Victrex plc Stock

Good afternoon, everyone, and thank you for joining the Victrex Capital Markets event. Today, we'll set out how we'll unlock Victrex's significant potential and drive long-term sustainable profit growth. As many of you know, I joined in January because I was convinced this business has solid foundations, a differentiated product, a powerful brand and well-invested facilities. The main issue was clearly execution. As I said at the half year results, that view has been confirmed and I now see a clear path to materially improve performance.

Over the past 9 months, we've moved at pace and made considerable progress as reflected in the trading update that we issued 2 weeks ago. So today, I'll start with introductions to the leadership team, then set out the dynamics of the global PEEK market and why Victrex is so well positioned. I'll also cover our distinct competitive advantages and why they give us a long-term right to win in this attractive growth market. I'll then explain the changes we're making to build a performance-focused culture and summarize the strategic framework that will unlock a significant improvement in financial performance.

My colleagues will then go into detail on Victrex Performance Materials, which was formerly Sustainable Solutions, Victrex Medical and our operational transformation program, including the actions we're taking to drive improved performance. I'll then provide more detail on our updated financial guidance and capital allocation policy before wrapping up and moving into Q&A. Today's session will provide the detail and context around how we intend to unlock our potential and drive significant growth in profit and cash generation over the medium term. So what should you take away from today?

Well, first, PEEK is a compelling high-margin growth market aligned to structural trends across multiple industries. And within it, Victrex is the clear market leader. Second, Victrex has a genuinely differentiated offering, not only our products, but also our vertically integrated manufacturing and value-added customer services. This creates a sustainable competitive advantage, enabling us to capture market share in a structurally growing market by focusing on applications where Victrex PEEK is differentiated while also creating new markets for PEEK that don't currently exist. Third, we're rapidly transforming the organization, culture and operating model to unlock a step-up in profit, cash generation and returns.

This is already underway and delivering results. And I'll cover the implications for guidance and capital allocation later. Together, these strengths provide a clear path to sustainable shareholder value creation. And today, we'll spell out exactly how this will be delivered over the medium term. And I want to make this really clear upfront so we can draw a line under this. None of the guidance provided today requires any contributions from the so-called mega programs you'd have heard about in the past. So I'm delighted to be joined today by my members of my refreshed leadership team alongside other senior Victrex colleagues who you see in the polo shirts, who will be available during the breaks and at the drinks reception if you want to speak to them.

As you know, we don't currently have a permanent CFO, so I'll be covering the financial sections today. Our Interim CFO, Chris Gilbert, raise your hand, and Finance Director, Mike Ward, are also here to address any more detailed financial questions you may have. Our business is split into 2 market-facing areas: Performance Materials and Medical. Andrew Ng, our Chief Commercial Officer, leads Performance Materials, while Daniel Diffenderfer is Managing Director of Medical. Both have joined recently and are already making a strong impact. We're also joined by Suranjan Ghosh, who leads operations and transformation across the group, and he's playing a vital role in driving our operational changes.

So I'd like to start with a few points that explain why Victrex is so well positioned. First, we lead the global PEEK market with over 45% share by volume, built on a differentiated product proposition, trusted brand and a strong global presence. We invented PEEK, and we have 48 years' experience formulating it and applying it to real-world customer challenges. That expertise is supported by more than 200 patents in place or pending, reflecting the strength of our technology and our know-how. And Victrex is the only global PEEK manufacturer with vertically integrated manufacturing, including our own monomer precursor materials. This U.K. manufacturing base avoids potential Asian supply chain risk and for some geographies and sectors, provides a critical security of supply advantage.

We also have market-leading applications engineering capability, translating PEEK's unique properties into practical solutions for demanding challenges. This is underpinned by state-of-the-art modeling and simulation in computational chemistry and physical performance. Finally, we are well invested with capacity to nearly double our current output without the need for additional CapEx. So as the market grows, this enables us to scale with customers while providing the security of supply that they need. So I'm now going to introduce our investment case, providing color around each of the 4 key messages for today's event.

Starting with the fact that PEEK is a compelling growth market and that Victrex is the undisputed leader. PEEK or polyetheretherketone is a semi-crystalline polymer used in mission-critical settings, particularly high temperature or high wear environments requiring chemical compatibility, fatigue resistance and dimensional stability under load. A combination of physical, chemical and electrical properties make PEEK essential where performance is critical. Victrex offers PEEK polymers in over 450 grades supplied as powder, granules and compounds. These are sold directly to customers or they're processed into specialized forms, including thin films, fibers and filaments, composite tapes, coatings and tubes or pipes.

