Slowdown in auto markets takes its toll on Victrex

Victrex, the Lancashire-based polymers group focused on the auto and aerospace industries, suffered from the volatile conditions affecting the car industry, its full year results to September 30, revealed today.

The Thornton Cleveleys business saw revenues fall 10% from £326m to £294m, while pre-tax profits slid by 18% from £127.5m to £104.7m.

The dividend per share was slashed by 58% to 59.56p per share.

It said good growth in the aerospace, energy and medical sectors was offset by auto and electronics cyclicality.

Victrex also said cash generation was impacted by Brexit and a debottlenecking inventory build.

The group said fourth quarter sales were five per cent lower than the comparative period last year, but slightly improved sequentially on the third quarter, indicating a degree of stabilisation in its automotive and electronics end markets in the final quarter, although the firm remain cautious on the near-term outlook.

Foreign exchange fluctuations also led to a loss of £5.9m, largely from the group’s US dollars contracts.

The ongoing Brexit scenario is also affecting the group.

Victrex has indicated previously that the principal risk is a sustained period when the group may not be able to import certain raw materials or export finished goods through customs, which could curtail sales if regional inventory levels were depleted.

As part of its contingency plans, additional warehousing for finished goods stock was secured in mainland Europe (Germany) and China with a minimum of eight weeks of finished goods stock held outside the UK.

The German warehouse has been operational since February 2019, with capability to supply European customers.

The business also secured additional raw material stocks.

Group inventories reached £92.2m in financial year 2019 as a consequence, compared with £69.3m the previous year, and with continued uncertainty over Brexit, as well as reduced production availability in polymer assets due to debottlenecking, the group anticipates maintaining a continued higher level of inventory through financial year 2020.

However, the group said it has a strong balance sheet. Net assets at September 30, 2019 totalled £461.6m, compared with £489.9m a year ago.

Chief executive Jakob Sigurdsson said: “Our full year performance was in line with expectations, with good growth in aerospace, energy and medical being offset by a deterioration during the second half in automotive, electronics and value added resellers, although these end markets are gradually stabilising.

“Pleasingly, we saw further progress in our new product pipeline and mega-programmes.

“We secured our first commercial order for aerospace composite parts, we signed a new long-term development alliance with Airbus to support larger primary and secondary structures, and we saw strong growth in our next generation PEEK-OPTIMA™ HA Enhanced product for the spine market.

“In PEEK (polyether ether ketone) Gears, our value proposition is strong and we have multiple development programmes under way, as well as gears on the road.

“Looking forward, automotive and electronics are showing signs of stability, although we will retain some caution on these markets at this early stage, with an initial assumption that current trends will continue through the first half year.

“Our cost-effective debottlenecking project is under way, enabling Victrex to gain significant incremental capacity in support of our medium-term growth programmes, although an extended shutdown will mean some under recovered overheads.”

He added: “On a full year basis, currency offers a modest tailwind, although this will be offset to a large degree by some limited incremental operating investment, cost inflation and our employee bonus scheme.

“Overall, we remain focused on making year-on-year progress and our polymer and parts strategy keeps us well placed to deliver our medium to long term growth opportunities.”