.0
Total comprehensive income for the period
Profit for the period attributable to the parent - - - - 73.2 73.2 - 73.2
Profit for the period attributable to non-controlling interest - - - - - - (0.4) (0.4)
Other comprehensive (expense)/income
Currency translation differences for foreign operations - - (2.0) - - (2.0) - (2.0)
Effective portion of changes in fair value of cash flow hedges - - - 5.7 - 5.7 - 5.7
Net change in fair value of cash flow hedges transferred to profit or loss - - - (4.9) - (4.9) - (4.9)
Defined benefit pension schemes' actuarial gains - - - - 4.5 4.5 - 4.5
Tax on other comprehensive (expense)/income - - - (0.2) (1.1) (1.3) - (1.3)
Total other comprehensive (expense)/income for the period - - (2.0) 0.6 3.4 2.0 - 2.0
Total comprehensive (expense)/income for the period - - (2.0) 0.6 76.6 75.2 (0.4) 74.8
Contributions by and distributions to owners of the Company
Share options exercised - 6.1 - - - 6.1 - 6.1
Equity-settled share-based payment transactions - - - - 1.4 1.4 - 1.4
Dividends to shareholders - - - - (51.6) (51.6) - (51.6)
Equity at 30 September 2021 0.9 61.1 1.7 0.1 445.4 509.2 2.5 511.7
Notes to the Financial Report
1. Reporting entity
Victrex plc (the 'Company') is a limited liability company incorporated and
domiciled in the United Kingdom. The address of its registered office is
Victrex Technology Centre, Hillhouse International, Thornton Cleveleys,
Lancashire FY5 4QD, United Kingdom.
The consolidated financial statements of the Company for the year ended 30
September 2021 comprise the Company and its subsidiaries (together referred to
as the 'Group').
The Company is listed on the London Stock Exchange.
The consolidated financial statements were approved for issue by the Board of
Directors on 6 December 2021.
2. Basis of preparation
Both the consolidated and Company financial statements have been prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and the
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The
financial statements have been prepared under the historical cost
basis except for derivative financial instruments, defined benefit pension
scheme assets and financial assets held at fair value through profit and loss,
which are measured at their fair value.
The Group's business activities, together with factors likely to affect its
future development, performance and position, are set out in the
Annual Report. In addition, note 15 in the Financial Statements on financial
risk management details the Group's exposure to a variety of financial risks,
including currency and credit risk.
Statutory accounts for the year ended 30 September 2021 and 30 September 2020
have been reported on by the auditors who issued an unqualified opinion in
respect of both years and the auditors' reports for FY 2021 and FY 2020.
Statutory accounts for the year ended 30 September 2020 have been filed with
the Registrar of Companies. The statutory accounts for the year ended 30
September 2021, will be delivered to the Registrar of Companies within the
Companies House accounts filing guidance.
Going Concern
The Directors have performed a robust going concern assessment including a
detailed review of the business' 24-month rolling forecast and consideration
of the principal risks faced by the Group and the Company, as detailed in the
Annual Report. This assessment has paid particular attention to the impact of
the ongoing global economic challenges on the aforementioned forecasts.
An update on the Group's proactive approach to managing the challenges of
COVID-19 is detailed in the Annual Report with the specific impact of COVID-19
on the Company's going concern assessment detailed below.
The Company has maintained a strong balance sheet throughout the past two
years despite seeing a significant impact from COVID-19,
particularly during the second half of the year ended 30 September 2020. The
combined cash and other financial assets balance at 30
September 2021 was £112.4m, having increased from £79.6m at 31 March 2021.
Of the £112.4m, £12.5m is held in the Group's subsidiaries in China for the
sole purpose of funding the construction of our new manufacturing facilities.
Of the remaining £99.9m, approximately 90% is held in the UK, where the
Company incurs the majority of its expenditure. All funds are held either in
instant access or deposit accounts with less than 95 days notice. The Group
has no debt and has unutilised banking facilities of £40m through to October
2024, of which £20m is committed and immediately available and £20m is
available subject to lender approval.
COVID-19 had a material impact on second half performance of the year ended 30
September 2020 with sales volumes down 19% on the same period in 2019 and 25%
down on the first half; revenue was down 23% and 24% respectively. Quarter 4
was the weakest with
revenue in July 2020 the low point of the year and volume averaging c.230
tonnes per month. Demand for the Company's products has
recovered through the FY 2021 with the second half being the strongest in the
Company's history in volume terms. Full year volumes are up 25% on FY 2020 and
52% up on the heavily COVID-19 impacted second half of 2020. As with the drop
off in demand during the second half of FY 2020 the timing and speed of
recovery has been felt differently across our markets and geographies.