To be clear, we do not produce PEEK-based finished parts to the market, except thermoplastic composites parts made in the U.S. for aerospace. Any other parts manufacturing is for prototyping and helping customers optimize their own processes despite the previously reported polymer top strategy. So with that cleared up, the polymer hierarchy is shown as a pyramid. Lower cost, higher-volume polymers sit at the bottom, while higher performance, higher cost, lower volume polymers sit at the top. And PEEK sits at the very top of this hierarchy within the ultra-high performance category. And this is reflected in pricing, which typically range from GBP 40 per kilo to over GBP 1,000 per kilo depending on the application with global volumes of around 9,000 tonnes per year.

By comparison, other ultra-high-performance polymers are typically GBP 10 plus per kilogram and produced volumes -- produced volumes at orders of magnitude higher. Both price and volume reflect the nature of applications where PEEK is used, while pricing also reflects the production complexity. PEEK synthesis is difficult, and the manufacturing technology is hard to master and replicate. A new PEEK plant takes several years to build and commission, followed by a lengthy optimization process to deliver the consistency and quality that customers require. That know-how takes a long time to build, which is one reason why several newer Asian producers have yet to reach the required consistency and quality.

PEEK is also much less exposed to cyclicality than commodity materials. It's sold for its unique performance properties in highly specific applications where it's often specified in and difficult to substitute. So why do engineers choose PEEK? PEEK combines physical, chemical and electrical properties in a way other materials rarely match. While alternatives may perform well in 1 or 2 areas, PEEK offers high mechanical strength, high temperature and best-in-class chemical, wear and fatigue resistance, making it essential where performance is critical. The left-hand graph shows this clearly. PEEK delivers high fatigue resistance, particularly at elevated temperatures versus other polymers.

Fatigue resistance is the ability to withstand repeated loads without permanent deformation or failure, and that's vital in high-cycle applications such as EV motors and Aerospace structures. The right-hand graph highlights PEEK's strength in chemically exposed wear critical applications, such as bearings, reciprocating or rotary seals and robotics. PEEK also offers an excellent strength to weight ratio, low creep, long-term durability and a proven track record of biocompatibility, making it well suited to implantable medical applications. It's often used to replace metals where lightweighting matters and can reduce total manufacturing costs.

So although PEEK is relatively expensive versus other polymers, material content typically only represents 5% to 10% of a part's manufactured cost while delivering significant value through performance, durability and its product life. PEEK is also PFAS-free, making it a potential replacement for materials used in higher-volume applications such as cookware and waterproofing should regulation require alternatives. In summary, PEEK is used in mission-critical applications where no other material meets the same combination of requirements. This technical differentiation supports strong customer value, meaningful pricing power and attractive margins. Victrex serves a broad range of high-value end markets with highly attractive structural growth characteristics across multiple geographies.

This breadth gives us diversified revenue streams and provides resilience against short-term movements in individual markets. These markets are grouped into 2 areas. Performance Materials comprises Aerospace and Defense, automotive, electronics and energy and industrial, while medical covers both implantable and non-implantable materials. Across this portfolio, average selling prices vary significantly. Medical is the smallest segment by volume at around 4% of total volumes, but contributes around 20% of sales revenue, reflecting the higher value nature of these applications.

Andrew and Daniel will give more specific examples of what we do in each market. But in short, we help customers solve complex engineering challenges with a highly differentiated product supported by leading applications engineering capability. Importantly, these markets are underpinned by strong fundamentals with regulatory and structural growth drivers supporting demand over the long-term. The PEEK market is forecast to grow at around 5% per annum by volume between 2025 and 2031, driven by 2 factors: underlying growth in our end markets and increased PEEK penetration in both existing and new applications. In 2025, the global PEEK market was around 8,600 tonnes, equivalent to roughly GBP 600 million of sales. By 2031, volumes are expected to reach around 11,000 tonnes with sales rising to approximately GBP 800 million.

This growth provides strong support for the financial guidance that we'll discuss later. Importantly, market value is expected to grow slightly faster than volume as some of the fastest-growing sectors, including medical and aerospace, carry higher average selling prices. Beyond the underlying market growth, the other important driver is increased penetration, which I'll touch upon only briefly as Andrew and Daniel will cover the end market detail later. To summarize briefly, in medical, adoption is broadening across areas such as craniomaxillofacial and cardiovascular applications, where PEEK's bone-like stiffness profile, imaging benefits and clinical performance provide clear advantages over metals.

In aerospace, PEEK is increasingly used in new applications from structural parts to interior components, where its lightweight, strong and cost-effective performance offers a compelling alternative to metal. In automotive, electrification is creating new opportunities as vehicles move from 400-volt to 800-volt architectures. In these higher-voltage applications, PEEK performs well where existing materials often reach their limits. In Energy & Industrial, demand is supported by more extreme operating environments, including high temperature, high pressure and corrosive conditions such as in oil and gas and through industrial automation.

