Victrex plc : Full year trading update
'End markets remain subdued into FY 2021'
Victrex plc, an innovative world leader in high performance polymer solutions, today releases a trading update following the end of its 2020 financial year on 30 September 2020.
At the close of the Group's FY 2020 financial year, trading overall remains subdued, although some end markets have slightly improved from trough levels. Aerospace and Energy volumes have remained in line with the lows seen during Q3, with some limited incremental improvement in Automotive and Medical monthly run rates, although Value Added Resellers – which saw growth during Q3 – was softer during the fourth and final quarter.
Q4 and FY 2020 performance
Overall, Q4 Group sales volume was down 26% to 695 tonnes (Q4 2019: 940 tonnes), with Group revenue down 27% to £55.7m (Q4 2019: £76.2m), in line with expectations.
For FY 2020 as a whole, Group sales volume of 3,492 tonnes was down 7% compared to the prior year (FY 2019: 3,751 tonnes), with Group revenue of £266m down 10% (FY 2019: £294m).
Whilst top-line performance for FY 2020 was slightly ahead of consensus expectations, our high fixed cost base and the under-absorption of fixed costs due to lower production volumes will mean an impact on margin, as previously communicated. During Q4 we announced a cost saving plan that will partially mitigate this, but notwithstanding this, the effect of lower production versus sales volumes will continue through FY 2021 as volumes remain low due to end market demand, inventory is gradually unwound after Brexit and reflecting the planned debottlenecking programme, with a proportion of capacity taken offline.
Mega-programme progress
Through its Polymer & Parts strategy, Victrex continues to focus on delivering further milestones in its growth pipeline, as well as exploring options to drive growth within the PAEK family of polymers or related technologies.
Despite the current challenges in Aerospace, our TxV composite parts facility in the US has secured repeat commercial orders which reflect the benefit of our technology in being able to efficiently manufacture strong and light-weight composite parts for a range of applications. In Magma, work is progressing with TechnipFMC, as part of the qualification programme in Brazil, with testing data confirming PEEK as the preferred material of choice. Additional projects including m-pipe jumper lines for Caltex Oil Tools in the Gulf of Mexico and a successful deployment project in the North Sea have also been supported. Whilst relatively small, both projects continue to validate the performance and cost benefits of PEEK based composite materials in a lower-oil price environment.
In Medical, with the Knee clinical trial in Italy having resumed following a pause due to COVID-19, our partners are also progressing registration to extend the trial, including in India, as we seek to further validate the proposition.
Financial position and cost management
Our net cash position at 30 September 2020 was £67.4m, which excludes £5.6m ring-fenced for our China manufacturing subsidiary. The Group has an undrawn and committed RCF of £20m, together with a £20m accordion facility.
As previously communicated, Victrex has been reviewing additional cost actions and efficiencies to support profitability in a lower production environment. As part of this programme, we commenced consultation in Q4 which would reduce our employee base by up to 100 roles, primarily through voluntary severance. The majority of these roles are within UK polymer manufacturing and will not impact the resources needed to deliver our long-term growth programmes. Once fully concluded, we expect this programme will partially mitigate the impact from under-absorbed fixed costs and help to support margin in FY 2021 and beyond. As part of the voluntary severance programme, we expect to incur an exceptional charge of approximately £9.5m to be taken in the FY 2020 accounts. With exceptional items already incurred relating to our China manufacturing investment in the first half, total exceptional items for FY 2020 are expected to be in the order of £12m.
Dividends
The capital requirements for our UK debottlenecking and China manufacturing subsidiary, as well as our usual ongoing maintenance capital expenditure, are likely to be in excess of £50m in FY 2021. These requirements will be covered by our cash generation and, in the light of a healthy net cash position, the Board expects to reinstate a dividend for FY 2020.
Outlook
At the start of FY 2021, trading overall remains subdued, although some end markets have slightly improved from trough levels. Whilst COVID-19 headwinds continue to impact trading, our focus continues to be on the safety, health and well-being of our employees, delivering good customer service and managing our costs.
In the immediate short term, we anticipate our end markets will remain around the levels seen in Q4 and we will also see the continuing effects on margin from lower production as inventories are gradually unwound through FY 2021. H1 2021 is also likely to see a tough comparative against the solid performance in H1 2020. There is also the possibility of uncertainty from the Brexit outcome, although our contingency plans with additional warehousing and high inventories keep us in a good position to continue to support our customers.
Overall, with sustainable products, our range of medium to long term growth opportunities remain strong, our financial position is robust and our cash generation capabilities offer the opportunity of good medium term returns to shareholders.
Victrex will release its FY 2020 Preliminary results on Wednesday 9 December 2020.