Victrex plc Aktie

Good day, ladies and gentlemen, and welcome to the Victrex Interim Results. [Operator Instructions] I would like to remind all participants that this call is being recorded.

I will now hand over to CEO of Victrex plc, Dr. James Routh, for the presentation. Please go ahead.

Good morning, everybody, and welcome to the Victrex interim results presentation. For those that don't know me, I'm James Routh and I've been CEO at Victrex since January. I spent the first 4 months working at pace on the short-term actions needed to address the performance issues we've seen over the past few years, along with reviewing and updating our medium-term strategy.

That being said, I've been greatly impressed by the passion and capabilities of the Victrex team, and the fundamentals of the business remain robust. So I'm confident that we can drive dramatically improved financial performance over the medium term.

Today, I'm joined by our CFO, Ian Melling; and our Director of Investor Relations, Andrew Hanson.

In terms of the agenda for today, I'm going to take you through the headlines of our H1 results and then some updates on our end markets, before Ian will take you through the financial performance. Then I'll come back and give you my initial observations of Victrex, provide an update on the previously announced profit improvement plan, and provide a high-level overview of our strategic framework before providing a summary and outlook. And then we'll throw open to Q&A.

So overall, the first half of the year was characterized by a weak Q1 offset by a strong Q2, resulting in overall revenues up 1% on the prior year. The weaker Q1 period was due to particularly low seasonal sales in December with some deferment into January, particularly with our VAR customers. And the gross margin of 41.7% was down 240 basis points on the prior year through a combination of price pressure, mix, and currency. This all fed through into an underlying PBT of GBP 19 million, 18% lower than the prior year, whilst free cash flow was good at GBP 22 million.

I'll provide more information later in the presentation, but in summary, the profit improvement plan is progressing well, with actions already taken to reduce global headcount by around 10% and the launch of a new organization structure better aligned to growth and performance.

The strategy review is nearing completion, and today I'm announcing we will be holding a Capital Markets Day in September, detailing our approach to dramatically improve financial performance.

As part of the strategy review, we are actively reviewing and simplifying our portfolio of products, facilities and operating sites. And as a result, we've recorded a noncash impairment of our China manufacturing plant of GBP 60.6 million, which Ian will talk through in more detail later. And it's really important to note this relates to operational capability at the plant itself and not market demand. Demand in China remains robust. It's our fastest-growing region with continuing growth in the period across a broad range of industries, including Aerospace, Automotive and Medical.

For those that aren't aware, we service a wide range of end market segments and geographic territories and are split into 2 primary divisions: Medical and Sustainable Solutions. By end market volume, Value Added Resellers or VARs are the largest at 42%, where we use Victrex PEEK to form stock shapes or compounds, and these are then sold on to a wide range of end market sectors.

The next largest sector by volume is Transport, which consists of specialized applications for PEEK in Automotive and Aerospace. Energy & Industrial consists of customers in oil and gas, renewables and broader industrial applications. Electronics consists of PEEK used in consumer electronic devices, including smartphones and home appliances, as well as in semiconductor manufacturing.

Finally, Medical is the smallest market by volume but with considerably higher average selling prices, made up of PEEK sales of implantable materials and devices, and PEEK used in non-implantable medical applications such as tools or pharmaceutical.

Overall, our volumes are up 6% with ASP down 4% through a combination of mix and price, with lower proportional Medical volumes and an increase in lower price point Sustainable Solutions sales. Overall Sustainable Solutions revenue was up 3%, driven by a good performance in Electronics, Energy & Industrial, and in VARs, with Medical sales down 9% due to mix, competitive pricing and some order phasing. And importantly, we've seen some stabilization in Spine sales over the period.

By region, EMEA remains our largest territory at 44% of revenue, with Asia Pacific running around a third and the balance in the U.S. APAC revenue grew by 1% in the first half, led by Greater China, with our other 2 regions broadly flat. The APAC region, and China in particular, is our fastest-growing territory and along with the U.S., are our focus areas for growth.

By end market, we saw all market segments deliver volume growth except for Automotive, which declined 6% on volume and continues to be impacted, particularly in Europe, due to the well-documented challenges with European Automotive OEMs. In general, this remains a challenging market driven by lower production and lower-than-anticipated EV sales. And the industry production forecast for 2026 is down 1% at 92 million cars, with ICE production down 7% and EV and hybrid vehicles up 4%, with ICE accounting for the majority of the 92 million cars forecast.

It's important to note that most Victrex applications are drivetrain agnostic across both ICE and EV, for example, ABS and bearings. But the EV upside opportunity that we talked about before, particularly in batteries and motors for Victrex, has not yet been realized.

In Aerospace, volumes are up 9% after a slow start in Q1, with strong improvement in Q2 and continuing momentum at the start of Q3. We see really good opportunities for PEEK thermoplastic composite solutions alongside our core applications in brackets, fasteners and thermal acoustic blankets. The sector saw slower production rates in 2025, with some improvement at the start of 2026. Both Boeing and Airbus build rate forecasts show a 20% increase in 2026 driven by the 737 MAX recovery. And Victrex has also been specified on the Comac C919 aircraft in China, with Comac forecasting 25 aircraft to be built during 2026.

Electronics volumes are up 14% with a strong recovery in Q2 after a weak first quarter. Semiconductor demand is recovering well, mostly driven by AI-related infrastructure rather than broad consumer volume growth. Based on the consensus of all industry forecasts across TSMC, Samsung and Intel, chip demand is forecast to be up 4% in 2026, with smartphone shipments down, as the industry flags memory shortages. As an example, Samsung reported a 6% reduction in the first quarter of this year.

Energy & Industrial volumes are up 19% as momentum continued throughout Q1 with an acceleration in Q2. With a buoyant oil market and a desire to maximize output, maintenance capex is being spent by our customers, although global rig count is down 7% year-on-year. And in General Industrial, global PMIs are variable and volatile, but all are above 50 at the end of the first half.

In Medical, given the high-value nature of our business, revenue is the key metric we look at rather than volume. H1 reflected a real mix shift, with Spine broadly stable but with non-Spine growing much stronger in non-implantable applications. Pricing within certain applications was softer, particularly in China. Order phasing was also a key factor during H1, with some orders shifting out into the second half. In Medical geographically, the U.S. remained weak, with China and Asia Pacific seeing strong growth opportunities, and Asia Pacific now represents 24% of Medical, and that was 9% 10 years ago.

VARs volumes are up 5% after a very slow start in Q1, as already noted, with improvement during Q2. This remains a highly competitive market with typical contract renewals occurring in calendar Q1. And it's really important to note that VARs are key partners to help us grow the market for Victrex PEEK.

So I'll now hand over to Ian, who will take you through more detail on the financial results.

Thank you, James, and good morning everyone. As James noted, there was a soft start to our financial year in the first quarter, but momentum improved significantly in Q2. I'd like to cover the key drivers for the half, starting with our income statement, then covering our profit and gross margin movements. We'll then turn to the key cash flow items, cover the detail around our exceptional items for H1, but also our expectations for those for the full year, as we proactively progress a number of actions as part of the profit improvement plan.

Moving to Slide 7 and our income statement. Starting with revenue, up 1% to GBP 147.1 million, and up 2% in constant currency, driven by good volume growth of 6%, offset by mix, price and currency. In Q2, revenue was up 7%, driven by volume growth of 14%. James has covered the detail of the end markets which were driving these volumes, but it's worth reiterating the overall sales mix in the first half, which saw Sustainable Solutions increase in proportion compared to Medical. There was also an adverse impact on ASP, caused by mix within both divisions.

In Sustainable Solutions, we saw a much stronger performance in VARs during Q2 after a softer start to the year, and strong momentum from Energy & Industrial, where volumes were up 19% in the half. At the same time in Medical, whilst Spine was stable, we saw an adverse mix within non-Spine, including growth from non-implantable applications, alongside some price pressure in certain applications and geographies.

Finally, it's worth noting that many of our contract renewals take place at the start of the calendar year, particularly in the VARs. These negotiations took place in a challenging pricing environment prior to the Middle East conflict, but we were largely successful in retaining, and in some cases growing, business with modest price concessions. The same is true in Energy & Industrial, where we continued to regain business previously lost to competition on price.

On average selling prices, H1 ASP was down 4% year-on-year, driven by mix and price, but we saw a stable ASP sequentially for H1 2026 versus H2 2025, and the detail of this is shown in Slide 25 in the appendix. The market for PEEK remains competitive, particularly in the VARs and Energy & Industrial end markets, which are seeing the most price pressure. Price is more stable in other end markets, though the competitive threat remains. Taking an overall view on like-for-like pricing across the group, the continuing average pricing impact overall is a decline of around 1% to 2% per year. The divisional revenue summaries are also shown in the appendix on Slide 23, with Sustainable Solutions revenue up 4% and Medical down 9%.

Moving on, currency weighed slightly on our half-year revenues, with the corresponding gain from currency hedging of GBP 1 million, as shown on the chart. Gross profit was 5% lower than the prior year at GBP 61.3 million, or down 2% in constant currency. Other than currency, gross profit was impacted predominantly by sales mix and price.

In respect to cost of manufacture, we expect to produce broadly similar volumes to the prior year and therefore do not expect to see any notable benefit from asset utilization this year. We did see some increased costs in respect of wage inflation and the annualization of the NI increase, but these were more than offset by raw material benefits that I'll come onto in the next slide.

Turning to overheads, overheads for the half were up 3% to GBP 41.3 million. Excluding wage inflation and reward, overheads were broadly stable with strong cost control in place. H1 did not see any material benefits from our profit improvement plan, with these coming in H2. Interest was an expense of approximately GBP 1 million for the half and is expected to be around a GBP 2 million expense on a full-year basis. Currency was adverse during the period, with just over GBP 1 million impact at PBT, and we anticipate this being slightly first-half weighted, meaning an approximate GBP 2 million headwind based on current spot rates and hedging in place on a full-year basis. More detail on currency is shown in the appendix on Slide 28.

This resulted in underlying profit before tax of GBP 19 million, down 18%, or down 14% in constant currency. After the impact of the GBP 63 million of exceptional items we reported in H1, we saw a loss before tax of GBP 44 million versus a reported profit before tax in H1 2025 of GBP 17.2 million. I'll cover exceptional items shortly.

Underlying earnings per share of 17.9p (sic) [ 17.2p ] was down 21%, slightly worse than the movement in underlying PBT, and the tax charge in the period was GBP 4 million compared to the prior year charge of GBP 3.6 million. The reported tax rate of minus 9.1% is impacted by the non-taxable impairment of the China manufacturing site. The H1 underlying tax rate of 24.4% is based on the expected full-year rate. This is above our mid-term guidance of 15% to 19%, as a result of unrecognized losses in China and the proportion of U.K. profits available to the patent box.

Turning to Slide 8, which shows the underlying PBT movements. Looking at the key movements beyond the GBP 1.1 million adverse impact from currency, Sustainable Solutions volume was a GBP 3 million benefit with good growth in a number of end markets. Sustainable Solutions price and mix was an adverse impact of GBP 2.8 million, which reflects some of the points covered earlier, including an adverse mix as the likes of Energy & Industrial saw good growth in the half alongside some contract renewals or regained business at lower prices.