There may also be longer-term opportunities in emerging areas such as humanoid robotics, although we haven't included these in our analysis, given the very early stage of the technology and uncertainty around timing and end-use applications. So the key takeaway here is straightforward. PEEK is an attractive growth market. Victrex already holds a leading position, and we are over-indexed to the applications and end markets with the strongest forecast growth. So far, I've explained why PEEK is an attractive growth market. I now want to turn to why Victrex is exceptionally well positioned to capture that growth and why we believe our competitive advantage is sustainable.

So some key facts on Victrex's competitive advantage. First, as already touched upon, we have a leading market share, supported by our differentiated product proposition, trusted brand and global reach. It's important to understand that not all PEEK is the same. Victrex PEEK has unique properties from our proprietary monomer manufacturing process. We use this platform to produce a broad range of grades, compounds and forms often tailored to specific customer applications. As a result, over 70% of our revenue is specified in with high barriers to entry. Customers trust Victrex for consistent quality, reliable lead times and deep technical support. That trust is reflected in long-standing customer relationships with tenure exceeding 10 years for the majority of our top customers.

We are the only PEEK manufacturer with vertically integrated monomer manufacture. Core products are made in the U.K. with optional China manufacturing for the local market. This gives us greater control over quality, supply chain resilience and global customer flexibility. Importantly, our analysis shows around 90% of our revenue is structurally protected from Asian competition through complex product requirements, stringent qualification standards or customer security of supply needs. So Victrex PEEK is unique in that we're the only global supplier that produces what has previously been referred to as type 1 PEEK with everybody else producing type 2.

From now on, let's make this really simple. There's Victrex PEEK and then there's everyone else's PEEK. The reason Victrex PEEK is different is due to our monomer manufacturing process. which is vertically integrated, made in the U.K. and unique to Victrex. This produces material properties that are distinct. So what does this mean in real applications? Well, touching on a few of the characteristics shown on the slide, PEEK -- Victrex PEEK delivers significantly better performance at high temperatures with 30% higher tensile strength and 100% higher compressive strength at 200 degrees C.

In practice, that means double the load-bearing capacity so customers can use less material for the same application. It also has very long operating life, which is critical in sealing applications where products face extreme temperatures, high pressures and corrosive environments. Victrex PEEK has demonstrated twice the sealing lifetime compared to alternative PEEK, and we've supplied material for more than 75 million seals, delivering considerable operational cost savings versus alternative PEEK. Its higher crystallinity also improves manufacturability. Faster crystallization can increase throughput and production yields, reinforcing why customers should consider not just the material price, but total cost, quality, reliability and manufacturing performance.

A good example where several of these properties come together is an oil and gas wellhead electrical connector. These mission-critical components transfer power, control and data signals between downhole equipment and surface systems, whilst maintaining the integrity of the well's primary pressure seal. They must operate reliably in some of the harshest environments, including pressures above 20,000 psi, temperatures above 200 degrees C, corrosive hydrocarbons, hydrogen sulfide exposure and continuous vibration. Victrex PEEK's performance across all these requirements enabled our customer to develop a highly reliable connector that meets or exceeds operational life requirements in one of the world's most severe operating environments.

In addition to the unique properties of Victrex PEEK, a key differentiator is our ability to help customers engineer solutions to complex problems. While our customers are often experts in their particular fields, many are less familiar with designing and manufacturing in PEEK. Our applications engineers support product design, manufacturing optimization, testing and regulatory requirements, adding considerable customer value. Applications engineers are based globally and work closely with commercial colleagues, allowing us to support our customers locally. They're supported by local laboratories and U.K.-based technical teams, enabling outstanding customer service.

We also use advanced digital tools to simulate both polymer chemistry and real-world applications from structural analysis of physical behavior to computational fluid dynamics and material flow in extrusion and injection molding. This helps customers optimize part design and the manufacturing process before committing to costly tooling or physical tests. So what does this mean in practice? The slide shows an aerospace interiors bracket used in aircraft overhead storage compartments. Using advanced finite element analysis and process flow modeling of stamp forming and overmolding, the composite bracket was optimized to outperform the original metal design in fatigue and shock loading while delivering significant weight savings.

This gave the customer confidence that Victrex PEEK-based composites were suitable, manufacturable and valuable for the application, and we gained long-term business as a result. So to bring one of these to life, here's a short video from Ensinger, one of our largest and longest customers explaining how our close relationship helps them deliver value for their customers.

