Victrex plc
Interim Management Statement
'Solid start but weaker end to Q3 as COVID headwinds impact performance'
Victrex plc, an innovative world leader in high performance polymer solutions, today releases its Interim Management Statement for the third quarter (Q3) covering the period 1 April to 30 June 2020.
Whilst Q3 started solidly, Victrex saw a weaker end to the quarter, as run-rates in May and June declined. On a year-to-date basis, Group volumes are broadly in line with the prior year. Margin was impacted during the quarter by the deferral of some elective procedures affecting our higher margin Medical business, as well as the under-absorption of fixed costs from lower production volumes. We expect these effects will continue to impact margin for the remainder of the second half.
Q3 and YTD performance
Overall, Q3 Group sales volume was down 12% to 805 tonnes (Q3 2019: 912 tonnes), with Group revenue down 18% to £58.8m (Q3 2019: £72.0m) reflecting mix as a key driver. On a year to date basis, (to the end of Q3) Group sales volume of 2,797 tonnes is broadly in line with the prior year (2019 YTD: 2,811 tonnes), with YTD Group revenue of £210.3m down 3% (YTD 2019: £217.8m).
Following a broadly stable performance in April, the months of May and June started to see the impact of COVID-19 related headwinds, with Group volume and revenue being more than 20% lower than the prior year. Aerospace, Automotive and Energy end-markets experienced the greatest level of decline, with performance being moderately weaker than market indicators. In Medical, the anticipated deferral of elective procedures started to impact us from April, with monthly revenue declines of up to 40% in this division, although market indicators suggest procedure deferral will gradually reverse. Pleasingly, the gradual return of some elective surgeries in Asia and continued growth in non-Spine has kept year-to-date Medical revenues ahead of the prior year in that region.
Mega-programme progress
As part of 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. Whilst we are mindful that COVID-19 may lead to some delays in achievement of milestones in certain projects, and are monitoring developments closely, overall our growth pipeline is progressing broadly as planned, with the long-term value proposition for the use of PEEK remaining strong.
In Magma, testing data points from Technip FMC have indicated PEEK as the preferred material of choice for the demanding conditions in Brazil. This follows Victrex manufacturing the 6-inch PEEK liner pipe, as well as the supply of PEEK composite tape in support of Technip FMC's qualification programme. Additional opportunities outside of Brazil remain under discussion.
In Medical, the clinical trial for our Knee programme in Italy has resumed, with the first patient implant expected around the end of our financial year, with additional trials in Europe and Asia being explored, to drive commercialisation. We continue to see good opportunities in Asia, both in Spine and non-Spine, particularly in CMF, Trauma and Arthroscopy.
Financial position and cost management
Our net cash position at 30 June 2020 was slightly ahead of our expectations at £72m, which includes approximately £8m ring-fenced for our China manufacturing subsidiary. The Group has an undrawn and committed RCF of £20m, together with a £20m accordion facility.
The Group is also reflecting the weaker demand Outlook through the remainder of FY 2020 and into H1 2021, as well as the ongoing impact of under-absorption of fixed costs, by reviewing additional cost actions, to support profitability in a lower production environment.
As previously communicated, we will assess macro and end market conditions later in the year, and the Outlook for FY 2021, before making a declaration on dividends for FY 2020.
Outlook
With an additional impact in our current and forward order book from COVID-related headwinds, and with macro and end market uncertainty, as previously communicated, we are unable to provide detailed guidance on full year expectations.
With lower production levels reflecting weaker demand and planned inventory reduction, and consequently the under-absorption of fixed costs, together with a weaker mix, margin is anticipated to be further impacted in the second half and into FY 2021. Whilst market indicators may remain negative across many of our end-markets as we move into our next financial year, we anticipate being in a better position later in the year to assess the Outlook.
Our focus continues to be on the safety, health and well-being of our employees, delivering good customer service and managing our costs. Whilst we have already carried out a number of cash conservation measures, further actions are being considered should there be a sustained downturn. 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.