TIDMVCT
RNS Number : 6499Y
Victrex PLC
09 May 2023
9 May 2023 Victrex plc - Interim Results 2023
'Price, revenue & gross margin up; PBT lower on volumes,
cost inflation & targeted investment'
Victrex plc is an innovative world leader in high performance
polymer solutions, delivering sustainable products which enable
environmental and societal benefit. This announcement covers
interim results (unaudited) for the 6 months ended 31 March
2023.
H1 2023 H1 2022 % change % change
(reported) (constant
currency(1)
)
Group sales volume 1,941 tonnes 2,264 tonnes -14% N/A
------------- ------------- ------------ -------------
Group revenue GBP162.2m GBP160.1m +1% -5%
------------- ------------- ------------ -------------
Gross profit GBP86.7m GBP85.0m +2% -2%
------------- ------------- ------------ -------------
Gross margin 53.5% 53.1% +40bps N/A
------------- ------------- ------------ -------------
Underlying PBT(1) GBP42.5m GBP48.2m -12% -15%
------------- ------------- ------------ -------------
Reported PBT GBP39.1m GBP43.6m -10% -14%
------------- ------------- ------------ -------------
Underlying EPS(1) 41.9p 47.8p -12% N/A
------------- ------------- ------------ -------------
EPS 38.8p 43.5p -11% N/A
------------- ------------- ------------ -------------
Dividend per share 13.42p 13.42p flat N/A
------------- ------------- ------------ -------------
Highlights:
-- Strong pricing performance, with revenue +1%, despite softer volumes
- H1 Group revenue up 1% at GBP162.2m (H1 2022: GBP160.1m), supported by FX
- Average selling prices (ASP) up 18% at GBP84/kg, delivered by strong pricing actions, mix & FX
- H1 Group sales volume down 14%; driven by macro weakness in
Electronics, Energy & Industrial and Value Added Resellers
(VAR), despite good growth in Aerospace & Automotive
- Record half in Medical; revenue up 17%, driven by new applications, mega-programmes, FX
-- GM up to 53.5%; underlying PBT down on softer volumes, inflation & targeted investment
- Gross margin up 410 bps vs H2 2022 & up 40 bps vs H1 2022
- Underlying profit before tax (PBT) down 12% at GBP42.5m & down 15% in constant FX
- Reported PBT GBP39.1m
- Targeted investment in Medical acceleration & China start-up
-- Growing 'mega-programme' commercialisation - sales from new products up to 7%(2)
- Medical:
-- Trauma plates: exceeding demand, on track for cGBP1m revenue & new Asia partner
-- PEEK Knee: strong progress in Maxx clinical trial, 35
patients implanted, 2 post two years; Aesculap (B Braun)
collaboration in place
- Industrial:
-- Further E-mobility business; on track for >GBP3m annualised revenues
-- Supporting TechnipFMC for significant Brazil opportunity (Magma composite pipe)
-- Cash generation underpinning investments; China commissioning on-plan
- H1 2023 available cash(1) GBP34.4m, post-payment of FY 2022 dividend
- China facility commissioning; commercial start-up on plan for 2023
- Operating cashflow impacted by inventory, in line with guidance
- Interim dividend of 13.42p/share, in line with prior year
(1) Alternative performance measures are defined in note 17
(2) Other internal metrics are defined below
Commenting on the Group's interim results, Jakob Sigurdsson,
Chief Executive of Victrex, said :
"Our first half performance was driven by strong pricing, an
improved sales mix and currency, with revenue up 1%, despite a
softer macro-economic environment, resulting in weaker volumes,
compared to a record FY 2022.
"Several end markets delivered good growth, including in
Aerospace and Automotive, although this was not able to offset
softness in Electronics, Energy & Industrial, and VAR. In
Medical, we saw a record half yearly performance and our growth
opportunities are increasing. Prioritising targeted investment in
Medical is already delivering good results.
Price & margin ahead
"Average selling prices, at GBP84/kg, were ahead of our
expectations as we recover energy & raw material cost
inflation. This, together with energy costs being lower than our
guidance, helped to improve Group gross margin to 53.5%, compared
to the second half of FY 2022 at 49.4%. On a full year basis, we
expect gross margin will now be ahead of expectations and the prior
year.
PBT down 12% on softer volumes, cost inflation and targeted
investment
"In line with our guidance of a double-digit increase in
overhead investment to underpin growth programmes, alongside higher
wage inflation and targeted cost of living support for employees,
underlying profit before tax (PBT) was down 12%. Whilst we will
remain cost focused through the remainder of the year, we have
added targeted overhead investment, primarily to support Medical
and several of our key mega-programmes as they move closer to
inflection points and require investment for customer scale-up. We
also saw additional people and start-up costs for our new China
facility, ahead of commercial operations starting later this
year.
Growing commercialisation in mega-programme portfolio
"Our mega-programme portfolio is making good progress in
delivering additional milestones, with sales from new products -
which includes our mega-programmes - tracking at 7% of revenue for
the full year (FY 2022: 6% of revenue). During the first half, we
saw further new business wins in E-mobility and the opportunity for
over GBP3m revenue this year; additional revenues to support our
Aerospace Structures programme and collaborations with several
other OEMs now; excellent progress in Trauma, including a new China
manufacturing partner and growth in the US, and anticipated
commercial revenue above GBP1m this year; and the PEEK Knee trial
moving towards the post clinical stage. We are also supporting
TechnipFMC as they bid to use new composite pipe technology based
on PEEK, in Brazilian oil & gas fields.
Outlook - well positioned for macro-economic recovery
"The Group has seen some improvement in monthly run-rates since
the turn of the calendar year , though these remain variable by end
market . Consequently , compared to a record FY 2022, full year
volumes are still tracking to be down by a double-digit percentage.
Victrex remains well positioned for when the macro-economic outlook
turns more favourable in several Industrial end markets. Medical is
expected to continue its strong performance.
"On a full year basis, pricing, sales mix, easing energy
inflation and currency remain supportive. Gross margin is also
expected to be modestly ahead of the prior year. Delivering a PBT
performance in line with FY 2022 and current expectations assumes a
step up in demand during the latter part of the second half, driven
by macro-economic conditions. Victrex remains well placed for the
medium to long term, with a strong core business, growing
commercialisation in our mega-programmes, a highly cash generative
business model, and strong ESG credentials."
About Victrex:
Victrex is an innovative world leader in high performance
polymer solutions, focused on the strategic markets of automotive,
aerospace, energy & industrial, electronics and medical. Every
day, millions of people use products and applications which contain
our sustainable materials - from smartphones, aeroplanes and cars
to energy production and medical devices. With over 40 years'
experience, we develop world leading solutions in PEEK and PAEK
based polymers, semi-finished and finished parts which shape future
performance for our customers and our markets, enable environmental
and societal benefits, and drive value for our shareholders. Find
out more at www.victrexplc.com
A presentation for investors and analysts will be held at 9.
00am (UK time) this morning via a dial-in facility, which can be
accessed by registering on the following link:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=4670842&linkSecurityString=bc37ea7fa
The presentation will be available to download from 8.30am (GMT)
today on Victrex's website at www.victrexplc.com under the
Investors/Reports & Presentations section.
Victrex plc:
Andrew Hanson, Director of Investor Relations,
Corporate Communications & ESG +44 (0) 7809 595831
Ian Melling, Chief Financial Officer +44 (0) 1253 897700
Jakob Sigurdsson, Chief Executive +44 (0) 1253 897700
Interim results statement for the 6 months ended 31 March
2023
'Price, revenue & gross margin up; PBT lower on volumes,
cost inflation & targeted investment'
Operating review
Revenue up 1%
During the first half, the Group delivered revenue of
GBP162.2.m, which was up 1% (H1 2022: GBP160.1m), despite weaker
sales volume. This reflects strong pricing and a good performance
in several end markets, including in Medical, which delivered a
record half yearly performance, resulting in an improved sales mix
for the Group.
In constant currency(1) Group revenue was 5% down on the prior
year.
H1 volume down 14% on weaker macro-economic environment
Group sales volume of 1,941 tonnes was 14% down on the prior
year (H1 2022: 2,264 tonnes), below our expectations at the start
of the year. This reflected weaker end-markets in Electronics,
Energy & Industrial and VAR, offset by an improvement in
Automotive and continuing recovery in Aerospace. Victrex typically
sees a strong bounce back once end-markets improve and we remain
well positioned for an upturn in the global economic environment.
However, volumes continue to track down double-digit on a full year
basis, compared to the record volumes of FY 2022.
Q2 revenue & volume
Q2 revenue of GBP83.3m (Q2 2022: GBP85.5m) was 3% lower than the
prior year - a strong comparative - despite monthly run rates
starting to improve after the first quarter, but with a slower
recovery than expected. Q2 sales volume of 992 tonnes was down 20%
on the prior year (Q2 2022: 1,239 tonnes), reflecting several end
markets remaining weak.
Record half in Medical; Industrial weaker in some end
markets
Medical revenues were GBP32.5m, up 17% on the prior year (H1
2022: GBP27.8m), and 6% ahead in constant currency(1) . We saw
continuing strong growth in Asia (revenues +32%), as well as growth
in all other regions.
Growth within Medical remains broad-based, with Spine revenue up
15% and non-Spine up 19%. After successfully broadening the
applications PEEK is used in, non-Spine is now an increasingly
important part of our Medical division. Key applications include
Cardio, with over 250,000 heart pumps using PEEK last year, further
growth in Trauma, particularly Cranio Maxilo Facial (CMF) skull
plates; and good growth in Arthroscopy. Non-Spine now represents
52% of Medical revenues (H1 2022: 51%).
Our Industrial division reported revenues of GBP129.7m, 2% down
on the prior year (H1 2022: GBP132.3m) and 8% down in constant
currency(1) , reflecting the end market weakness in Electronics,
Energy & Industrial and VAR. Within Transport, sales volume was
up 3%, as Automotive started to emerge from a period where car
build rates have been challenged by the industry Semiconductor
shortages. In Aerospace, we saw good revenue growth - volumes were
up 9% and revenue up 19% - thanks to increased plane build, an
improved sales mix and greater commercialisation of our composite
business, particularly our low-melt PEEK (AE(TM) 250) and composite
tape. This is being used on Airbus' demonstrator for next
generation aircraft as part of the Clean Sky II programme, as well
as through opportunities in the wider Aerospace supply chain.
Forecast build rate increases by both of the key aerospace
manufacturers over the coming years are expected to support
continued improvement.
Average selling prices (ASP) up 18% at GBP84/kg; ahead of
expectations, driven by price increases & FX
Recovery of the significant energy and raw material cost
inflation is reflected in an improvement for our Average Selling
Price (ASP) of GBP83.6/kg, which was up 18% (H1 2022: GBP70.7/kg).