[Presentation]

So a key part of our competitive advantage is the scale and capability of our operations, which gives us strategic flexibility in a rapidly changing market. We're a global business with manufacturing predominantly based in the U.K. despite generating less than 2% of sales here. In the U.K., we operate 5 manufacturing sites. We make our unique monomer in Rotherham and Seal Sands, which supplies our polymer and specialized forms business in Lancashire. We also operate a fibers manufacturing business in Gloucestershire and support the Magma program from a small operation in Portsmouth. So it's important to note that the vast majority of our manufacturing is non-Asia-based, meaning we've got security supply, particularly for protected or regulated markets.

To support aerospace and defense customers, we operate a thermoplastics composite business in Rhode Island, giving us specialist capability closer to customers where local supply and technical collaboration matter most. In China, we operate a polymer plant in Panjin and a state-of-the-art compounding plant in Shanghai. This is in addition to our Asia technology center, all of which support our rapidly growing Chinese business. As many will know, we faced challenges with the Panjin plant, but we're committed to making this work, and Suranjan will explain the actions underway later in the presentation.

These facilities allow us to support Chinese customers locally while we continue to supply U.K. manufactured Victrex PEEK into premium applications where its differentiated performance and quality are valued and growing. We also operate 8 warehousing centers close to customers, helping maximize availability and meet dynamic demand. And finally, and importantly, we have sales and support offices in strategic locations close to customers, including Germany, France, various locations in Asia Pacific and the U.S. This keeps us in the right time zone, speaking the right language and responding quickly, combining commercial teams with world-class applications engineers to deliver engineered solutions for our customers.

Based on either volume or sales, Victrex is the world leader in PEEK. We're a premium brand with premium quality, deep technical capability and a global network. This gives us more than double the market share of the next nearest competitor and leading positions in the highest value sectors. There are 2 main non-Asia and Asia headquartered competitors shown as competitor 1 and competitor 2. Both supply a much broader polymer portfolio with PEEK only a small part of their business. And whilst they benefit from scale, they lack Victrex's focus and specialism in PEEK. Competitor 1 manufactures in the U.S. and India with capacity around 1/3 of Victrex. Competitor 2 is European, but its PEEK manufacturing is entirely China-based. There are 7 Chinese PEEK producers, but only competitor 3 and competitor 4 have credible scale and quality.

The others remain relatively small, reflecting the difficulty of mastering complex PEEK synthesis and delivering consistent customer quality even many years after plant commissioning. And recent VAT increases on Chinese exports and punitive U.S. tariffs have also constrained their ability to compete outside China. Chinese players, particularly competitor 3, have grown strongly over the past 5 to 6 years, but it's mainly in lower performance or lower quality applications. Higher-value segments remain protected by tougher quality performance and certification requirements. As such, we estimate that we retain a 25% market share in China, broadly stable since 2019. Over the past 10 years, China sales have grown at 17% compound annual growth rate with acceleration this financial year entirely through U.K.-made product.

This is an important proof point. Chinese customers import Victrex PEEK at premium prices because they value its distinctive properties and consistent quality. Much of China's announced capacity expansion is aimed at the nascent humanoid robotics sector. Based on our analysis, not all of this capacity is likely to emerge and many producers will continue to struggle with the complex PEEK synthesis. Competitor 3 has announced 10,000 tonnes of expansion. But as this includes the total of their monomer, polymer, forms and composites business, the actual additional PEEK polymer capacity is unclear and likely only a minority of the headline figure.

Overall, Asian competitors remain largely contained to China and lower barrier segments. We remain vigilant, but our analysis shows their manufactured cost is not substantially below our current cost per kilogram, even before the operational transformation work that Suranjan will describe later. So standing back from the market dynamics, growth opportunities and competitive landscape, the key point is that Victrex is well positioned to benefit from attractive market conditions despite the much discussed potential Asian capacity expansion.

First, Victrex has greater protection than the overall PEEK market. Around 90% of our portfolio has high or medium protection from Asian competition, reflecting our exposure to fast-growing high-value applications in medical, aerospace and defense, semiconductors and battery electric vehicles. Second, that protection is underpinned by high barriers to entry. These include strict regulation and demanding technical requirements, long development and testing cycles and established Western manufacturing capability. These barriers are particularly strong in medical and aerospace and defense and remain meaningful even in lower complexity applications. This is why higher-value segments remain better protected and why Victrex's exposure to the most demanding applications provides greater resilience than the broader market.