Medical price and mix was a GBP 1.7 million adverse year-on-year movement driven by the mix of applications and particularly strong growth in non-implantable. Raw materials provided a benefit of GBP 1.2 million as we continued to make good progress in our procurement processes, allowing us to take advantage of favorable market conditions, though as we note in our announcement, we are mindful of potential future energy and raw material price inflation in FY '27.

Wage inflation and targeted investments was GBP 2.8 million, including the impact of the NI increase and a below-inflation pay increase across the organization. As a result, underlying PBT was GBP 19 million.

Turning to Slide 9, where we cover gross margin. Disappointingly, gross margin was below our guidance for the half, and we do now expect gross margin for the full year to be slightly below the prior year 45.3%, but with some improvement in H2 over H1 driven by mix and Medical, based on our latest manufacturing and customer forecasts. Our indicative guidance summary is shown on Slide 22.

Starting on the left-hand side with H1 2025 at 44.1%, currency was an adverse impact of 80 basis points. The mix between the 2 divisions, with a slightly higher share of Sustainable Solutions business in the first half compared to last year, drove an adverse impact of 50 basis points. Within Sustainable Solutions, price and mix represented an adverse impact of 120 basis points, and that was 50 basis points within Medical. Raw materials gave us a benefit of 60 basis points, resulting in H1 2026 gross margin of 41.7%. Our gross margin excluding the plant in China was 43.9%.

Turning briefly to cash flow on Slide 10. The detailed cash flow items are shown in the Appendix on Slide 26. The main headline here is a continuing strong cash conversion at 109%, slightly lower year-on-year, but a key measure of our cash flow efficiency and a positive result. This is one of our key strategic objectives in the organization which we remain fully focused on.

Free cash flow was stable year-on-year at GBP 22 million. We've maintained our interim dividend of 13.42p per share, which will be paid on the 26th of June, representing a cash amount of around GBP 11 million. Remember we also paid the FY '25 final dividend in February, which represented a cash outflow of approximately GBP 40 million.

Capex was lower in H1 versus last year at GBP 7.4 million, and we are now guiding to FY '26 full-year capex being below the 8% to 10% of revenues guidance as we continue to control spend carefully.

Net debt for the half was slightly higher at GBP 45.4 million, but at 0.65x net debt to underlying EBITDA, well within our target range of 0.5 to 1x.

So I'll finish on Slide 11, exceptional items. The main driver here is the impairment of our China manufacturing facility in Panjin. This was a noncash impairment of GBP 60.6 million, which together with GBP 2.4 million of exceptional items associated with restructuring and reorganization, led to total exceptional items of GBP 63 million in the first half, a material increase on the prior year.

A more detailed summary of this impairment is covered in our announcement, but to summarize, the impairment follows the conclusion, after a period of continuous running in H1, that parts of the process technology in one of the final manufacturing stages at the plant is not capable of delivering the original nameplate capacity of 1,500 tonnes, meaning we are not currently able to maximize full capability of this asset. This was the main basis of an impairment indicator which caused us to assess the value in use of the China plant.

In assessing that value in use, we have undertaken a discounted cash flow calculation under the principles of IAS 36, Impairment of Assets. There are 2 important things to note about this calculation under the guidance of IAS 36. Firstly, the calculation does not assume further enhancement of the asset and therefore it remains limited to its current capacity. Secondly, the calculation is limited to 5 years future forecast cash flows and a terminal growth rate over the remaining life of the asset. And therefore, further improvements from year 6 onwards do not significantly contribute to the value in use calculation. As a result, the calculated value in use is GBP 10.2 million, and the resulting noncash impairment, as I've already said, is GBP 60.6 million.

As we note on the slide here, we do remain committed to a plant turnaround given the opportunities in China that James will comment further on. We are currently assessing the most effective way to improve the rate-limiting step for the Panjin plant, including what investment may be required to increase its operating capacity to take advantage of the long-term opportunities that we continue to see. I will also add that any future investments to realize its full potential would be expected to be delivered within our mid-term guidance for annual capital expenditure of 8% to 10% of revenues.

Turning to the other 2 areas where we will see exceptional items coming through this year on the right-hand side of the slide. Firstly, on portfolio simplification, we are looking to rationalize and simplify some of our portfolio and specific programs and anticipate up to GBP 10 million of costs associated with this for the full year. These would be noncash.

Secondly, on restructuring and reorganization, James will cover more on the actions we've been proactively taking so far this year, but we anticipate the headcount reduction and other actions will result in up to GBP 10 million of costs on a full-year basis as previously guided. These will be predominantly cash items. At the half year, we had incurred GBP 2.4 million of exceptional items associated with restructuring.

In terms of guidance for the full year, we note in our announcement today that total exceptional items for the year are anticipated to be in the range of GBP 75 to GBP 85 million, the noncash China impairment accounting for the majority of this charge.

Thank you, and I'll now hand back to James.

Thank you, Ian. So I'm now going to provide an update on my first 4 months in the business, my initial observations, and what actions we're taking to improve financial performance.

So why have I joined Victrex? Simply, the business has strong fundamentals, and with my background, there's a strong opportunity to unlock its potential and drive significant improvements in financial performance. I've worked in engineering and technology businesses for over 35 years, would you believe, and mostly aligned to end markets that Victrex serves, such as Aerospace, Automotive, Energy and broad industrial markets. And my PhD is actually in applied materials science, and I've got a lot of experience and knowledge of utilizing the properties of polymers to deliver commercial outcomes.

In my previous roles, I've demonstrated a track record of designing and implementing strategies and plans that deliver long-term sustainable growth. And I have a passion for high-growth businesses, particularly where there's an opportunity, such as Victrex, where the fundamentals are good but execution has been weak.

For all our challenges in recent years, we have to recognize and acknowledge the positive position of Victrex. We are the undoubted leader in PEEK. We have a very strong brand and value proposition along with what remains differentiated products. Victrex addresses a wide range of end markets and geographic territories, and there are clear long-term structural and, in many cases, regulatory growth drivers that support continued demand for PEEK and the creation of new markets.

The business has been well invested over many years in terms of manufacturing capability and capacity, equipment, people and R&D, driving a strong science and engineering-led culture. And looking at the regional growth drivers, there are strong opportunities in both Asia Pacific and North America that are yet to be adequately exploited by the business. And finally, I saw the opportunity to drive performance through internal changes to how we approach the market and execute in terms of leadership capability, organization design, operating model and leveraging IT and automation.

As mentioned in the last slide, Victrex has significant untapped potential that has been challenged by some external factors in recent years, but many of the issues were due to things that were within our control. On the positive front, we have a strong and differentiated value proposition and are well invested. However, in recent years, the issues have related to weak commercial and operational execution. In general, the approach to the market has been correct, but our ability to translate those ideas and plans into tangible commercial outcomes has been deficient.

We became an inward-looking organization without sufficient focus on the needs of the customer and the markets we serve. We've also been slow to adapt to changing market conditions in terms of competition and buying behaviors. We've not acknowledged that there is pricing pressure in certain markets and that we need to adapt accordingly and reduce our cost to serve, including our cost of manufacture.

Many of these legacy issues have been caused by our suboptimal and centralized organization structure and operating model. A proportionally large corporate center with decisions being made away from the regions and the customers in which we operate has resulted in a slow, complex organization that has not kept up with the rapid pace of change we see in today's markets. This has also caused our cost base to become out of step with the financial realities in terms of revenue and gross profit.

So importantly, what are we doing to resolve these issues? Firstly, we're fixing the foundation by right-sizing the cost base and implementing a new decentralized operating model with regional P&L ownership to drive performance and decisions made close to the customers we serve. The leadership team is in the process of being refreshed, creating a high-performance team who have a track record of focusing on the customer and delivering financial results. As part of this, we'll improve our commercial capability by reviewing the effectiveness of our sales teams and ensuring they have the appropriate tools and incentives to drive performance. We've already appointed a new Chief Commercial Officer who started a couple of weeks ago to drive this change.

We're refreshing our strategy to focus on the theme of relentless execution. We'll focus on markets where we have a natural defensive moat in terms of being specified in, and also geographies that have built-in protection against certain competitors. As part of our strategic development, we're expanding our approach as a trusted solutions partner to customers, providing a range of additional value-added services to improve long-term customer relationships and drive improved gross margins.

A key part of our value proposition is applications development for our customers, and I'll explain a little more about this as we go through the presentation. Equally important is to have world-class operational excellence, driving the customer experience through improved quality, right first time, and reducing the cost of manufacture, which also contributes to improving gross margins.

So moving onto the profit improvement plan. As you may recall, we announced a GBP 10 million profit improvement plan back in December, with the objective of delivering the full-year improvement in FY '27. The plan consists of 3 main elements: reducing overhead costs and restructuring, driving operating efficiency, and simplification of our portfolio. Since joining in January, I've taken rapid actions to implement this plan with a 10% reduction of global headcount, driving a direct overhead reduction, the early benefits of which will be seen towards the end of this financial year. We've primarily focused on central and support functions rather than direct customer-facing or operational roles.

We've also launched a new organization structure and operating model, the early stages of which have been implemented. As part of this change, we've moved to a decentralized P&L-based structure and hired some proven high-performance leaders to improve execution. It's early days in the actions taken around operating efficiency, but the operating model work we're doing will drive improvements. Plus, we've put together a transformation team to focus on operational transformation, delivering improved end-to-end processes across our manufacturing facilities. And in recent years we've invested in our IT systems, and now is the opportunity to leverage this investment, including initial investigations of where automation and AI can be deployed.

We're actively reviewing our product, project, and operational portfolio to ensure we are focused on those that drive tangible commercial outcomes. Examples include a review of our mega-programme. For the sake of clarity, mega-programmes will no longer form part of our investor communications as they'll become business as usual and will be assessed on a business case basis like all other projects. That being said, technical milestones continue to progress, for example in the magma-programme, and we will report on them when there's a tangible, real development to talk about.

We're also reviewing our product portfolio to ensure we're focused on products that support profitable growth, and a review of our underperforming assets on a global basis. We'll stop any activities that are not aligned to our refreshed strategy.

So moving on to our updated strategic framework. Victrex has always had various elements of this slide, demonstrating a premium offering to the market driven by long-term structural and regulatory growth drivers. These 4 components you can see on the screen are essentially the value proposition of Victrex. And we'll build on this more during the Capital Markets Day in September. Essentially the 4 components of the value proposition are the 'what' we do, which is largely unchanged, although more emphasis is required in certain areas. What we are now focused on transforming is the 'how', driving relentless execution as part of our core values.

As already mentioned, we're improving our commercial capabilities and structure to focus on order intake and financial performance. The changes we'll make to operations will drive excellence, improve the customer experience, drive down the cost of manufacture, and improve gross margins. The most important part of the change to how we approach the market is a simplified business model. Removal of non-value-added activities and aligning the organization and incentives to financial performance is key to our future success. This will ensure we're an agile, responsive organization aligned to the needs of our customers on a regional basis.

