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Victrex plc Solid growth in H1, emerging COVID related headwinds in H2

Victrex plc (LON:VCT), an innovative world leader in high performance polymer solutions, today announced its interim results for the 6 months ended 31 March 2020.

 H1 2020H1 2019% change (reported)% change(constant currency)1
Group sales volume    1,992 tonnes1,899 tonnes+5%NA
Group revenue£151.5m£145.7m+4%+3%
Gross profit£86.8m£87.4m-1%-6%
Gross margin57.3%60.0%-270bps 
Underlying profit before tax (before exceptional items1)£52.0m£52.4m-1%-11%
Reported PBT£49.9m£50.2m-1%-11%
Adjusted EPS50.0p53.7p-7% 
Reported EPS47.6p51.4p-7% 
Dividend per share (regular & special dividends)13.42p        

COVID-19

Since the onset of COVID-19 in Asia during January, the safety and well-being of our employees has been the highest priority.  As the virus remains a consideration across our global locations, we will continue to proactively support and look after our employees, whilst maintaining strong service levels to our customers.

Highlights:

•     Solid H1 with growth in Automotive & Medical; stable performance in Aerospace & Electronics

–    H1 sales volume up 5%, offset by weakness in Energy

–    Q2 volume up 4% against tougher comparatives

–    Good progress in Medical, revenue up 6%; further growth in Asia and new applications

–    Underlying PBT stable at £52m; margin impacted by under-recovered overhead from lower production, special grade campaigns and new parts programmes

•     ‘Mega-programme’ pipeline remains strong

–    Continued progress in Aerospace composite parts, focused on FY20 meaningful revenue

–    Double-digit growth in next generation PEEK-OPTIMA™ HA Enhanced Spine product

–    Good progress supporting Magma for TechnipFMC pre-qualification pipe

•     Investment tailored to new growth opportunities

–    Manufacturing subsidiary established to develop new PEEK facility in China

–    Acquired remaining equity in TxV Aero Composites from Tri-Mack  

•     Net cash and strong financial position

–    H1 net cash £53.2m*; operating cash conversion of 85%

–    Committed and undrawn RCF of £20m, with £20m accordion

–    Multiple downside scenarios planned for

•     Proactive actions taken to manage COVID-19 related challenge

–    Strong inventory position with H1 inventory £95.1m (H1 2019: £85.2m)

–    Solid start to H2, with emerging headwinds in forward order book 

–    Discretionary costs constrained & cash conservation measures implemented:

·      Deferral of UK debottlenecking programme to FY 2021

·      Interim dividend deferred

Jakob Sigurdsson, Chief Executive of Victrex, said: “Overall, we delivered a solid first half which was in line with our expectations.  We saw good growth in Automotive and Medical, a stable performance in Aerospace, Electronics and Value Added Resellers, offset by the weaker performance in Energy, as oil prices, rig count and activity levels reduced compared to the prior year.

“Whilst the global demand picture remains highly uncertain, we will continue to position ourselves for the uptick, with further investments tailored to specific long-term growth opportunities.  These include our subsidiary in China which will underpin and support continued growth in that region.  As part of our cash conservation and cost reduction measures in light of COVID-19, our £15m debottlenecking investment in the UK has now been deferred to FY 2021. However, with lower production already planned for this financial year and some special grade campaigns and new parts programmes ahead of revenue in the first half, we will continue to see some impact on margin from under-recovered overhead.  We have continued to make progress in several of our downstream growth programmes, with our US facility now supplying commercial product into the Aerospace market and progress in the Magma Oil & Gas composite pipe opportunity.

“Q3 to date has been broadly in line with our expectations, although we are now seeing emerging headwinds from COVID-19 in our forward order book, particularly in Aerospace and Automotive, with Energy already seeing very tough conditions.  Geographically, some more normalised demand returning in Asia could prove supportive, although the demand outlook in Europe and the US is becoming more challenging. Our supply chains remain effective and our inventory levels are high as we continue to serve customers appropriately.  We have implemented a range of cash conservation measures, including deferring our debottlenecking programme and a decision on our interim dividend, and alongside our net cash position and available facilities, our balance sheet remains strong.  As previously communicated, with significant macro and end market uncertainty, we are unable to provide detailed guidance on full year expectations.  We believe the proactive actions we are taking are appropriate to minimise disruption and on a long-term basis, our Polymer & Parts strategy keeps us well placed to deliver our range of medium to long term growth opportunities.”

*includes £9.2m of cash ring-fenced in the China subsidiary

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