Shareholders of Victrex plc (LON: VCT) have seen a dip in their shares on Thursday afternoon, after a modest update was provided.
Victrex plc is a British-based supplier of high performance polymer solutions. The company’s headquarters and manufacturing facilities are based in the UK with technical and customer support facilities in multiple markets, serving more than 40 countries
Shares of Victrex PLC saw a 0.77% dip on the announcement, and trade at 2,324p. 5/12/19 13:07BST.
Victrex reported that it saw a sharp drop in revenue and profit following weak sales performance.
As a result, the FTSE250 listed firm cut its dividend, which will come as alarming news to shareholders.
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.
“Our full year performance was in line with expectations, with good growth in Aerospace, Energy and Medical being offset by a deterioration during the second half in Automotive, Electronics and Value Added Resellers, although these end markets are gradually stabilising,” said Chief Executive Jakob Sigurdsson.
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%.
Sigurdsson continued: “Pleasingly, we saw further progress in our new product pipeline and mega-programmes. We secured our first commercial order for Aerospace composite parts, we signed a new long-term development alliance with Airbus to support larger Primary and Secondary structures, and we saw strong growth in our next generation PEEK-OPTIMA HA Enhanced product for the Spine market. In PEEK Gears, our value proposition is strong and we have multiple development programmes underway, as well as gears on the road.”
Victrex said it remains “cautious” in its near term outlook.
“Looking forward, Automotive and Electronics are showing signs of stability, although we will retain some caution on these markets at this early stage, with an initial assumption that current trends will continue through the first half year,” Sigurdsson said.
He added: “Our cost-effective de-bottlenecking project is underway, enabling Victrex to gain significant incremental capacity in support of our medium-term growth programmes, although an extended shutdown will mean some under recovered overheads. On a full year basis, currency offers a modest tailwind although this will be offset to a large degree by some limited incremental operating investment, cost inflation and our employee bonus scheme. Overall, we remain focused on making year-on-year progress and our Polymer & Parts strategy keeps us well placed to deliver our medium to long term growth opportunities.”
The results from Victrex come as no surprise when we look at one of the main markets that Victrex supply to. If we look at a couple cases, the results start to become familiar.
Nissan (TYO: 7201) saw their shares slide on November 13, as the firm cut its full year forecast. Nissan alluded to slumping demand and tough market conditions as a hamper to business.
Additionally, Renault saw its shares in red after the firm cut its 2019 guidance as a result of “less favourable” economic environment, Renault joined rivals such as Suzuki who saw their sales crash following a global slump and poor performance.
Considering the nature of the updates in the automotive industry, the results will have come as no surprise to Victrex.
Once market trading eases up following Brexit clarifications and the resolving of the US China trade war, shareholders may see shares in green. However, this will be a waiting game and patience will be needed for shareholders to allow Victrex to recover.