And finally, I'd like to briefly mention who our customers are. We focus on 3 main areas. Firstly, customers or markets that are driven by the need to substitute metals or other materials and are driven by structural or regulatory changes. We work closely with manufacturing partners who are focused on driving manufacturing efficiency, and we use our trusted solutions partner status to help. And the third group are value-added resellers who use our PEEK materials to develop stock shapes or compounds for their customers.

And I really want to reiterate that although VARs are lower ASP, we value our long-standing relationships with them, and we partner with them on material development. The cost to serve VAR customers is relatively low, and as such, they are of real value to the performance of Victrex.

In summary, our core value proposition delivering a premium offering, plus relentless execution, will drive real value and unlock the strong potential of Victrex.

A key part of the value proposition on the previous slide was how we use applications engineering to drive customer value. I wanted to provide a couple of examples here because this drives strong differentiation and high barriers to entry, and ensures a long-term partnership with our key customers.

So the first example is in the field of Aerospace composites. We have a partnership with Daher to develop thermoplastic composite parts that are structural in nature. In this case, a wing rib using patented Victrex lower-melting LMPAEK unidirectional tape. This helps Daher design a structural part with the optimum properties to deal with a wide range of load cases seen in flight, while significantly reducing weight and therefore fuel usage and emissions. [Audio Gap] they are considerably shorter manufacturing time versus conventional thermoset composites.

Another example is the work we did with Abiomed to develop their ventricular assist device, which assists patients with severe heart failure to improve blood circulation. We used our PEEK OPTIMA material to ensure this minimally invasive device is biocompatible and durable in this critical application. Cardio and active implantable devices are areas where we continue to see significant opportunity for our Medical business. Our application development is a key part of our strategic approach and will be further enhanced as part of our organizational changes to ensure we have the additional capacity of skills in this critical enabler for our sales growth.

Before we wrap up, I wanted to include a slide around our performance and plans for China and the broader Asia Pacific region, particularly in the context of the impairment of our China manufacturing plant discussed earlier, which is solely related to operational issues and not market demand.

Over the past 10 years, we've grown our Greater China sales strongly with over 17% compound annual growth rate and strong positions in various end markets, including Aerospace, Automotive, and Medical. Medical is now a strong part of our China sales, representing around a quarter. And we are committed to driving further growth and presence in what is the fastest-growing region for our products and services. We already have in-country sales, technical and manufacturing capabilities, and it's a really good example of how we intend to operate going forward on a regional, decentralized basis. And this region will be a key focus for our newly appointed commercial team.

So in summary, the weak first quarter led to a less than satisfactory H1 result. However, Q2 was strong, and this momentum has continued to date into Q3. Of course, we're being mindful of global macroeconomic and geopolitical uncertainty and its corresponding impact, essentially on energy costs, shipping, and end market demand. And as a result of these external factors and being mindful of the uncertainty from them, the Board now expects underlying PBT for FY '26 to be between GBP 42 million to GBP 44 million.

This is a transitional year, as I joined the business at the start of Q2, and we're taking urgent actions to address some of the issues that I acknowledged earlier. We're focusing on ensuring tight cost control and delivering for our customers while simultaneously delivering the profit improvement plan and strategy review.

Earlier in the presentation, I described some elements of the strategic review taking place, and I'm delighted to announce that we'll deliver a Capital Markets Day in September this year where we'll focus on the following: firstly, an update on the profit improvement plan, including more details around overhead reduction, plans for operating efficiency, and portfolio simplification.

We'll provide some details on market dynamics, competitive positioning, and focus areas that will drive tangible financial performance. We'll describe the new organization design and operating model, and you'll get the opportunity to hear from the refreshed leadership team and details on how they intend to drive profitable growth over the medium term.

And finally, we'll provide a roadmap to our medium-term ambitions and how we'll drive significant improvements in profitability, including detail of the component parts and clearly identifiable KPIs to show progress.

That brings me to the end of the formal presentation. I'd now like to open the floor to any questions. We'll start in the room, and then we'll move to the call after that.

Henry Carver from Singer. Just first on the China operation. What was -- what did you find the nameplate capacity to be, if it wasn't the 1,500? That was the first question.

And then the other one was just around the growth opportunity. You highlighted U.S. and Asia, sort of why not Europe or other regions in particular?

Okay. On the first question, so the nameplate was 1,500 tonnes. We've been operating to try and get towards increased capacity in the first half of the year. We are committed to still delivering to our 100 tonnes target for this year, so that's still progressing. So what we found is there's a rate-limiting step towards the end of the process, which is limiting the output from the overall plant. So we are still able to ramp over the next couple of years beyond the 100 tonnes using the existing plants that we have, but there are improvements that need to be made to get us towards the nameplate capacity. That will take couple of years to get to that point.

In terms of market opportunity, I think just -- if you just look at general market indicators around industrial sectors, the European region is not exactly firing on all cylinders. Obviously, our Asia Pacific opportunities are in Japan, Korea and Greater China. There is a lot of industry there that focuses on the markets that we serve. And the U.S., in particular, is a strong market for us in Medical, Aerospace, Defense, oil and gas, and other applications. And I think from my perspective, there's lots of opportunity, particularly in the U.S., that we haven't really exploited. We've done well in Greater China, but in the broader Asia region, there's more we can do as well.

Vanessa Jeffries from Jeffries. Looking at China, the 1,500 tonnes is supposed to give you 40% of total China PEEK capacity, and now you probably have 3% to 5%. When you're talking about that strong demand in China, and especially not just PEEK but lower grade PEEK, what's your confidence in your ability to deliver on that demand? And what can you deliver from the U.K.?

Well, we have sufficient capacity within our U.K. manufacturing plants to deliver the needs over that short- to medium-term while we're waiting for this plant to come on stream. I have no concerns around being able to deliver against demand from the U.K.

And then just on inflation and your ability to recover that VAR pricing. Given the price pressure you're seeing in the market, and the fact that you took price down in couple of them in Jan, Feb, is it easy to go back and now say we need some price increase?

So broadly speaking, most of our customers, we are contractually fixed to a price for a period of time, so we're not trading on a day-to-day basis like more commoditized chemicals. So typically we'll be on a 12-month contract where we've got that fixed in. That being said, for larger things that are outside our control, we have put customers on notice that we may need to put surcharges through depending on what happens with the Middle East conflict.

We are focusing on markets where we are specified in and we have higher barriers to entry. At the more standardized end of our markets, we've got more price pressure, so for example with VARs where we're providing volumes of standard product, that's where you have more price pressure. In the specialized applications, that's where we've got more pricing power. So we are strategically focusing on those whilst continuing to support those standardized ends of the market where the volume is because we need that for asset utilization on the plant. So there's a bit of a mix there. Do you have anything to add to that, Ian?

No, I think it's a good summary. I think the point that we've put customers on notice that we may need to use surcharges, as we did previously, is important. I think the only other thing to note is we do try and line up our raw material spend, so we're not as vulnerable to moving prices day-to-day in the chemicals market as other companies. We do try to contract our raw material spend over a similar window to how we contract with our customers as well.

We had also put price increases through already in already in certain territories and certain parts of our certain market segments.

And just a quick follow-up on that. I mean, you said that you took price down in Energy & Industrial but not Automotive, was there -- I mean, it just seems to me like a market where it would have been obvious to take price down. Was there a reason for that?

Yes. I think with Energy & Industrial, there are specific opportunities that involve significant volumes of PEEK where historically we've lost chunks of business based on price, and therefore there's the opportunity to go back and try and win those chunks of business back. With Automotive, it tends to be slightly more fragmented in terms of customers and order size. So there isn't the same kind of opportunity to play with price necessarily.

I'm [ Morten Young ], [ indiscernible ] Investec. I've got 3 quick ones. Yes, first one related to the previous one. Don't know if you can give us a feel for the margin development in sustainable solutions excluding the VAR business, given it's such a swing factor in terms of various peaks and margin.

Secondly, I think Evonik recently announced strong PEEK demand in the first calendar quarter as well, but they attributed that to stocking and expected it to reverse in second half. I'd love to know what you're seeing on that.

And then thirdly, can you give us any color at all on Medical especially the non-Spine implantable business? Maxx Orthopedics haven't said anything, I think, in terms of the launch time lines with the knee, but it's supposed to be on the market in India, I think you said.

I'll answer the second question first of all and the reference to Evonik. First of all, we've also seen strong demand in our Q2 or Q1 calendar. Clearly, how much of that is buying ahead or anticipated shortages due to the Middle East conflict is questionable. We've spoken to our customers around that, and the general feedback that is not what they're seeing. However, we are mindful of that, which is another reason for us being prudent in our guidance for the full year in terms of where we're positioning those numbers. Do you want to answer the Medical one, Ian?

Yes, sure. So in terms of Medical, I think what we're seeing, [ Young ], is the Medical business is it's hard to judge on one half year, right? I think we get orders from customers. Customers don't typically order every month. Some customers order from once a quarter, potentially. We've just seen some order phasing out to the second half of the year, specifically on the knee. So the knee has been submitted for approval in India, and we haven't had, or Maxx specifically, haven't had that approval in India yet. So we wait on that, and we'll be ready to go once that approval comes through from the regulatory authorities in India.

Going back to the first point in margin development in VARs. I mean, we don't comment on margins specifically at an industry level, so I wouldn't want to go there in terms of what it's doing. What I would say is it's similar to VSS overall in terms of what we're seeing. We see the benefit of the raw materials that have come through across the VSS side. Obviously, VARs is a significant driver of the volumes through the plants, which helps as well. But yes, overall, nothing dramatic to see other than the price and a bit of raw material benefit coming through on that. What I would say, it's important to note, the VARs don't have a lot of costs further down the P&L. So VARs is a lower cost to serve market. So whilst it might be at the lower end of our gross margin percentages, it is still a positive number. It is still contributing gross profit, and there's a lot less SG&A associated with the VARs than some of the other markets.

Kevin Fogarty from Deutsche Numis. Two, if I could please. So one, obviously, a lot of the changes there around operation efficiency. Clearly, I guess kind of reviewing the portfolio, you found areas where products have kind of lost the competitive advantage or perhaps isn't as strong. I guess, is the applications development you've talked about this morning the key to, you know, making Victrex more important to its customers, in those areas where perhaps weaker, as opposed to just sort of X-ing them from the portfolio in time? Are there other things you can do to sort of bring these things back to life, I guess, where they get into a growth phase again? So just be good to understand how you think the steps are there in the weaker areas.

And just in terms of capital allocation, obviously, dividend policy kind of unchanged at this point. You're not flagging greater investment in the business at this point in time. I just wondered, sort of, why is there the need to be so generous, I guess, in terms of dividends at this point? Could we see an opportunity where having fixed the business, you find growth opportunities, either organic or M&A, that you think could be interesting?

Okay. Well, I'll answer the second one first. I've forgotten the first question already. In terms of dividends, you won't expect us to comment on the details of our capital allocation policy at this time. It remains under review. We're holding a capital markets day in September, and I think it's important to align the needs, the capital allocation needs to the strategic direction of the business. So we'll comment further on that potentially later in the year.