The 24-month rolling forecast is derived from the Company's Integrated
Business Planning ('IBP') process which runs monthly. Each area of the
business provides revised forecasts which consider a number of external data
sources, triangulating with customer conversations, trends in market and
country indices, as well forward-looking industry forecasts. For example,
forecast aircraft build rates from the two major manufacturers for Aerospace
and analysing IHS data for the Automotive market through previous downturns,
current trends and the latest 2022 and 2023 forecasts.
The assessment of going concern included conducting scenario analysis on the
aforementioned forecast which focused on one key question: Is the recovery
during 2021 and the increasing economic confidence, derived from falling
COVID-19 cases and the ongoing vaccination programme, sustainable, or will
either the recovery run out of momentum in the face of further waves of new,
vaccine immune, variants of COVID-19 or will the global economy be pushed back
into contraction by supply chain issues, inflationary pressures and labour
shortages, etc?
The Company's manufacturing assets remain operational, as they have done
throughout the past 24 months, with revised procedures
remaining in place to ensure social distancing is maintained along with
proactive measures to protect employees such as offering the facility to
conduct temperature checks each day before commencing work. Non-manufacturing
staff have continued to work from home in the majority of our regions
throughout FY 2021 as we continue with a safety first approach. A carefully
managed return to site commenced in the UK in October 2021 in line with
government recommendations. Other regions have moved in line with local
government guidance.
Using the IBP data and the key question noted above, along with consideration
of the outputs from the longer-term viability assessment
(noted below), management has created two scenarios to model the effect of
reductions to revenue at regional/market level and
aggregated levels on the Company's profits and cash generation through to
January 2023.
Scenario 1 - the global economy contracts again with sales returning to the
low levels seen in quarter 4 of FY 2020, at c.230 tonnes per
month, from March 2022 (i.e. the first period post payment of the final and
special dividends, therefore representing the cash low point of the year) for
a period of 6 months (to mirror the length of the downturn in 2020) before a
partial recovery to c280 tonnes per month for the remainder of the going
concern period.
Scenario 2 - in line with scenario 1, c.230 tonnes per month from March 2022,
however, the economic contraction lasts for a full 12 months, i.e. throughout
the going concern period. This would give an annual volume of c.2,760 tonnes,
a level not seen since the financial crisis which impacted 2008 and 2009 (and
lasted approximately 12 months). The Group considers scenario 2 to be a severe
but plausible scenario.
Before any mitigating actions the sensitised cash flows show the Company has
significantly reduced cash headroom. Under scenario 2 there is minimal cash
generation through the going concern period and there is potential that the
committed facility, for which the covenants would be met, would be required to
manage intra-month cash flows. However, the Company has a number of mitigating
actions which are readily available in order to generate significant headroom.
These include:
- Use of committed facility - £20m could be drawn at short
notice. Conversations with our banking partner indicate that the £20m
accordion could also be readily accessed. The covenants of the facility have
been successfully tested under each of the scenarios;
- Deferral of capital expenditure - the base case for financial
year 2022 includes significant capital investment (£60m+) as major projects
are completed in China and the UK. This could be reduced significantly by
limiting expenditure to essential projects, deferring all other projects into
2023, with the exception of completing the manufacturing facilities in China
which are committed and will continue as planned;
- Reduction in discretionary overheads - costs would be limited to
prioritise and support customer related activity; and
- Deferral/cancellation of dividends - the dividend payable in
June 2022 could be deferred or cancelled. The Company's intention is to
continue payment of dividends where cash reserves facilitate but it remains a
key lever in downside scenario mitigation.
Reverse stress testing was performed to identify the level that sales would
need to drop by in order for the Group to run out of cash by the end of the
going concern assessment period. Sales volumes would need to consistently drop
materially below the low point in scenario 2 which is not considered
plausible.
As a result of this detailed assessment and with reference to the Company's
strong balance sheet, existing committed facilities and the cash preserving
levers at the Company's disposal, but also acknowledging the inherent economic
uncertainty as the global economy emerges from the COVID-19 pandemic and faces
a number of new challenges, the Board has concluded that the Company has
sufficient liquidity to meet its obligations when they fall due for a period
of at least 12 months after date of this report. For this reason, it continues
to adopt the going concern basis for preparing the financial statements.