So the key takeaway is that Victrex is over-indexed to the most attractive parts of the market with around 90% of our portfolio benefiting from high or medium protection from Asian competition. That gives us confidence in the resilience and growth potential of our portfolio. So in summary, we have deep PEEK expertise that's unmatched in the market and a differentiated unique version of PEEK. We have class-leading applications engineering, which unlocks customer value by providing solutions to real-world challenges and a world-class vertically integrated manufacturing capability with the capacity to grow without the need for additional CapEx. This is mostly located in non Asian supply chain to provide security supply. When combined this attributes, ensure we're seen as a trusted solution partner to our customers. Priortizing long-term relationships to drive real business outcomes. So, now I'm going to show you another short video summarizing our premium offering.

[Presentation]

So I've told you that the market is growing and Victrex is well positioned to capitalize on that growth through a differentiated model. I'm now going to explain to you how we're going to do that through rapid organizational transformation. Let me start by highlighting some internal factors that have affected our past performance. So some of the more skeptical amongst you might be thinking if the market opportunity and Victrex's competitive advantages are so clear, why haven't we delivered in recent years? It's the obvious question. Well, the answer is execution.

So let me explain. First, starting with commercial focus and capability. We have not driven sufficient top line growth over the past 7 to 8 years. Whilst we maintained share in Europe and China, we lost share in North America, where we lacked sufficient commercial capability. This is because despite the product and service differentiation I described earlier, our pricing discipline was not robust enough. We failed to increase prices adequately in certain markets and applications, reducing revenue and squeezing gross margin. At the same time, mix shifted towards lower priced but still highly valuable VARs business, while medical, our highest priced business, was flat and saw negative mix within its portfolio.

Second, operating effectiveness. Headcount increased by around 50% from 2020, mostly in function -- support functions rather than direct value-adding functions. This created a large corporate center, limited local empowerment and insufficient focus on P&L performance. This resulted in bureaucracy, rigid processes and a much larger overhead base with limited accountability. And much of this resource was focused on longer-term projects, previously known as mega programs rather than nearer-term opportunities to improve financial performance. This added significant costs over many years without any corresponding return.

Third, capital allocation and execution. We made investments that did not deliver the expected profit uplift, while depreciation charges flow through the P&L and further reduced earnings. We also invested in loss-making businesses that ultimately did not deliver. The China manufacturing plant is the clearest example. Since commissioning completed in May 2024, it's been a drag on gross margin with an GBP 8 million negative PBT impact in FY '25 and nearly 300 basis points drag on operating margin, and we'll cover next steps for this facility later.

Overall, many of these impacts resulted from the choices the business made rather than external factors. That means they are largely within our control to address. This brings me to how we are changing Victrex's leadership, organization design and operating model. So we certainly haven't been waiting for this event to start taking action. We've moved quickly and completed much of the heavy lifting needed to position the business for FY '27 and beyond. This is already driving results as shown in our 9th of September trading update, which highlighted improved performance and upgraded FY '26 guidance. When I started in January, I commissioned a strategic review to understand what had gone wrong, where we were strong and where we needed to change.

It became clear that many issues were internal and within our control. We used that work to then define target markets by geography and sector and to sharpen our win strategy. Following the issues with the manufacturing plant in China, we completed a full review of our China strategy against the backdrop of operational challenges and rapidly changing market conditions. We'll cover this in more detail during the individual presentations. As part of the same review, we reassessed each of the so-called mega programs, canceling or changing scope where needed to deliver nearer-term commercial outcomes. From February, I began reshaping the executive leadership team around the new organization design and the operating model.

While some changes is still underway, the key commercial and operational leaders are now in place and here today. Please remember, they've only been here a couple of months, so be gentle with them today. This team is commercially led, focused on financial outcomes and rebalancing effort towards nearer-term opportunities while still pursuing longer-term potential. Since their appointment, Andrew and Daniel have been actively driving change through their organizations, visiting global sites and meeting as many customers as possible. They've also reviewed senior leadership capability and made several changes aligned to the new operating model.

We've also designed a decentralized operating model with individual P&L owners. This will sharpen accountability, drive financial performance and reduce the size and cost of the corporate center. The work is complete and will go live next week, aligned to the start of our new financial year. The new team has also rationalized a very large project portfolio into a manageable set focused on commercial outcomes, eliminating OpEx and CapEx projects that were not aligned to our strategy. And on the profit improvement plan, we delivered the first phase by the end of Q3, removing around 10% of global roles, supporting our previously stated GBP 10 million annualized profit improvement commitment.

We'll continue to review organization design and identify further savings. The program has also highlighted opportunities to rationalize our product supply, given that a relatively small number of products generate most of the profit. This will also be delivered during FY '27. In August, as part of this rationalization, we divested our Grantsburg parts manufacturing business in the U.S. Originally acquired in 2015 to support an automotive gears opportunity, it was no longer core as we focus on polymers and specialized forms and was also a drag on the P&L.