The first question around application engineering, and application development, that is absolutely the key because this is where we are now working in partnership with our customers, so it becomes a long-term relationship. There's mutual benefit to both organizations because generally speaking, if you're moving, for example, from metal to PEEK, most engineers that are designing with metal don't understand fully how to design with PEEK. So specification of the material, the properties, the design of the product, the regulatory approval, the testing and all of those things, that's where we help our customers to get that sort of long-term sticky relationship. And also of course, once you're specified in, the cost to change is high because you'd need to re-qualify a new material against all of the requirements for those industries.

So we're focusing on industries that are driven by strong regulations or qualification requirements, then those are the markets that we're focusing on. Equally, looking at geographies where, for example, some of our Chinese competitors will find it more difficult to operate, shall we say, so focusing on those areas. I mentioned the U.S. earlier as an opportunity to do.

Great. Just sort of on those -- are there sort of quick wins that you see for Victrex, rather than feeling this is slow burn 2, 3 years, et cetera?

Okay. So there was -- historically, the mega-programmes have all been long-term projects, so they've all continually moved to the right for lots of different reasons. I'm sure you know the history. We're having a more balanced portfolio of short near-term opportunities with some of those still longer-term opportunities that we have. I think that's important. Those long-term opportunities are still there. There's some really good opportunity to drive step change in volumes and financial performance. That's got to be balanced with some things in the here and now and focusing on the next 6, 12, 18 months. Some quick wins that will then fill in the gaps while we're waiting for these larger things to come in.

Chetan from JPMorgan. First question on guidance. You did first half 19, the implied for H2 is 24. Nobody likes H2 waiting, weighted guidance these days. So can you maybe clarify what are the drivers of that H2 performance improvement?

The second question, and apologies if this is a harder question, but cost savings that Victrex started like 2 years ago already. And feels like nothing has necessarily shown up in P&L. My question is more like you're talking about investment in application development at the same time cutting costs. You've got structural challenges. So do we need a proper reset for the next 2, 3 years in terms of cost base so that you can reinvest to grow out of this situation? Or is the cost savings something that can actually drive that sustainable improvement?

I'll answer the second one, you can answer the first one. The second one, that targeted savings for next year is net of the investments we need to make in the areas to drive performance. We are also doing a lot of work on refreshing our operating model and optimizing all of our processes, including using automation where possible to take out overheads. As we start to do that and simplify all of our processes, because our processes are complex right now, overly complex for a business of our size and scale, and we really simplify that. That will identify further opportunities over the next year, 18 months for us to take additional costs out as we go forward as well.

So this will not only take costs out, it will drive the performance of the business at the same time, okay? So I can really see some upsides in doing that over the next sort of 12, 18 months. I'll let you answer the first one.

Yes. I think it's part of it's the same answer, Chetan, right? We're making these cost savings now, and we're going to see the benefit of them as we come towards the end of this year. So I would expect to see GBP 2 million-GBP 3 million of that delta between H1 and H2 at least coming from the cost savings starting to kick in the fourth quarter. And on top of that, you've got the momentum, so Q2 clearly much stronger than H1. So Q2 is much stronger than Q1. That momentum from Q2, which we see continuing into Q3, will absolutely drive increased profits over the first half. And then we have a little bit of phasing in terms of manufacture costs as well, where we've banked some savings into inventory that will come through in the second half as well.

So with all those things, I don't think you need a significant step up in performance from where we're seeing coming out of Q2 to be able to deliver the guidance that we've put out there.

And just last question on pricing strategy. You mentioned, you typically have annual contracts. I don't think many chemical companies have annual contracts these days, just given how volatile the market environment is. Most of them have monthly price changes. So is that part of your review, and why not? If you see so much, volatility in the market and sometimes, just proactivity is probably not bad in this environment, I suppose.

Well, we are being proactive. We're certainly not sitting on our hands when it comes to pricing at the moment. We are out there talking to customers. We have pushed through price increases where it's appropriate and where we can. That being said, it is still a competitive marketplace, and we need to acknowledge the fact that we are under competitive price pressure in certain parts of our portfolio of products, but we are proactively doing that. But I think everyone needs to remember that we are already the premium priced product, okay? We have a differentiated product. We have premium pricing. So the ability to keep increasing it beyond a premium on a premium starts to get a bit more difficult. So that needs to be recognized.

And also we're not a commodity chemicals business, okay? We -- I know you know that, but we're really -- we can't -- we're not reacting to what's going on on a day-to-day or week-to-week basis. We have long-term customer relationships, and we value those customer relationships. We want to retain those customers and grow with those customers as opposed to sort of month-to-month fluctuations. We're not selling broad range of -- wide range of different polymers. We specialize in PEEK, and those customer relationships are important to us. There's a balance to be struck, but equally, we're not just going to sit around and wait for costs to come through to us. We're already taking those proactive steps. We haven't factored those into any of our sort of like second half numbers as yet.

[ Sander ] from Stifel. Two questions from me, please. Firstly, it's clear you've been very busy in the first few months. Just on the organizational structure for decentralizing local P&L, can you give us a sense of the incentives you put in there and any sense of how it's been received? Appreciate it very much today.

And then secondly, on strategic hires that you mentioned, the Chief Commercial Officer, how many more people do you need to get in, do you think, to get the team to where you want to be to drive the future potential?

Okay. Well, I'm not going to get into the specifics of our incentive schemes that we're putting for our organizations. But clearly, having clearly measurable P&L accountability, and driving performance against that and a cascade of those through the organization by region and by area is really, really important for visibility of performance. That's the first step in that.

In terms of building out the team, we have a new Chief Commercial Officer. We have a new Managing Director for our Medical business, with a great background who'll be joining us in summer. And that's one of the reasons we're doing the Capital Markets Day in September. We want to make sure we've got our leadership team in place, they have their feet under the table, and then they're able to come and talk to you in September with some credibility after spending a good few months in the business.

It's Alex Brooks, Canaccord. Couple questions. One on the sort of picking up on the sales question. You're kind of flagging a lot less on the big mega-programmes and a lot more on regional development. But you also said no net increased sales costs, basically. But it's a super technical process that takes years to get people. So can you kind of talk me through a bit how that fits together?

Okay. So we have regional sales teams that are accountable for their region. They'll address a wide range of end markets. The only exception to that is Medical because that's very specialized and you'd expect medical sales people to be discreet in that. Broadly speaking, across Sustainable Solutions, they address all different markets. We do have market specialists, for example, for Aerospace, where you need to have a good understanding of the aerospace requirements. That's being put together. That we already have existing sales teams in those regions, but they are kind of cut across in a matrix organization at the moment, so they'd be very discreet and focused on that. The new Chief Commercial Officer is coming in and looking at the moment on managing the balance between short- to medium-term pipeline and those longer-term opportunities.

So the longer-term opportunities will still be there, okay? What we do with mega-programmes, we'll talk about Capital Markets Day in terms of changing some of the approaches to those. But we've got to get a more balanced view of short-term opportunities. Now, it is generally quite a long sales cycle business. We're talking sort of 18 months, 2 years from initial conversations to getting a customer specified in and using our products and delivering volumes. So that's important.

But in the last couple of years, there has been some good improvement on pipelining that is now coming through in some of our activity we're seeing. But the more applications engineers we have that go out in partnership with our sales people, talking to customers about their issues and solving their problems, that's where we're going to really drive the value. So we do have good applications engineering capability at the moment. We're doing a lot of work, for example, in modeling and simulation for our customers to optimize their part design using things like finite element analysis and computational fluid dynamics and all good stuff like that, right? So we're already doing some of that stuff, but I want to do more of that. Essentially, that's what's going to drive the real value, we're going to focus in on those.

And then finally, I'm going to come right back to the first question on China. Are you basically saying that you're going to take remedial action to get back to 1,500 tonnes or is that still an open question?

It's still an open question. We're looking at options at the moment and what we can do. As I said earlier, we can ramp-up from where we are now using the existing plant and optimizing the existing plant. So we identified that is a rate-limiting step and we do need to do more with the plant to get up towards that capacity level. And we're looking at various options around that, but if it does require additional investment, as we already said, it's within that 8%-10% of CapEx range. It's not incremental CapEx beyond what we've already guided.

Can we move to questions from the call, please?

[Operator Instructions] Your first question comes from the line of Christian Bell from UBS.

Yes. I just have a couple of questions, please. And apologies if you've already sort of gone over this. I had to dip out and sort of miss some of the Q&A. My first question just relates to some of the sales momentum through thse second quarter. I think you mentioned a step up that came through in March, which has continued into April. Just wondering how the order book looks for May and June? And how do the months of May and June sort of compare year-on-year in 2025?

And then my second question relates to, so we're seeing a sustained trend of volume growth that's come alongside weaker pricing, which you, again, you've sort of highlighted today in your presentation, which I assume has partly reflected a focus on driving capacity utilization in the past. But in set against your portfolio review and program rationalization, should we expect a shift away from that dynamic and should we actually now be expecting lower growth coming particularly through channels such as via VARs? And in which case, how should we think about total capacity utilization going forward? Could your review include rationalizing some of that existing capacity? Those are my 2 questions.

Do you remember the first?

Yes. The first one was about demand into Q3.

Okay. I'll answer that one. Okay. Starting with the demand in Q3. I mean April was a strong month for us. May has started very well with good order book cover. June at this stage we won't comment on too much. We'll see what happens in June, but certainly April and May are good months and provide some confidence for a good start into the second half of the year.

Yes. I think it's important to say you mentioned the step up in March, but we had a strong Q2 from the start of Q2. I think it's fair to say there was definitely some, I think, movement from December into January. But then from then on, the rest of Q2 through February and March was strong. It wasn't a specifically noticeable step up following events in March.

No. No, not at all. That just has continued throughout Q2 and into Q3.

And then The asset utilization point and the focus on VAR. Do you want me to make a start?

Yes, you can go on that one.

Okay. I don't think where you're going to see, Christian, us moving away from -- I don't think this is about moving away from a focus on the VARs. The VARs are important for asset utilization. Asset utilization is important for us. The VARs are also a really important route to market in terms of getting PEEK use in specific applications, it tends to be via stock shapes, which can be machining, which can be a route into other modes of manufacture like injection molding down the line.

So I think the VARs are an important route to market for us. I wouldn't say we've been focused on driving the VARs over other things over the last year or so. That might be what we've seen happen in the numbers, but I don't think that's been our focus. Likewise, I don't see us pivoting away from those sectors.

No, no, it needs to be a balanced portfolio. I think the VARs are important, like we say, for volume and therefore asset utilization and also an entry point into the market for PEEK. But incremental to that, we'll be looking at these other areas where we can use applications development to get that specified in position and higher margins. So it would be a blend of the 2, Christian.

Okay. And sorry, just I guess as a quick follow on. In terms of some of the product portfolio rationalization that you've sort of spoken about in your presentation, should we think about that more as a sort of customer by customer sort of focus as opposed to specifically between the different end markets?

It's more of a -- we have over 450 different grades of PEEK take in various different forms that we have, so it's more looking at that range of products that we have. And at the lower end of that in terms of the very low volume or maybe even low volume and declining sales area, we have to look at whether that's contributing to our overall financial performance. So it's a bit of a look at the portfolio, and if you do the sort of Pareto analysis on these things, most of your profit comes from a small number of products. Just making sure that we're still confident. Now some of those products may well be low volume, but very high price points. For example, in some of the medical applications, of course, they are still attractive to us, but some of them may not.

