Victrex plc H1 volumes +5% & improving end markets

Victrex

Victrex plc (LON:VCT) is an innovative world leader in high performance polymer solutions, delivering sustainable products which support CO2 removal and bring environmental and societal benefit in multiple end-markets. Today’s announcement covers our interim results (unaudited) for the 6 months ended 31 March 2021.

 H1 2021H1 2020% change (reported)% change(constant currency)1
Group sales volume    2,087 tonnes1,992 tonnes+5%NA
Group revenue£150.9m£151.5m-0.4%           +2%
Gross profit£81.4m£86.8m-6%-3%
Gross margin53.9%57.3%-340bps            NA
Underlying PBT[1]£46.6m£52.0m-10% 
Reported PBT£46.6m£49.9m-7%-1%
Adjusted EPS146.9p50.0p-6% 
EPS46.9p47.6p-1% 
Dividend per share (regular & special dividends)13.42p        +100%NA

COVID-19

Victrex continues to be proactive on COVID-19, with the health, safety and well-being of our employees remaining our highest priority. We have maintained strong service levels to our customers as well as supporting our communities, alongside retaining a strong financial position.

Highlights:

•     Volumes +5% & improving end markets

–    H1 sales volume up 5%, driven by improving end-markets

–    Double-digit YoY growth and new applications in Electronics, VAR & Other Industrial (M&E)

–    Sequential# improvement in Automotive, Aerospace & Energy

–    H1 revenue in-line; softer sales mix due to strong Medical performance in prior year

–    Medical revenue down 16% on tougher comparative; gradual improvement as elective procedures return

•     PBT offset by sales mix, inventory unwind & bonus accrual

–    PBT down 7% at £46.6m

–    Post-Brexit inventory unwind impacting fixed cost absorption, offset by cost savings

–    Sequential gross margin improvement, up 660 bps to 53.9%

•     Strong growth pipeline of ‘mega-programmes’ with significant milestones delivered

–    Closing in on new E-mobility business win

–    Good progress in PEEK Knee with 3 trial sites now live; clinical update in July

–    Preparations for Magma qualification programme in Brazil on track

–    Further progress in Gears with advanced OEM testing

–    Progress in Aerospace slowed by COVID-19; long term opportunities expanding

•     Strong financial position; underpinning investment & shareholder returns

–    H1 total cash £79.6m** underpinning c£50m capex in FY 2021, operating cash conversion1 96%

–    New PEEK facility in China on plan, commissioning late 2022

–    Post-Brexit inventory unwind to benefit cashflow (H1 2021 inventory down £17.5m to £81.0m)

–    Dividends returned to pre-COVID-19 levels; interim dividend for shareholders of 13.42p/share

Alternative performance measures are defined on page 15

**includes £16.6m of cash ring-fenced in the China subsidiary

# References to sequential items are based on H1 2021 vs H2 2020

Jakob Sigurdsson, Chief Executive of Victrex plc, said: “Victrex delivered good volume growth through the first half despite a strong performance in the prior year period, as improving end-markets and our solid and sustainable recovery from the impact of COVID-19 continues. We saw record volumes for March and April, despite a softer sales mix, and our order book remains robust.  Profits were in line with our expectations as mix – reflecting a strong Medical performance last year – inventory unwind and under-recovery of fixed costs, and accrual for the Group’s All Employee Bonus scheme offset our performance.

“Several end-markets benefited from new application growth, including in Electronics and M&E (part of Other Industrial), up 28% and 27% respectively, whilst geographically, Asia-Pacific was up 11%.  It is also pleasing to see progress in delivering significant milestones within our mega-programme pipeline.

“Whilst COVID-19 restrictions remain, our priorities continue to be the health, safety and well-being of our employees and providing sustainable products which bring environmental and societal benefits for our customers. Although our Brexit inventory is now unwinding, which will impact recovery of fixed costs as production remains low, our £10m cost saving programme will sustainably improve our long-term operating leverage by the end of FY 2021. We also note gross margin improvement from the low point of H2 2020.

“Our strong cash generation underpins investment and shareholder returns, and we are pleased to see dividends back to pre-COVID-19 levels, with an interim dividend for shareholders of 13.42p/share.

Outlook

“The first half reflects an improving momentum across several end-markets, but also some restocking within supply chains. Consequently, our assumptions are that full year profits will be weighted to the first half.  Our focus for H2 is to maintain good momentum although Medical is likely to see a more gradual improvement until elective procedures return in greater numbers.  Whilst there may yet be upside to our anticipated full year performance, with the continued impact of post-Brexit inventory unwind on fixed cost recovery, and accrual for our All-Employee-Bonus scheme, at this stage we remain comfortable with current full year expectations.

“Overall, the Group is in a strong financial position. We have an attractive and growing portfolio of medium to long term growth opportunities, a strong ESG agenda, including alignment to global megatrends and sustainable products which help CO2 removal and support societal benefit, and a highly cash generative business model which underpins investment and shareholder returns.”

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