We also announced the closure of our underutilized Philadelphia office. And going forward, we'll continue to rationalize all other loss-making sites. So in conclusion, we've moved quickly, but there's still more to do to drive the turnaround. The actions already taken, combined with our revised strategy, position us well to deliver a step change in financial performance. So moving forward, our execution will focus on 3 clear priorities driving near-term performance and positioning us for long-term growth. The first priority is to transform the business to build a customer and performance-focused culture that puts customer needs and financial performance at the center of everything that we do. We've already made strong progress, including appointing the new leadership team and establishing a new more agile, decentralized organization with clear P&L accountability.

This may sound like an obvious thing to do, but it wasn't previously in place. We're also simplifying the operating model, removing internal barriers so the activity clearly supports either the customer or improved profit, cash and return on invested capital. R&D and product development will now be commercially led, shaped by customer needs and market trends, so we launch products with clear and a defined route to revenue. We'll continue to invest in innovation, but the focus is commercial outcomes, not background research.

The second priority is profitable revenue growth as we refocus the organization on nearer-term, higher-value opportunities. In recent years, Victrex has been too focused on longer-term projects that have not delivered incremental revenue or profit, which has understandably frustrated shareholders. To reinforce this, we have introduced a 70/20/10 rule. 70% of resources will be focused on financial performance over the next 2 years, 20% on 2 to 5 years and 10% on opportunities beyond 5 years. This will help convert nearer-term opportunities into profit and cash. We will prioritize high-margin applications where Victrex PEEK is highly differentiated, already specified in and protected by a strong moat.

In some markets, this includes geographic advantages where supply from outside the U.S. or the U.K. or EU is not viable. These areas support stronger pricing, higher margins and lower competitive risk. Growth will also come from stronger, deeper, more meaningful customer partnerships, where there's a clear benefit for both parties. We already have many examples, which you'll see later today, but this remains a major focus for our sales teams. Product development will follow exactly the same discipline. Everything we develop must drive incremental revenue at improved margins.

The third priority is relentless efficiency and cost discipline. In recent years, the overhead base became too large, and we're now rightsizing costs. We've already taken a substantial first step through the profit improvement plan, but there's a lot more to do. And as part of our simplification, we're driving operational excellence and using digital tools and automation where possible to reduce costs and improve efficiency. We're also rationalizing the product range. We have over 450 products, but a relatively small proportion drives profitability. And we're applying the same discipline to projects and initiatives, reducing work streams, so resources focus on nearer-term financial outcomes.

We're reviewing our operating footprint and have already exited loss-making locations or underutilized sites and are actively reviewing all other locations. Fundamentally, we will operate a capital-light model. Victrex has invested significantly in capability and capacity over the past decade. Now is the time to generate stronger returns from that investment and drive a material improvement in return on capital. So after explaining our compelling market, our strong competitive advantage and our strategic model to deliver the next phase of our growth, this delivers a clear path to enduring value creation.

In conclusion, Victrex has a premium offering, a trusted position and a well-invested asset base. By combining those strengths with far sharper execution across the organization, we can unlock the true potential of the business and deliver a substantial step-up in operating profit and cash generation. The largest part of that improvement is within our control, focusing on the core business, commercial and operational discipline, strengthening gross margins and maximizing returns from our existing portfolio. I have great confidence in our ability to compound earnings growth and generate substantial free cash flow over the next 5 years.

In the next part of the presentation, my colleagues will take you through the commercial, organizational and operational initiatives that they'll be leading and making -- and that they'll be delivering these improvements. And then towards the end, I'll put it all together for you by summarizing our updated financial guidance and capital allocation policy.

So I'll now hand over to Andrew, and he'll take you through Victrex Performance Materials.

Thank you, James. Good afternoon. I'm Andrew, Chief Commercial Officer, leading Victrex Performance Materials or VPM, across our industrial and technology-focused activities. I joined earlier this year from AB Dynamics, where I was Group President and Chief Commercial Officer. Prior to this, I led the APAC business for Diploma, where accountability, customer intimacy and local decision-making were key to the decentralized operating model. Crucially, I've been a customer of Victrex, and I know what Victrex is capable of delivering. My focus here at Victrex is clear, building high-performance teams, scaling international operations and delivering disciplined commercial growth.

It is indeed exciting for me to be here today presenting to all of you. So there are 3 things I would like to cover today. Firstly, we have strong foundations in VPM. Secondly, I will talk about the untapped potential that to date, Victrex has not converted. And thirdly, I will cover the VPM strategic priorities related to firm focus on profitable revenue growth and optimizing our global operations. Finally, I will share with many of you the actions that are already underway. So let's start with strong foundations. As outlined by James, VPM is not just a material supplier. We are a global leader in PEEK-based, high-performance polymer solutions for critical applications where failure just isn't an option.