So it's looking at a broader range of issues than just by end market or customer. It's more looking at a sort of the overall product portfolio, the working capital required for that, the operation setup required for that, and seeing if it's optimum for the business.

Are you able to sort of just give a sense of just quickly maybe at a high level how much, sort of how much of the existing portfolio sits at that lower end? Is it sort of like 5%, 10% of your current product set?

I think you have to wait for the Capital Markets Day for that one, Christian.

There are no further questions on the conference line, so I'd like to hand back.

Okay. Great. Thank you very much for coming, and thank you for attending the call. We will wrap up there. Thank you very much.

Thank you.

Those here in the room at JPMorgan in London and those joining us online as well to Victrex's full year results presentation for 2025. I'm Jakob Sigurdsson, CEO of Victrex.

Before we turn to the results summary in what has been a particularly challenging year for Victrex and of course, the chemical industry at large, I do want to highlight a couple of slides on Slides 2 and 3 in the presentation, and we'll call them out as we go along to put things in perspective. And I also tell you a little bit about how we are addressing the challenges we faced in FY '25 and continue to face, but underline that the long-term prospects and opportunity for Victrex remain very strong.

We are addressing these ongoing challenges, and we have been doing that in the past couple of years as well. We're also announcing a profit improvement plan today that builds on our self-help in 2025, but also leverages the recent investments in infrastructure, foundational investments like digital and other things to make us more efficient. We've now concluded those investments, as you clearly see in our CapEx profile and are now continuing to drive improvements on the back of these in many different areas.

But it is very important to note that we do remain a world leader in PEEK. Nobody has more experience with application development in PEEK. Nobody has more data on how PEEK is produced, how it processes and what needs to be considered when converting it into performing parts and forms. We have a large addressable market, probably 5x what we're seeing being sold today and very well aligned to strong megatrends, whether they are metal replacement or striving for clinical benefits on the behalf of patients. And with a very differentiated portfolio around which we've built a good intellectual property estate that will give us a sustainable competitive advantage going forward as well. In what has been a particularly challenging year, it is important that we don't overlook the long-term potential of this business.

Turning to Slide 4. Ian Melling, our CFO; and Andrew Hanson, our IR Director, are with me here today. A copy of our presentation is on our website at www.victrexplc.com under the Investors tab and by clicking on Reports and Presentations. In terms of format, I will call out the slide number when we are speaking. I will start the presentation with a headline summary of the results. Ian will then cover the financial results in detail, our profit improvement plan and our outlook summary. And towards the end, I will summarize business performance. And finally, we'll finish with a Q&A. Questions from the room first before we take any questions from those that are on the call.

So headlines for FY '25 ever so briefly, strong volume growth in the year. Sales volume up 12%, primarily driven by value-added resellers and Energy and Industrial. Momentum was maintained during the second half at volume level overall. Underlying PBT was impacted by currency, which Ian will cover in detail later on by sales mix with stronger [ RAS ] and also within Medical, weaker medical spine and also impacted by the annualized start-up costs from our new China manufacturing facility. It is worth noting that we did deliver half 2 profit before tax in line with half 1 and in line with our latest guidance.

On cash conversion, we delivered another strong performance, reflecting strong working capital management, resulting in operating cash conversion of 121%. And this obviously was impacted by a significant reduction in our capital expenditures as well, which have been coming down ever since FY '23, and we've talked about it in the past in detail. Ian will cover our profit improvement plan with a headline of at least GBP 10 million savings being targeted. This further builds on the self-help actions we've implemented in FY '25 and the recent foundational investments in infrastructure and technology to make us more efficient. We've also reviewed our capital allocation policy, and Ian will cover that in greater detail as well.

And finally, our outlook for FY '26 is that we're targeting, I would say, solid progress on the top line as well as the bottom line, and we will add more color to that as well when we cover the presentation to Ian and myself. So I'll now hand it over to Ian for the financial outcomes.

Thank you, Jakob, and good morning, everyone. We'll start on Slide 7 with the financial results in detail, and then I'll cover our profit improvement plan and the additional actions we are putting in place as we look to drive operational and financial improvement. And finally, we will conclude with our FY '26 guidance and outlook. I'll then hand back to Jakob for the business review.

So starting on Slide 7 with the income statement. As Jakob has noted, it was a particularly challenging year for Victrex at a profit level despite delivering strong sales volume, up 12% at 4,164 tonnes. The volume growth was driven primarily by VARs and Energy & Industrial. As a consequence of a softer mix and a weaker performance in Medical Spine, revenue was up 1% at GBP 292.7 million or up 3% in constant currency as currency weighed on our full year revenues. I'll come back to sales mix shortly.

The divisional revenue summaries are shown in the appendix on Slide 26, with Sustainable Solutions revenue up 2% and Medical revenues down 5% driven by much weaker Medical Spine. Non-Spine revenues were up 7% with broad-based growth and a much more diverse range of applications.

Moving on to gross profit, which was 1% lower than the prior year at GBP 132.6 million. This is after the effect of the gain on currency contracts of GBP 3.7 million. Gross profit in constant currency was up 5%. Gross profit was impacted by currency, by the softer average selling price and by the annualized costs from our new China manufacturing facility as well as wage inflation. Our Panjin facility in China accounted for a GBP 3.7 million higher loss year-on-year, reflecting the annualization effect with this facility coming online in H2 2024. For the year as a whole in FY '25, this was an GBP 8 million loss, in line with our latest guidance.

I do want to call out how we saw a lower cost of manufacture elsewhere in our asset base, driven by higher asset utilization, along with some raw material savings. I'll cover the detailed movements on the next slide.

Gross margin was down 90 basis points at 45.3%. I'll come back to this shortly with China plant costs, mix and currency being the key items impacting gross margin.

Turning to overheads. Overheads for the year were up 14% or 2% when excluding the impact of wage inflation, the employer national insurance increase, partial bonus payments based primarily on strong cash conversion, the first for 3 years. The largest element was noncash charges for employee share schemes and employee retention. We retained tight cost control, including on recruitment and discretionary spend with the areas that did increase focused on customer programs.

Interest was an expense of GBP 2 million in the year compared to GBP 1.2 million in the prior year as our China loan interest was capitalized in H1 FY '24. We expect interest expense will be at a similar level in FY '26.

After the GBP 8 million impact to PBT from currency, the resulting underlying profit before tax was GBP 46.4 million, down 21% and down 10% in constant currency. Reported PBT was GBP 33.8 million, up 44% as our exceptional items were materially lower than the prior year at GBP 12.6 million. These comprise the final part of our ERP investment, business improvement costs aligned to Project Vista, which saw strong volume growth as well as sales pipeline growth and procurement savings and a noncash impairment of GBP 4 million for our Surface Generation investment.

Underlying earnings per share of 43.9p was down 15%, slightly better than the movement in underlying PBT. The resulting effective tax rate was 23.9% versus 22.2% in the prior year. This reflects the lower proportion of profits being eligible for the Patent Box rate when profits are suppressed. This rate is above our midterm guidance of 15% to 19%. And the effective rate in FY '26 is again expected to exceed the top end of this range, unrecognized tax losses in China and the proportion of profits available for U.K. Patent Box being the key drivers.

Turning finally to our dividend. The Board are pleased to maintain the final dividend of 46.14p per share. I'll come back to our updated capital allocation policy later. Slide 8 shows the underlying year-on-year PBT movements. Looking at the key movements beyond currency, which was GBP 8 million adverse. Thanks to an increase in production volumes through the plants, asset utilization saw a GBP 6 million benefit. FY '24 saw a significant inventory unwind, which explains the materially lower production in the prior year.

Raw materials saw a year-on-year benefit of GBP 4.7 million. Sustainable Solutions growth drove a GBP 2.5 million year-on-year improvement to profit net of price and mix. Operating overheads I already touched on, with the impact of wage inflation and partial reward being the main element impacting profits by GBP 4.8 million. Employee retention-driven share schemes were an incremental GBP 3.7 million following the prior year where release of previous accruals meant almost 0 net cost.

Our China plant start-up and the annualization effects, including depreciation and costs being expensed for the full year was a GBP 3.7 million adverse impact versus FY '24. Medical was a year-on-year adverse profit impact of GBP 2.4 million, driven by Spine declining as the continued effect of titanium regaining share in the U.S. caused by 3D printed and expandable spinal cages as well as some of the volume-based procurement challenges in China impacted us.

Jakob will expand on this later, along with the positive progress in non-spine, which is an exciting area for us as we open up even more new applications. Growth investment of GBP 2.6 million was principally supporting our customer-facing functions as well as some incremental investment in our medical acceleration program with our product development center in Leeds. With the resulting annualization of interest expense, this led to PBT of GBP 46.4 million with H2 PBT being in line with H1 as per our most recent guidance.

Turning to Slide 9 and ASP. We can see the movements in average selling price, which was down 10% in the year from GBP 78 per kilogram to GBP 70.3 per kilogram, driven by sales mix, end market, product and customer mix and currency. Constant currency ASP was down 7%. Approximately 80% of the total year-on-year movement was due to mix and currency, with mix most heavily impacted by the strength in VARs within Sustainable Solutions and the weakness in Spine within Medical. VARs and Energy & Industrial were the source of the majority of the price impacts, whilst like-for-like pricing in other key end markets remains robust. Where price did decline, this reflected some incremental price competition in VARs as we signaled earlier in the year or where we targeted regaining business in the likes of Energy and Industrial. Jakob will cover the key role that VARs play in our value chain to drive new uses for PEEK later.

A very brief word on midterm pricing as shown on Slide 10, with mix and currency being the main drivers on ASP in FY '24 to '25. If we look over the past 5 financial years, we see a very similar picture with a very small impact from price, customer and end market mix, offset by a positive change in divisional mix.

In summary, a medium-term view of our business shows that mix and currency have been the key drivers on our average selling price. Whilst we have been successful at price pass-through to customers, particularly following the energy price crisis, we have also retained or regained business within specific end markets with some impact on price.

Moving to gross margin on Slide 11. Starting with the prior year of 46.2%, currency was a 150 basis points adverse impact to gross margin, reflecting the sizable headwind we saw this year. Our China plant start-up impacted gross margin by 120 basis points. Remember, we've seen some gradual operational improvements in this facility during the year, but production volumes were still only around 50 tonnes, so a very low level of utilization. Mix and price within Sustainable Solutions dragged on gross margin by 90 basis points with the adverse mix in Medical being an impact of 60 basis points.

On the positive movements, raw material cost savings added 130 basis points with the higher asset utilization helping us by 200 basis points. A brief word on the gross margin, excluding our China manufacturing facility. This was 47.7% versus the reported 45.3%. So overall, the China plant is a 240 basis point drag on gross margin for the group, which we will look to overcome in the coming years.

Finally, the chart does show the indicative drivers for our gross margin in FY '26 based on latest assumptions. I'll cover the overall guidance summary shortly.

Moving on to cash flow, which is shown on Slide 12. The main headline is a strong cash conversion at 121%, a key measure of our cash flow efficiency and a positive result for our business. This is one of our key strategic objectives in the organization, which employees are fully focused on.

