Victrex plc Declares Special Dividend As The Cash Piles Up

Shares in speciality chemicals firm Victrex plc (LSE: VCT) jumped 4% in early trading after it reported 9% profit before tax growth in 2014.

Revenue grew 14% over the period, but margins dropped 200 basis points after the average selling price of goods fell from £76.00/kg in 2013 to £71.1/kg. Management attributed the margin erosion to higher manufacturing costs, currency impact and a softer sales mix including growth in the lower-priced Consumer Electronic business.

The outperforming PEEK resin business drove growth in the first half of the year, while new business in Consumer Electronics enhanced second half results.

Victrex also reported an increase in PEEK manufacturing capacity utilisation. At year end capacity was 78%, compared to 62% last year. Management believe this capacity utilisation increase justifies the ongoing investments into “new manufacturing assets which will support the breadth of new and larger business opportunities”.

The Invibio medical business returned to 5% growth in 2014. This reflects the continued improvement in sales to the spine market in the US, Europe and in emerging countries. Sales grew fastest in China, where Invibio experienced double digit growth.  

Victrex said it will renew its focus on cost of manufacture in 2015, with the aim of improving medium term efficiency as manufacturing capacity grows. In order to support ongoing success management spent £15.7m on R&D.   

The company boasts a solid balance sheet with no debt and a £89.6m cash pile. As a result of the strong cash position, management proposed a special dividend of 50p per share alongside the final dividend of 33.76p.

Looking forward, management expect volume growth to continue into the first half of 2015. The dividend is covered 2.1x by earnings, and management plan to maintain cover at a similar level.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Victrex. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.