Victrex gross profit rises, macro weakness remains a challenge

Polymer specialist Victrex reported a 1% improvement in first-half revenue in its interim results on Tuesday, to £162.2m, with gross profit increasing 2% to £86.7m, although macroeconomic weakness was proving a challenge.

The FTSE 250 company said its gross margin also rose in the six months ended 31 March, by 40-basis points to 53.5%.

Despite those positive financial indicators, the firm said its sales volumes dropped 14% to 1,941 tonnes, due to macroeconomic weakness in the electronics, energy and industrial, and value-added resellers (VAR) sectors, although it experienced good growth in aerospace and automotive.

In medical, Victrex reported a record half, with revenue up 17% as a result of new applications, “mega-programmes”, and foreign exchange movements.

Victrex's average selling prices were ahead 18% at £84 per kilogram, which the board put down to strong pricing actions, mix, and currency movements.

However, its underlying profit before tax slid 12% to £42.5m, or by 15% in constant currency, amid softer volumes, cost inflation, and targeted investment.

Reported profit before was down 10% at £39.1m, or down 14% at constant exchange rates.

The company's growing 'mega-programme' commercialisation saw sales from new products increase to 7%.

In medical, the firm’s trauma plates were exceeding demand, with revenue on-track to reach £1m and a new Asia partner secured.

The ‘PEEK Knee’ also made strong progress in the ‘Maxx’ clinical trial, with 35 patients implanted and two post-two years, and a collaboration with Aesculap in place.

Victrex's industrial sector saw progress, with further e-mobility business on-track to generate more than £3m in annualised revenues.

The company noted it was also supporting TechnipFMC for a “significant” Brazil opportunity.

Victrex said its cash generation underpinned its investments, with first-half available cash of £34.4m, after the payment of the 2022 full-year dividend.

The commissioning of its China facility was also on plan, with commercial start-up expected this year.

Victrex maintained its interim dividend at 13.42p per share.

“Our first half performance was driven by strong pricing, an improved sales mix and currency, with revenue up 1%, despite a softer macro-economic environment, resulting in weaker volumes, compared to a record 2022 financial year,” said chief executive officer Jakob Sigurdsson.

“Several end markets delivered good growth, including in aerospace and automotive, although this was not able to offset softness in electronics, energy and industrial, and VAR.

“In medical, we saw a record half yearly performance and our growth opportunities are increasing.”

Sigurdsson said prioritising targeted investment in medical was already delivering positive results.

Looking ahead, Jakob Sigurdsson said the group had seen some improvement in monthly run-rates since the turn of the calendar year, though they remained variable between end markets.

“Consequently, compared to a record 2022 financial year, full year volumes are still tracking to be down by a double-digit percentage.

“Victrex remains well-positioned for when the macro-economic outlook turns more favourable in several Industrial end markets.

“Medical is expected to continue its strong performance.”

On a full year basis, the CEO said pricing, sales mix, easing energy inflation and currency remained supportive, while gross margin was also expected to be “modestly ahead” year-on-year.

“Delivering a profit before tax performance in line with 2022 and current expectations assumes a step-up in demand during the latter part of the second half, driven by macroeconomic conditions,” Sigurdsson explained.

“Victrex remains well placed for the medium to long term, with a strong core business, growing commercialisation in our mega-programmes, a highly cash generative business model, and strong environmental, social and governance credentials.”

At 0820 BST, shares in Victrex were down 5.13% at 1,554p.

Reporting by Josh White for Sharecast.com.