Looking at the key movements from operating profit or EBIT of GBP 48.4 million, we incurred depreciation of GBP 25 million, an increase of GBP 1.7 million on the prior year, driven by the new China plant. Working capital was an inflow of GBP 7 million, driven by a further inventory reduction of GBP 5.4 million. Remember, we had a much higher inventory position at the end of FY '23, GBP 134.5 million. So the reduction in inventory this year, whilst pleasing, was not as sizable as FY '24. We do have an opportunity to further reduce inventory whilst noting that our reputation for delivery is valued by our customers and that we have a broader geographic base and portfolio than we have historically.

On CapEx, we tightly managed key capital expenditure this year and continue to do so. We're obviously pleased to move beyond the period of heavy investment in capacity and capability. CapEx was GBP 21.8 million, a reduction of 33%, meaning that CapEx represented 7% of revenues, below the lower end of our guidance of 8% to 10%. This resulted in operating cash flow of GBP 58.6 million compared to GBP 68.5 million in the prior year.

Cash tax totaled GBP 4.4 million, similar to last year. Cash exceptional items of GBP 9 million were marginally lower than FY '24 and primarily related to our ERP system, which includes ancillary systems such as CRM and Project Vista costs. Our digital investment is supporting a number of business process improvements and an ability to support and serve customers better, for example, through digital approaches to R&D. As a result, free cash flow was slightly lower than FY '24 at GBP 49.3 million versus GBP 51.4 million in the prior year.

Of the other movements on dividends, we maintained the FY '24 final dividend and paid the FY '25 interim dividend, which represents the GBP 51.8 million shown on the chart. With exchange movements, our closing position saw us with cash of GBP 24.2 million versus the prior year at GBP 29.3 million, giving a net debt of GBP 24.8 million, GBP 3.7 million higher than the prior year. Net debt to EBITDA was 0.34x at the end of '25, an increase of from 0.25x at the end of FY '24.

Finally, on our RCF, although we did have to draw on these facilities during the year, we repaid the facility back by the end of FY '25.

Slide 13 covers our updated capital allocation policy, which I'd like to spend some brief time on. Firstly, we're reflecting all of our stakeholders' interest by targeting a new net debt-to-EBITDA range of 0.5x to 1x. This is a commitment to the strong balance sheet Victrex is known for.

As a result, we are pleased to maintain the FY '25 final dividend at FY '24 levels of 46.14p per share. Dividends will be maintained at the current level as long as we do not exceed the 0.5:1 net debt-to-EBITDA range. Any excess cash can be returned via share buybacks or special dividends when net debt-to-EBITDA moves sustainably below 0.5x. We will secure additional term debt prior to payment of the final dividend in February 2026 to reduce the reliance on the RCF to pay the dividend.

As shown on the chart, we will also maintain CapEx at 8% to 10% of revenues, though in the short term, we expect to be at or below the lower end of this range. Investment remains focused on growth or capability with medical acceleration, a recent example of where we've invested to support specific growth programs or to support customer scale-up. Overall, we believe this offers a resilient capital allocation framework suited to our business. This allows us to maintain balance sheet strength, noting the interest of all stakeholders.

Turning to Slide 14. Alongside our revised capital allocation policy, we will be taking more extensive and incremental actions in FY '26 to improve operational and financial performance. In FY '25, we focused on self-help through our Project Vista go-to-market programs, primarily helping us to improve our sales efforts, including through the use of digital tools with customers and sales excellence, delivering strong sales volumes to record a record annual increase in our sales pipeline, which was up 16 -- sorry, 18% in the year to focus on operating efficiency, where we drove a lower cost of manufacture, including GBP 2 million of annualized procurement savings in addition to those on raw materials. Cost control remained tight, including on CapEx and for discretionary spend.

So for FY '26, we will be going further, focusing our profit improvement plan around three main areas. How we can simplify our portfolio. How we can drive an even better operational performance, not just through volume leverage and efficiency, but by transforming our operational processes and through our overhead cost base alongside leveraging our D365 ERP system and thereby reducing SG&A costs. Overall, we're targeting at least GBP 10 million of savings with the majority of these to be delivered as full year benefit in FY '27 coming from these three areas. We will start to implement these actions through FY '26 with some early benefits in H2 2026.

Wrapping up on Slide 15, I'd like to summarize our guidance, which mirrors our outlook statement within our announcement. Firstly, on volumes, whilst we're mindful of the wider economic environment, we are targeting low to mid-single-digit growth. ASP, we expect to be similar to FY '25 based on current trends. Medical Spine remains weak and Sustainable Solutions is seeing a similar end market mix as we saw in the final quarter of FY '25.

At the margin level, we will be targeting some additional inventory unwind, meaning that production volumes will be broadly similar to FY '25 based on our current sales plan. We will continue to see some modest benefit from continuous improvement and procurement initiatives, including those from Project Vista. The China plant will not be a big driver of margin as it remains significantly underutilized despite sales starting to ramp. Consequently, gross margin percentage, we anticipate being flat to slightly ahead. On OpEx, we continue to retain discipline with a lower pay rise in FY '26 and then starting to see some small benefits from the profit improvement plan in the second half. On cash flow, we are targeting continued strong cash conversion with CapEx discipline and inventory reduction.

In summary, we are mindful of the macro environment, particularly after a challenging year. We're targeting solid progress versus FY '25. And based on our current assumptions, we would anticipate this being second half weighted, reflecting the usual seasonality in H1 alongside a slightly higher currency headwind in the first half. With that, I'll hand back to Jakob.

Thank you, Ian. So moving to Slide 17. Sustainable Solutions, good progress in the year, driven by VARs and Energy Industrial, with notable progress on milestones in other end markets as well, even if some of these end markets do remain challenging. So let's look at them individually. Aerospace. At the half year, volumes were up 7%, but we did see supply chain challenges in the second half at the 2 key OEMs, consequently facing off some business into 2026.

So volumes for the year were 2% down in Aerospace. As we will cover shortly, the outlook for aerospace is optimistic for FY '26. Build rates are forecasted to increase in some models, particularly at Boeing with 737. We also note that COMAC deliveries in China have been slower than anticipated this year. They build 25 planes versus 75 as a target. And remember that Victrex has a sizable set of volumes in each 919 aircraft. The deliveries have been reined back for the current year.

We see these factors as short-term supply chain driven and note that COMAC is expected as an example, to increase deliveries over the next couple of years significantly. And on Advanced Air Mobility, I do also want to flag that we won new business in this area during FY '25. This is all based on our composite technology as well as our parts capability at our Rhode Island facility. All of which are driven by our low-melt PEEK technology in several applications where especially designed polymer for easier processing has really been getting very strong attention. The potential in Advanced Air Mobility using Victrex PEEK and the aim of some of these being launched in time for the Los Angeles Olympics in 2028, as an example, the certification progressing well in different global regions, positioning ourselves exceptionally well for future technology developments in the area.

Turning to automotive. As most companies have signals, we know that uncertainty driven by tariffs and global demand has had an impact in this market. Our volumes were down 1% after a better second half in auto for us. Half 2 volumes were actually up 1% but reflecting some of the challenges in the industry. If we look at the market data, I think S&P is forecasting a production of around 91 million cars in 2025, a modest increase on the year before and a similar increase going into 2026. This is in contrast with 2018 when you had roughly 96 million cars being produced. So we are quite far away from that peak yet.

We do remain closely aligned to auto growth in China, particularly. And just as a recap, our auto business in China in 2019 was around 11% of our overall volumes in auto that year. It's now close to 27%. And if we include Korea and Japan, the corresponding figures between 2019 and 2025 have moved from 43% to 55% and our auto business in China has roughly tripled since 2019. So we remain well placed across a number of different platforms and applications, but also in the geographic shift that we're seeing in the automotive industry.

Briefly on e-mobility, we didn't see the quicker adoption of the new 800-volt platforms this year. So e-mobility revenues were actually down slightly year-on-year. The long-term opportunity to increase PEEK penetration across this new platform does remain strong, however. And in fact, we've got qualifications on several new platforms during the year that will be coming through to support midterm growth.

If we then move to Energy & Industrial, volumes here up 17% and the activity levels have increased in this space during the year, particularly in the second half. It's worth keeping in mind that energy is around 40% of this end market overall with industrial being the majority. As it relates to energy, rig count was actually down at a global level by around 101 or around 10% since October '24, but we have continued to enjoy good business across oil and gas, gas equipment, whether it's in valves, pumps, ceilings and the like.

On the industrial side, PMIs have remained just above 50 for both China and the U.S. for the year, and this is a good sort of correlating factor with our end demand in the manufacturing side. It dipped a little bit in Europe, below 50 in November, but still indicated an improvement in business conditions for the 10th time in the past 11 months. PEEK benefits from being in all kinds of machinery on the industrial side, whether it's food processing, chemical processing, and we continue to see good progress and growing interest in replacing PFAS in various applications, both on the industrial side that's reported in this segment and on the medical side as well.

On Electronics, good progress here despite the softer second half in semiconductor, volumes were up 2% for the year, which is in line with JPMorgan's own semicon forecast of 2% growth in CapEx in 2025. Remember that PEEK has good exposure to semicon and smart devices where durability and reliability remain key drivers.

On the smartphone side, we are part of a number of innovation in smart devices, which offer good medium-term growth opportunities, particularly around the move towards 6G, for example, or how metals are used differently in handsets. If we look at industry data, JPMorgan forecast demand to be around 3% in 2026 and a significant growth as it relates to CapEx in semicon as well.

Moving on to VARs. So I'll cover a recap on their very important role the VARs play in the value chain in my next slide. But VARs were up 21% in volumes and 13% in the second half. And remember, their business is highly correlated with conditions in both manufacturing, engineering and Energy and Industrial as well as semicon.

And finally, on sales pipeline, up 10% in the year, record annual increase. If you look at the key driver of the increase in the pipeline, they are coming from aerospace and energy industrial were the key drivers of the increase. With aerospace around 1/3 of the total sales pipeline right now. This is based on mature annualized revenues, which we would need conversion of all the pipeline. We delivered the $404 million in revenue numbers. Conversion rates are typically much lower than that. And over the cycle, we're used to be seeing around 30% to 40% conversion of this particular number. But it gives a good outlook of the scale of our sales pipeline and the opportunities that we have for growing the business.

On value-added resellers on Slide 18, spend a moment on those because they do play a key role in our supply chain. You already heard that our VAR volumes were up 21% during the year. They are a key part of growing the market for Victrex PEEK. They serve aligned end markets like auto, energy and electronics, as I said before. They do process high volumes of PEEK for compounding with other materials or into stock shape to sell to other manufacturers and they actually carry a wide range of polymer in those forms as well. The key message here is that VARs get a significant pool for the customer for Victrex PEEK. If you go on to the website of some of the larger ones there, you'll see that they do brand Victrex 450G as a main grade and often leverage our brands in their promotional activities as well. These were Victrex's first customer when Victrex went into market, and they've been a very valuable set of customers for us all along, and they spent a significant time on innovation and market development as well.

