TIDMVCT
RNS Number : 7006K
Victrex PLC
09 May 2022
9 May 2022
Victrex plc - Interim Results 2022
'Strong first half & volumes up 8%; underlying PBT up 10% in
constant currency'
Victrex plc is an innovative world leader in high performance
polymer solutions, delivering sustainable products which support
CO2 reduction and bring environmental and societal benefit in
multiple end-markets. Today's announcement covers interim
(unaudited) results for the 6 months ended 31(st) March 2022.
H1 2022 H1 2021 % change % change
(reported) (constant
currency)(1)
Group sales volume 2,264 tonnes 2,087 tonnes +8% N/A
Group revenue GBP160.1m GBP150.9m +6% +9%
Gross profit GBP85.0m GBP81.4m +4% +8%
Gross margin 53.1% 53.9% -80bps N/A
Underlying PBT[1] GBP48.2m GBP46.6m +3% +10%
Reported PBT GBP43.6m GBP46.6m -6% -
Underlying EPS(1) 47.8p 46.9p +2% N/A
EPS 43.5p 46.9p -7% N/A
Dividend per share 13.42p 13.42p flat N/A
Highlights:
-- Strong first half, volumes +8%
- Double-digit growth in Electronics, Energy & Industrial, VAR
- Recent improvement in Automotive, despite Semiconductor chip challenges
- Medical revenue +12% as elective surgeries return
- 6% increase in core application growth pipeline
-- Underlying PBT up 3% & up 10% in constant currency
- Underlying profit before tax (PBT) up 3% at GBP48.2m
- Reported PBT down 6% reflecting GBP4.6m exceptional items
relating to one off expensed ERP software implementation
- Gross margin broadly stable (improvement impacted by timing of inflation recovery & FX)
- Continuing action to mitigate inflation:
-- Operational improvements offset inflation in H1
-- Additional price recovery well advanced in H2
-- Strong mega-programme growth pipeline
- Strong progress in PEEK Knee clinical trial, 15 implants & recruitment at halfway stage
- New business wins for next generation E-mobility programme
- Good progress in Magma; supporting scale-up in Brazil
-- Strong cash generation drives growth investment & returns
- H1 2022 available cash(1) of GBP41.9m*
- Good progress on new PEEK facility in China; commissioning in 2022
- H1 dividend of 13.42p/share
-- Good progress on ESG strategy
- 100% renewable electricity at all UK sites
- Victrex joins Apple Clean Energy Supplier programme
- New Corporate Responsibility Committee established
[1] Alternative performance measures are defined on page 12
*excludes GBP3.8m of cash ring-fenced in the Group's Chinese
subsidiaries and includes GBP0.1m in 95-day notice deposit
accounts
Jakob Sigurdsson, Chief Executive of Victrex, said: "This is a
strong first half, with further improvement across all end-markets,
good progress in our Medical business as elective surgeries return
in greater numbers and improved average selling prices compared to
the second half of 2021.
"Our attractive and differentiated portfolio includes
sustainable products which bring environmental and societal benefit
and, reflecting the value PEEK brings to customers, our core
application growth pipeline increased by 6%. Whilst volumes were
strongly ahead and our initial price recovery programme is
delivering on plan, we have faced further unprecedented energy, raw
material and distribution inflation, as well as FX headwinds.
Thanks to significant improvement in operating efficiency and
better asset utilisation, first half margin was broadly stable,
despite the additional cost inflation, which we are well placed to
recover. Without these additional cost headwinds, margin would
otherwise have improved closer to our target level.
"Cash generation remained strong, supporting growth investment
and shareholder returns. We are also pleased to be making good
progress at our new PEEK facility in China, in a year of high
capital expenditure to support our future growth in that region.
Full mechanical completion is anticipated during Q3 and, subject to
current COVID restrictions in China, we plan to start commissioning
thereafter. Alongside growth investment, we have declared an
interim dividend for shareholders of 13.42p/share.
Outlook
"Our core business and PEEK offering continue to be strong, with
a clear focus on increasing the proportion of sustainable products
which bring environmental and societal benefit.
"For the remainder of FY 2022, we anticipate continuing volume
growth, which is likely to see growth of a similar magnitude to the
first half, although we are mindful of the potential for a changing
global economic environment later in the year. Mitigation plans for
recovering additional inflation are making good progress although,
as previously communicated, gross margin in the second half is
likely to be slightly lower than the first, primarily as a
consequence of currency movements. Nevertheless, for FY 2022 as a
whole, we remain focused on delivering good year-on-year
growth.
"On a medium to long term basis, Victrex remains well placed,
with a broad range of growth opportunities, a strong ESG agenda and
a highly cash generative business model."
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 oil and gas operations 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, provide
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
(GMT) this morning at JP Morgan, 1 John Carpenter Street, London
EC4Y 0JP. A conference call facility is available, to register,
dial +44 (0) 3333 000804 and participant pin 93945287# . Audio
playback is available by dialling +44 (0) 3333 000819 and
participant pin 425020407# . 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 +44 (0) 7809 595831
Richard Armitage, Chief Financial Officer +44 (0) 1253
897700
Jakob Sigurdsson, Chief Executive +44 (0) 1253 897700
Interim results statement for the 6 months ended 31(st) March
2022
'Strong first half & volumes up 8%; underlying PBT up 10% in
constant currency'
Group financial results
H1 sales volume up 8%
Group sales volume of 2,264 tonnes was 8% up on the prior year
(H1 2021: 2,087 tonnes), reflecting a strong performance across a
number of end-markets, principally driven by Electronics, Energy
& Industrial and Value Added Resellers (VAR). VAR remained
strong despite our anticipation of no restocking benefit compared
to the prior year.
In Automotive, sales volume was down 8%, reflecting the current
challenges in Semiconductor impacting the Automotive industry,
although we have seen some improvement over recent months.
Aerospace has seen steady improvement, with 4% growth
year-on-year.
Despite strong comparators, Q2 volume of 1,239 tonnes saw 3%
growth on the prior year (Q2 2021: 1,204 tonnes).
Continued growth in core business application targets
We saw a 6% increase in our core business application pipeline,
which reflects the health of our core business as we work with
Original Equipment Manufacturers (OEMs) and Tier 1 suppliers to
develop new applications for PEEK. Our Mature Annualised Revenue
(which could occur only if all targets convert) within the core
application pipeline is GBP303 million (H1 2021: GBP285m).
Group revenue up 6%
Group revenue was GBP160.1m, up 6% on the prior year (H1 2021:
GBP150.9m), reflecting a strong performance in most Industrial end
markets and a better performance in Medical.
Group revenue in constant currency(1) was 9% up on the prior
year (H1 2021: GBP147.2m in constant currency).