On publishing the Company financial statements here together with the
consolidated financial statements, the Company is taking advantage of section
408 of the Companies Act 2006 not to present its individual income statement
and related notes that form part of the approved financial statements.
Unless a change has been required by adoption of new standards, the accounting
policies set out in these notes have been applied consistently to all periods
presented in these consolidated financial statements.
In preparing the financial statements of the Group we performed an assessment
of the impact of climate change, with reference to the
disclosures made in the Sustainability report. There has been no material
impact on the financial statements for the current year from the Group's
assessment of the impact of climate change, including estimates and judgements
made, specifically in the impairment and going concern analyses. The specific
considerations in respect to the viability of the Group are included in the
viability statement on pages 40 and 41. The Group's analysis on the impact of
climate change continues to evolve as more clarity on timings and targets
emerges, with Victrex committed to reducing its carbon impact. A far more
detailed assessment of the impact has commenced ahead of our 2022 strategy
review as we look to adopt the TCFD requirements for the year ended 30
September 2022.
3. Significant accounting policies
The accounting policies applied by the Group in these financial statements are
the same as those applied in the Group's published consolidated financial
statements for the year ended 30 September 2020 except for the application of
relevant new standards. None of the new standards have had a material impact
on the Group's consolidated result or financial position.
4. Segment reporting
The Group's business is strategically organised as two business units:
Industrial, which focuses on our Energy & Industrial, VAR, Automotive,
Aerospace and Electronics markets; and Medical, which focuses on providing
specialist solutions for medical device manufacturers.
Year ended 30 September 2021 Year ended 30 September 2020
Industrial Medical Group Industrial Medical Group
£m £m £m £m £m £m
Segment revenue 257.4 51.1 308.5 221.1 49.7 270.8
Internal revenue (2.2) - (2.2) (4.8) - (4.8)
Revenue from external sales 255.2 51.1 306.3 216.3 49.7 266.0
Segment gross profit 119.7 45.6 165.3 99.3 43.1 142.4
Sales, marketing and administrative expenses (71.9)
(78.4)
Operating profit before exceptional items 92.6 76.0
Exceptional items 0.8 (12.0)
Operating profit 93.4 64.0
Net financing income - -
Share of loss of associate (0.9) (0.5)
Profit before tax and exceptional items 91.7 75.5
Exceptional items 0.8 (12.0)
Profit before tax 92.5 63.5
Income tax expense (19.7) (9.3)
Profit for the period 72.8 54.2
Profit for the period attributable to 73.2 54.2
Owners of the Company
Non-controlling interest (0.4) -
5. Exceptional items
Items that are, in aggregate, material in size and / or unusual or infrequent
in nature, are included within operating profit and disclosed separately as
exceptional items in the Consolidated Income Statement.
The separate reporting of exceptional items, which are presented as
exceptional within the relevant category in the Consolidated Income Statement,
helps provide an indication of the underlying performance of the Group.
Year ended Year ended
30 September 2021 30 September 2020
£m £m
Included within sales, marketing and administrative expenses
Restructuring costs (0.8) 9.8
Acquisition related costs - 2.2
Exceptional items before tax (0.8) 12.0
Tax on exceptional items - (1.1)
Exceptional items (0.8) 10.9
Acquisition and investment related costs
In the prior year, acquisition related costs comprised legal and other
non-recurring costs the Group incurred directly in the course of
acquisition and investment activity. These costs were largely non-deductible
expenses for tax purposes.
Restructuring costs
During FY 2020, the Group reviewed cost actions and efficiencies required to
support profitability in a lower production environment. As
part of this programme, the Group commenced consultation prior to 30 September
2020 which reduced the Group's employee base by up to 100 roles, primarily
through voluntary severance.
The credit in FY 2021 relates to more favourable settlements being reached
than assumed when making the restructuring charge in FY
2020. These costs were treated as non-tax deductible in FY 2020 and the
corresponding credit will be non-chargeable in FY 2021.
The cash flow in the year associated with exceptional items was £1.9m (FY
2020: £9.3m).