Customers are specifying Victrex PEEK, as an example, 450G from value-added resellers, and that supports how we're building the peak market. Remember also that VARs do see cyclicality. If we look at the 5-year growth CAGR, it's around 6% on volume. So healthy growth rates even if we see variability to the cycle.

Within VARs this year, we have continued to build on our long-term standing relationships that's built on quality, security of supply and a well-respected brand to name a key factors.

Turning on to Medical on Slide 19. Some clear headwinds here in Spine, but continuing good progress in non-spine. And we're now a much more diversified business than we used to be. Just to put it into context, in 2015, we were 75%, 75% of our revenues were coming from spine and 25% non-spine. That's pretty much reversed in 2025, where we're now 74% non-spine and 26% spine.

A quick recap. In 2023, our Medical business achieved a record year post-COVID and when surgeries -- elective surgeries rebounded. Meanwhile, in 2023, the Chinese government implemented its volume-based procurement, or VBP, as it's called, policy with the spinal industry, within the spinal industry aimed at controlling health care costs. This policy had already impacted other sectors on the medical device industry, where a small number of domestic companies won government tenders that guaranteed high product volumes, but at average pricing -- average selling prices that were significantly lower.

In 2024, many large medical device companies began to signal concerns around profitability in general, while revenues continue to grow, rising interest rates and inflationary pressures, particularly in staffing and raw materials, led to declining profits. In response, companies took decisive action reducing inventory levels and containing costs. What is clear, though, is that industry destocking appears to be over in non-spine -- but in spine, titanium-based 3D printing has been significantly more advanced than PEEK-based methods, enabling U.S. companies to develop porous cases using titanium, and this has been happening all the way back to 2018.

We have seen our first approval for our Polar 3D case last year, and we expect to see them in the market over the next year. PEEK remains -- PEEK has still strong evidence of clinical benefit and imaging in spinal devices, but 3D printed methods gained more traction in the U.S. at the expense of PEEK, and we have the opportunity now to start to reverse that with our 3D printed cases having been approved.

Remember that the U.S. has been our main region since starting our medical business back in the early 2000s. As I said before, spine was around 75% of our revenues in medical in 2015 versus 26% today. So clear headwinds for growth. The good news is that we are now a much more diversified medical business with more applications, including great opportunities in pharma and cardio. And we noted that J&J, as an example, report that PEEK was already used now in around 500,000 heart devices.

What do we need to see from medical revenues to grow again? Well, some stabilization in spine, number one. And remember, this is principally impacting the U.S. together with continuing non-spine growth, offers the opportunity for medical growth to restart. And then obviously, that will be layered on to with the progress of the knee program on one hand and trauma plates on the other.

On Slide 20, a brief one on knee. We now have 85 patients that have gotten PEEK-based knee implants over the past 4 years, including 20 in the U.S. So really, really good progress. We continue to work towards additional collaborators and partners and are in active conversations with some of the top 4. We're also preparing regulatory pathway in other regions beyond the submission in India and should expect good progress and potential registration in Europe in FY '26.

Slide 21 on Magma , as a quick recap. At the half year, we communicated that TechnipFMC had secured a technological contract from Petrobras. This enables them to develop qualification pipes that are the route to full commercialization of the hybrid flexible pipe. Remember that a hybrid flexible pipe is 50% lighter than steel and water based on Victrex's PEEK and know-how and our pipe -- and our composite tape as well, all specified Victrex materials. And to put this in perspective, every kilometer of 6-inch pipe contains around 8 tonnes of PEEK, so this is a very sizable long-term opportunity.

Our facility in Portsmouth will be key for the scale-up and has been busy during the final qualification stages. The vision is that longer term, the production will be shifted to Brazil, and that will be done then in Technip's facilities. So we will not be incurring CapEx into those scale-up phases. We've developed several 2-kilometer sections of pipe with TechnipFMC over recent months, and we'll wait a new flow in 2026 for the next steps towards commercialization from TechnipFMC and Petrobras for their ongoing requirements.

Slide 22, end market summary. I think Ian has already covered the main outlook on the guidance. Slide 2 provides an indicative view of the end market as we see them currently. And then also briefly Aerospace, optimistic based on forecasted build rates and new business win. On automotive, like the rest of the industry, we are neutral to cautious in this end market, given the supply chain risks and demand uncertainty. Electronic neutral with semicon and smartphone forecast being positive for 2026, but likely to be second half weighted. On Energy & Industrial, neutral to optimistic. We do see some additional opportunities on the industrial side and energy activity remains very positive. Activity and growth here is very much evolving around PFAS replacement and robotics. On VARs, neutral. It reflects that we saw a strong year in FY '25 and demand across some of the aligned markets is still uncertain, although they should be exposed to the same drivers that we see for Energy Industrial and Electronics as well.

Finally, on Medical, clearly, Spine remains challenging for the reasons we discussed. So we're cautious there. Non-spine, we're optimistic. It was up 7% in FY '25, and we do see further opportunities across a very attractive range of applications. Pricing will reflect a broader range of ASPs now, but very high-value applications in cardio and active implantables alongside with some nonimplantable business in pharma. And non-implantable revenues were up 12% actually in FY '25.

So this concludes the formal presentation, and I will now hand it over to Q&A. We'll start in the room here, and I'd be grateful if you could state your name for the benefit of those that are listening in on the line and will be asking questions later on.

Vanessa Jeffriess from Jefferies. Just wondering if you could clarify what's going on in China. So I guess a year ago, you thought you'd do 100 to 200 tonnes and then you have the start-up issues. I know you've done 50, which is in line with customer demand. I guess in '26, it feels like you should be doing 200, but it will still be loss-making. I mean has the demand profile changed? Or are those start-up issues is ongoing?

I think we're working well through the start-up issues. So we delivered what we said we would deliver in FY '25. We do still need to scale this up with customers as well and then getting used to materials being shipped from that plant. I do want to take the opportunity as well to put this in the broader context also in the sense that China is the fastest industrial market in the world these days.

We have grown China almost 2.5x since 2019, 12% of our revenues or of our volumes back in 2019. It's around 18% right now, and it grew 18% last year. So the plant is incredibly important from a strategic perspective. All the business that we have been growing has been imported into China until now. But this allows us to expand our product portfolio and bolster our position as we're building -- we've been building up systemically since 2018, first by adding to our technical service capabilities, augmenting the sales force as well, then building this plant and that compounding facility as well.

So both of these facilities that we have built along with the infrastructure and the human capital that we've invested in, in the labs as well, I think position ourselves very well to compete in a rapidly growing market in a tough competition as well. But to your point, I guess we are modest in our outlook for China this year. We're still working through the issues, but we are aiming at always being a step ahead of demand, and I think we're progressing well on that journey.

And then ASPs, you're saying broadly stable for '26 and down 7% this year. You talked about reducing pricing to regain share and in response to competitive activity in Energy Industrial. But from everything you're saying about '26, the mix would be similar and then medical will reflect a more diverse range of prices. So I guess I'm just wondering like why would pricing not be down 7% again? And why is it stable? If you could just...

So the majority of the 7%, Vanessa, was mix, right? So stable -- if we have a more stable mix, which is what we're forecasting this year compared to last year, then we wouldn't expect to see that significant mix impact that we saw this year. There is some price pressure out there, particularly in the VARs space. And I think the actual overall piece that we end up with may be somewhat dependent on the volumes, right? The stronger the volumes tends to drag the mix down because it tends to mean higher VARs, Energy and Industrial. But based on a similar mix, I think what we said on ASP is deliverable. We also don't have the big currency headwind, at least at current exchange rates that we had last year on ASP.

And then sorry, just one quick one. In VARs, you just talked about it being the lowest cost to serve on the slide and -- but there's that pricing pressure as well. Would you say that there's opportunity to reduce that cost to serve? Because I guess if it's the lowest across the business, that would suggest to me there's less opportunity in other segments.

So I think the cost to serve is very low with VARs. They -- we don't have a big sales force that supports VARs. It's a very small number of people, very close relationships. So I think the opportunity to reduce cost in serving VARs is limited. That being said, we do work with them given the significant volumes that they buy, we do work with them on how they take that volume, how we do that most kind of operational efficient -- the most operationally efficient way. And that does bring us small benefits as we go forward, but not ones that you'd want to call out in terms of the overall margin for the group.

Jens Lindqvist at Investec. A couple of things on medical, if that's okay. First of all, on the knee. 85 patients recruited so far into the program, 65 back in July. Those 20 all in the U.S., if I understand it correctly. Is there anything that can be done to accelerate that recruitment rate a bit? I mean it's 20 in 6 months. It's a relatively high volume procedure. And also on the knee, could you remind me just what number you need to get to for U.S. and European approval? You're talking about a filing in Europe?

Right. So I think it is sort of a phased start in the U.S., and this is clearly sort of [ max ] thing to comment on. So we have a limited ability to influence that, but it is a relatively slow start with an expected ramp-up probably in 2026. So I think you'll see increased recruitment rates in 2026 compared to what we've seen here.

And the bigger picture is we are awaiting approval in India, and Max is expecting that to happen relatively soon. That clinical trial was a huge success, I would say, without any interventions after 4 years. And on the back of some of that data and data that has been developed in Europe, the plan is to launch in Europe in 2026 or file for registration in Europe in 2026 as well.

But to answer your question bluntly, can we impact the recruitment rate? No, we can't. And this is sometimes one of our dilemmas with the mega-programmes that we're not the ones all the time that can control the rate of adoption, and this is one example of that. But there is a relatively slow phase in the early phases of the trials in the U.S., and then that's expected to ramp up probably in 2026.

Okay. Just one on the trauma plates. It seems to be lagging a little bit, both in terms of business development in the U.S. and the regulatory process in China. Again, in China, is there an option to partner with the Chinese orthopedics business? I mean is that the...

Yes. So I think if I look at trauma, I think you're right, Jens. I think it's been a slow year and certainly in terms of revenue in trauma, having had approvals previously in the U.S. and having launched products in the U.S. I think 2 things to speak about there. One in the U.S. our launch partner, which was In2Bones was acquired. And that certainly had an impact in terms of kind of their focus on kind of growing into new plates and the like. Whenever there's an acquisition, then strategy comes into focus and people are thinking about whether -- which way they go going forward. So that's been an impact, and we're looking pretty hard for new customers in the U.S., and we have some promising leads, but too early to talk publicly about new customers in the U.S. for trauma plates.

China, you're right, regulatory has been the big hurdle. We're pretty confident that we will get over that hurdle in the next few months here, and then we should be full speed ahead with the launch with -- I think we talked in the announcement about 6 plates in China, which is a broader range than we have today in the U.S. through a significant player in the Chinese orthopedic trauma space.

Sorry, just one quick one. Just on R&D expenditure, you're talking about 5% to 6% of sales, I believe. I mean, is that a realistic number to assume also going forward? And how does that split between medical and sustainable solutions, please?

Yes, I don't have to split medical to sustainable solutions to [ Hanyens ], but we do spend a good amount, particularly as a result of the medical acceleration program on the medical R&D kind of focused on knee and trauma, but we do have other programs in medical as well. We also have a core piece of R&D, which supports our kind of core manufacturing facility kind of capability, which would support the whole business. So it's not -- it's kind of medical sustainable solutions agnostic. So there is an important part of manufacturing kind of R&D there that we shouldn't overlook in terms of making ourselves more efficient.