ASP improvement vs H2 2021
Our Average Selling Price (ASP) of GBP71/kg saw some improvement
on a sequential basis, compared to the second half of 2022 (H2
2021: GBP68/kg), principally reflecting an improvement in Medical
as surgery rates increased, offset by the impact of currency and
strong growth in a number of Industrial end markets. With Medical
set to continue improving as surgery rates increase globally,
offset by a sizeable currency headwind and continued strength in
Industrial, our expectations are that FY 2022 ASP will be similar
to the first half. H1 ASP also reflects the initial price recovery
taking effect during the first half and delivering on plan,
although with customer contracts renewing at different times, the
full benefit was not realised during the first half. Mitigation and
price recovery for additional cost inflation is being implemented,
with energy and raw materials comprising the majority of the
double-digit cost headwind.
Good performance in Industrial & Medical improvement
Our Industrial division reported revenues of GBP132.3m, 5% up on
the prior year (H1 2021: GBP126.0m) but 8% up in constant currency,
driven by growth in Electronics, Energy & Industrial and Value
Added Resellers.
Medical revenues were GBP27.8m, up 12% on the prior year (H1
2021: GBP24.9m) and 12% ahead in constant currency(1) . Recovery
was primarily driven by Asia, where we saw a record performance as
surgery rates recovered faster than other geographies. Growth was
broad based across Spine, Trauma, Arthroscopy and CMF. US surgery
rates were impacted by the Omicron variant of COVID in late 2021,
meaning revenues in that region were up 3%, though we have seen
recent improvement. Our non-Spine business continues to grow, with
good progress in Cardio and Drug Delivery. Non-Spine now represents
51% of Medical revenues (H1 2021: 46%).
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
2022, a gain of GBP1.7m (H1 2021: gain of GBP0.5m) 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 favourable to the average exchange rate
prevailing at the date of the related hedged transactions.
Gross margin impacted by cost & currency headwinds
Group gross margin of 53.1% was slightly lower compared to H1
2021 (53.9%). With substantial inventory unwind during FY 2021, we
are now seeing higher production volumes, which is starting to
benefit our asset utilisation, although we still have some under
absorbed fixed costs in our downstream assets, particularly our
Rhode Island Aerospace composites facility and our Aptiv film
facility. With our initial price recovery programme delivering on
plan, other inflationary costs, higher freight costs to serve
customers, currency and additional mobilisation costs for our new
China manufacturing investments impacted our margin during the
first half, offsetting the benefit of improving asset
utilisation.
As previously communicated, margin in the second half is likely
to be slightly lower reflecting the higher currency headwind in the
second half and the timing of inflation recovery. Our intentions
remain to deliver a recovery in gross margin from these levels once
existing headwinds subside, once the full benefit of our price
recovery programme takes effect and asset utilisation continues to
improve. Without the impact of the unprecedented cost inflation and
currency headwinds, gross margin in the first half would have been
closer to our target level, reflecting much improved asset
utilisation and other operating efficiencies.
Inventory unwind
With the significant inventory unwind during FY 2021, our H1
2022 closing inventory position of GBP79.8m (FY 2021: GBP70.3m)
reflects rebuilding of some raw material inventories, which had
fallen close to safety stock levels for certain raw materials. With
some uncertainties in global supply chains and the higher cost of
manufacture, we continue to expect total inventory in FY 2022 to
fluctuate between GBP70m and GBP80m.
Investment in innovation
Total overheads, including exceptional items of GBP4.6m,
increased to GBP41.0m (H1 2021; GBP34.4m) primarily reflecting
higher innovation investment, offset by a slightly lower bonus
accrual compared to the prior year. On an underlying basis,
excluding exceptional items and bonus, overheads increased by
13%.
Our Group All Employee Bonus Scheme is no longer based primarily
on profit growth, but is based on actual performance versus a
budget-based target, with a cap in place. We envisage this will
reduce the volatility of bonus payout year on year. Executives are
now, from FY 2022, also incentivised on targets linked to our ESG
goals.
R&D investment is measured on a full year basis and is
currently tracking at 5%-6% of revenues(1) . Of total R&D
investment focused on individual projects, approximately 88% of
this is now aligned to programmes supporting sustainable
products.
Underlying PBT up 3%
Underlying PBT of GBP48.2m was up 3% on the prior year (H1 2021:
GBP46.6m), reflecting a solid operating performance, partially
offset by currency and inflation. Reported PBT reduced by 6%
reflecting exceptional items of GBP4.6m (H1 2021: nil),
representing the cost of implementing a new ERP software system. In
previous years these costs would have been capitalised but are now
expensed in line with recently issued IFRIC guidance. The
implementation will be completed in mid-2024.
Underlying earnings per share up 2%
Underlying EPS was up 2% at 47.8p (H1 2021: 46.9p). Basic
earnings per share of 43.5p was 7% down on the prior year (H1 2021:
46.9p per share), reflecting the impact of exceptional items on
reported PBT in the first half.
Taxation
The effective tax rate was 14%, lower than the prior year (FY
2021: 21.3%) which is mainly due to the restatement of deferred tax
balances in FY 2021, following the announcement that the UK
Corporation tax rate would increase to 25% from April 2023. Whilst
the UK corporation tax rate is currently 19%, because of the
availability of the reduced rate on profits taxed under Patent Box,
our mid-term guidance at this stage remains for an effective tax
rate of approximately 12%-15%, although we continue to assess
global taxation developments.
Currency headwind
Currency was a modest headwind of approximately GBP3m at PBT
level, reflecting the strengthening of Sterling in the prior year
when hedging was put in place. The weighting of the currency
headwind is expected to be more in the second half, meaning a
slightly lower overall headwind for FY 2022 in the range of
approximately GBP6m-GBP8m at PBT level, with over 80% of hedging
cover in place for US Dollar and Euro exposure. At this early
stage, currency for FY 2023 is tracking as a small headwind.
Our hedging policy seeks to substantially protect our cash flows
from currency volatility on a rolling twelve-month basis. The
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.
COVID-19
The health, safety and well-being of Victrex employees and
supporting our customers continued to be our highest priority
during the first half. A full Return to Site, supported by our
Global Flexible Working policy, was implemented during the first
half in the UK. In our other global regions, we are seeing a mix of
site-based working and home working, dependent on governmental
guidelines and local conditions.
Investment in capacity and growth
Cash capital expenditure was GBP26.7m (H1 2021: GBP16.5m),
principally to support the final phase of our China manufacturing
investments, which will provide additional capability to support
customers in China. We also commenced a multi-year investment to
support the efficiency improvement of our UK manufacturing assets,
a project which was deferred during the pandemic. We anticipate
this will be approximately GBP15m, spread over the next four
financial years and built into the annual capital budget. Following
these investments, we do not anticipate any material large scale
capacity investment for several years.
