Debottlenecking and Victrex (VCT)
Posted: May 12th, 2020, 5:10 pm
Hi folks,
Over the past year or so, I find that whenever I read a communication from the polymer and parts manufacturer Victrex, the term "debottlenecking" is mentioned. That very phrase comes up several times in their AR2019.
From page 7
Outlook
Looking forward, Automotive and Electronics are showing signs of stability, although we will retain some caution on these markets at this early stage, with an initial assumption that current trends will continue through the first half year. Our cost-effective debottlenecking project is underway, enabling Victrex to gain significant incremental capacity in support of our medium-term growth programmes, although an extended shutdown will mean some under-recovered overheads.
From page 19
Brexit
As previously communicated, the Group continues to consider the potential impact of Brexit, with a team in place comprised of senior leaders to manage various contingencies through any transition period and beyond. For now, existing laws and trading arrangements are unchanged.
Victrex has indicated previously that the principal risk is a sustained period when the Group may not be able to import certain raw materials or export finished goods through customs, which could curtail sales if regional inventory levels were depleted. As part of our contingency plans, additional warehousing for finished goods stock was secured in mainland Europe (Germany) and China with a minimum of eight weeks of finished goods stock held outside the UK. Our German warehouse has been operational since February 2019, with capability to supply European customers. We also secured additional raw material stocks. Group inventories reached £92.2m in FY 2019 as a consequence (FY 2018: £69.3m) and with continued uncertainty over Brexit, as well as reduced production availability in our polymer assets due to debottlenecking, we anticipate maintaining a continued higher level of inventory through FY 2020.
From page 20
Debottlenecking investment underway
‘Debottlenecking’ of our existing Hillhouse polymer manufacturing facilities is underway, which will allow the site to move towards its ‘nameplate’ capacity of 7,150 tonnes. At a capital cost of approximately £15m, weighted to FY 2020, this represents an efficient and smart use of cash, as well as enabling us to defer any large‐scale organic capacity investment by a number of years. The project will result in an extended shutdown during FY 2020, which will lead to under-recovered overhead in the region of £8m–£10m, which we intend to treat as an exceptional charge. This project also influenced our inventory build, to ensure we effectively manage security of supply for our customers during an extended shutdown of our polymer manufacturing facilities...
Do anyone here know what exactly debottlenecking is, especially in terms of Victrex? I've looked on the internet for some help, for example:
https://www.logisticsmgmt.com/article/h ... ory_pileup
https://www.investopedia.com/terms/b/bottleneck.asp
But I'm not 100% sure those articles really satisfy my curiousity. Anyway, I've tried to interpret the words in the AR and review the current assets from years 2017-2019, and I know think that I have a clearer picture.
Basically, I believe that VCT have concerns that due to external factors such as Brexit negotiations and Trade wars could lead to raw material shortages, and that that would result in them being unaware to satisfy customer orders. As such as, shortages would imply a bottleneck in their production lines. Based on this assumption of mine, I'm now of the view that "debottlenecking" seems to be a process where VCT are trying defend themselves against such shortages, and are hence building up excess inventories, which seeing as their outputs are not perishable, could mean both raw input materials and finished goods (i.e. popular items that clients would need to replenish). This inventory buildup is certainly apparent from 2018 and 2019, where inventory rose by 33%, and resulted in Cash from operations in the same interval falling from £135.8M to £90.3M.
Would anyone here be able to confirm or deny my above assumptions, and/or elaborate on them if necessary?
thanks Matt
Over the past year or so, I find that whenever I read a communication from the polymer and parts manufacturer Victrex, the term "debottlenecking" is mentioned. That very phrase comes up several times in their AR2019.
From page 7
Outlook
Looking forward, Automotive and Electronics are showing signs of stability, although we will retain some caution on these markets at this early stage, with an initial assumption that current trends will continue through the first half year. Our cost-effective debottlenecking project is underway, enabling Victrex to gain significant incremental capacity in support of our medium-term growth programmes, although an extended shutdown will mean some under-recovered overheads.
From page 19
Brexit
As previously communicated, the Group continues to consider the potential impact of Brexit, with a team in place comprised of senior leaders to manage various contingencies through any transition period and beyond. For now, existing laws and trading arrangements are unchanged.
Victrex has indicated previously that the principal risk is a sustained period when the Group may not be able to import certain raw materials or export finished goods through customs, which could curtail sales if regional inventory levels were depleted. As part of our contingency plans, additional warehousing for finished goods stock was secured in mainland Europe (Germany) and China with a minimum of eight weeks of finished goods stock held outside the UK. Our German warehouse has been operational since February 2019, with capability to supply European customers. We also secured additional raw material stocks. Group inventories reached £92.2m in FY 2019 as a consequence (FY 2018: £69.3m) and with continued uncertainty over Brexit, as well as reduced production availability in our polymer assets due to debottlenecking, we anticipate maintaining a continued higher level of inventory through FY 2020.
From page 20
Debottlenecking investment underway
‘Debottlenecking’ of our existing Hillhouse polymer manufacturing facilities is underway, which will allow the site to move towards its ‘nameplate’ capacity of 7,150 tonnes. At a capital cost of approximately £15m, weighted to FY 2020, this represents an efficient and smart use of cash, as well as enabling us to defer any large‐scale organic capacity investment by a number of years. The project will result in an extended shutdown during FY 2020, which will lead to under-recovered overhead in the region of £8m–£10m, which we intend to treat as an exceptional charge. This project also influenced our inventory build, to ensure we effectively manage security of supply for our customers during an extended shutdown of our polymer manufacturing facilities...
Do anyone here know what exactly debottlenecking is, especially in terms of Victrex? I've looked on the internet for some help, for example:
https://www.logisticsmgmt.com/article/h ... ory_pileup
https://www.investopedia.com/terms/b/bottleneck.asp
But I'm not 100% sure those articles really satisfy my curiousity. Anyway, I've tried to interpret the words in the AR and review the current assets from years 2017-2019, and I know think that I have a clearer picture.
Basically, I believe that VCT have concerns that due to external factors such as Brexit negotiations and Trade wars could lead to raw material shortages, and that that would result in them being unaware to satisfy customer orders. As such as, shortages would imply a bottleneck in their production lines. Based on this assumption of mine, I'm now of the view that "debottlenecking" seems to be a process where VCT are trying defend themselves against such shortages, and are hence building up excess inventories, which seeing as their outputs are not perishable, could mean both raw input materials and finished goods (i.e. popular items that clients would need to replenish). This inventory buildup is certainly apparent from 2018 and 2019, where inventory rose by 33%, and resulted in Cash from operations in the same interval falling from £135.8M to £90.3M.
Would anyone here be able to confirm or deny my above assumptions, and/or elaborate on them if necessary?
thanks Matt