Victrex plc

Good day, ladies and gentlemen, and welcome to the Victrex third quarter interim management statement. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Victrex, Jakob Sigurdsson, to open the presentation. Please go ahead.

Thank you. So good morning, everyone, and welcome to Victrex's third quarter Entry Management Statement Call. This covers the period from the 1st of April through the 30th of June, 2024. Joined on the call by Ian Melling, our CFO, and Andrew Hansen, our Director of IR. I will start with a summary of the key messages and the key outcomes, and Ian will then cover the financial detail. And towards the end, we'll open up the call towards questions and answers. So turning to the headlines, I'm pleased to say that despite the mis-sentiment within Chemcos and some end markets right now, we delivered growth in both volume and revenue during the third quarter versus the third quarter of 2023 with 20% volume growth over this comparable period. This marks the first period since the fourth quarter of 2022, when we've seen quarterly volume and revenue growth compared to the prior year period. What this shows is that we're seeing continuing momentum from the early signs of recovery we saw in the second quarter, although the picture remains a bit mixed by N sector. On a sequential basis, compared to the second quarter of 2024, volumes are flat. The puts and takes for Q3 versus Q2 mainly relate to growth in VAR and electronics quarter-on-quarter, being offset by automotive, where the restocking benefit we saw in the first half did not continue into the third quarter. So we're still expecting to see growth on a full-year basis in auto, but not the double-digit levels seen in the first half. You know, for the first nine months in auto, we're up mid to high 70%. single digits, and we're expecting to finish the year in also around the mid-single digits or so. Medical remains a headwind for us, with the industry destocking and inventory unwind amongst major medical device customers continuing to be a headwind. This means medical is tracking lower than our expectations for the second half so far, even if we see some more encouraging signs on the sustainable solution side. I should point out, though, that we are not losing market share in medical to other peak players. Our business is much more diversified than it was a few years ago, and the underlying number of procedures in the various applications are growing. So what you're looking at here is purely an effect of destocking that is prevalent with a number of medical device companies right now. It's worth reminding everyone about the context of Q3, both this year and last year, and how these periods have flipped in terms of the sales mix. Q3 last year was the lowest quarter for value-added resellers since the COVID period. On the flip side, medical was very strong in Q3 last year, with medical revenue contribution being north of 20% for the group in its entirety. That picture has reversed this year with Q3 this year seeing medical revenue below 20% of the overall group revenues and VAR much stronger year on year and also compared to Q2. Ian will explain in a bit more detail and give more context to this and how it relates to the average selling price. I'll come back to these points in our outlook once Ian has given us the financial details. And the outlook is largely unchanged, except for the continuing headwinds in medical. For now, I'll hand it over to Ian, who will cover the financial details.

Thank you, Jakob, and good morning, everyone. As Jakob noted, it was pleasing to see year-on-year volume and revenue growth in what we all know has been a tough period for Victrex and wider chemicals. Covering the financial detail, Q3 group volume was up 20% to 979 tonnes versus Q3 last year of 818 tonnes. Q3 group revenue was up 2% at £74 million compared to Q3 2023 of £72.2 million. The delta between volume and revenue growth is reflective of medical remaining soft, but also the sales mix. that has been more influenced by the proportion of business from value-added resellers. On pricing, Q3 average selling prices were £76 per kilogram. The change year-on-year is primarily driven by sales mix and the year-on-year movements in medical and VARs, as Jakob has noted. Remember, medical had a strong performance last year, including a record full year, and VAR in Q3 last year was its lowest quarter since 2020. Currency is a small adverse impact on ASP, and it's worth noting that underlying pricing remains robust across end markets. If we look sequentially at volume and revenue, Q3 group volume of 979 tons was flat compared to Q2 2024. This reflects that auto was down on a sequential basis as some of the restock effect for auto in the first half starts to unwind. We did, however, see some sequential progress in VAR and electronics. Q3 group revenue was down 5% compared to Q2 2024, and this reflects a similar theme, i.e. sales mix as medical remains softer and the proportion of business from the likes of VAR increased. Quick word on end markets in Q3. Aerospace continues to show a solid performance on a year-to-date basis. Also, I have already covered the sequential impact, but we saw a solid year-on-year performance here too, which was the same with electronics. Energy and industrial saw single-digit growth on a year-on-year basis, although industrial has been offset by some good growth in energy. Medical, as Jacob noted, this has been and remains a challenge for us. Remember, medical's high margins have a notable drop-through in the P&L. We've seen several peers and those who supply the medical device industry commenting on the destocking effect in this industry, and performance is tracking lower than our expectations so far in the second half, with no improvement on the first half at this stage. We are well placed for when this destocking cycle ends, though, and remain focused on delivering the broader range of opportunities across medical in the years ahead. Finally, year-to-date group revenue of 213.3 million pounds is 9% lower than the prior year, reflecting the softer first half and lower medical revenues. Year-to-date group volume is down 2% at 2,716 tons, but with favorable comparative to come in our fourth quarter, we continue to see the opportunity of low to mid single-digit volume growth for the year as a whole. I'd like to finish with a word on cash and then currency. Victrex continues to have a robust balance sheet with cash generation set to improve, driven by trading conditions, lower capital expenditure and progress on inventory unwind. Remember that we have continued to invest through some of the toughest times seen in the chemical industry. And that investment cycle is now coming to an end. That gives us well-invested assets to underpin our future growth. Net debt on the 30th of June 2024 was 39.6 million pounds. including cash of £22.7 million. This means net debt was some £10 million lower at the end of Q3 than the end of the first half, and this was after payments of our interim dividend on 28 June. This means free cash flow improved in Q3 to over £20 million in the quarter. We're focused on continually improving our cash flow position, which can support returns to shareholders over the coming periods. Our forward guidance on full-year capital expenditure and inventory is unchanged. We anticipate capital expenditure will be lower in the second half compared to the first, meaning full-year capital expenditure of around £35 million. Inventory is tracking to reduce in line with our guidance. One other final point worth flagging quickly is on currency. As we note in our outlook statement, currency has become slightly adverse for us in the second half as sterling has strengthened, primarily against some unhedged currencies including the Japanese yen. Thank you, and I'll now hand back to Jakob.