Our China investment is expected to see full mechanical
completion during our third quarter, with commissioning to start
thereafter, subject to COVID guidelines and restrictions in China,
With the challenge of managing some of the engineering work
remotely - due to COVID restrictions on in-country access - we have
had to source additional regional engineering support and other
facilities at an increased cost.
Capital expenditure for the year is expected to be in line with
guidance, at approximately GBP60m. We will also start to incur some
limited capital and operational expense in support of our ESG
strategy, particularly around process improvement and the potential
use of alternative fuels.
We continue to assess the effectiveness and returns profile of
our growth investments, particularly our downstream assets where
improving market adoption would support a greater return on
investment over the years ahead. With most of our downstream
investments being in place primarily to help seed the market or
opportunity, we also continue to explore partnerships or other
options which could drive adoption without necessarily requiring
equity ownership or significant capital investment.
Mega-programme progress
We have continued to make good progress delivering against key
milestones in our portfolio of mega-programmes. Although individual
timelines remain subject to change, the long-term prospects in each
programme continue to be attractive.
Our Knee programme has continued to move forward and is now at
the halfway stage of recruitment, with 15 patients now having
implants, including three who have successfully passed the 12-month
clinical stage, with no remedial intervention required. Recruitment
for the remaining patients continues in India, Belgium and Italy.
We also anticipate establishing an additional trial site in the US
by the start of our next financial year and are closing in on an
additional partner (a top 5 Knee company) to support the route to
commercialisation.
As a $10 billion global market, Knee remains a sizeable
opportunity, with an addressable market of approximately $1 billion
for femoral knee replacements utilising PEEK over Titanium or
Cobalt Chrome.
Our Aerospace Loaded Brackets programme - which increased
commercial revenues above GBP2m in FY 2021 - has benefited from
improvement in this end-market. Several additional orders for
composite parts were seen during the period, reflecting mega-trends
aligned to light-weighting, CO2 reduction and faster processing
supporting the use of our PEEK based composite materials. We also
continue to explore opportunities in eVTOL (Electric Vehicle
Take-off and Landing) which could support medium to long term
growth.
In PEEK Gears, which now have several initial contracts 'on the
road' following a first supply agreement in 2018, we are on track
to further improve on the milestone of delivering meaningful
revenue in FY 2021. We currently have more than 20 development
programmes with Tier 1 suppliers or OEMs. Subject to successful
development testing, several of these programmes are expected to
move to commercialisation stage over the next two years. PEEK Gears
continue to have application uses across both traditional internal
combustion engines (ICEs) and electric vehicles (EVs), with
opportunities based on both part-based collaborations and polymer
offerings (where Victrex holds the design and development
expertise).
For 'Aerospace Structures', which links to our development
alliance with Airbus, we are now delivering prototype revenue via
large scale test parts. Development and commercialisation of
thermoplastic composites in Aerospace continues to offer a sizeable
opportunity, across larger primary and secondary Aerospace
structures, such as wings and fuselage parts. Aerospace Structures
remains incremental to Victrex's Aerospace Loaded Brackets
programme, with our AE (TM) 250 composites grade being integral to
both of these opportunities.
In our Magma composite pipe programme, TechnipFMC is seeking to
accelerate the significant opportunities for thermoplastic
composite pipe in deepwater fields in Brazil. Victrex continues to
work in close collaboration with TechnipFMC as a strategic supply
partner, with multi-year supply agreements in place and industry
qualifications based on Victrex PEEK. TechnipFMC is also focusing
on manufacturing scale up in Brazil, with a new facility in Brazil,
over the next 1-2 years. The focus for FY 2022 remains support to
TechnipFMC for the qualification programme ahead of bid programme
outcomes and scale up.
We expect to see continued development revenues during the year
as qualification pipes progress - extruded by Victrex - through the
supply chain.
H1 2022 saw us secure new business wins for our next generation
E-mobility programme and better than expected progress. This
mega-programme focuses on applications across electric vehicles, in
particular for high-voltage next generation programmes (800 volt
batteries and applications). Business wins include an Aptiv film
based opportunity. PEEK will be used in specific applications where
durability, heat resistance and light-weighting are all key. We
have also increased our development programmes as we move closer to
greater commercialisation. Our assessment of the PEEK content per
vehicle is more than 100g (from approximately 10g today), as we
focus on the high performance needs of next generation electric
vehicles.
Our Trauma pipeline continues to build, following the agreement
with US based In2Bones for composite plating, and we also secured
our first Asia customer product launch. We are also finalising
partnership collaborations to support launches in China.
As previously communicated, in Dental, whilst the technical
proposition remains strong, like other participants or competitors
in this market, we are focused on commercialisation through
partnerships or other vehicles. Clinical data, including infection
rates compared to metal prosthetics, remains positive. Dental is
now no longer a mega-programme but continues to offer a sizeable
revenue opportunity.
Strong balance sheet
Our strong balance sheet underpins our ability to invest and
support security of supply for customers. Net assets at 31 March
2022 totalled GBP470.6m (FY 2021: GBP511.7m) following the payment
of the final and special dividends in February 2022.
Robust cash generation
Cash generated from operations was GBP37.3m (H1 2021: GBP59.2m),
an operating cash conversion(1) of 22% (H1 2021: 96%) reflecting
the inventory recovery and strong sales seen in March 2022
adversely impacting working capital. Trade and other receivables
and trade and other payables have both increased compared to the
prior year period, although the net movement is negligible. The
increases have arisen due to a higher level of activity in the
reported period, including higher sales (with a different
geographical mix), increased manufacturing (with the associated raw
material purchases and higher utility payments) and increased
capital expenditure.
Cash and other financial assets at 31 March 2022 was GBP45.8m
(FY 2021: GBP112.4m). This includes GBP3.8m ring-fenced in our
China subsidiaries and other financial assets of GBP0.1m,
representing cash which was held on 95-day deposit. In February
2022 we paid the 2021 full year final dividend of 46.14p/share and
a 50p/share special dividend at a cash cost of GBP83.5m
combined.
We have also secured a RMB400m borrowing facility (GBP45m
equivalent) in China in support of our investments there, of which
GBP9.4m was drawn down at 31 March 2022.
Dividends
With positive cash generation and a strong trading performance,
the Group is proposing an interim dividend of 13.42p/share (H1
2021: 13.42p/share).
Sustainability & ESG
Our ESG strategy and 2030 carbon net zero vision has been
refined into a number of workstreams within Victrex and a scorecard
which we will start to report on for each half year period,
commencing at the full year stage this year.
Building on our recent accreditation by EcoVadis and a Gold
standard for our ESG strategy, we were pleased to have joined
Apple's Clean Energy Supplier programme, with a commitment to
utilising clean energy for products supporting this customer.