We have a strong material suite with about 450 different grades organized into 4 groups across our product family. Firstly, PEEK performance. This is designed for higher temperature applications, offering better PEEK stiffness and strength above 150 degrees C. Secondly, PEEK core. Now that's the original Victrex PEEK range, and it is widely recognized as the industry benchmark. It includes specialist formulations for PEEK wear, mechanical and electrical performance. Thirdly, PEEK process. These are our lower melting PEEK materials developed to be easier and faster to process than conventional PEEK. They are particularly relevant for extrusion, 3D printing and carbon fiber composites. And finally, PEEK volume.

These materials are designed to provide a broader offering for customers looking for cost-effective and higher-volume solutions. Across these product families, we produce PEEK polymers as granules and powder, which are typically compounded into specialist forms such as films, tapes, fibers and tubes. Our performance materials solve demanding problems. So let me bring that to life for you. In aerospace and defense, we supply major civil aerospace customers with PEEK for applications such as brackets, hinges and interior components. Increasingly, we're also supplying customers with thermoplastic composite materials used for larger aircraft structural parts. Defense is still at an early stage for us, but the opportunity is developing.

There is an increasing need for rapid innovation and cost-efficient manufacturing for unmanned aerial vehicles, UAVs, and PEEK is well placed to support both. In automotive, we supply PEEK components for both hybrid and EVs, such as slot liners and bushes. More importantly, PEEK coatings can replace traditional enamel on high-voltage wiring, which supports the move to the new 800-volt EV architectures. In electronics, our PEEK is used to produce high-performance components such as the impellers for vacuum cleaners and hair dryers.

Victrex PEEK is also specified in mobile devices where our specialist product forms can make the difference. And in semicon manufacturing, PEEK has a variety of chips in the production process. These includes wafer carriers and CMP retaining rings. We have product samples displayed here today, so take a look a bit later. Finally, turning into Energy and Industrial. PEEK is used across a wide range of applications such as gears, compressor rings, seals, bushes, bearings and other low-friction components. In oil and gas, PEEK is particularly well suited for high-temperature and high-pressure applications in hostile chemical environments. This is particularly important as operators move towards deeper and harder to access reserves.

I'll come back to this later and bring this to life through a case study. PEEK is critical across multiple end markets and applications. As James mentioned earlier, applications engineering is a critical part of VPM's strong foundations. This is particularly important in aerospace where we work as a trusted solutions partner, not just a material supplier. I recognize that some of these opportunities may be familiar. What is important today is the progress we are making towards commercialization. So let's talk about eVTOL, which stands for electric vertical takeoff and landing aircraft or air taxis. There are a range of exciting applications for PEEK from commercial air taxis to UAVs, as I mentioned, for defense. We have a highly differentiated business in Rhode Island, U.S.A. called TxV. Now TxV produces PEEK composites via unidirectional carbon fiber tape supplied from our U.K. operations.

Victrex low melting PEEK is being used in load-bearing brackets, engine vanes, access panels, interiors and battery containment enclosures. So why does it matter? Well, Victrex thermoplastic PEEK can be molded in minutes compared to hours in an autoclave. And this is really important because it supports faster, more repeatable production and improved yields while enabling lighter structures and greater design flexibility. Our unique PEEK expertise and applications engineering are helping our customers to bring innovative solutions to the market. A clear example is our partnership with Daher, where Victrex composite PEEK is playing a critical role in the design and manufacture of its light aircraft. So, let's take a look at the short film illustrating this partnership.

[Presentation]

So that provided a good overview of what Victrex offers. However, when I joined, it was clear that our strong foundations were getting held back. The organizational structure contained too many layers and overlapping responsibilities. Internal hurdles slowed decisions and diluted focus. Decision-making was just too centralized. This reduced our speed, our agility and our responsiveness to regional opportunities. Commercial rigor was also limited. Prioritization was insufficient and pricing discipline was not robust enough. We had a significant untapped potential. So addressing these internal issues and simplifying our operations will enable us to commercialize more of the opportunities within the business.

Now to our favorite topic, pricing. This chart shows or highlights the clear pricing opportunity for Victrex. Pricing has simply not kept pace with inflation despite our premium quality and superior performance of our materials. This reflects insufficient pricing discipline and too much acceptance of our customer-led pricing. So in future, decisions will sit close to the revenue source, strengthening accountability and enabling us to price strategically for the actual value we deliver. So let's talk about that untapped potential. There are 3 growth drivers for VPM. We benefit from structural growth in selected end markets. We can increase in PEEK penetration with those markets as customers require lighter, stronger and more durable materials.