This was driven by the benefit of annualised price increases,
surcharge pricing to customers, sales mix and currency. Structural
price increases remain the main mechanism for price pass through.
Surcharge pricing remains one of our options, linked to UK energy
costs, as the Group broadened how it recovers cost inflation.
Overall cost inflation for FY 2023, based on current energy and
raw material prices, is expected to be modestly lower than our
previous guidance of around GBP20m, although we note the
variability in forward energy costs.
Growing commercialisation in mega-programme portfolio
Sales from new products revenue is on track to increase to 7% of
Group revenue for FY 2023. During the first half, we saw further
milestones as we work towards inflection points across a number of
mega-programmes:
The Magma mega-programme is our composite pipe programme for the
energy industry, including both traditional and new energy
applications. The primary focus is supporting TechnipFMC to
accelerate the significant opportunities for thermoplastic
composite pipe in deepwater oil & gas fields in Brazil, with
light-weighting, durability, and ease of manufacturing being key
parts of the proposition. Following submissions last year for
offshore packages in Brazil, TechnipFMC is targeting multiple
fields in Brazil requiring alternative solutions. PEEK based Hybrid
Flexible Pipe (HFP) is seen as a leading contender, with TechnipFMC
constructing a new pipe extrusion facility in Brazil, incorporating
Victrex's pipe extrusion know-how. The opportunity is across
several pre-salt fields in Brazil, over a multi-year timeframe. We
continue to closely collaborate with TechnipFMC as a strategic
supply partner, with multi-year supply agreements in place and
industry qualifications based on Victrex (TM) PEEK and our
composite tape (Victrex supplies both the polymer resin and
composite tape and holds the intellectual property for extrusion of
the PEEK pipe) .
In Trauma, commercial revenue is on track to deliver
approximately GBP1m this year, and further expected growth in the
coming years, thanks to our partnership with In2Bones and other
customers for PEEK composite Trauma plates, where initial demand
has exceeded In2Bones' own expectations, and is more than five
times our original assumptions. Over 200 patients have now received
implants utilising Victrex manufactured trauma plates. Studies show
an enhanced union rate using PEEK composites rather than titanium
based plates . Victrex manufactures the PEEK composite based trauma
plates in-house, or via partners, based on the significant know-how
built up over recent years. We will also be working with Paragon
Medical, to toll manufacture in China, supporting a growing
customer base globally.
Our PEEK Knee programme continues to show strong progress. The
Maxx Orthopaedics clinical trial has now completed patient
recruitment in India, with 35 patients having implants, including
10 who have successfully passed the primary end-point of 15-month
clinical stage, with no remedial intervention required. Two
patients have also passed the two year stage with no intervention,
which is particularly encouraging. The focus for Maxx will be to
work alongside our Medical team to look at the route to early
commercialisation, utilising our New Product Development Centre
established in Leeds, UK, during the first half. Our new
collaboration with Aesculap (part of B Braun and a top 5 Knee
company) was also formalised during the first half. Collaboration
has been running for some time, including robotic testing at
Aesculap, with the focus on trials and a pathway to
commercialisation.
Knee remains potentially the most significant of our
mega-programmes, with an addressable market of approximately $1
billion, utilising PEEK as a replacement over Cobalt Chrome.
In our 'Aerospace Structures' programme, the opportunity to
increase PEEK content per plane at least 10-fold is becoming more
real, with large scale demonstrator parts being exhibited and going
through qualification programmes. Aerospace Structures links
primarily to our development alliances via major OEMs, with
prototype revenue via the world's first large scale PEEK test
parts. We have also broadened the number of customers we are
working with as part of this programme, including Tier 1 companies,
reflecting the significant opportunity for light-weight and easily
processed PEEK composite materials. Focus applications are for
large primary and secondary Aerospace structures, such as wings and
fuselage parts. Aerospace Structures also builds on Victrex's
Aerospace Composites programme, with our AE (TM) 250 composite tape
being integral to both of these opportunities.
After successfully growing revenue to more than GBP4m last year,
PEEK Gears is focused on building revenue through both parts
manufacture and polymer resin based sales, where a third party
manufacturer would build the final component, based on Victrex
design, development and know-how. PEEK Gears continue to have
application uses across both traditional internal combustion
engines (ICEs) and electric vehicles (EVs).
Good progress continues in our E-mobility mega-programme, with
new business wins during the first half, specifically focused on
wire coating applications for electric motors. We are on track to
deliver revenue of over GBP3m this year, with better than expected
progress. This mega-programme centres on Victrex XPI grade, which
enables coatings of tightly wound electric wires for existing and
primarily next generation high-voltage vehicles (800 volt batteries
and applications). PEEK is being used in specific applications
where durability, heat resistance and light-weighting are all key.
The potential PEEK content per vehicle, including E-mobility
applications, is more than 100g (from approximately 10g today), as
we focus on the high performance needs of next generation electric
vehicles.
Innovation investment
Victrex continues to invest behind our growth programmes, with
the opportunity to accelerate some of our opportunities in Medical,
meaning more investment in this business during FY 2023. This
includes a modest investment in a New Product Development (NPD)
Centre in Leeds, UK, to support new roles and capability. Given the
phasing of R&D investment, this is not measured at the half
year but is tracking at approximately 5% of revenues on a full year
basis. Of R&D investment focused on individual projects, 89% of
this is now aligned to programmes supporting sustainable products.
Going forward , and on a full year basis, we will focus primarily
on our total investment in sustainable products or programmes as a
proportion of total R&D investment (rather than project-based
investment).
Financial review
Gross profit up 2%
Gross profit was up 2% at GBP86.7m (H1 2022: GBP85.0m),
supported by currency. Energy costs, within the income statement,
were still ahead of the prior year, but slightly lower than our
expectations. Despite some easing of UK energy costs, raw materials
continue to see modest inflation, compared to H1 2022.
Gross margin up 410 bps sequentially
First half Group gross margin of 53.5% was 410 basis points
(bps) ahead of the second half of FY 2022 (H2 2022: 49.4%),
supported by improved pricing and a better sales mix. On a
year-on-year basis, Group gross margin of 53.5% was slightly ahead
of the first half of FY 2022 (H1 2022: 53.1%).
Our focus continues to be on gross margin improvement, to a
mid-to-high fifty percent level, whilst noting that sales mix and
the expected increase in parts contribution to revenue, will play a
key role over the coming years. On a full year basis, we anticipate
Group gross margin will be ahead of the prior year, with further
improvement in the second half.
Moving further downstream, through our Polymer & Parts
strategy, seeks to deliver continued growth in our core polymer
business, as well as drive an increasing contribution from our
mega-programmes (parts). This creates the opportunity for
additional revenue and profit streams over the medium to long term
from selling a semi-finished or finished component or part, despite
the higher unit cost of manufacture and slightly lower gross margin
percentage in selected parts compared to polymer.
Gains & losses on foreign currency net hedging
Fair value gains and losses on foreign currency contracts, where
net hedging is applied on cash flow hedges, are required to be
separately disclosed on the face of the Income Statement. In H1
2023, a loss of GBP6.2m (H1 2022: gain of GBP1.7m) has been
recognised accordingly, largely from contracts where the deal rate
obtained (placed up to 12 months in advance in accordance with the
Group's hedging policy) was unfavourable to the average exchange
rate prevailing at the date of the related hedged transactions,
following the devaluation of Sterling during H2 2022. The
corresponding spot rate benefit is largely seen in the revenue
line.
Currency tailwind
H1 2023 saw a currency tailwind of approximately GBP3m at PBT
level, with an expected full year tailwind of approximately
GBP4m-GBP6m. At this early stage, currency for FY 2024 is tracking
as a modest tailwind of a similar scale at PBT level, although we
note ongoing volatility in currency markets.
Our hedging policy requires that at least 80% of our US Dollar
and Euro cash flow exposure is hedged for the first six months,
then at least 75% for the second six months of any twelve-month
period. The implementation of the policy is overseen by an
Executive Currency Committee which approves all transactions and
monitors the policy's effectiveness.
Operating overheads (1) up 21% driven by wage inflation and
targeted investment
Operating overheads(1) , which excludes exceptional items of
GBP3.4m, increased to GBP44.1m (H1 2022: GBP36.4m) driven by higher
wage inflation, targeted cost of living payments to support global
employees at certain grades and targeted investments which
commenced in H2 2022; primarily in Medical, and to support the
commercial ramp up for our new China PEEK facility, which is
expected to be operational during 2023.
For FY 2023, with wage inflation and some targeted innovation
spend, in line with our prior guidance, we envisage a low double
digit % increase in operating overheads.
Underlying PBT offset by higher targeted investment
Despite gross profit being 2% ahead, supported by price
increases and currency, underlying PBT of GBP42.5m was down 12% on
the prior year (H1 2022: GBP48.2m). This was driven by higher
targeted investment, in support of key long-term growth programmes,
and higher wage inflation, including cost of living support.
Reported PBT reduced by 10% to GBP39.1m (H1 2022: GBP43.6m).
This reflects exceptional items of GBP3.4m (H1 2022: GBP4.6m),
representing the cost of implementing a new ERP software system.
The implementation will be completed in 2024, with an anticipated
total expensed cost of up to GBP20m.
Earnings per share down 11%
Basic earnings per share (EPS) of 38.8p was 11% down on the
prior year (H1 2022: 43.5p per share), reflecting the decline in
PBT. Underlying EPS was down 12% at 41.9p (H1 2022: 47.8p).
Taxation
The Group benefits from the reduced tax rate on profits taxed
under the UK Government's Patent Box scheme, which incentivises
innovation and consequently highly skilled Research &
Development jobs within the UK. Net taxation received was GBP3.9m
(H1 2022: tax paid of GBP5.6m) reflecting a UK tax refund for
overpayment in prior years. The effective tax rate was 14.9% (H1
2022: 14.0%), in line with our mid-term guidance for an effective
tax rate of approximately 12%-15%, subject to global taxation
developments, which continue to be monitored.
Strong balance sheet
Major customers recognise the value of our strong balance sheet,
and our ability to invest and support security of supply. Net
assets at 31 March 2023 totalled GBP488.6m (H1 2022:
GBP470.6m).
Inventory up in line with guidance
For FY 2023, we are ensuring raw material inventories can reach
safety stock levels, to support security of supply for customers.
Additionally, we have been building inventory to reflect planned
engineering work required as part of our UK Asset Improvement
programme. Total closing inventory was GBP117.3m (H1 2022:
GBP79.8m), including the impact of higher energy and raw material
costs. On a full year basis, we anticipate a continued elevated
inventory position.