Currently, over 95% of our global electricity is from renewable
sources including 100% at all our UK locations now. We also
established a Corporate Responsibility Committee during the period
and will update on this at the end of FY 2022.
Outlook
Our core business and PEEK offering continue to be strong, with
a clear focus on increasing the proportion of sustainable products
which bring environmental and societal benefit.
For the remainder of FY 2022, we anticipate continuing volume
growth, which is likely to see growth of a similar magnitude to the
first half, although we are mindful of the potential for a changing
global economic environment later in the year. Mitigation plans for
recovering additional inflation are making good progress although,
as previously communicated, gross margin in the second half is
likely to be slightly lower than the first, primarily as a
consequence of currency movements. Nevertheless, for FY 2022 as a
whole, we remain focused on delivering good year-on-year
growth.
On a medium to long term basis, Victrex remains well placed,
with a broad range of growth opportunities, a strong ESG agenda and
a highly cash generative business model.
Jakob Sigurdsson
Chief Executive, 9 May 2022
(1) Alternative performance measures are defined on page 12.
DIVISIONAL REVIEW
Industrial
6 Months 6
Months
Ended Ended %
31 Mar 31 Mar % Change
2022 2021 Change (constant
GBPm GBPm (reported) currency)
Revenue 132.3 126.0 +5% +8%
Gross profit 60.9 59.5 +2% +6%
Group performance is reported through the Industrial and Medical
divisions although we continue to provide a market-based summary of
our performance and growth opportunities. The Industrial division
includes the markets of Energy & Industrial, Value Added
Resellers (VAR), Transport (Automotive & Aerospace) and
Electronics.
Reflecting a strong performance, our Industrial business
delivered record revenue of GBP132.3m (H1 2021: GBP126.0m), 5% up
on the prior year. We saw double-digit growth across Electronics,
Energy & Industrial and VAR.
Revenue in constant currency was up 8%. Gross margin was
slightly lower at 46.0% (H1 2021: 47.2%), primarily reflecting the
impact of foreign currency exchange and raw material and energy
inflation, despite higher production volumes and better asset
utilisation.
Energy & Industrial
Our Energy & Industrial segment includes volumes for oil
& gas and new energy applications, including renewables, and an
array of applications across General Industrial. These include food
processing, machinery and robotics. Energy & Industrial saw
sales volume of 413 tonnes, which was up 14% on the prior year (H1
2021: 362 tonnes), with Energy up 23% overall, driven by strong oil
prices and higher capital investment for exploration and
processing. Our products continue to offer durability and
performance in many demanding applications, where the reliability
of PEEK can mean less intervention or downtime, thereby supporting
efficiency of operation.
Having focused additional sales resource towards Industrial
(which includes Manufacturing & Engineering) over recent years,
we continue to benefit from applications across fluid handling,
food contact materials and manufacturing robotics. PEEK's unique
combination of properties has enabled us to capitalise on the
application growth in this end market and metal replacement
opportunity, helping drive volume growth of 8% for the Industrial
proportion of Energy & Industrial, compared to the prior
year.
Value Added Resellers (VAR)
Full clarity on the exact route to market for all of our polymer
business is not always possible, however, our analysis suggests
that 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 remains an important part of our Industrial division, as
stock shape companies and processors are specified by their
customers to deliver Victrex PEEK. Pleasingly, after a strong first
half in VAR last year and a challenging comparative, we achieved
14% growth in volume as several end markets supported by VAR
continue to improve. Sales volume was 970 tonnes (H1 2021: 852
tonnes), principally reflecting the macro-improvement, as well as
good growth in end markets including Electronics and Energy &
Industrial.
Transport (Automotive & Aerospace)
Megatrends including lightweighting, CO2 reduction, durability,
comfort, electrification and heat resistance remain strong.
Following a good performance for both Automotive & Aerospace
in FY 2021, Automotive has suffered from the well-publicised
shortage of Semiconductor chips during FY 2022 so far, with volumes
being down 8% compared to the prior half year. However, market
indicators suggest some improvement through the second half, with
momentum over recent months seeing an uptick in volumes. Aerospace
has continued to see a gradual improvement, with volumes up 4% and
long term trends remain supportive, with OEM forecast build rates
and the trend towards faster processing and lightweight materials
supporting increased content of PEEK (Airbus forecasts 39,000 new
or replacement planes by 2040).
Overall Transport sales volume fell by 5% to 451 tonnes (H1
2021: 474 tonnes), with Aerospace up 4% and Automotive down 8%.
Automotive
Whilst we continue to benefit from new application growth, we
again saw an impact from the Semiconductor chip shortage during the
first half, although performance over recent months has been more
encouraging. Core applications include braking systems, bushings
& bearings and transmission equipment, with increasing
opportunities in electric vehicles, supporting a growing e-mobility
business.
In PEEK Gears, following meaningful revenue of over GBP1m being
delivered in this mega-programme last year, we are anticipating
further progress in FY 2022, with approximately 20 programmes
seeking to commercialise over the next three years. PEEK gears
based on 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 PEEK Gear offers the potential of
approximately 20 grams per application. We have also developed a
network of partners, where Victrex will either manufacture the
complete gear, or offer a solution via design and development, with
partner manufacturing. Victrex will retain the know-how and
capability in both cases.
In E-mobility, we have seen better than expected progress, with
our focus on next generation high-voltage (800 volt) vehicles. PEEK
remains well placed for both internal combustion engines, hybrids
and electric vehicles (EVs), with the long term opportunity of over
100g of PEEK per vehicle, compared to approximately 10g today. We
now have several commercial contracts in place, including new wins
in Europe during the first half.
Aerospace
Aerospace volumes were up 4%, reflecting some recovery in the
supply chain and improved OEM forecasts for plane build over the
next 12 months.
Long term trends continue to remain strong. Our Loaded Brackets
and Aerospace Structures mega-programmes both grew revenues over
the period, with Loaded Brackets looking to exceed GBP2m revenue
for the full year as the use of composites and differentiated
products remain in demand. We have also benefited from some
retrofit opportunities for composite parts, using our AE(TM) 250
low-melt PEEK grade, which supports faster processing. These
opportunities include interior structural components with
light-weighting, recyclability and the ability to reduce
manufacturing cycle time by up to 40% being key selling points for
our PEEK and PAEK polymers. The ability to support CO2 reduction
through PEEK materials which are typically 60% lighter than metals
also remains strong, with our assessment that over 50 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. These attractions also play to our Aerospace Structures
mega-programme, working with Airbus to support their Clean Sky 2
and Wing/Fuselage of Tomorrow programmes.
Electronics
Electronics continued to perform well in the first half, as the
tightness in Semiconductor manufacturing capacity supports demand.
Volumes grew 8% at 335 tonnes (H1 2021: 309 tonnes). Market
indicators suggest server shipments will grow 4-5% in 2022
(TSMC).
