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Victrex hit by auto slowdown, iPhone loss in Q1

By Frank Prenesti

Date: Wednesday 06 Feb 2019

Victrex hit by auto slowdown, iPhone loss in Q1

(Sharecast News) - Plastics maker Victrex said first quarter revenue fell 18% to £64.1m due to end-market headwinds, tougher comparatives, some de-stocking and adverse currency exchange rates.
Group sales volume fell 22% to 822 tonnes. Excluding volumes for the large consumer electronics contract, thought to be for Apple's iPhone, core business volumes were down approximately 13% during the quarter.

Victrex said headwinds were predominantly in the automotive and consumer electronics markets.

However, the company added that January and February saw an improvement, "with a notable pick-up in automotive sales".

"Although the first quarter is always the seasonally weakest quarter for Victrex, this quarter has been slightly weaker than anticipated," said chief executive Jakob Sigurdsson.

"Pleasingly, January and February saw some initial improvement, although given our first-quarter performance, the first half is expected to be much weaker overall, compared to the prior year."

"Our expectations for the second half are unchanged, with new projects and reduced headwinds supporting our assumptions."

"With strong structural growth opportunities, a healthy new product pipeline and a highly cash generative business model, we continue to be well-placed for the medium and long term."

Average selling prices were up 4% from £74.9 per kg last year to £78.0/kg even with currencies turning negative.

Analysts at Barclays said the loss of the iPhone order pushed volumes around 11% and estimated that lower demand and de-stocking in autos contributed another 6% to the decline, implying the rest of the business contributed circa 5-6% to lower volumes.

"Some of that is was likely from non-iPhone consumer electronics and we believe the company sold trial volumes this time last year for a new project which probably didn't recur."

Having spoken to the company, Barclays said it sounded like the rise in ASP was a combination of lower VAR volume and positive local currency revenue growth in Medical.

"The company advised against extrapolating that ASP gain over the next three quarters and believes a flat or slightly higher ASP in FY19 is more likely; consensus has a slight decline so that's an upside surprise."

Morgan Stanley said Victrex will have to go some in order to hit current forecasts for PBT.

Accounting for the currency and energy headwind of £6-8m, the fall-away of the consumer electronics volumes of around £3-5m, an additional investment in SG&A of roughly £5m, and a tailwind of £14m from the absent bonus accrual, achieving the consensus PBT forecast "implies the underlying business will need to grow mid to high single digit in the second half and associated operating leverage".

Given lack of visibility in value-added resellers, weaker autos and electronics, and the recent weakness in the energy markets, "we continue to see more downside risk to cyclical volumes than is implied".

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