China commissioning on-plan
Our investment in a new PEEK facility in China since FY 2020 has
now resulted in us advancing through the commissioning phase, ahead
of an expected start-up for producing commercial PEEK by the end of
2023, subject to qualification. The China facility, PVYX, will
enable us to broaden our portfolio of PEEK grades, as well as
target a number of key end markets, particularly Automotive,
Electronics and VAR. Close collaboration with customers continues,
in support of their own growth plans in China.
Growth investment remains the priority, with cash capital
investment of GBP22.2m (H1 2022: GBP26.7m), of which a significant
proportion was to support our China manufacturing investments,
which will provide additional capability to support customers in
China. Other investments include our UK Asset Improvement programme
(we anticipate this will be approximately GBP15m in total, with
some spend already completed; cGBP5m this year and a further GBP5m
next year), with consideration also being given to future monomer
capacity, in order to maintain a healthy security of supply
position.
Investment to support process change aligned to our ESG goals
(for example being able to access alternative fuels and adjustments
needed to our manufacturing process) is also within our medium term
plan.
Overall capital expenditure for FY 2023 is expected to be
similar to FY 2022, at approximately GBP45m-GBP50m. Medium term
capital expenditure is expected to reduce slightly from this level,
once current investments complete, to approximately 8-10% of
revenues, to include ESG related capital investment in our
manufacturing facilities.
Solid cash generation; lower on weaker demand environment
Cash generated from operations was GBP17.1m (H1 2022: GBP37.3m),
giving an operating cash conversion(1) of -4% (H1 2022: 22%). This
was driven by increased inventory, as previously communicated.
Cash and other financial assets at 31 March 2023 was GBP38.4m
(H1 2022: GBP45.8m). This lower cash position reflects weaker
demand and high capital expenditure for completion of our China
manufacturing investments. It also includes GBP4.0m ring-fenced in
our China subsidiaries (H1 2022: GBP3.9m) and other financial
assets of GBP0.1m, representing cash which was held in deposit
accounts greater than three months in duration (H1 2022: GBP0.1m).
In February 2023 we paid the 2022 full year final dividend of
46.14p/share at a cash cost of GBP40.1m.
Dividends
The Board is proposing to maintain the interim dividend at
13.42p/share (H1 2022: 13.42p/share).
Capital allocation; share buybacks now an option, alongside
special dividends
Growth investment remains the focus for the Group, although we
note the income attractions of Victrex, with a cash generative
business model. We continue to review a number of potential
investment opportunities, particularly in Medical as we see
significant opportunities to enhance our portfolio. Following
engagement with shareholders during the first half, share buybacks
are now included as an option for future shareholder returns,
alongside special dividends, within our capital allocation policy.
Reflecting the liquidity of Victrex shares, and the priority of
growth investment, any future buyback programme is not likely to
exceed GBP25m.
Sustainability
The Group continues to progress its Sustainability & ESG
goals, with a notable highlight being a year-on-year improvement in
our sustainable product revenues to 53%(2) (H1 2022: 43%). Later in
the year we expect to be in a position to make our SBTi submission,
aligning our goals with Science Based Targets.
Divisional appointments
Following the previously announced retirement from the Board by
Dr Martin Court - at the end of our financial year - the Group has
made two appointments. Dr John Devine becomes Managing Director,
Medical. John has over 24 years' experience with Victrex,
specifically in the Medical division. Michael Koch will join
Victrex as Managing Director, Sustainable Solutions (Industrial)
having formerly been the CEO of Mitsubishi Chemicals Advanced
Materials. Both appointments will be effective from October 1(st)
2023, enabling a smooth transition with Martin. These roles will
sit below Board level, reporting to Jakob Sigurdsson, Chief
Executive.
Outlook - well positioned for macro-economic recovery
The Group has seen some improvement in monthly run-rates since
the turn of the calendar year , though these remain variable by end
market . Consequently , compared to a record FY 2022, full year
volumes are still tracking to be down by a double-digit percentage.
Victrex remains well positioned for when the macro-economic outlook
turns more favourable in several Industrial end markets. Medical is
expected to continue its strong performance.
On a full year basis, pricing, sales mix, easing energy
inflation and currency remain supportive. Gross margin is also
expected to be modestly ahead of the prior year. Delivering a PBT
performance in line with FY 2022 and current expectations assumes a
step up in demand during the latter part of the second half, driven
by macro- economic conditions. Victrex remains well placed for the
medium to long term, with a strong core business, growing
commercialisation in our mega-programmes, a highly cash generative
business model, and strong ESG credentials.
Jakob Sigurdsson
Chief Executive, 9 May 2023
(1) Alternative performance measures are defined in note 17
(2) Other internal metrics are defined below
DIVISIONAL REVIEW
Industrial
6 Months 6
Months
Ended Ended %
31 Mar 31 Mar % Change
2023 2022 Change (constant
GBPm GBPm (reported) currency)
-------------- --------- -------- ----------- ----------
Revenue 129.7 132.3 -2% -8%
Gross profit 61.4 60.9 +1% -4%
-------------- --------- -------- ----------- ----------
Victrex's divisional performance is reported through Industrial
and Medical. The Group continues to provide an end market-based
summary of our performance and growth opportunities. Within
Industrial, we have the end markets of Energy & Industrial,
Value Added Resellers (VAR), Transport (Automotive & Aerospace)
and Electronics.
A summary of all the mega-programmes and the strong progress
made during the year, is covered earlier in this report.
Industrial revenue down 2% on weaker end-markets
The Industrial division saw revenue of GBP129.7m (H1 2022:
GBP132.3m), down 2% on the prior year, with a decline across
Electronics, Energy & Industrial and VAR, as these end markets
remain weak. H1 performance also reflects a period of strong growth
in the prior year, particularly in VAR, which saw several
consecutive record quarters. Revenue in constant currency was down
8%. With a more favourable sales mix, the impact of foreign
currency exchange and energy costs within the income statement
increased (but were slightly better than our expectations), gross
margin was up 130bps to 47.3% (H1 2022: 46.0%).
Energy & Industrial
Energy & Industrial saw sales volume of 328 tonnes, which
was down 21% on the prior year (H1 2022: 413 tonnes), primarily
reflecting the weaker performance in Industrial, which is currently
a more challenging end market. Industrial is driven by global
activity levels and capital goods equipment, which was weaker
during the period.
In Energy, Victrex(TM) PEEK has a long-standing track record of
durability and performance benefit in many demanding Oil & Gas
applications, where the reliability of PEEK can mean less
intervention or downtime, thereby supporting efficiency of
operation. We are now also seeing increasing revenues from wind
applications, with PEEK now being used in specific applications in
wind turbines. Elsewhere in the new energy space, we continue to
assess applications in Hydrogen, where PEEK's inert nature and
durability could have a strong play. Energy volumes were down 6%,
due to lower activity levels.
Value Added Resellers (VAR)
VAR shows a similar alignment to our Industrial end-markets,
with the exception of Aerospace, where sales volumes are largely
direct to OEMs or tier suppliers. VAR is often a good barometer of
the general health of the supply chain, with VAR customers
processing high volumes of PEEK into stock shapes, or
compounds.
After a strong period of growth and a strong comparative, the
first half saw a more muted performance, leading to a 21% decline
in VAR volumes, to 768 tonnes (H1 2022: 970 tonnes). We remain well
placed for when the global economic environment improves, with VAR
typically seeing a strong bounce back.
Transport (Automotive & Aerospace)
Across core and new applications within Aerospace and
Automotive, Victrex is well placed, particularly for the growing
demand for composite materials. We continue to have a strong
alignment to the CO2 reduction megatrend, with our materials
offering lightweighting, durability, comfort, dielectric properties
and heat resistance. As well as long standing core business within
Automotive & Aerospace across a range of application areas, we
also made good progress in our Transport related mega-programmes of
PEEK Gears, E-mobility, Aerospace Composites and Aerospace
Structures.
Overall Transport sales volume grew by 3% to 463 tonnes (H1
2022: 451 tonnes), with Aerospace up 9% and Automotive up 1%.
Automotive
In Automotive, we saw a steady improvement after a challenging
FY 2022, as the Automotive industry experienced semiconductor chip
shortages. Our core applications include braking systems, bushings
& bearings and transmission equipment, with increasing
opportunities and new business wins in electric vehicles,
supporting a growing E-mobility business.
In PEEK Gears, Victrex(TM) HPG PEEK can offer a 50% performance
and noise vibration and harshness (NVH) benefit compared to metal
gears, as well as contributing to the trend for minimising CO2
emissions through weight & inertia reduction, and quicker
manufacturing compared to metal. A typical PEEK Gear offers the
potential of approximately 20 grams per application.
In E-mobility, we secured further new business wins focused on
the higher voltage motors (800 volts), with an opportunity to grow
revenues over GBP3m this year. Several applications are based on
our Aptiv(TM) film or PEEK XPI grade used for wire coatings, where
the inert nature, high strength, durability and processability are
key benefits. Tough performance requirements make the choice of
material even more critical and PEEK is well placed.
Aerospace
Whilst Aerospace volumes were up 9%, revenue was up 19%,
reflecting a mix shift within this business, particularly in
Aptiv(TM) film and also our AE(TM) 250 low-melt PEEK grade (and use
as composite tape). Recent build rate increases on key models
containing Victrex(TM) PEEK offer support for continued improvement
as the industry moves beyond the effects of the pandemic.
We are also set to see an uptick in business in China, as our
qualifications with COMAC start to yield growing revenue.
The ability to support CO2 reduction through PEEK materials
which are typically 60% lighter than metals also remains strong,
with our assessment that over 53 million tonnes of CO2 could be
saved over the next 15 years if all new single aisle planes were
produced with over 50% PEEK composite content.
Electronics
After a strong period for the global Semiconductor sector, this
end market saw a dip during the first half. Volumes were down 13%
at 291 tonnes (H1 2022: 335 tonnes).
We continue to have a broad range of PEEK applications in this
end market, including Semiconductor, 5G applications, cloud
computing and core applications like CMP rings (for Semiconductor)
and other extended application areas. Our Aptiv (TM) film business
and small space acoustic applications remain well positioned,
though consumer devices was an area most impacted in the first
half.
Home appliances has been an area of growth in recent years and
our impeller application business in high-end brands are also
performing well across a number of product areas, including vacuum
cleaners and hairdryers. These applications, with lighter materials
and enhanced durability, also offer the opportunity for improved
energy efficiency.
Regional trends
With a more challenging global macro-economic environment,
regional performance in Europe and North America was adversely
affected.
