Industrial collapse knocks Victrex

Victrex has not fully quantified the Covid-19 hit yet, but has paused the half-year dividend and talked up the possibilities of major recovery projects, although these are not likely to rescue short-term car and plane manufacturing numbers. 

On the oil and gas side, with rig count down by half since the start of the year, this is likely to be a long downturn for the sector. Victrex has the positive sales potential of also seeing its products used in maintenance – replacement bushings and bearings and braking parts. But with oil prices low and cash flow way down, even this more reliable spending could at least be delayed. 

It is also unclear how quickly Airbus and Boeing will ramp up production, with airlines some of the companies worst hit by Covid-19. Looking for medium-term growth for its aerospace division on ‘electric take-off and landing’ (evTOL) is beyond ambitious, however, with current applications limited to 'air taxi' prototypes. 

At the time of the May trading update, chief executive Jakob Sigurdsson said aerospace sales volumes were likely to be down 20 per cent in 2020 and 5 per cent in 2021, compared with previous estimates. The 5 per cent drop is still fairly optimistic as uncertainty lingers over an industry that was already struggling with the 737 MAX debacle. 

A bad year will not be as destructive for Victrex as many of the companies it supplies because of its net cash position and relatively diversified offering within its industrial focus. Government stimulus packages for carmakers and Airbus and China’s bounce-back from Covid-19 will go some way to improving sales from the April and May lows. 

There are some cracks in that ‘normal’ level, however. The operating profit margin has been falling for years, from over 40 per cent in the 2016 financial year to under 35 per cent at the half-year stage. In the six months to 31 March – the first half of Victrex’s financial year – sales had improved, climbing 5 per cent year on year to 1,992 tonnes of its polymer products. But this reflected an acceleration in March, as customers bought up supplies in fear of transport routes shutting and shortages.