Our application opportunities are driven by Semiconductor, the
internet of things, 5G applications, cloud computing and core
applications like CMP rings and other extended application areas.
We also continue to benefit from greater implementation of 5G
alongside the greater homeworking trend. This provides good
momentum for our Aptiv (TM) film business and small space acoustic
applications and we continue to see a positive outlook for this end
market into FY 2022.
Sales of home appliances and our impeller application business
in high-end brands are also performing well across a number of
product areas, including vacuum cleaners and hairdryers.
Regional trends & Ukraine/Russia exposure
With European and North American economies seeing a good
recovery (following later lifting of COVID restrictions compared to
Asian economies), progress across those regions was encouraging
during the first half.
Europe was up 6%, at 1,193 tonnes (H1 2021:1,124 tonnes),
reflecting further improvement in VAR, with North America up 28% at
465 tonnes (H1 2021: 363 tonnes), principally driven by VAR and
Energy & Industrial. Asia-Pacific was up 1% at 606 tonnes (H1
2021: 600 tonnes), driven by continued growth in Electronics and
VAR.
Within Europe, we had no active sales to Ukraine during the
first half, with Russia sales negligible. Victrex has no employees,
assets or supply chain within these countries and no direct raw
material purchases.
Medical
6 Months 6
Months
Ended Ended %
31 Mar 31 Mar % Change
2022 2021 Change (constant
GBPm GBPm (reported) currency)
Revenue 27.8 24.9 +12% +12%
Gross profit 24.1 21.9 +10% +12%
Revenue in Medical was up 12% at GBP27.8m (H1 2021: GBP24.9m) as
we saw a good return to elective surgeries across regions, with the
US gaining good traction, slightly offset by the impact of the
Omicron variant in late 2021, where surgeries were deferred.
In constant currency, Medical revenue was up 12%. Gross profit
was GBP24.1m (H1 2021: GBP21.9m) and gross margin was down at 86.6%
(H1 2021: 88.0%) reflecting a slightly adverse sales mix as
Non-Spine continued to grow faster than Spine (Non-Spine +25% vs
Spine +1%). Overall Medical volume (implantable and
non-implantable) was up 5%, reflecting a stable performance in
non-implantable and growth in implantable. Geographically,
Asia-Pacific revenues were up 38% year on year, with Medical
revenues in the US up 3% and Europe up 8%.
Medical strategy
Our Medical strategy seeks to continue diversifying our
portfolio to build revenues in non-Spine areas such as Cranio
Maxillo-Facial (CMF), Dental, Arthroscopy & Sports Medicine as
well as emerging or incremental opportunities in Cardio and other
implantable devices. Non-Spine overall now represents 51% of
divisional revenues. Spine is our historic end-market which, whilst
it has become more mature in recent years, is one we continue to
diversify through focusing on emerging geographies and new
innovative products. 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 now building and being above
GBP2m. We are also establishing regulatory approval for our Porous
PEEK opportunity, where the benefit of bone-in growth is added to
bone-on growth for Spinal application. Thanks to our Bond 3D
investment, this will also support the ability to 3D print spinal
cages.
Mega-programmes
In Knee, we saw significant progress through the first half,
with a total of 15 implants as part of the clinical trial, meaning
the clinical trial has now passed the halfway stage. Three patients
have successfully passed the 12 month follow up phase with no
remedial requirements. Clinical trials are now operating in
Belgium, India and Italy and we envisage a US trial site being
established later in 2022.
The long term opportunity - in what is a $10 billion global
market - remains attractive, with an addressable market for femoral
knee at approximately $1 billion. We are also close to establishing
an additional partner, a top 5 global orthopaedic company,
reflecting the significant opportunity to commercialise this
programme, once clinical trials are complete.
In Trauma, our agreement during FY 2021 with US based In2Bones
for composite plating in higher and lower extremities has supported
increased revenue and we are also finalising preparations for Asia
based manufacturing partnerships.
Our PEEK composite Trauma plates offer the potential for 50
times better fatigue resistance compared to a metal plate, with
awareness of composites as a viable metal alternative growing.
Although we have the manufacturing capability to meet initial
demand, partnerships will support scale-up, particularly for
geographies in Asia-Pacific and China, where Victrex will continue
to hold the know-how and capability.
Alternative performance measures:
We use alternative performance measures 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 HY 2021 are GBP4.6m,
details are disclosed in note 5;
- 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.
- 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 (FY
2022) weighted average spot rates to prior year (FY 2021)
transactions;
- 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;
- 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 conversion is operating profit before exceptional
items adjusted for depreciation and amortisation, working capital
movements and capital expenditure / operating profit before
exceptional items;
- 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 term
deposits greater than three months in duration) less cash
ring-fenced in the Group's Chinese subsidiaries which is committed
to capital investment or additional capability and therefore not
available to the wider group;
- Research and development expenditure as a % of Group sales is
used by the Board because R&D spend is considered to be a
leading indicator of the Group's ability to innovate into new
applications, supporting future growth. The Group targets spend at
c5%-6% of Group revenues;
- 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 2014 as a percentage of total
Group sales;
- Return on Capital Employed (ROCE) is used by the Board to
assess the return on investment at a Group level. ROCE is profit
after tax / total equity attributable to shareholders at the year
end;
- Total overheads are operating overheads which are made up of
sales, marketing and administrative expenses after 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;
- Research and Development spend on sustainable products is
calculated as the percentage of project-based R&D spend on
sustainable products or sustainable programmes. This metric, which
is new in FY 2021, is used by the Board to assess progress against
the sustainability strategy and vision of being Carbon Net Zero by
2030 (scope 1 & 2 emissions). Sustainable products are
currently defined as revenue from Aerospace, Automotive and Medical
end markets; and
- Mature Annualised Revenue is a measure of new application
targets within our core business (excluding mega-programmes) and
would be realised only if all targets convert to commercial
revenues.
Condensed Consolidated Income Statement
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 2022 31 March 2021
2021
Note GBPm GBPm GBPm
Revenue 4 160.1 150.9 306.3
Gains on foreign currency
net hedging 1.7 0.5 4.9
Cost of sales (76.8) (70.0) (145.9)
Gross profit 85.0 81.4 165.3
Sales, marketing and administrative
expenses 4 (41.0) (34.4) (71.9)
Operating profit before exceptional
items 48.6 47.0 92.6
Exceptional items 5 (4.6) - 0.8
Operating profit 4 44.0 47.0 93.4
Financial income 0.2 - 0.2
Financial costs (0.1) - (0.2)
Share of loss of associate (0.5) (0.4) (0.9)
Profit before tax and exceptional
items 48.2 46.6 91.7
Exceptional items 5 (4.6) - 0.8
Profit before tax 43.6 46.6 92.5
Income tax expense 6 (6.1) (6.1) (19.7)
Profit for the period 37.5 40.5 72.8
Attributable to:
Owners of the Company 37.8 40.7 73.2
Non-controlling interests (0.3) (0.2) (0.4)
Earnings per share
Basic 7 43.5p 46.9p 84.3p
Diluted 7 43.3p 46.8p 84.0p
Dividends per ordinary share
Interim 13.42p 13.42p 13.42p
Final - - 46.14p
Special - - 50.00p
13.42p 13.42p 109.56p
An interim dividend of 13.42p per share will be paid on 29 June
2022 to shareholders on the register at the close of business on 27
May 2022. This dividend will be recognised in the period in which
it is approved.