6. Income tax expense
Year ended Year ended
30 September 2021 30 September 2020
£m £m
UK corporation tax 10.4 7.7
Overseas tax 1.7 1.0
Deferred tax 7.5 2.8
Tax adjustments relating to prior years 0.1 (2.2)
Total tax expense in income statement 19.7 9.3
Effective tax rate 21.3% 14.6%
In the Finance Bill 2021, the government announced that from 1 April 2023 the
corporation tax rate would increase to 25%. This new law was substantively
enacted on 24 May 2021. As a consequence, deferred tax assets/liabilities have
been remeasured at the rate they are now expected to reverse. For UK
assets/liabilities this is 25% for the majority of assets and liabilities (30
September 2020: 19%), being the UK tax rate effective from 1 April 2023. This
has increased the tax charge for the period by £6.1m. For overseas assets/
liabilities the corresponding overseas tax rate has been applied.
7. Earnings per share
Year ended Year ended
30 September 2021 30 September 2020
Earnings per share - basic 84.3p 62.6p
- diluted 84.0p 62.5p
Profit for the financial period attributable to the owners of the company 73.2 54.2
(£m)
Weighted average number of shares used - basic 86,704,789 86,470,079
- diluted 87,045,353 86,630,437
8. Investment in associated undertakings
Bond 3D High Performance Technology BV ("Bond")
Bond is a company incorporated in the Netherlands, developing unique,
protectable 3D printing (additive manufacturing) processes which are capable
of producing high strength parts from existing grades of PEEK and PAEK
polymers. The investment offers the potential of utilising this technology to
help accelerate the market adoption of 3D printed PEEK parts, with particular
emphasis on the Medical market.
The Group holds an investment of €14.7m/£12.9m (24.5%) in Bond at 30
September 2021 (30 September 2020: same). As the Group is considered to have
significant influence in Bond the investment continues to be accounted for as
an associate, using the equity method.
Further cash injections into Bond during the year have been in the form of
convertible loans; to a value of (€4.7m/£3.8m); these are held as financial
assets held at fair value through profit and loss (see note 9 below).
The Group's share of the loss of Bond in FY 2021 is £0.9m (FY 2020 loss of
£0.5m).
9. Financial assets held at fair value through profit and loss
At 30 Sept 2021, financial assets held at fair value through profit and loss
relate to:
- Investment in Surface Generation Limited at £3.5m (FY 2020
£3.5m)
- Investment in Magma Global Limited at £5.4m (FY 2020 £4.5m).
In October 2021 the Group sold its investment in Magma to TechnipFMC and
recognised a gain on the investment of £0.9m. A transaction in the equity of
an investment is a positive indication of its fair value and accordingly has
been used as the basis to increase the fair value of the investment at 30
September 2021.
- Convertible loans in Bond at £3.8m. See also note 8 above.
10. Retirement benefits
During FY 2021, the Group separated the German defined benefit pension scheme
from the UK defined benefit pension scheme, separately disclosing the net
liability in the German pension scheme on the balance sheet. In the past the
German scheme has been combined with the UK scheme due to its size. During the
current year the insurance policies which comprise the assets of the German
scheme started to mature. At this point, under German law, having received
permission from the beneficiary, the company can elect to assume the benefit
of these assets for use in the business and leave the scheme unfunded - making
the pension payments from company cash flow. As a result the net liability
of the scheme has increased, and will continue to do so during the year ended
30 September 2022 as the remaining assets are transferred to the company.
Options will then be available to review buying out the pension liability.
11. Derivative financial instruments
The notional contract amount, carrying amount and fair value of the Group's
forward exchange contracts are as follows:
As at 30 September 2021 As at 30 September 2020
Notional contract amount Carrying amount and fair value Notional contract amount Carrying amount and fair value
£m £m £m £m
Current assets 61.2 2.9 82.3 2.9
Current liabilities 106.9 (1.9) 81.8 (3.3)
168.1 1.0 164.1 (0.4)
The fair values have been calculated by applying (where relevant), for
equivalent maturity profiles, the rate at which forward currency contracts
with the same principal amounts could be acquired on the balance sheet date.
These are categorised as Level 2 within the fair value hierarchy under IFRS 7.
Fair value gains on foreign currency contracts of £4.9m has been recognised
in the period (FY2020 - losses of £1.5m).
12. Other financial assets
At 30 September 2021 the Group had £37.5m of cash on 95-day deposit (30
September 2020: nil). This is included in the Available Cash metric (see APM's
above).
13. Non-controlling interest
During FY 2020 the Group established a new subsidiary company, Panjin VYX High
Performance Materials Co. Ltd ('PVYX').
