VIctrex PLC (LON:VCT) have told shareholders that they will be partnering with a Chinese firm to build a manufacturing unit in China.
Shares in Victrex trade at 2,471p (-0.099%). 13/1/20 12:50BST.
VIctrex have said that they will tie up a deal with Yingkou Xingfu Chemical Co Ltd to build a manufacturing plant in Liaoning, in the north east of China.
Victrex said they “already has an established relationship with its joint-venture partner through its monomer supply chain, with Yingkou Xingfu having significant experience of developing and operating chemical facilities in China which meet international quality, process and environmental standards.”
Through its Hong Kong subsidiary, Victrex will own three quarters of the joint-venture, and will aim to build a polyether ether ketone, or PEEK, polymer manufacturing facility.
The company said it will invest £32 million in the partnership, and the facility will be capable of producing 1,500 tonnes of polymers per year.
This comes at a good time for Victrex, as it follows the China 2025 initiative, unveiled by the country in 2015, which aims to increase China’s presence as a competitive global player in the manufacturing industry by 2025.
Jakob Sigurdsson, Chief Executive of Victrex, said: “This investment is in line with our record of not only investing ahead of demand, but in complementing and further differentiating our range of PEEK and PAEK grades, as well as setting the stage for specific geographic growth, whereby we can capitalise on the significant opportunities in China and the Asia Pacific region by having a competitive manufacturing presence there.
“Alongside the Made in China 2025 initiative, some of our increasingly diverse application areas mean our customers require a quality and differentiated PEEK offering. Whilst we already manufacture a range of PEEK and PAEK grades, this will enhance our portfolio, making us even better positioned in a region where we have seen strong growth in recent years and continue to see attractive opportunities, aligned to our know-how and strong technical and application development capabilities.
“Overall, we believe this is a good entry point to a China manufacturing operation, working with an established partner and offering an attractive returns profile.”
Victrex build following slow update
At the start of December, the firm saw its shares dip following a modest update.
In the twelve months to September 30, Victrex recorded pretax profit of £104.7 million, down 18% on the £127.5 million reported the year before. Additonally, Revenue fell 9.8% year on year to £294.0 million from £326.0 million.
The company lowered its total dividend per year to 59.56 pence, down 58% on the 142.24p distributed the year before.
Victrex saw a 15% drop in group sales to 3,751 tonnes from 4,407 tonnes the year before.
The company explained: “This reflects the cyclicality in Automotive and the associated impact on our Value Added Resellers segment, together with some de-stocking, with supply chain inventories running very low.”
The company also noted the “weaker” Electronics market, with both the semiconductor and smartphone markets down.
Victrex said a further headwind was the “tough” year on year comparative in its Consumer Electronics business, where it signed a large contract in the prior year. Excluding that contract, total group sales are down 12%.
Automotive Industry slumps – one of Victrex’s biggest customers
The automotive industry is one of Victrex’s biggest customers, however 2019 was a very slow year for car manufacturers and retailers.
Notable updates came from Nissan (TYO:7201) who saw their shares slide on November 13, as the firm cut its full year forecast.
Nissan’s demand was hit by a strong yen and falling sales. Its poor performance highlights stagnation in the progression of the global automotive industry.
Nissan outlined a new executive team appointment, who are set to takeover on December 1st following a string of poor performances.
The scale of the recovery that is needed is evident as Nissan reported their second worst quarter performance in 15 years.
After the appointment of Chairman Ghosn, business has gone both after facing falling profits, uncertainty over management and tensions with shareholders.
Additionally, Renault (EPA:RNO) saw its shares in red after the firm cut its 2019 guidance as a result of “less favourable” economic environment.
The firm said it now expects its group revenue to decline between 3% to 4%, “due to an economic environment less favourable than expected and in a regulatory context requiring ever-increasing costs”.
Renault added that its revenue for the third quarter amounted to €11.3 billion, down by 1.6% from the €11.5 billion figure recorded in the third quarter of 2018.
The car manufacturer continued to add that “the Automotive operating free cash flow should be positive in H2 while not guaranteed for the full year”.
Moreover, Renault said that is management will review the “Drive the Future” mid-term plan targets introduced in 2017.
The announcement that Victrex have made today will certainly please shareholders, and gives an opportunity of growth in a young Chinese market.