Victrex reinstates dividend as full-year profits fall

The FTSE 250 company said second half revenue was down 23%, although it had since seen signs of a ‘bottoming-out’ in the auto, electronics and medical sectors, with incremental improvement subsequently.

Medical revenue was down 14% for the year ended 30 September, with the US market remaining weak, while Asia improved.

Underlying profit before tax was 29% lower year-on-year at £75.5m, with a continuing impact on the group’s margins from an under-absorption of fixed costs.

Reported profit before tax came in at £63.5m, reflecting £12.0m of exceptional items in the financial year, driven by cost actions, with expected annualised savings of around £10m.

Operationally, Victrex said its long-term “mega-programme” pipeline remained strong, with little evidence of a slowdown, as it reported “meaningful revenue” of more than £1m delivered for its aerospace loaded brackets programme.

It said its ‘PEEK’ product was indicated as 'material of choice' by TechnipFMC for the Magma oil and gas qualification programme, while a clinical trial of ‘PEEK Knee’ was underway, with additional trial sites being prepared.

The company’s new e-mobility growth programme was also said to be gaining traction.

A new PEEK manufacturing facility in China was progressing, with the board saying it would stimulate growth, while further progress had been made to enhance its additive manufacturing, or 3D printing, capability.

Cash at year-end came in at £73.1m, with the company reporting operating cash conversion of 101%, while its committed and undrawn revolving credit facility stood at £20m, with a £20m accordion option available.

The UK debottlenecking programme had paused to reflect the demand outlook, with Victrex reporting a “strong” inventory position of £98.5m, in a bid to manage the Brexit transition.

Its board also confirmed the reinstatement of dividends, with a proposed final dividend of 46.14p per share.

“After a solid first half, Covid-19 related headwinds had a material impact on our business during the second half, with significant end-market declines,” said chief executive officer Jakob Sigurdsson.

“This was compounded by the effects of much lower production, which led to under-absorbed fixed costs and an impact on margin.

“Currently however, we are seeing a continued incremental improvement in demand from trough levels, particularly in Automotive, Electronics and Medical.”

Sigurdsson said the new financial year had started “solidly”, although several end-markets - notably aerospace and energy - remained challenging.

“Our supply chain and inventory, partly to manage the Brexit transition, remains effective and our financial position is resilient, with £73m of cash and additional available facilities.

“Whilst we reduced discretionary spend and some capital programmes, including pausing our UK debottlenecking, which was scheduled to commence in the 2021 financial year, investment to support our future growth continues, specifically our China manufacturing facility which is scheduled to be online in 2022.

“With production volumes remaining low, cash conservation and cost management are key.”

The company’s cost actions, primarily through voluntary redundancy in the UK, would start to deliver both short-term and long-term benefits in the 2021 financial year, Sigurdsson said, which would initially underpin rather than enhance profitability, reflecting current end-markets and the firm’s plan to unwind inventory post-Brexit, which would also strengthen its cash flow.

“At this early stage, 2021 has started solidly,” Sigurdsson said.

“Whilst several end-markets are seeing some incremental improvement, overall performance remains subdued and we expect some softness to continue through the first half, versus the prior year, with the potential for uncertainty in order patterns.

“Whilst we will start to benefit from the actions we have taken on costs, some impact on margin will remain due to production volume being lower than sales volume and inventory unwind post Brexit.”

As a result, the firm’s initial assumptions were that delivering a performance which improved on the 2020 financial year would be contingent on a better macro and end market environment in the second half of the 2021 year, Sigurdsson explained.

“Despite the ongoing challenges of Covid-19, the group remains resilient, with specific milestones delivered in our strong and diverse growth pipeline - which we are adding to - including meaningful revenues from aerospace loaded brackets and good progress in Magma.

“Overall, there is little evidence of slowdown and milestones across our mega-programmes are improving.

“On a long-term basis, our polymer and parts strategy keeps us well placed to deliver our range of medium to long term growth opportunities.”

At 0922 GMT, shares in Victrex were down 0.6% at 2,099.28p.