PVYX is a limited liability company set up for the purpose of the manufacture
of PAEK polymer powder and granules, based in mainland
China. The Group continues to hold a 75% equity interest with the remaining
25% held by Yingkou Xingfu Chemical Co. Ltd ('YX').
Consistent with prior year, with 75% of the voting equity and the majority of
appointments on the board the Group is considered to have control of PVYX and
therefore it is accounted for as a subsidiary. The income statement and
balance sheet of PVYX are fully consolidated with the share owned by YX
represented by a non-controlling interest.
The first tranche of investment of £8.6m in this company was made by the
Group via Victrex Hong Kong Limited, in March 2020. During FY 2021, the Group
has made further cash injections in to PVYX, totalling £24.5m, split in the
form of loans £22.0m and further equity
investment of £2.5m. YX made a loan to PVYX of £5.6m during the year. The
loan is denominated in Chinese Renminbi and had a sterling value of £5.9m at
30 September 2021.
To 30 September 2021 the subsidiary incurred a loss of £1.4m, of which £0.4m
is attributable to the non-controlling interest.
No borrowing costs in relation to the long term loan were capitalised during
the period.
14. Exchange rates
The most significant Sterling exchange rates used in the financial statements
under the Group's accounting policies are:
Year ended Year ended
30 September 2021 30 September 2020
Average Closing Average Closing
US Dollar 1.36 1.34 1.27 1.30
Euro 1.14 1.18 1.13 1.10
The average exchange rates in the above table are the weighted average spot
rates applied to foreign currency transactions, excluding the impact of
foreign currency contracts. Gains and losses on foreign currency contracts,
where net hedging has been applied for cash flow hedges, are separately
disclosed in the income statement.
15. Reconciliation of profit to cash generated from operations
Audited Audited
Year ended Year ended
30 September 2021 30 September 2020
£m £m
Profit after tax for the period 72.8 54.2
Income tax expense 19.7 9.3
Share of loss of associate 0.9 0.5
Net financing income - -
Operating profit 93.4 64.0
Adjustments for:
Depreciation 18.5 17.9
Amortisation 3.4 2.8
Loss on disposal of property plant and equipment 0.8 0.2
Decrease/(increase) in inventories 26.0 (7.5)
(Increase)/decrease in trade and other receivables (18.3) 11.7
Increase in trade and other payables 11.9 0.6
Equity-settled share-based payment transactions 1.4 0.5
Gains on derivatives recognised in income statement that have not yet settled (0.5) (2.2)
Gain on financial asset held at fair value (0.9) -
Retirement benefit obligations charge less contributions (0.2) (1.4)
Cash generated from operations 135.5 86.6
Forward-looking Statements
Sections of this Financial Report may contain forward-looking statements,
including statements relating to: certain of the Group's plans and
expectations relating to its future performance, results, strategic
initiatives and objectives, future demand and markets for the Group's products
and services; research and development relating to new products and services;
and financial position, including its liquidity and capital resources. These
forward-looking statements are not guarantees of future performance. By their
nature, all forward looking statements involve risks and uncertainties because
they relate to events that may or may not occur in the future, and are or may
be beyond the Group's control, 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; the
impact of, and changes in, legislation or the regulatory environment
(including tax); and the outcome of litigation. Accordingly, the Group's
actual results and financial condition may differ materially from those
expressed or implied in any forward-looking statements. Forward-looking
statements in this Financial Report are current only as of the date on which
such statements are made. The Group undertakes no obligation to update any
forward-looking statements, save in respect of any requirement under
applicable law or regulation. Nothing in this press release shall be construed
as a profit forecast.
Shareholder information:
Victrex's Annual Reports and Half-yearly Financial Reports are available on
request from the Company's Registered Office or to download from our corporate
website, www.victrexplc.com (http://www.victrexplc.com)
Financial calendar:
Ex-dividend
date
27 January 2022
Record
date#
28 January 2022
AGM
11 February 2022
Payment of final
dividend
18 February 2022
Announcement of half-year results
May 2022
Payment of interim dividend
July 2022
# The date by which shareholders must be recorded on the share register to
receive the dividend
Victrex plc
Registered in England
Number 2793780
Tel: +44 (0) 1253 897700
Fax: +44 (0) 1253 897701
www.victrexplc.com (http://www.victrexplc.com)
ir@victrex.com
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