More on British Vita
British Vita
Though full year turnover was up the weakening of margins due to higher raw material prices meant that 2004 operating profit was lower than 2003 at British Vita. Full year operating profit (before exceptionals and goodwill) was down 3.4% to £54.5m although turnover was up 2% to £959m. Volumes were good, up 3% from 2003.
British Vita classifies its business in to three segments: Its larger cellular polymers business generated 62.7% of operating profit by producing foam (used in furniture amongst others). The industrial polymers business sells high performance materials used in the automotive industry amongst other products generating 34.3% of operating profit. The small non-wovens (textured and twisted yarns) generated 3.0% of the operating profit.
The two major business (cellular polymers and the industrial polymers) suffered from increases in raw material prices, with margins falling in both businesses. Volume growth was good during the year. Raw material price increased due to the increase in prices of oil, in some instances exacerbated by shortages of material. In some instances British Vita has increased prices (when resin costs increased by 40 to 60%). However, as a whole British Vita appears to be relying on a shift to higher margin products and cost cuts (by locating at low cost geographies) to maintain margins rather than increasing its sales price; probably expecting a fall in oil prices from the current high levels. Hence, medium term profitability will be driven by acquisitions (there by increasing sales) and cost cuts rather than improvements in margins unless the oil prices fall.
The smaller non-wovens business made an operating profit in 2004, compared with a loss in 2003. Turnover was marginally down, but the improvement in operating profit was good. British Vita generated the operating profit from a change in sales mix to higher margin products.
The share trades at a prospective PE× of 15.2 (at 340p), at the higher end of the range for the sector. The 3.8% yield is in line with the sector.
The share price has benefited from the interest Texas Pacific Group has shown in making a bid (with an indicative price of 346.75p excluding the final dividend of 6.25p), which the board rejected. British Vita plans to return 100p per share, 29% of the current share price (and market cap) which will be followed by a share consolidation.
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