Overall by region. Europe was down 14%, at 1,023 tonnes (H1
2022: 1,193 tonnes), driven by declines in VAR primarily. North
America was down 23% at 360 tonnes (H1 2022: 465 tonnes),
principally driven by Energy & Industrial. Asia-Pacific was
down 8% at 558 tonnes (H1 2022: 606 tonnes), as we saw declines in
Electronics and VAR.
Medical
6 Months 6
Months
Ended Ended %
31 Mar 31 Mar % Change
2023 2022 Change (constant
GBPm GBPm (reported) currency)
-------------- --------- -------- ----------- ----------
Revenue 32.5 27.8 +17% +6%
Gross profit 25.3 24.1 +5% +1%
-------------- --------- -------- ----------- ----------
We continue to see a good performance in Medical, driven by
further recovery of elective surgeries and new application growth.
Revenue in Medical was up 17% at GBP32.5m (H1 2022: GBP27.8m). In
constant currency, Medical revenue was up 6%.
Gross profit was GBP25.3m (H1 2022: GBP24.1m) and gross margin
was down 890bps at 77.7% (H1 2022: 86.6%) primarily reflecting
currency and the impact of hedging (the corresponding currency
benefit was seen in revenue). We also continued to see faster
growth in Non-Spine. Geographically, Asia-Pacific revenues were up
32% year on year, with Medical revenues in the US up 10% and Europe
up 15%.
A summary of the Medical based mega-programmes is covered in the
operating review above.
Medical strategy
Our Medical aspirations are for our solutions to treat a patient
every 15-20 seconds by 2027 (from approximately 25-30 seconds now)
and the Group is prioritising targeted investment in Medical,
including a New Product Development Centre of Excellence in Leeds,
UK, which opened during the period. This facility will support
customer scale up in Trauma and Knee, aligned to major medical
device companies, as well as working closely with academia. It is
one of the key overhead investment items in FY 2023, as we build
additional capability and skills in this area, with approximately
25 new roles initially.
We already have Medical manufacturing capability and innovation
for our parts businesses in the UK, though in Trauma, we are
establishing manufacturing partners, particularly in Asia, whilst
retaining the design and development know-how. We continue to make
good progress in being able to address what Medical device
customers require, whilst developing new products to enable a full
suite of solutions. An example is in Knee where the PEEK Knee is
progressing through a clinical trial, yet opportunities within a
cementless knee replacement are becoming more in focus.
Spine and non-Spine
Current revenue split shows 48% of divisional revenue from Spine
and 52% non-Spine. The next generation Spine products will be key
in maintaining PEEK's position in this segment, including the
opportunity for Porous PEEK, where a spinal cage can support
bone-in growth as well as bone-on growth. Whilst we continue to
innovate and develop new products for Spine, partly through our
investment in Bond 3D, usage of 3D printed titanium cages continues
to rise, largely in the US. PEEK remains strong in Asia and Europe.
Our premium and differentiated PEEK-OPTIMA(TM) HA Enhanced product
(POHAE) - to drive next generation Spine procedures - is one part
of our strategy to grow our Medical business, with annualised
revenues being approximately GBP2m and good opportunities globally,
and in Asia particularly.
Non-spine applications such as Cranio Maxilo Facial (CMF),
Arthroscopy & Sports Medicine and Drug Delivery devices
continue to perform well, as well as emerging or incremental
opportunities in Cardio, where PEEK is now used in applications
within an artificial heart. Last year, over 250,000 patients
benefited from PEEK being used in heart pumps, containing
implantable grade PEEK.
Other internal metrics:
In addition to the Alternative performance measures defined in
note 17 there are a number of other internal metrics, which are
used by the Board in evaluating performance, and are referenced in
this report, but do not meet the definition for an APM. The
measures are as follows:
- Sales from New Products as a percentage of Group sales is used
by the Board to measure the success of driving adoption of the new
product pipeline. It measures Group sales generated from
mega-programmes, new differentiated polymers and other pipeline
products that were not sold before FY 2015 as a percentage of total
Group sales.
- Sustainable revenues as a % of total revenues is calculated as
the % of revenue earned from sustainable products, which are
defined as those which offer a quantifiable environmental or
societal benefit. These are primarily in automotive and aerospace
(supporting CO2 reduction) but also in energy and industrial and
electronics (e.g. wind energy applications, or those which support
energy efficiency) and medical, supporting better patient
outcomes.
Consolidated Income Statement
Unaudited Unaudited Audited
Six months ended Six months Year ended
31 March 2023 ended 30 September
31 March 2022 2022
Note GBPm GBPm GBPm
---------------------------------------- ----------- ----------- --------------- --------------
Revenue 4 162.2 160.1 341.0
(Losses)/ gains on foreign
currency net hedging (6.2) 1.7 (2.8)
Cost of sales (69.3) (76.8) (163.7)
---------------------------------------- ----------- ----------- --------------- --------------
Gross profit 4 86.7 85.0 174.5
Sales, marketing and administrative
expenses (47.5) (41.0) (86.0)
---------------------------------------- ----------- ----------- --------------- --------------
Operating profit before
exceptional items 42.6 48.6 96.4
Exceptional items 5 (3.4) (4.6) (7.9)
---------------------------------------- ----------- ----------- --------------- --------------
Operating profit 39.2 44.0 88.5
Finance income 0.7 0.2 0.5
Finance costs (0.2) (0.1) (0.3)
Share of loss of associate (0.6) (0.5) (1.0)
Profit before tax and exceptional
items 42.5 48.2 95.6
Exceptional items 5 (3.4) (4.6) (7.9)
---------------------------------------- ----------- ----------- --------------- --------------
Profit before tax 39.1 43.6 87.7
Income tax expense 6 (5.8) (6.1) (12.2)
---------------------------------------- ----------- ----------- --------------- --------------
Profit for the period 33.3 37.5 75.5
Attributable to:
Owners of the Company 33.7 37.8 76.2
Non-controlling interests (0.4) (0.3) (0.7)
Earnings per share
Basic 7 38.8p 43.5p 87.6p
Diluted 7 38.5p 43.3p 87.3p
---------------------------------------- ----------- ----------- --------------- --------------
Dividends per ordinary share
Interim 13.42p 13.42p 13.42p
Final - - 46.14p
13.42p 13.42p 59.56p
------------------------------------------------- ------- ------------------- --------------
An interim dividend of 13.42p per share will be paid on 3 July
2023 to shareholders on the register at the close of business on 26
May 2023. This dividend will be recognised in the period in which
it is approved.
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022
2023 2022
GBPm GBPm GBPm
---------------------------------------------- ------------ ------------ --------------
Profit for the period/year 33.3 37.5 75.5
---------------------------------------------- ------------ ------------ --------------
Items that will not be reclassified
to profit or loss
Defined benefit pension schemes' actuarial
(losses)/gains (4.7) 3.8 0.2
Income tax on items that will not
be reclassified to the profit or loss 1.1 (0.9) (0.1)
---------------------------------------------- ------------ ------------ --------------
(3.6) 2.9 0.1
Items that may be subsequently reclassified
to profit or loss
Currency translation differences for
foreign operations (7.8) 1.4 11.1
Effective portion of changes in fair
value of cash flow hedges 9.4 2.5 (19.7)
Net change in fair value of cash flow
hedges
transferred to profit or loss 6.2 (1.7) 2.8
Income tax on items that may be reclassified
to the profit or loss (2.9) (0.2) 3.2
4.9 2.0 (2.6)
Total other comprehensive income/(expense)
for the period/year 1.3 4.9 (2.5)
---------------------------------------------- ------------ ------------ --------------
Total comprehensive income for the
period/year 34.6 42.4 73.0
Total comprehensive income for the
period/year attributable to:
Owners of the Company 35.0 42.7 73.7
Non-controlling interests (0.4) (0.3) (0.7)
---------------------------------------------- ------------ ------------ --------------
Consolidated Balance Sheet
Unaudited Unaudited Audited
31 March 31 March 30 September
2023 2022 2022
Note GBPm GBPm GBPm
-------------------------------------- ----- ----------- ----------- --------------
Assets
Non-current assets
Property, plant and equipment 348.5 323.4 347.2
Intangible assets 19.4 21.6 20.2
Investment in associated undertaking 8 9.8 10.9 10.4
Financial assets held at fair value
through profit and loss 9 11.3 8.8 10.1
Deferred tax assets 10.3 7.5 7.2
Retirement benefit asset 10.6 18.7 14.9
-------------------------------------- ----- ----------- ----------- --------------
409.9 390.9 410.0
-------------------------------------- ----- ----------- ----------- --------------
Current assets
Inventories 117.3 79.8 86.8
Current income tax assets 0.3 3.9 7.9
Trade and other receivables 65.8 64.7 68.1
Derivative financial instruments 11 1.4 3.0 -
Other financial assets 12 0.1 0.1 10.1
Cash and cash equivalents 38.3 45.7 58.7
223.2 197.2 231.6
-------------------------------------- ----- ----------- ----------- --------------
Total assets 633.1 588.1 641.6
-------------------------------------- ----- ----------- ----------- --------------
Liabilities
Non-current liabilities
Deferred tax liabilities (36.0) (34.4) (34.3)
Borrowings 10 (30.1) (15.3) (21.6)
Long-term lease liabilities (9.5) (7.3) (7.8)
Retirement benefit obligation (2.6) (2.9) (2.7)
(78.2) (59.9) (66.4)
-------------------------------------- ----- ----------- ----------- --------------
Current liabilities
Derivative financial instruments 11 (4.0) (2.4) (19.9)
Borrowings 10 (2.8) (0.3) (0.9)
Current income tax liabilities (6.8) (2.0) (2.3)
Trade and other payables (51.1) (51.2) (59.7)
Current lease liabilities (1.6) (1.7) (1.8)
(66.3) (57.6) (84.6)
-------------------------------------- ----- ----------- ----------- --------------
Total liabilities (144.5) (117.5) (151.0)
-------------------------------------- ----- ----------- ----------- --------------
Net assets 488.6 470.6 490.6
-------------------------------------- ----- ----------- ----------- --------------
Equity
Share capital 0.9 0.9 0.9
Share premium 61.8 61.2 61.5
Translation reserve 5.0 3.1 12.8
Hedging reserve (0.9) 0.7 (13.6)
Retained earnings 419.5 402.5 427.2
-------------------------------------- ----- ----------- ----------- --------------
Equity attributable to owners of
the Company 486.3 468.4 488.8
Non-controlling interest 13 2.3 2.2 1.8
-------------------------------------- ----- ----------- ----------- --------------
Total equity 488.6 470.6 490.6
--------------------------------------------- ----------- ----------- --------------
Consolidated Cash Flow Statement
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023
Note GBPm GBPm GBPm
-------------------------------------- ----- ------------ --------------- --------------
Cash flows from operating
activities
Cash generated from operations 15 17.1 37.3 90.7
Interest received 0.6 0.1 0.3