But I think the number in terms of a target going forward, is a sensible one. We will -- we've obviously got the profit improvement plan where we'll be looking at things going forward, but I wouldn't expect us to be spending materially less on R&D going forward.

Chetan from JPMorgan. I had a few questions. Just one on -- you mentioned record increase in sales pipeline. When do we see record earnings for Victrex? In other words, when does that translate into proper earnings inflection at Victrex? Maybe we take one by one.

Yes, I'll take this one first. So the metric is derived as follows. So this is the mature annual revenues of the opportunities that we have identified. So that's the totality of that sum. If you look at historical conversion rates, they can be somewhere between 30% and 40%. But they clearly in the first year will not translate into the maximum annualized revenue for each of them. But I think that's a good proxy for how this should be flowing through the pipeline.

There's probably some cannibalization in those numbers as well. So you got to account for that also. But I think the good news is that we continue to find new opportunities that are sizable magnitude that should underpin the core business that sort of drives the business above and beyond what we see as an upside potential from the mega-programmes. So headline, it's material, annualized revenues, conversion time probably between 2 and 3 years, conversion rate somewhere between 30% and 40%. And then it depends on the ramp-up profile and the cannibalization as far as what the end number out of that formula might be.

So that's a gross number without cannibalization impact basically.

There could -- that's a gross number, but there could be cannibalization in that to some extent.

Okay. Good. The second question maybe for Ian, your second half gross margin was 46.5%. You're guiding for full year next year to be between 45.5% to 46.5%. We would have hoped that there will be progression from second half into next year. So was there any one-off in second half, which is not recurring into next year? Or you just want to be cautious, not extrapolating that second half improvement?

Yes, I'm a CFO, so I always want to be cautious, Chetan. But I would say, half-on-half, yes, there's some relatively modest impacts in there. The majority of the increase that you see in the second half versus the first half is coming through from the manufacturing and procurement efficiencies that we've delivered this year as we -- in the second half, we started to sell products that we made in the first half. In the first half, we were selling primarily product we'd have made in the second half of last year when we had lower volumes.

We're not forecasting a significant -- really any volume increase through the plants next year as we continue to hold on inventory. So I think that's part of the caution. Obviously, there's -- we talked about some of the price pressure in VARs and places as well. So we've got to be a little bit cautious about that impact on the margin. So I think a margin between our full year number this year and our second half number this year, which is kind of the range you talked about is a sensible place to be.

Okay. The last question I had was anything on current quarter? Typically, it tends to be sequentially lower versus the September quarter. Would you expect normal seasonality? Or is there something that you see particularly in any of the end markets? And just last point, sorry, on your comments on pricing. We saw raw material benefit. Do you expect any more next year? Or you now see raw material prices flattening out basically?

So I think there's a little bit of raw material benefit still to come based on what we've negotiated in the last 12 months, but I don't think it will be as dramatic as it was in FY '25, albeit we continue to push, obviously, for everything we can get on that front.

I think you know us better than most, Chetan, and you're right, seasonality is there. Q1 is always historically the lowest quarter, and it will be the same this time around. So there will be a drop off from Q4. But nothing that is dramatic, I would say, in terms of Q1 versus Q1 comparisons year-on-year. So we had a good Q1 last year. And we will have a reasonable one for sure this year, although there's plenty to go yet.

Christian Bell from UBS. I guess just following on from the previous question. Your volume guidance for low to mid-single digit. Can you just give a sense of what the growth phasing might look like across the first half and in the second half across each segment? And what gives you the confidence that you are expecting a stronger second half?

I think we're seeing reasonable momentum heading into the year to begin with. And that's on back of weak aerospace as an example, and relatively weak electronics as well. But I think if we look at industry forecasts, which have been pretty reliable as it relates to electronics as an example, chip growth production expected to be around 3% year-on-year. CapEx sort of starting to come up again for semicon as well based on JPMorgan's forecast I referenced here. I think that gives us confidence in the fact that electronics will rebound as we head into the new calendar year. VARs are correlated with the electronics picture also, remember. So we're not expecting the growth that we saw in VARs this year, but we're expecting modest growth for VARs in the year overall.

On the medical side, we'll see a better year there than we had last year as well. So when you look at these key drivers, I would say, the aerospace getting back to normal, I think there's, I would say, good confidence in the fact that with growing build rates at Boeing, the supply chain issues easing at Airbus and also with the new Advanced Air Mobility contract, we'll see growth there that is visible and reliable. If I can phrase it, if anything, it's reliable these days in this world. And then as I said, on the electronics side, I think we've got a reason to believe based on forecast and how they've correlated with business in the past, and that should be picking up as we head into the new calendar year.

Sorry, just to add, I think it's worth saying when you get into a kind of business area and a quarterly forecast, our order book is relatively short. it's a little bit of a mugs game getting into trying to forecast. I certainly wouldn't want to sit here and say this is going to grow by that and this by that quarter-by-quarter for a year. We present a view for the year as a whole, and there'll be some ups and downs is that we have an order book typically of around 6 weeks in this business. So it's not like we know what we're going to have through this year sat here today. And I think it's worth bearing that in mind when you look at how we position our forecast.

That's why I'm also pinning my comments on sort of expected demand based on statistics from aerospace in terms of build rates on one hand and then the outlook for CapEx and chip production for the coming year as well, which have historically not been too bad.

If I could just push a little bit harder on that to get to your sort of full year low to mid-single digit very general sort of ballpark type of thing. Is the profile kind of like a negative positive 7% first half, second half? Is that the type of profile that you're expecting? Or is it more like a negative 1%, 4% type of thing?

I would say -- listen, I would say it's not that -- in volume terms, it's not that skewed between -- in terms of growth between the first and second half. So I would say we had some strong growth in the first part of last year as we were recovering from a depressed period. I think we've had more stable volumes over the last year. So I don't think we've got a significant skewing to the second half. When we talk about the profit being skewed to the second half, that's more due to profit-related pieces rather than volume, I would say.

Okay. Cool. And just one final question, if I could. I think I saw in your commentary talking about a more sort of focused business going forward. Does that -- should we read how should we read into that in terms of prioritization over your end markets capacity thinking going forward? Is there any sort of -- is there a reprioritization of your end markets? And are you thinking -- how are you thinking about your capacity?

I think if you look at it over almost the entire lifetime of Victrex, Victrex has at times invested in downstream capabilities to drive the adoption of PEEK, sometimes with the intention of staying in that function. And sometimes looking at it as a catalytic activity means proving that things can be done. And then once you've proven that and you generate end demand, you might exit that production step as an example with that downstream activity.

So I think we might simplify our downstream portfolio a little bit in light of that. We will definitely stay with our current positioning in certain aspects, but we might pare down our presence in others as we go forward. As it relates to mega-programmes as an example, the allocation of resources for the mega-programmes is a dynamic process. And building on Jens' point a little bit before, where we see opportunity to potentially spend more, if that correlates with faster adoption, we will. If we see that almost regardless of what we can spend, we're not able to accelerate that, we will not do that. So we do allocate our resources based on the -- what we can do to shorten the time to commercialization, what we can do to eliminate barriers to adoption and at the very least, make sure and ensure that we are not the barriers for adoption, having been the ones that have been pushing these innovations through for a long, long time.

So we very much sort of manage our portfolio in a dynamic way in that sense, and we regularly capture the essence of that by saying where is there a return to spend. And if we can spend more, we will. If we don't, if we see that we're not going to be impacting the time to adoption, we won't. So that's a dynamic portfolio allocation decision. But I do think you will see us simplify our footprint in some downstream activities going forward.

So maybe taking questions from the audience online, if there are any. And please state your name before asking the question.

[Operator Instructions] Our first question comes from the line of Kevin Fogarty of Deutsche Numis.

Just if I can start just with a couple. In terms of the mix within Medical, I appreciate the kind of revenue and volume shift towards sort of non-spine. Could you just remind us of the sort of value contribution, spine versus non-spine, my assumption that spine was much more valuable to you guys?

And secondly, from a planning perspective, I just wonder if there was any sort of change in your kind of visibility or guidance you're getting from customers this time of the year compared to perhaps 6 months ago? Is there anything that gives you a bit more confidence in terms of the outlook? So if I could just have just those 2 questions, please.

Sure. I'll start with the first one, Kevin, if I can. So firstly, I would say our whole medical business is incredibly valuable to us, right? I think it's really important for everyone to understand that our ASPs in medical right through from the most -- the highest ASPs which are actually not in spine, they're in other applications, all the way down to the lowest ASPs, which are in non-implantable medical applications. They're all accretive to our group ASPs and drive high-margin business. Yes, the non-implantable business is a bit lower than the implantable business. But certainly, within the implantable space, it's all hugely valuable. Typically, gross margins on implantable medical business will run 70% plus up into much higher numbers. So yes, there's huge value in all our medical business.

I think I gave an example previously, but I'll just repeat it because it bears repeating. If you look at, for example, a spine, spine procedure versus CMF procedure, that's craniomaxillofacial procedure, which is a procedure where you're making a plate out of PEEK to repair the skull. In terms of the amount of PEEK we sell for one procedure in CMF can be 10x what it is for -- more than 10x what it is for a spine procedure. The ASP per kilogram might be 1/3 to 1/2 of what it is in spine, and the gross margin will be correspondingly a little bit lower. But because you're selling more than 10x the volume, the actual gross profit generated from one procedure will be higher in CMF than it is in spine.

So it is important to think about the medical business from a revenue point of view and from a gross margin point of view and focusing too much on the ASP per kilogram can miss the point. Some of our highest ASPs in Medical, which I repeat again, are not in the spine space, are actually in applications where a fraction of a gram is used per device or per procedure, whereas, as I said, in something like CMF, you could be selling hundreds of grams into one procedure. So there's a huge broad range of medical procedures. And I think that's what's really positive about our medical business going forward that we have that breadth and range of opportunities.

On the second question, visibility is probably [ whistle seeking ] in many ways these days, and Ian has alluded to it, that our order book -- our tangible order book is relatively short and always has been, and we have sort of a high service model, if you wish, in the sense that we do offer short lead times, which is of high value to most of our customers.

But I get back to the point that we discussed before, the fact that we are targeting moderate growth next year is very much based on these key contributors or sectors reversing of 3, you could say. The aerospace forecast and build rates, and we see the improvement in build rates starting to happen, and they are relatively reliable. Secondly, the forecast for electronics and semicon in particularly broken down into chips on one hand and then CapEx on the other. And thirdly, we will continue to see positive momentum on the medical side. But as it relates to detailed visibility, Kevin, it's not there, and it never has been.

There are no further questions on the conference line. I want to hand back over to management for closing remarks.

So thank you all for coming and joining us here today, those on the line as well and wish you all a very happy ending of the year and a peaceful holiday period. I want to say as well, this is my last one, and I want to thank you all for your interest over the years and intense interest in Victrex and our company and what we do and what we have to offer. It's been a pleasure to engage with all of you, and I thank you for that. Thank you all.