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2021
2022 2021
GBPm GBPm GBPm
Profit for the period/year 37.5 40.5 72.8
Items that will not be reclassified
to profit or loss
Defined benefit pension schemes'
actuarial gains/(losses) 3.8 (2.6) 4.5
Income tax (0.9) 0.5 (1.1)
2.9 (2.1) 3.4
Items that may be subsequently
reclassified to profit or
Loss
Currency translation differences
for foreign operations 1.4 (4.5) (2.0)
Effective portion of changes
in fair value of cash flow hedges 2.5 8.0 5.7
Net change in fair value of cash
flow hedges
transferred to profit or loss (1.7) (0.5) (4.9)
Income tax (0.2) (1.4) (0.2)
2.0 1.6 (1.4)
Total other comprehensive income/(expense)
for the period/year 4.9 (0.5) 2.0
Total comprehensive income for
the period/year 42.4 40.0 74.8
Total comprehensive income for
the period/year attributable
to:
Owners of the Company 42.7 40.2 75.2
Non-controlling interests (0.3) (0.2) (0.4)
Condensed Consolidated Balance Sheet
Unaudited Unaudited Audited
31 March 31 March 30 September
2022 2021 2021
Note GBPm GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 323.4 281.6 305.7
Intangible assets 21.6 25.7 24.8
Investment in associated undertaking 8 10.9 11.9 11.4
Financial assets held at fair
value through profit and loss 9 8.8 10.0 12.7
Deferred tax assets 7.5 7.6 8.9
Retirement benefit asset 18.7 6.2 14.2
390.9 343.0 377.7
Current assets
Inventories 79.8 81.0 70.3
Current income tax assets 3.9 0.1 2.9
Trade and other receivables 64.7 45.5 49.1
Derivative financial instruments 10 3.0 9.4 2.9
Other financial assets 0.1 - 37.5
Cash and cash equivalents 45.7 79.6 74.9
197.2 215.6 237.6
Total assets 588.1 558.6 615.3
Liabilities
Non-current liabilities
Deferred tax liabilities (34.4) (22.0) (31.6)
Borrowings 11 (15.3) (5.5) (5.9)
Long-term lease liabilities (7.3) (7.4) (8.2)
Retirement benefit obligation (2.9) - (1.9)
(59.9) (34.9) (47.6)
Current liabilities
Derivative financial instruments 10 (2.4) (0.5) (1.9)
Borrowings 11 (0.3) - -
Current income tax liabilities (2.0) (4.2) (2.9)
Current lease liabilities (1.7) (1.5) (1.8)
Trade and other payables (51.2) (33.3) (49.4)
(57.6) (39.5) (56.0)
Total liabilities (117.5) (74.4) (103.6)
Net assets 470.6 484.2 511.7
Equity
Share capital 0.9 0.9 0.9
Share premium 61.2 57.8 61.1
Translation reserve 3.1 (0.8) 1.7
Hedging reserve 0.7 5.6 0.1
Retained earnings 402.5 418.0 445.4
Equity attributable to owners
of the Company 468.4 481.5 509.2
Non-controlling interest 2.2 2.7 2.5
Total equity 470.6 484.2 511.7
Condensed Consolidated Cash Flow Statement
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2021 2021
2022
Note GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operations 14 37.3 59.2 135.5
Interest received 0.1 - 0.2
Tax paid (5.6) (0.9) (8.6)
Net cash flow from operating activities 31.8 58.3 127.1
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (26.7) (16.5) (41.9)
Proceeds from disposal of financial asset held at fair value through
profit and loss 9 4.5 - -
Decrease in other financial assets 37.4 - (37.5)
Loan to associated undertaking 8 (1.4) (2.0) (3.8)
Net cash flow from investing activities 13.8 (18.5) (83.2)
Cash flows from financing activities
Proceeds from issue of ordinary shares
exercised under option 0.1 2.8 6.1
Bank borrowings received 11 9.3 - -
Loan received from non-controlling interest - 5.9 5.6
Repayment of lease liabilities (1.1) (0.9) (1.8)
Dividends paid (83.5) (40.0) (51.6)
Net cash flow from financing activities (75.2) (32.2) (41.7)
Net (decrease)/increase in cash and
cash equivalents (29.6) 7.6 2.2
Effect of exchange rate fluctuations
on cash held 0.4 (1.1) (0.4)
Cash and cash equivalents at beginning of period 74.9 73.1 73.1
Cash and cash equivalents at end of period 45.7 79.6 74.9
Included in cash and cash equivalents is GBP3.8m of cash which
is ring-fenced.
Condensed 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
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 owners
of the Company - - - - 37.8 37.8 - 37.8
Attributable to
Non-controlling
interest - - - - - - (0.3) (0.3)
Other comprehensive
(expense)/income
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
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
2020 (audited) 0.9 55.0 3.7 (0.5) 419.0 478.1 2.9 481.0
Total comprehensive
income for the period
Profit for the period:
Attributable to owners
of the Company - - - - 40.7 40.7 - 40.7
Attributable to
Non-controlling
interest - - - - - - (0.2) (0.2)
Other comprehensive
(expense)/income
Currency translation
differences for
foreign
operations - - (4.5) - - (4.5) - (4.5)
Effective portion of
changes in fair value
of cash flow hedges - - - 8.0 - 8.0 - 8.0
Net change in fair
value
of cash flow hedges
transferred
to profit or loss - - - (0.5) - (0.5) - (0.5)
Defined benefit pension
schemes' actuarial
losses - - - - (2.6) (2.6) - (2.6)
Tax on other
comprehensive
(expense)/income - - - (1.4) 0.5 (0.9) - (0.9)
Total other
comprehensive
(expense)/income for
the period - - (4.5) 6.1 (2.1) (0.5) - (0.5)
Total comprehensive
(expense)/income for
the period - - (4.5) 6.1 38.6 40.2 (0.2) 40.0
Contributions by and
distributions to owners
of the Company
Share options exercised - 2.8 - - - 2.8 - 2.8
Equity-settled
share-based
payment transactions - - - - 0.4 0.4 - 0.4
Dividends to
shareholders - - - - (40.0) (40.0) - (40.0)
Equity at 31 March 2021
(unaudited) 0.9 57.8 (0.8) 5.6 418.0 481.5 2.7 484.2
Notes to the Financial Report
1. Reporting entity
Victrex plc (the 'Company') is a limited liability company
incorporated and domiciled in the United Kingdom. The address of
the Registered Office is Victrex Technology Centre, Hillhouse
International, Thornton Cleveleys, Lancashire, FY5 4QD, United
Kingdom. The Company is listed on the London Stock Exchange.