Interest paid - - (0.4)
Net income tax received/ (paid) 3.9 (5.6) (10.6)
-------------------------------------- ----- ------------ --------------- --------------
Net cash flow from operating
activities 21.6 31.8 80.0
-------------------------------------- ----- ------------ --------------- --------------
Cash flows from investing
activities
Acquisition of property, plant
and equipment and intangible
assets (22.2) (26.7) (45.5)
Proceeds from disposal of financial
asset held at fair value through
profit and loss - 4.5 4.2
Withdrawal of cash invested
for greater than three months 10.0 37.4 27.4
Cash received from non-controlling 0.9 - -
interest
Loan to associated undertaking 8 (1.1) (1.4) (2.3)
Net cash flow from investing
activities (12.4) 13.8 (16.2)
-------------------------------------- ----- ------------ --------------- --------------
Cash flows from financing
activities
Proceeds from issue of ordinary shares
exercised under option 0.3 0.1 0.4
Bank borrowings received 10 11.5 9.3 14.5
Bank borrowings repaid 10 (0.7) - -
Interest paid on bank borrowings (0.4) - -
Loan received from non-controlling 1.7 - -
interest
Repayment of lease liabilities (1.0) (1.1) (2.1)
Dividends paid (40.1) (83.5) (95.2)
-------------------------------------- ----- ------------ --------------- --------------
Net cash flow from financing
activities (28.7) (75.2) (82.4)
-------------------------------------- ----- ------------ --------------- --------------
Net decrease in cash and cash equivalents (19.5) (29.6) (18.6)
Effect of exchange rate fluctuations
on cash held (0.9) 0.4 2.4
Cash and cash equivalents at
beginning of period/year 58.7 74.9 74.9
-------------------------------------- ----- ------------ --------------- --------------
Cash and cash equivalents
at end of period/year 38.3 45.7 58.7
-------------------------------------- ----- ------------ --------------- --------------
Consolidated Statement of Changes in Equity
Share Share Translation Hedging Retained Total Non-controlling
capital premium reserve reserve earnings attributable interest Total
to owners
of parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Equity at 1 October
2022 (audited) 0.9 61.5 12.8 (13.6) 427.2 488.8 1.8 490.6
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Total comprehensive
income for the
period
Profit for the
period
attributable to the
parent - - - - 33.7 33.7 - 33.7
Loss for the period
attributable to
non-controlling
interest - - - - - - (0.4) (0.4)
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Other comprehensive
(expense)/income
Currency translation
differences for
foreign
operations - - (7.8) - - (7.8) - (7.8)
Effective portion of
changes in fair
value
of cash flow hedges - - - 9.4 - 9.4 - 9.4
Net change in fair
value
of cash flow hedges
transferred to
profit
or loss - - - 6.2 - 6.2 - 6.2
Defined benefit
pension
schemes' actuarial
losses - - - - (4.7) (4.7) - (4.7)
Tax on other
comprehensive
(expense)/income - - - (2.9) 1.2 (1.7) - (1.7)
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Total other
comprehensive
(expense)/income
for
the period - - (7.8) 12.7 (3.5) 1.4 - 1.4
Total comprehensive
(expense)/income
for
the period - - (7.8) 12.7 30.2 35.1 (0.4) 34.7
Contributions by and
distributions to
owners
of the Company
Adjustment arising
from
additional
investment
by non-controlling
interest - - - - - - 0.9 0.9
Share options
exercised - 0.3 - - - 0.3 - 0.3
Equity-settled
share-based
payment
transactions - - - - 2.2 2.2 - 2.2
Dividends to
shareholders - - - - (40.1) (40.1) - (40.1)
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Equity at 31 March
2023 (unaudited) 0.9 61.8 5.0 (0.9) 419.5 486.3 2.3 488.6
--------------------- -------- -------- ------------ -------- --------- ------------- ---------------- -------
Share Share Translation Hedging Retained Total Non-controlling
capital premium reserve reserve earnings attributable interest Total
to owners
of parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Equity at 1
October
2021 (audited) 0.9 61.1 1.7 0.1 445.4 509.2 2.5 511.7
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Total
comprehensive
income for the
period
Profit for the
period
attributable to
the
parent - - - - 37.8 37.8 - 37.8
Loss for the
period
attributable to
non-controlling
interest - - - - - - (0.3) (0.3)
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Other
comprehensive
income/(expense)
Currency
translation
differences for
foreign
operations - - 1.4 - - 1.4 - 1.4
Effective portion
of
changes in fair
value
of cash flow
hedges - - - 2.5 - 2.5 - 2.5
Net change in
fair
value of cash
flow
hedges
transferred
to profit or
loss - - - (1.7) - (1.7) - (1.7)
Defined benefit
pension
schemes'
actuarial
gains - - - - 3.8 3.8 - 3.8
Tax on other
comprehensive
income/
(expense) - - - (0.2) (0.9) (1.1) - (1.1)
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Total other
comprehensive
income for the
period - - 1.4 0.6 2.9 4.9 - 4.9
Total
comprehensive
income/(expense)
for
the period - - 1.4 0.6 40.7 42.7 (0.3) 42.4
Contributions by
and
distributions to
owners
of the Company
Share options
exercised - 0.1 - - - 0.1 - 0.1
Equity-settled
share-based
payment
transactions - - - - 0.8 0.8 - 0.8
Tax on
equity-settled
share-based
payments
transactions - - - - (0.9) (0.9) - (0.9)
Dividends to
shareholders - - - - (83.5) (83.5) - (83.5)
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Equity at 31
March
2022 (unaudited) 0.9 61.2 3.1 0.7 402.5 468.4 2.2 470.6
------------------ -------- -------- ------------ -------- --------- ----------------- ---------------- -------
Share Share Translation Hedging Retained Total Non-controlling
capital premium reserve reserve earnings attributable interest Total
to owners
of parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Equity at 1
October
2021 (audited) 0.9 61.1 1.7 0.1 445.4 509.2 2.5 511.7
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Total
comprehensive
income for the
year
Profit for the
year
attributable to
the
parent - - - - 76.2 76.2 - 76.2
Loss for the year
attributable
to
non-controlling
interest - - - - - - (0.7) (0.7)
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Other
comprehensive
income/(expense)
Currency
translation
differences for
foreign
operations - - 11.1 - - 11.1 - 11.1
Effective portion
of
changes in fair
value
of cash flow
hedges - - - (19.7) - (19.7) - (19.7)
Net change in
fair value
of cash flow
hedges
transferred to
profit
or loss - - - 2.8 - 2.8 - 2.8
Defined benefit
pension
schemes'
actuarial gains - - - - 0.2 0.2 - 0.2
Tax on other
comprehensive
income/(expense) - - - 3.2 (0.1) 3.1 - 3.1
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Total other
comprehensive
income/(expense)
for
the year - - 11.1 (13.7) 0.1 (2.5) - (2.5)
Total
comprehensive
income/(expense)
for
the year - - 11.1 (13.7) 76.3 73.7 (0.7) 73.0
Contributions by
and
distributions to
owners
of the Company
Share options
exercised - 0.4 - - - 0.4 - 0.4
Equity-settled
share-based
payment
transactions - - - - 1.8 1.8 - 1.8
Tax on
equity-settled
share-based
payment
transactions - - - - (1.1) (1.1) - (1.1)
Dividends to
shareholders - - - - (95.2) (95.2) - (95.2)
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Equity at 30
September
2022 (audited) 0.9 61.5 12.8 (13.6) 427.2 488.8 1.8 490.6
------------------ -------- --------- ------------ --------- --------- ------------- ---------------- --------
Notes to the Financial Report
1. Reporting entity
Victrex plc (the 'Company') is a public company, which is
limited by shares and is listed on the London Stock Exchange. This
Company is incorporated and domiciled in the United Kingdom. The
address of its registered office is Victrex Technology Centre,
Hillhouse International, Thornton Cleveleys, Lancashire FY5 4QD,
United Kingdom.
This Half-yearly Financial Report is an interim management
report as required by DTR 4.2.3 of the Disclosure and Transparency
Rules of the UK Financial Conduct Authority.
These condensed consolidated interim financial statements as at
and for the six months ended 31 March 2023 comprise those of the
Company and its subsidiaries (together referred to as the
'Group').
The comparative figures for the financial year ended 30
September 2022 are extracted from the Group's statutory financial
statements for that year. Those financial statements have been
reported on by the Group's auditor, filed with the Registrar of
Companies and are available on request from the Group's Registered
Office or to download from www.victrexplc.com . The auditor's
report on those financial statements was unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
did not contain any statement under sections 498 (2) or (3) of the
Companies Act 2006.
These condensed consolidated interim financial statements are
unaudited.
This Half-yearly Financial Report was approved for issue by the
Board of Directors on 9 May 2023.
2. Basis of preparation
This condensed consolidated interim financial report for the
half-year reporting period ended 31 March 2023 has been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and in accordance
with the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report is to be read in conjunction with Group's 2022 Annual Report
and Financial Statements , which has been prepared in accordance
with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
UK-adopted International Accounting Standards, and any public
announcements made by Victrex Plc during the interim reporting
period.
Climate change
The Group's assessment of the impact of climate change was
detailed on page 146 of the Group's 2022 Annual Report and
Financial Statements, a copy of which is available on the Group's
website www.victrexplc.com . This review was made in line with the
requirements of the Task Force on Climate Related Financial
Disclosures (TCFD) and with specific consideration of the
disclosures made in the Sustainability report in the Annual Report.
This specifically incorporated the impact of the physical risks of
climate change, transitional risks including the potential impact
of government and regulatory actions as well as the Group's stated
Net Zero 2030 (Scope 1 & 2 emissions) target. From the work
undertaken at that time, the Directors concluded that there had
been no material impact on the financial statements for the year
ending 30 September 2022 from the potential impact of climate
change. Whilst the Group's analysis on the impact of climate change
continues to evolve, the Directors are not aware of any changes in
circumstance or situation, particularly in the areas reviewed, that
would change the outcome of this assessment at this time, and
therefore the same conclusion continues to be appropriate for the
period ending 31 March 2023.
Risks and uncertainties
The principal risks and uncertainties which could impact the
Group's long-term performance remain those detailed on pages 36 to
40 of the Group's 2022 Annual Report and Financial Statements, a
copy of which is available on the Group's website
www.victrexplc.com . The risks outlined remain valid as regards
their potential to impact the Group during the first half of the
current financial year. The Group has a comprehensive system of
risk management installed within all parts of its business to
mitigate these risks as far as is possible.
