Polymers group warns on first half revenues and profits following ‘soft start’

Victrex, the Lancashire-based global polymers business, warned today that first half revenues and pre-tax profits will be lower than the previous year.

It said it has endured a “soft” start to its 2024 financial year, which is in line with guidance, although second quarter trading is improving.

Ahead of its AGM in London later this morning, the group issued a first quarter interim management statement, covering the period from October 1, 2023, to December 31, 2023.

When the group issued its annual accounts for 2023 in December last year, it said its outlook for the year ahead indicated it was seeing a slow start to fiscal year 2024. This has been driven by a continuation of the weakness seen in the second half of 2023 across several end-markets, in line with the wider Chemical sector.

Although the group typically sees seasonally lower volumes in the first quarter, this period has remained challenging, it admitted, compared with a good performance in the prior year period.

Victrex revealed that first quarter group revenue was down 22% at £61.2m (Q1 2023: £78.8m), while Q1 Group volume was down 21% at 751 tonnes (Q1 2023: 948 tonnes).

However, it added that an improvement has been seen in January, the start of the second quarter, although visibility remains limited.

In the group’s Sustainable Solutions area, it saw further progress in Aerospace, while Automotive returned to growth and continues to track positively.

First quarter performance was offset by the prolonged downturn in the end-markets of Electronics, Energy & Industrial and Value Added Resellers (VAR). At the start of Q2, January trading saw a slight improvement, compared with Q1 run-rates and the prior year (January 2023), though the group said it notes that visibility is limited.

After a softer start in Medical, Q2 has begun positively, compared with both Q1 and the prior year.

However, Victrex said it is mindful of some destocking amongst medical device companies, which has impacted the industry over recent months.

It expects to see improvement as the year progresses and remains encouraged by the broader range of Medical applications using PEEK. In its Medical mega-programmes, it is seeing commercial revenues building in Trauma plates, while its PEEK Knee development is ahead of its expectations.

Following strong progress in the clinical trial, the focus for PEEK Knee is now on the regulatory and commercial pathway, and additional major OEM (original equipment maker) collaborations.

Victrex said it retains a cash generative business model, supporting growth investment and shareholder returns. With interest payable for its China loan – as its manufacturing facilities in China prepare for commercial operations – and reflecting the group’s lower cash balance, net interest will be negative this year, it revealed.

Cash and working capital management remain key priorities. Together with lower capital expenditure, the group’s planned inventory unwind will improve its cash position, although this is currently being held back by the weak trading environment.

This one-off impact of lower asset utilisation, as the group unwinds inventory in FY 2024 and the remainder in FY 2025, will further increase under-recovered fixed costs in its income statement.

It said the group’s cost actions remain strong in this challenging period.

Pleasingly, operating overheads are tracking lower than the prior year at this early stage, despite continued innovation investment. Additional cost options are available if the current macro-economic environment persists for a longer timescale.

Looking ahead, chief executive, Jakob Sigurdsson, said: “After a soft start to the year, in line with the wider Chemical sector, the group is seeing signs of monthly run-rate improvement, on a sequential basis (Q2 vs Q1).

“January trading was solid and ended slightly ahead of the prior year comparative.

“However, we are mindful of the soft start and limited visibility of an uptick in several end-markets. Together with the increased year-on-year impact in our income statement from reduced asset utilisation, this means first half revenue and PBT (profit before tax) is expected to be lower than the prior year period.”

“The group previously communicated that progress in revenue and PBT for FY 2024 was reliant on a macro-economic recovery in our second half. The opportunity to deliver year-on-year progress remains.

“However, a continuation of the current macro-economic conditions makes achieving a profit growth outcome for the year more challenging and requires a further step up in run rates for the remainder of FY 2024. We continue to tightly manage controllable expenses, to support our performance.

“Victrex’s long term investment proposition remains strong. We have a robust and diversified core business, increasing commercialisation in our mega-programmes, well invested assets, and the opportunity for cashflow improvement. Overall, we are well-placed for a macro-economic recovery and for the medium to longer term.”