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 2022 comprise those of the
Company and its subsidiaries (together referred to as the
'Group').
The comparative figures for the financial year ended 30
September 2021 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.
2. Basis of preparation and statement of compliance
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. Victrex Plc
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 October 2021. This
change constitutes a change in accounting framework. However, there
is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework.
This condensed consolidated interim financial report for the
half-year reporting period ended 31 March 2022 has been prepared 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 the annual report for the
year ended 30 September 2021, which has been prepared in accordance
with both "International Accounting Standards in conformity with
the requirements of the Companies Act 2006" and "International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union", and any public
announcements made by Victrex Plc during the interim reporting
period.
This Half-yearly Financial Report was approved by the Board of
Directors on 9 May 2022.
Risks and uncertainties
The principal risks and uncertainties which could impact the
Group's long-term performance remain those detailed on pages 33 to
38 of the Group's 2021 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 significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the Group's 2021 Annual
Report and Financial Statements, detailed on page 128.
Going Concern
The Directors have performed a robust going concern assessment
including a detailed review of the business's 18 month rolling
forecast and consideration of the principal risks faced by the
Group and the company, as detailed in the FY21 Annual Report for
the year ended 30 September 2021. This assessment has paid
particular attention to the impact of the ongoing global economic
challenges on the aforementioned forecasts.
The company has maintained a strong balance sheet throughout the
past two years despite seeing a significant impact from COVID-19,
particularly during the second half of the year ended 30 September
2020. The combined cash and other financial assets balance at 31
March 2022 was GBP45.8m, having reduced from GBP112.4m at 30
September 2021 following payment of the regular and special
dividends of GBP83.5m in February 2022. Of the GBP45.8m, GBP3.8m 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 GBP41.9m, approximately 60% is held in the UK where
the company incurs the majority of its expenditure. GBP41.8m of
funds is held on instant access. The Group has drawn debt of
GBP9.4m 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 18-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 2022 and 2023.
The assessment of going concern included conducting scenario
analysis on the aforementioned forecast which focused on the
Group's ability to sustain a period of falling demand, whether
caused to a pandemic, geo-political event(s) or other global
economic challenges. In assessing the severity of the scenario
analysis the scale of the impact of the COVID-19 pandemic was used
as a reference point - COVID-19 had a material impact on second
half performance of the year ended 30 September 2020 with demand
falling c.30% from pre COVID-19 levels.
Using the IBP data and reference points from the COVID-19
pandemic, noted above, 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 2023.
Scenario 1 - the global economy contracts with sales reducing by
30% from the level seen over the past 12 months, to approximately
265 tonnes per month, from June 2022 for a period of 6 months (to
mirror the length of the downturn in 2020) before a partial
recovery to c.320 tonnes per month for the remainder of the going
concern period.
Scenario 2 - in line with scenario 1, c.265 tonnes per month
from June 2022, however, the economic contraction lasts for a full
12 months, i.e. throughout the going concern period. This would
give an annual volume of c.3,180 tonnes, a level not seen since the
financial crisis which impacted 2008 and 2009 (and lasted
approximately 12 months). 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 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 2023, 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; and
-- Deferral/cancellation of dividends - the dividends payable in
February 2023 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 as the global
economy recovers from the COVID-19 pandemic and the war in Ukraine
continues, 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
condensed consolidated interim 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
published consolidated financial statements for the year ended 30
September 2021.
The Group has adopted the IFRS Interpretations Committee
decision of how arrangements in respect of cloud-based software as
a service (SaaS) systems should be accounted for. Costs incurred on
the implementation, including customisation and configuration, of
cloud-based SaaS systems are now expensed as incurred rather than
capitalised as an intangible asset as they were prior to 1 October
2021 if the criteria in IAS 38 - Intangible Assets were met.
4. Segment reporting
The Group's business is strategically organised as two business
units: Industrial, which focuses on our Energy & Industrial,
VAR, Automotive, Aerospace 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 2022 31 March 2021 2021
Industrial Medical Group Industrial Medical Group Industrial Medical Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Segment revenue 133.2 27.8 161.0 127.3 24.9 152.2 257.4 51.1 308.5
Internal revenue (0.9) - (0.9) (1.3) - (1.3) (2.2) - (2.2)
Revenue from external
sales 132.3 27.8 160.1 126.0 24.9 150.9 255.2 51.1 306.3
Segment gross profit 60.9 24.1 85.0 59.5 21.9 81.4 119.7 45.6 165.3
Sales, marketing
and administrative
expenses (41.0) (34.4) (71.9)
Operating profit
before exceptional
items 48.6 47.0 92.6
Exceptional items (4.6) - 0.8
Operating profit 44.0 47.0 93.4
Net interest 0.1 - -
Share of loss of associate (0.5) (0.4) (0.9)
Profit before tax
and exceptional items 48.2 46.6 91.7
Exceptional items (4.6) - 0.8
Profit before tax 43.6 46.6 92.5
Income tax expense (6.1) (6.1) (19.7)
Profit for the period 37.5 40.5 72.8
Attributable to:
Owners of the Company 37.8 40.7 73.2
Non-controlling
interests (0.3) (0.2) (0.4)
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 2021 2021
2022 GBPm GBPm
GBPm
Included within sales, marketing
and administrative expenses
Implementation of SaaS ERP system 4.6 - -
Restructuring costs - - (0.8)
Exceptional items before tax 4.6 - (0.8)
Tax on exceptional items (0.9) - -
Exceptional items after tax 3.7 - (0.8)
Implementation of SaaS ERP system
The company has commenced a multi-year implementation of a new
cloud-based ERP system. The company forecasts to spend
approximately GBP17m on the implementation which will deliver
benefits to both customer interactions and internal business
processes. The IFRS Interpretations Committee issued its decision
clarifying how arrangements in respect of cloud based software as a
service (SaaS) systems should be accounted for. The new ERP system
does not meet the criteria for capitalisation (as past systems
have) and therefore the cost is being 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 company's criteria to be presented as
exceptional. The ERP system is expected to be completed in
2024.
Restructuring Costs
The restructuring costs credit in FY21 relates to more
favourable settlements being reached on finalisation than assumed
when making the restructuring charge in FY20.
The cash outflow in the period associated with Exceptional Items
was GBP2.5m (FY 2021: GBP1.9m).