Use of Judgements and estimation uncertainty
In preparing these condensed consolidated interim financial
statements, the critical and other areas of judgements and key
sources of estimation uncertainty made by management in applying
the Group's accounting policies were the same as those that applied
to the consolidated financial statements for the Group's 2022
Annual Report and Financial Statements, detailed on page 148,
except for the carrying value of the investment in associate and
the fair value of convertible loans, both relating to the Group's
interest in Bond 3D High Performance Technology BV . These two
areas were considered "other areas of judgement and sources of
estimation uncertainty" in the preparation of the Group's 2022
Annual Report and Financial Statements and have been reclassified
as areas of "critical judgement and key source of estimation
uncertainty" in line with IAS 1. Further details on the ongoing
investments in Bond are included in note 8.
Going Concern
The Directors have performed a robust going concern assessment
including a detailed review of the business' 24-month rolling
forecast and consideration of the principal risks faced by the
Group and the Company, as detailed in the Annual Report for the
year ended 30 September 2022. This assessment has paid particular
attention to the impact of the current global economic challenges
on the aforementioned forecasts.
The company maintains a strong balance sheet providing assurance
to key stakeholders, including customers, suppliers and employees.
The combined cash and other financial assets balance at 31 March
2023 was GBP38.4m, having reduced from GBP68.8m at 30 September
2022 following payment of the regular dividend of GBP40.1m in
February 2023. Of the GBP38.4m, GBP4.0m is held in the Group's
subsidiaries in China for the sole purpose of funding the
construction of our new manufacturing facilities. Of the remaining
GBP34.4m, approximately 71% is held in the UK where the company
incurs the majority of its expenditure. All fund are held on
instant access. The Group has drawn debt of GBP24.7m in its Chinese
subsidiaries (with a total facility of c.GBP45m available until
December 2026) and has unutilised UK banking facilities of GBP40m
through to October 2024, of which GBP20m is committed and
immediately available and GBP20m is available subject to lender
approval.
The 24-month forecast is derived from the company's Integrated
Business Planning ("IBP") process which runs monthly. Each area of
the business provides revised forecasts which consider a number of
external data sources, triangulating with customer conversations,
trends in market and country indices as well forward-looking
industry forecasts. For example, forecast aircraft build rates from
the two major manufacturers for Aerospace and World Semiconductor
Trade Statistics semiconductor market forecasts for Electronics
through to 2024 and Needham and IQVIA forecasts for Medical
procedures.
The assessment of going concern included conducting scenario
analysis on the aforementioned forecast which, given current
economic forecasts and sales trends through the first half of the
financial year ended 30 September 2023, focused on the Group's
ability to sustain a period of falling demand. In assessing the
severity of the scenario analysis the scale of the impact
experienced during previous economic downturns has been used,
including the differing impacts on Industrial versus Medical
segments.
Using the IBP data and reference points from previous downturns
management has created two scenarios to model the effect of
reductions to revenue at regional/market level and aggregated
levels on the company's profits and cash generation through to June
2024. The impact of climate change and the Group's Net Zero 2030
goal for its own operations (Scope 1 & 2 emissions) has been
considered as part of this assessment. Any impact on revenue over
the shorter going concern period, either positive or negative, is
likely to be insignificant, with the greater risk being that of
higher carbon taxes. Whilst the gas and electricity prices have
eased since the peaks seen in the second half of 2022, prices
remain significantly above historic comparatives. The current
elevated price of gas and electricity included in the 24-month
forecast, reflecting current supply side uncertainty, and the
government focus on limiting the impact of the current economic
slowdown means that additional carbon taxes over the going concern
period and considered unlikely and therefore no additional costs
have been included in either the base forecast or the scenarios
noted below.
Scenario 1 - the global economy contracts with sales volumes
reducing by 30% from the level seen prior to the commencement of
falling demand, considered to be c.4,700 tonnes, to approximately
280 tonnes per month, from May 2023 for a period of 6 months taking
the period of lower demand to approximately 12 months before a
partial recovery to c.350 tonnes per month for the remainder of the
going concern period. Medical revenue remains unchanged from the
past 12 months run rate, with the economic situation historically
having minimal impact on this segment.
Scenario 2 - in line with scenario 1, c.280 tonnes per month
from May 2023, however, the lower demand continues for a further 12
months, i.e. throughout the going concern period, taking the total
period of lower demand to approximately 18 months, a period of
contraction in excess of that seen during the financial crisis
which impacted across 2008 and 2009 (and lasted approximately 12
months) This would give an annual volume of c.3,400 tonnes, a level
not seen since 2015. In this scenario Medical revenue is reduced by
10% during the second six months to reflect a limited impact from a
longer lasting slowdown. The group considers scenario 2 to be a
severe but plausible scenario.
Before any mitigating actions the sensitised cash flows show the
company has significantly reduced cash headroom. Under scenario 2
there is minimal cash generation through the going concern period
and there is potential that the committed facility would be
required to manage intra-month cash flows. However, the company has
a number of mitigating actions which are readily available in order
to generate significant headroom. These include:
-- Use of committed facility - GBP20m could be drawn at short
notice. Conversations with our banking partner indicating that the
GBP20m uncommitted accordion could also be readily accessed. The
covenants of the facility have been successfully tested under each
of the scenarios;
-- Deferral of capital expenditure - the base case capital
investment over the next 12 months is approximately GBP50m as major
projects are completed in China and the UK. This could be reduced
significantly by limiting expenditure to essential projects,
deferring all other projects later into 2024, with the exception of
completing the manufacturing facilities in China which will
continue as planned;
-- Reduction in discretionary overheads - costs would be limited
to prioritise and support customer related activity;
-- Reduction in inventory levels - inventory has been increased
to provide additional security whilst global supply chains remain
stretched and to manage the business risk through the planned
maintenance outages over the next 12 months. The inventory level
could be reduced to provide additional cash resources; and
-- Deferral/cancellation of dividends - the dividends payable in
February 2024 could be deferred or cancelled. The company's
intention is to continue payment of dividends where cash reserves
facilitate but it remains a key lever in downside scenario
mitigation.
Reverse stress testing was performed to identify the level that
sales would need to drop by in order for the Group to run out of
cash by the end of the going concern assessment period. Sales
volumes would need to consistently drop materially below the low
point in scenario 2 which is not considered plausible.
As a result of this detailed assessment and with reference to
the company's strong balance sheet, existing committed facilities
and the cash preserving levers at the company's disposal, but also
acknowledging the current economic uncertainty with a number of
global economies close to/in recession and the war in Ukraine
continuing, the Board has concluded that the company has sufficient
liquidity to meet its obligations when they fall due for a period
of at least 12 months after date of this report. For this reason,
they continue to adopt the going concern basis for preparing the
financial statements.
3. Significant accounting policies
The accounting policies applied by the Group in these condensed
financial statements are the same as those applied in the Group's
2022 Annual Report and Financial Statements except for the
application of relevant new standards. None of the new standards
have had a material impact on the Group's consolidated result or
financial position.
4. Segment reporting
The Group's business is strategically organised as two business
units: Industrial, which focuses on our Energy & Industrial,
VAR, Transport and Electronics markets; and Medical, which focuses
on providing specialist solutions for medical device
manufacturers.
Unaudited Unaudited Audited
Six months ended Six months ended Year ended 30 September
31 March 2023 31 March 2022 2022
----------------------------- ----------------------------- -----------------------------
Industrial Medical Group Industrial Medical Group Industrial Medical Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----------- -------- ------ ----------- -------- ------ ----------- -------- ------
Segment revenue 135.0 32.5 167.5 133.2 27.8 161.0 285.8 58.3 344.1
Internal revenue (5.3) - (5.3) (0.9) - (0.9) (3.1) - (3.1)
------------------ ----------- -------- ------ ----------- -------- ------ ----------- -------- ------
Revenue from
external sales 129.7 32.5 162.2 132.3 27.8 160.1 282.7 58.3 341.0
------------------ ----------- -------- ------ ----------- -------- ------ ----------- -------- ------
Segment gross
profit 61.4 25.3 86.7 60.9 24.1 85.0 124.8 49.7 174.5
------------------ ----------- -------- ------ ----------- -------- ------ ----------- -------- ------
5. Exceptional items
Items that are, in aggregate, material in size and/or unusual or
infrequent in nature, are included within operating profit and
disclosed separately as exceptional items in the Consolidated
Income Statement.
The separate reporting of exceptional items, which are presented
as exceptional within the relevant category in the Consolidated
Income Statement, helps provide an indication of the underlying
performance of the Group.
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
-------------------------------- --------------- --------------- --------------
Included within sales, marketing
and administrative expenses
Implementation of SaaS ERP system 3.4 4.6 7.9
Exceptional items before tax 3.4 4.6 7.9
---------------------------------------- ------- --------------- --------------
Tax on exceptional items (0.7) (0.9) (1.5)
---------------------------------------- ------- --------------- --------------
Exceptional items after tax 2.7 3.7 6.4
---------------------------------------- ------- --------------- --------------
Implementation of SaaS ERP system
During FY 2022 the Group commenced a multi-year implementation
of a new cloud-based ERP system. The Group forecasts to spend up to
GBP20m on the implementation, including process redesign,
customisation and configuration of the system, change management
and training, which will deliver benefits to both customer
interactions and internal business processes.
The new ERP system does not meet the criteria for capitalisation
(as the majority of costs relating to past systems have), in line
with the IFRS Interpretations Committee's decision clarifying how
arrangements in respect of cloud based software as a service (SaaS)
systems should be accounted for. Accordingly, the cost is expensed
rather than capitalised and amortised. Given the size of the
project and its impact on the reported profit-based metrics, the
fact the system is evergreen and thus this level and nature of cost
will not happen again, it meets the Group's criteria to be
presented as exceptional. The ERP system is expected to be
completed in 2024.
The cash outflow in the period associated with exceptional items
was GBP2.7m (H1 2022: GBP2.5m outflow; FY 2022: GBP5.6m
outflow).
6. Income tax expense
Taxation of profit before tax in respect of the six months ended
31 March 2023 has been provided at the estimated effective rates
chargeable for the full year in the respective jurisdiction.
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
------------------------------------ ------------ --------------- --------------
UK corporation tax 4.8 3.2 9.0
Overseas tax 1.4 0.8 2.4
Deferred tax excluding rate change (0.4) 1.5 1.7
Deferred tax rate change - 0.6 (0.9)
Total tax expense in income
statement 5.8 6.1 12.2
------------------------------------ ------------ --------------- --------------
Effective tax rate 14.9% 14.0% 13.9%
------------------------------------ ------------ --------------- --------------
Deferred tax assets/liabilities have been recognised at the rate
they are expected to reverse. For UK assets/liabilities this is 25%
for the majority of assets and liabilities (31 March 2022: 25%; 30
September 2022: 25%), being the UK tax rate effective from 1 April
2023. For overseas assets/liabilities the corresponding overseas
tax rate has been applied.
