Plastics Capital plc (AIM: PLA), the niche plastics products group, is pleased to provide a Q3 trading update and to confirm that the Company continues to trade broadly in line with market expectations.
Group revenues have continued to show a significant improvement over the first half of the current financial year. The revenue growth trends across the Divisions continue to be as reported at the Interim stage with strong trading in the Films Division being offset by the varied trading conditions within the Industrial Division.
However, product gross margins have been largely unaffected by these varied trading conditions with the Group’s operating profit margin continuing to expand as the financial year progresses due to the Group’s operational gearing.
The Films Division has made good progress on its key initiatives over the year. We have added roughly 1,000 tonnes of new capacity during the year, representing approximately 8% of annualised installed capacity, and this has now been fully utilised through new business growth in specialist sacks for food manufacturing and distribution customers. Three significant new product initiatives are in the process of final development for introduction during the next financial year, including one for which a patent has been registered. Synergies across Flexipol and Palagan, our two films businesses, are progressing in line with expectations and should lead to reduced costs in a number of areas, which will be increasingly noticeable over the next 12 months.
Our bearings business is trading as expected, reflecting a gradual improvement over the prior year. Conversion of won projects into sales continues to advance although this remains a little slower than anticipated. New project activity is strong and we have some substantial potential projects in the automotive and home appliance sectors that are progressing well; we are hopeful that we will sign these in the not too distant future.
Matrix activities continue to be affected by the downturn in emerging markets, although there is some evidence that destocking in our distributor network, evident over the last 12 months, is coming to an end. Most encouragingly, we are making excellent progress in markets where we have direct control over sales, such as the UK and India, and where we work closely with our distributor partners in providing added-value technical services to our end customers.
Demand weakness in mandrels has been somewhat more significant than expected, but we continue to win new business in this area. On a year-on year-basis, however, this new business is not fully compensating for the underlying weak trading conditions. Most significantly, we have converted our first local key account in China, which has a substantial industry manufacturing hydraulic, automotive and industrial rubber hose, most of which is currently supplied by local Chinese manufacturers using inferior mandrel types. Over the last two years we have established sales and technical service activities for mandrels in Shanghai and have a substantial list of target accounts who are testing our products. This first conversion is with a leading rubber hose manufacturer and is one which we believe will lead to further conversions in due course.
Commenting, Faisal Rahmatallah, Executive Chairman, said:
“Trading conditions remain somewhat variable reflecting global economic conditions, but I am pleased to say that financial performance is improving and the Group is making very good progress on the key strategic initiatives that will drive its targeted growth. Overall, we anticipate that performance over the second half of the financial year will be broadly in line with market expectations.”