6. Income tax expense
Taxation of profit before tax in respect of the six months ended
31 March 2022 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 2021 2021
2022 GBPm GBPm
GBPm
UK corporation tax 3.2 4.5 10.6
Overseas tax 0.8 1.0 1.7
Deferred tax excluding rate change 1.5 0.6 1.3
Deferred tax rate change 0.6 - 6.1
Total tax expense in income
statement 6.1 6.1 19.7
Effective tax rate 14.0% 13.1% 21.3%
Effective tax rate excluding
rate change 12.6% 13.1% 14.7%
Deferred tax assets and liabilities are measured at the rate at
which they are now expected to reverse. For UK assets and
liabilities this is 25% for the majority of assets and liabilities
(31 March 2021: 19%; 30 September 2021: 25%) being the UK tax rate
effective from 1 April 2023. For overseas assets and 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 2021 2021
2022
Earnings
per share - basic 43.5p 46.9p 84.3p
- diluted 43.3p 46.8p 84.0p
Profit for the financial period
attributable to the owners of
the Company (GBPm) 37.8 40.7 73.2
Weighted average number
of shares used - basic 86,889,310 86,599,378 86,704,789
- diluted 87,308,262 86,815,421 87,045,353
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 holds an investment of EUR12.5m/GBP10.9m (24.5%) in
Bond at 31 March 2022 (30 September 2021: EUR13.0m/GBP11.4m). 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.
Further cash injections into Bond during the period have been in
the form of convertible loans to a value of EUR2.2m/GBP1.8m
(including rolled up interest of GBP0.4m) bringing the total of
convertible loans EUR6.4m/GBP5.3m at 31 March 2022 which are held
as financial assets held at fair value through profit and loss.
The Group's share of the loss of Bond in the period is GBP0.5m
(FY 2021 loss of GBP0.9m).
9. Financial assets held at fair value through profit and
loss
At 31 March 2022, financial assets held at fair value through
profit and loss relate to:
- Investment in Surface Generation Limited at GBP3.5m (FY 2021 GBP3.5m)
- Convertible loans in Bond at GBP5.3m. See also note 8 above.
The investment in Magma Global Limited was sold to TechnipFMC in
October 2021 at a consideration equivalent to its fair value at 30
September 2021 of which GBP4.5m was received in cash and the
balance deferred for 12 months.
10. 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
2022 2021 September
2021
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 106.2 3.0 159.4 9.4 61.2 2.9
Current
liabilities 80.6 (2.4) 12.4 (0.5) 106.9 (1.9)
186.8 0.6 171.8 8.9 168.1 1.0
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 under IFRS 7.
Fair value gains on foreign currency contracts of GBP1.7m has
been recognised in the period (H1 2021 - gain of GBP0.5m; FY 2021 -
gain of GBP4.9m).
11. Borrowings
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2021 2021
2022 GBPm GBPm
GBPm
Due within one year
Bank loans 0.3 - -
Loan payable to Non-controlling - - -
Interest
Total due within one year 0.3 - -
Due after one year
Bank loans 9.1 - -
Loan payable to Non-controlling
Interest 6.2 5.5 5.9
Total due within one year 15.3 5.5 5.9
Bank loans are repayable in line with a schedule up to December
2026. Interest is charged at the 5-year Loan Prime Rate of People's
Republic of China, which is currently 4.6%. The purpose of the loan
is funding of capital expenditure in China and is guaranteed by
Victrex Plc.
The loan from the Non-Controlling Interest is unsecured and is
repayable on 30 September 2026. Interest is charged at 4%.
12. Other financial assets
At 31 March 2022 the Group had GBP0.1m of cash on 95-day deposit
(30 September 2021: GBP37.5m). This is included in the Available
Cash metric (see APM's above).
13. 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 2022 31 March 2021 30 September
2021
Average Closing Average Closing Average Closing
spot
US Dollar 1.36 1.33 1.33 1.39 1.36 1.34
Euro 1.19 1.20 1.11 1.15 1.14 1.18
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, where net hedging has been
applied for cash flow hedges, are separately disclosed in the
income statement.
14. 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 2021
2022 2021 GBPm
GBPm GBPm
Profit after tax for the period 37.5 40.5 72.8
Income tax expense 6.1 6.1 19.7
Share of post-tax loss of associate 0.5 0.4 0.9
Financial income (0.2) - (0.2)
Interest on lease liabilities 0.1 - 0.2
Operating profit 44.0 47.0 93.4
Adjustments for:
Depreciation 9.6 9.0 18.5
Amortisation 1.4 1.5 3.4
Loss on disposal of non-current
assets 2.1 - 0.8
(Increase)/decrease in inventories (9.7) 15.2 26.0
Increase in trade and other
receivables (14.7) (14.3) (18.3)
Increase in trade and other
payables 2.5 3.4 11.9
Equity-settled share-based payment
transactions 0.8 0.4 1.4
Losses/(gains) on derivatives
recognised in income statement
that have not yet settled 1.2 (1.8) (0.5)
Gain on financial asset held
at fair value - - (0.9)
Retirement benefit obligations
charge less contributions 0.1 (1.2) (0.2)
Cash generated from operations 37.3 59.2 135.5
15. Related party transactions
The Group's related parties are as disclosed in the Annual
Report and Financial Statements 2021. There were no material
differences in related parties or related party transactions in the
six months ended 31 March 2022 except for transactions with key
management personnel. The most significant of these was on 10
December 2021 under the 2019 Long Term Incentive Plan ('LTIP'),
when 43,702 and 19,676 share option awards were granted to J O
Sigurdsson and M L Court respectively at an option price of nil p
per share when the market price was GBP24.6267p per share.
Furthermore, on the 10 December 2021 under the Victrex 2017
Deferred Bonus Plan ("Deferred Bonus Plan") 15,841 and 7,541 share
options were granted to granted to J O Sigurdsson and M L Court
respectively at an option price of nil p per share when the market
price was GBP24.6267p per share.
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 European Union 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 2021, there have been the
following changes in the directorate:
1/ Larry Pentz retired as Chair at the 2022 AGM and was
succeeded by Dame Vivienne Cox, who joined the Board on 1 December
2021, became Chair-designate on 1 January 2022 and became Chair
after the Annual General Meeting on 11 February 2022
The Directors of Victrex plc are detailed on our Group website
www.victrexplc.com .
By order of the Board
Jakob Sigurdsson Richard Armitage
Chief Executive Chief Financial Officer
9 May 2022 9 May 2022
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 27 May 2022
Payment of interim dividend 29 June 2022
Victrex plc
Registered in England
Number 2793780
Tel: +44 (0) 1253 897700
Fax: +44 (0) 1253 897701
www.victrexplc.com
ir@victrex.com
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