7. Earnings per share
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023
----------------------------------------- ------------ --------------- --------------
Earnings
per share - basic 38.8p 43.5p 87.6p
- diluted 38.5p 43.3p 87.3p
-------------------------- ------------ --------------- --------------
Profit for the financial period
attributable to the owners of
the Company (GBPm) 33.7 37.8 76.2
----------------------------------------- ------------ --------------- --------------
Weighted average number
of shares - basic 86,929,783 86,889,310 86,897,353
- diluted 87,619,038 87,308,262 87,239,312
---------------------------- ----------- ------------ --------------- --------------
8. Investment in associated undertakings
Bond 3D High Performance Technology BV ("Bond")
Bond is a company incorporated in the Netherlands, developing
unique, protectable 3D printing (additive manufacturing) processes
which are capable of producing high strength parts from existing
grades of PEEK and PAEK polymers. The investment offers the
potential of utilising this technology to help accelerate the
market adoption of 3D printed PEEK parts, with particular emphasis
on the Medical market.
The Group's investment in the ordinary share capital of Bond at
31 March 2023 is EUR14.7m/GBP12.9m (24.5%) at cost (30 September
2022: same), with a carrying value of GBP9.8m (30 September 2022:
GBP10.4m) which includes the impact of the Group's share of losses
since investment. As the Group is considered to have significant
influence in Bond, the investment continues to be accounted for as
an associate using the equity method. The Group's share of the loss
of Bond in HY 2023 is GBP0.6m (H1 2022 loss of GBP0.5m; FY 2022
loss of GBP1.0m).
In addition to the Associate Investment in Bond the Group holds
convertible loans which are classified as financial assets held at
fair value through profit and loss (see note 9). In line with the
agreed programme of further investments into Bond by Victrex and
another investor, LaLune, Bond issued further convertible loans of
EUR2.0m in the six months ended 31 March 2023, of which EUR1.2m
/GBP1.1m was issued to Victrex. The loans are convertible into
ordinary shares of the entity, at the Group's option, or are to be
repaid by Bond on or before the end of the five year agreed term.
The convertible loans carry preferential treatment on an exit of
the business with repayment before equity investors receive a
return.
The convertible loan balance is EUR8.8m /GBP7.8m at 31 March
2023 of which EUR2.0m /GBP1.8m is interest free, EUR0.3m /GBP0.2m
is accruing interest at 3%, and the remainder is accruing interest
at a rate of 6% per annum.
During April 2023, after the period end, the final EUR1.0m of
convertible loans were issued under the existing convertible loan
agreement of, of which EUR0.6m was issued to Victrex.
The Bond strategic plans shows that further investment is
required to support development and early stage sales through to
achieving net cash generation. In the current economic environment
and recent tightening of finance for early stage businesses
following the disruption in the US banking sector the Directors of
Bond do not consider it an optimal time to raise new external
finance which reflects the value of the business. As a result the
Directors of Bond have sought further funding from existing
shareholders, a request which has been accepted by Victrex and one
other investor, LaLune, who between them will provide a further
EUR5.0m (Victrex's share being EUR3.1m), contingent on delivery of
key milestones over the next 12 months. This additional funding is
forecast to provide sufficient resource to sustain Bond for the
next 12 months at which point further funding will be required. It
is anticipated that the delivery of the aforementioned milestones
and an improved fund-raising environment during 2024 will improve
the probably of attracting the new external finance required.
The Directors are satisfied that there is no objective evidence
of impairment of the net investment in associate at this time,
having considered the loss events detailed in IAS 28 Investments in
Associates and Joint Ventures, and that the criteria to use cost
(the initial fair value) as the best estimate for fair value of the
convertible loan notes, given the wide range of possible outcomes,
a range in which the cost represents the best estimate within the
range, continue to be met. However, it is recognised that there is
an increase in the risk of a material change to the carrying values
of both the investment in associate and convertible loans in the
next 12 months given the need to raise further funds to see the
company through to cash generation which in turn is contingent on
delivery of key milestones and an improvement in the availability
of external investors. As such the carrying value of the investment
in associate and the fair value of convertible loans have been
reclassified as critical judgements and key sources of estimation
uncertainty (see note 1).
9. Financial assets held at fair value through profit and
loss
At 31 March 2023, financial assets held at fair value through
profit and loss relate to:
- Investment in Surface Generation Limited at GBP3.5m (H1 2022: GBP3.5m; FY 2022: GBP3.5m)
- Convertible loans in Bond at GBP7.8m (H1 2022: GBP5.3m; FY
2022: GBP6.6m). See also note 8 above.
10. Borrowings
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
--------------------------------- ------------ --------------- --------------
Due within one year
Bank loans 2.8 0.3 0.9
Total due within one year 2.8 0.3 0.9
--------------------------------- ------------ --------------- --------------
Due after one year
Bank loans 21.9 9.1 14.8
Loan payable to Non-controlling
interest 8.2 6.2 6.8
--------------------------------- ------------ --------------- --------------
Total due after one year 30.1 15.3 21.6
--------------------------------- ------------ --------------- --------------
Bank loans
RMB 12 million (GBP1.4m) of the amount due within one year
relates to the working capital facility in China, which comprises
RMB 50 million of the Group's total facility of RMB 300 million
facility. The drawdowns under the working capital facility are
required to be repaid at least annually from the point of each
drawdown, after which the balance can be redrawn. Interest is
charged at the one-year Loan Prime Rate of People's Republic of
China +50bps and is charged to the income statement, included
within Finance costs. The remaining RMB 199 million / GBP24.6m is
repayable in line with an agreed schedule up to December 2026.
Interest is charged at the five-year Loan Prime Rate of People's
Republic of China, which has been 4.3% in the six months ended 31
March 2023. The purpose of the loan is funding the construction of
a manufacturing facility in China, with the interest payable
capitalised as part of qualifying capital expenditure within
Property, Plant and Equipment. During the period, interest of
GBP0.4m has been capitalised accordingly.
Loan payable to Non-controlling interest
During the period, in line with the shareholder loan agreement,
a loan of RMB 15 million (GBP1.7m) was received from the
Non-controlling interest in Panjin VYX High Performance Materials
Co. Ltd, Yingkou Xingfu Chemical Co. Ltd ('YX'). This is the second
instalment, with the first instalment of RMB 50 million (GBP5.6m)
being received in FY 2021. Both instalments are unsecured,
denominated in Chinese Renminbi, and had a combined sterling value
of GBP8.2m at 31 March 2023. The first instalment is repayable on
30 September 2026, with the second instalment repayable on 30
September 2027, or such date as may be mutually agreed by YX and
Victrex Hong Kong Limited. Interest is charged at 4% per annum.
Interest payable on the loan payable is rolled up into the value of
the loan, until repayment occurs. The purpose of the loan is
funding the construction of a manufacturing facility in China, with
the interest payable capitalised as part of qualifying capital
expenditure within Property, Plant and Equipment. During the
period, interest of GBP0.1m has been capitalised accordingly.
11. Derivative financial instruments
The notional contract amount, carrying amount and fair value of
the Group's forward exchange contracts are as follows:
Unaudited Unaudited Audited
As at 31 March As at 31 March As at 30 September
2023 2022 2022
--------------------- --------------------- --------------------- ----------------------
Notional Carrying Notional Carrying Notional Carrying
contract amount contract amount contract amount
amount and amount and amount and fair
fair fair value
value value
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---------- --------- ---------- --------- ---------- ----------
Current assets 66.8 1.4 106.2 3.0 - -
Current liabilities 119.3 (4.0) 80.6 (2.4) 197.5 (19.9)
---------------------- ---------- --------- ---------- --------- ---------- ----------
186.1 (2.6) 186.8 0.6 197.5 (19.9)
--------------------- ---------- --------- ---------- --------- ---------- ----------
The fair values have been calculated by applying (where
relevant), for equivalent maturity profiles, the rate at which
forward currency contracts with the same principal amounts could be
acquired on the balance sheet date. These are categorised as Level
2 within the fair value hierarchy. Fair value losses on foreign
currency contracts of GBP6.2m has been recognised in the period (H1
2022 - gains of GBP1.7m; FY 2022 - losses of GBP2.8m).
12. Other financial assets
At 31 March 2023 the Group had GBP0.1m of cash which was held in
deposit accounts greater than three months in duration (31 March
2022: GBP0.1m; 30 September 2022: GBP10.1m). This is included in
the Available Cash metric (see Alternative performance measures in
note 17).
13. Non-controlling interest
The non-controlling interest recognised relates to the Group's
subsidiary company, Panjin VYX High Performance Materials Co. Ltd
('PVYX'), where the Group continues to hold a 75% equity interest
with the remaining 25% held by Yingkou Xingfu Chemical Co. Ltd
('YX'). PVYX is a limited liability company set up for the purpose
of the manufacture of PAEK polymer powder and granules, based in
mainland China. The income statement and balance sheet of PVYX are
fully consolidated with the share owned by YX represented by a
non-controlling interest.
During the six months ended 31 March 2023 YX made further cash
injections in to PVYX, totalling RMB 22.5 million / GBP2.6m, split
RMB 15 million / GBP1.7m in the form of loans (see note 10) and
further equity investment of RMB 7.5 million / GBP0.9m.
In the six months to 31 March 2023 the subsidiary incurred a
loss of GBP1.6m (H1 2022: loss of GBP1.2m; FY 2022: loss of
GBP2.9m), of which GBP0.4m (H1 2022: GBP0.3m; FY 2022: GBP0.7m) is
attributable to the non-controlling interest. Total non-controlling
interest as at 31 March 2023 is GBP2.3m (H1 2022: GBP2.2m; FY 2022:
GBP1.8m).
14. Exchange rates
The most significant Sterling exchange rates used in the
financial statements under the Group's accounting policies are:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
31 March 2023 31 March 2022 30 September 2022
-------------------- -------------------- ---------------------
Average Closing Average Closing Average Closing
spot
-------------------- ------------ ---------- --------- --------- ---------- ---------
US Dollar 1.16 1.24 1.36 1.33 1.30 1.10
Euro 1.14 1.13 1.19 1.20 1.16 1.13
-------------------- ------------ ---------- --------- --------- ---------- ---------
The average exchange rates in the above table are the weighted
average spot rates applied to foreign currency transactions,
excluding the impact of foreign currency contracts. Gains and
losses on foreign currency contracts, to the point where
transferred to profit or loss, where net hedging has been applied
for cash flow hedges, are separately disclosed in the income
statement.
15. Reconciliation of profit to cash generated from operations
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022
2023 2022 GBPm
GBPm GBPm
-------------------------------------- ------------ ------------ --------------
Profit after tax for the period/year 33.3 37.5 75.5
Income tax expense 5.8 6.1 12.2
Share of post-tax loss of associate 0.6 0.5 1.0
Net finance income (0.6) (0.2) (0.4)
Interest on lease liabilities 0.1 0.1 0.2
Operating profit 39.2 44.0 88.5
Adjustments for:
Depreciation 9.7 9.6 19.0
Amortisation 0.8 1.4 2.6
Loss on disposal of non-current
assets - 2.1 2.4
Equity-settled share-based payment
transactions 2.2 0.8 1.8
(Gains)/losses on derivatives
recognised in income statement
that have not yet settled (1.7) 1.2 4.0
Gain on financial asset held
at fair value - - (0.3)
Increase in inventories (32.6) (9.7) (13.4)
Decrease/(Increase) in trade
and other receivables 0.5 (14.7) (16.9)
(Decrease)/increase in trade
and other payables (0.6) 2.5 2.8
Retirement benefit obligations
charge less contributions (0.4) 0.1 0.2
-------------------------------------- ------------ ------------ --------------
Cash generated from operations 17.1 37.3 90.7
-------------------------------------- ------------ ------------ --------------
16. Related party transaction
Identity of related parties
The Group's related parties are as disclosed in the Group's 2022
Annual Report and Financial Statements . There were no changes in
the related parties in the six months ended 31 March 2023.
Bond, in which the Group has a 24.5% shareholding (H1 2022:
24.5%; FY 2022: 24.5%) is an associated company. The transactions
with Bond in the six months ending 31 March 2023 are outlined in
note 8, which includes additional tranches of convertible loans,
and the share of loss recognised.
Transactions with key management personnel
On 12 December 2022 under the 2019 Long Term Incentive Plan
('LTIP'), 69,135, 33,075 and 31,127 share option awards were
granted to J O Sigurdsson, I C Melling and M L Court respectively
at an option price of nil p per share when the market price was
GBP15.92p per share. Furthermore, on the 12 December 2022 under the
Victrex 2017 Deferred Bonus Plan ("Deferred Bonus Plan") 17,904,
1,957 and 8,024 share options were granted to granted to J O
Sigurdsson, I C Melling and M L Court respectively at an option
price of nil p per share when the market price was GBP15.92p per
share.
17. Alternative performance measures
We use alternative performance measures (APMs) to assist in
presenting information in an easily comparable, analysable and
comprehensible form. The measures presented in this report are used
by the Board in evaluating performance. However, this additional
information presented is not required by IFRS or uniformly defined
by all companies. Certain measures are derived from amounts
calculated in accordance with IFRS but are not in isolation an
expressly permitted GAAP measure. The measures are as follows:
- Operating profit before exceptional items (referred to as
underlying operating profit) is based on operating before the
impact of exceptional items. This metric is used by the Board to
assess the underlying performance of the business excluding items
that are, in aggregate, material in size and / or unusual or
infrequent in nature. Exceptional items for H1 2023 are GBP3.4m,
details are disclosed in note 5;
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
----------------------------- ------------ --------------- --------------
Operating profit 39.2 44.0 88.5
Exceptional items 3.4 4.6 7.9
Underlying operating profit 42.6 48.6 96.4
----------------------------- ------------ --------------- --------------
- Profit before tax and exceptional items (referred to as
underlying profit before tax) is based on Profit before tax before
the impact of exceptional items. This metric is used by the Board
to assess the underlying performance of the business excluding
items that are, in aggregate, material in size and / or unusual or
infrequent in nature;
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
------------------------------ ------------ --------------- --------------
Profit before tax 39.1 43.6 87.7
Exceptional items 3.4 4.6 7.9
Underlying profit before tax 42.5 48.2 95.6
------------------------------ ------------ --------------- --------------
- Constant currency metrics are used by the Board to assess the
year on year underlying performance of the business excluding the
impact of foreign currency rates, which can by nature be volatile.
Constant currency metrics are reached by applying current year (H1
2023) weighted average spot rates to prior year (HY 2022)
transactions;
Unaudited Unaudited % change
Six months Six months
ended ended
31 March 31 March 2022
2023 GBPm
Group GBPm
------------------------------ ------------ --------------- ---------
At reported currency 162.2 160.1 1%
Impact of FX translation - 11.3
Revenue at constant currency 162.2 171.4 -5%
------------------------------ ------------ --------------- ---------
Unaudited Unaudited % change
Six months Six months
ended ended
Industrial 31 March 31 March 2022
2023 GBPm
GBPm
------------------------------ ------------ --------------- ---------
At reported currency 129.7 132.3 -2%
Impact of FX translation - 8.5
------------------------------ ------------ --------------- ---------
Revenue at constant currency 129.7 140.8 -8%
------------------------------ ------------ --------------- ---------
Unaudited Unaudited % change
Six months Six months
ended ended
Medical 31 March 31 March 2022
2023 GBPm
GBPm
------------------------------ ------------ --------------- ---------
At reported currency 32.5 27.8 17%
Impact of FX translation - 2.8
------------------------------ ------------ --------------- ---------
Revenue at constant currency 32.5 30.6 6%
------------------------------ ------------ --------------- ---------
- Operating cash conversion is used by the Board to assess the
business's ability to convert operating profit to cash effectively,
excluding the impact of investing and financing activities.
Operating cash flow is operating profit before exceptional items
adjusted for depreciation, amortisation and loss on disposal,
working capital movements and capital expenditure;
- Operating cash conversion is operating cash flow / operating
profit before exceptional items;
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
----------------------------- ------------ --------------- --------------
Underlying operating profit
(as defined above) 42.6 48.6 96.4
Depreciation, amortisation
and loss on disposal 10.5 10.9 24.0
Change in working capital (32.7) (21.9) (27.5)
Capital expenditure (22.2) (26.7) (45.5)
----------------------------- ------------ --------------- --------------
Operating cash flow (1.8) 10.9 47.4
Operating cash conversion -4% 22% 49%
----------------------------- ------------ --------------- --------------
- Available cash is used to enable the Board to understand the
true cash position of the business when determining the use of cash
under the capital allocation policy. Available cash is cash and
cash equivalents plus other financial assets (cash invested in
deposit accounts greater than three months in duration) less cash
ring-fenced in the Group's Chinese subsidiaries which is not
available to the wider group;
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
----------------------------- ------------ --------------- --------------
Cash and cash equivalents 38.3 45.7 58.7
Cash ring-fenced in Chinese
subsidiaries (4.0) (3.9) (2.8)
Other financial assets 0.1 0.1 10.1
Available cash 34.4 41.9 66.0
----------------------------- ------------ --------------- --------------
- Underlying EPS is earnings per share based on profit after tax
but before exceptional items divided by the weighted average number
of shares in issue. This metric is used by the Board to assess the
underlying performance of the business excluding items that are, in
aggregate, material in size and/or unusual or infrequent in nature;
and
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
------------------------------------- ------------ --------------- --------------
Profit after tax attributable
to owners of the Company 33.7 37.8 76.2
Exceptional items 3.4 4.6 7.9
Tax on exceptional items (0.7) (0.9) (1.5)
Profit after tax before exceptional
items net of tax 36.4 41.5 82.6
------------------------------------- ------------ --------------- --------------
Weighted average number of
shares 86,929,783 86,889,310 86,897,353
------------------------------------- ------------ --------------- --------------
Underlying EPS (pence) 41.9 47.8 95.0
------------------------------------- ------------ --------------- --------------
- Operating overheads is made up of sales, marketing and
administrative expenses (including research and development
expenditure) before exceptional items.; this metric is used by the
Board to assess the underlying performance of the business
excluding items that are, in aggregate, material in size and/or
unusual or infrequent in nature.
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2022 2022
2023 GBPm GBPm
GBPm
------------------------------------- ------------ --------------- --------------
Sales, marketing and administrative
expenses 47.5 41.0 86.0
Exceptional items (3.4) (4.6) (7.9)
Underlying operating profit 44.1 36.4 78.1
------------------------------------- ------------ --------------- --------------
Responsibility Statement of the Directors
The Directors confirm that these condensed consolidated interim
financial statements have been prepared in accordance with IAS 34
as adopted by the UK and that the interim management report
includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
(i) an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
(ii) material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
During the period since the approval of the Victrex plc Annual
Report for the year ended 30 September 2022, there have been no
changes in the directorate.
Dr Martin Court, Chief Commercial Officer and an Executive
Director, has notified the Board of his intention to retire from
Victrex. Martin will retire from the Board after the September 2023
Board meeting and will remain with the Company until 31 December
2023, in order to support a smooth transition.
The Directors of Victrex plc are detailed on our Group website
www.victrexplc.com .
By order of the Board
Jakob Sigurdsson Ian Melling
Chief Executive Chief Financial Officer
9 May 2023 9 May 2023
Forward-looking Statements
Sections of this Half-yearly Financial Report may contain
forward-looking statements, including statements relating to:
certain of the Group's plans and expectations relating to its
future performance, results, strategic initiatives and objectives,
future demand and markets for the Group's products and services;
research and development relating to new products and services; and
financial position, including its liquidity and capital resources.
These forward-looking statements are not guarantees of future
performance. By their nature, all forward looking statements
involve risks and uncertainties because they relate to events that
may or may not occur in the future, and are or may be beyond the
Group's control, including: changes in interest and exchange rates;
changes in global, political, economic, business, competitive and
market forces; changes in raw material pricing and availability;
changes to legislation and tax rates; future business combinations
or disposals; relations with customers and customer credit risk;
events affecting international security, including global health
issues and terrorism; the impact of, and changes in, legislation or
the regulatory environment (including tax); and the outcome of
litigation. Accordingly, the Group's actual results and financial
condition may differ materially from those expressed or implied in
any forward-looking statements. Forward-looking statements in this
Half-yearly Financial Report are current only as of the date on
which such statements are made. The Group undertakes no obligation
to update any forward-looking statements, save in respect of any
requirement under applicable law or regulation. Nothing in this
press release shall be construed as a profit forecast.
Shareholder information:
Victrex's Annual Reports and Half-yearly Financial Reports are
available on request from the Company's Registered Office or to
download from our corporate website, www.victrexplc.com
Financial calendar:
Record date# 26 May 2023
Payment of interim dividend 3 July 2023
# The date by which shareholders must be recorded on the share
register to receive the dividend
Victrex plc
Registered in England
Number 2793780
Tel: +44 (0) 1253 897700
www.victrexplc.com
ir@victrex.com
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END
IR DELFBXELBBBZ
(END) Dow Jones Newswires
May 09, 2023 02:00 ET (06:00 GMT)
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