Capturing the opportunity requires disciplined resource allocation and pricing that reflects the value we deliver. Given these drivers, we know that the strongest regional growth will be in Asia Pacific, ranging 7% to 8%. North America also presents a compelling opportunity, having historically been underresourced. But it's okay, we're already fixing that. This is a compelling growth opportunity going forward. So let me start with the structural dynamics in our priority markets and the opportunity for further PEEK penetration. As shown on the slide, growth across priority segments is driven by a combination of underlying market growth and increasing PEEK penetration. The opportunity differs by segment. We access these opportunities through complementary routes to market.

We engage directly with the strategic customers on technically demanding applications. Our value-adding resellers extend that reach further. They broaden access to PEEK through parts prototyping and support volume growth in non-molded components. Over the next few slides, I will take you through each segment in turn, looking at the market drivers, penetration opportunity and how Victrex is positioned to capture that growth. So let's start with aerospace. In commercial aerospace, growth is getting driven by increased aircraft production as shown in these forecasts. This follows several years of delays in the delivery of all programs since 2020. These are opportunities for Victrex PEEK across both new generation wide-body and single-aisle aircraft.

Importantly, Victrex PEEK is already specified on all aircraft types. So as customer capacity and production increases, that growth will benefit Victrex. We're already seeing this in our performance with good double-digit sales growth over the last 12 months. In addition to the underlying market growth, there is also increasing penetration of PEEK into new aircraft applications. These include larger structural parts and interior components. Lightweighting remains a key structural driver. Every kilogram removed reduces fuel burn, operating costs and lifetime emissions. PEEK is moving from smaller functional parts into larger, load-bearing and exterior applications.

So ultimately, more PEEK will be required per aircraft. In addition, through injection molding, PEEK components can often be produced at lower cost and with less waste than machine parts. The Daher wing rib featured in the early video is a good example of this. It delivers low weight, low assembly costs and shorter production cycles. A further example is a door bracket. The PEEK-based solution is about 40% lighter, and it's significantly cheaper to manufacture. The opportunity also extends into primary structures, including the emergency exit door. pretty important. This is a single molded overwing component that reduces parts and assembly steps by up to about 90%. I mean that's massive. There are further opportunities in premium class seating where the potential is being assessed to switch from aluminum architecture to PEEK.

For example, we estimate that the PEEK usage for business class seats on a new wide-body aircraft to reduce seat weight by about 20%. So in a standard configuration aircraft, that would equate to about 1 ton, 1 ton in weight savings. Imagine that. So together, build rate recovery and increasing PEEK penetration creates a compelling aerospace growth opportunity, more aircraft, more PEEK per aircraft and qualifications that support the defensible growth through the decade.

And now on to automotive. In automotive, the shift is to EVs. There's a big push from 400 volts to 800-volt architectures. Let's hold on to that thought. PEEK has historically been used in smaller vehicle components such as seals and bearing cages. EVs now are in turn creating demand for larger performance critical insulation applications that must withstand high voltages, temperatures, long thermal life cycling and a good example of that is in the EV wiring. So traditional enamel coatings can break down at high voltages, whereas PEEK's unique properties makes it ideal for a solution for 800-volt architecture and beyond. EV production is expected to almost double over the next 5 years, 20 million vehicles to about 36 million.

And at the same time, adoption of that 800-volt architecture is set to accelerate from 10% to 20% to well over 50% today. So why is that? Well, it's faster charging, and the demand is high, as we all know. We're already seeing this translate into material demand. One leading Chinese OEM uses around 10x more PEEK coating in vehicles built on 800-volt architecture compared to hybrid vehicles. This is a clear example of a strong growth driver in Asia Pacific, and this is why we're focused on this particular opportunity.

AI. That's a hot topic for all of us today. But at Victrex, this is an opportunity for us because it's in the electronics sector. In electronics, fundamental drivers of growth include both the rapid increase in AI infrastructure and the increase in electronic devices. So both support an increase in semiconductor chip demand and an increase in fabrication facilities. This benefits Victrex. Within the semicon chip manufacturing process, we supply PEEK for the production of the CMP retaining rings. These rings hold wafers in place during the chip polishing phase. As chips become smaller and more advanced, they require more and more polishing. Therefore, the wear rate of the CMP rings will be higher. More gets used, more will be replaced.

This is a multiplier effect for us and our resilient position has given qualified materials that are not easily substituted. Finally, turning to Energy and Industrial. Across this sector, we are seeing increasing demand for high-performance materials. Operating environments are becoming more extreme and applications are placing greater demands on reliability, durability and efficiency. Be it in oil and gas, industrial processing, automation, PEEK is increasingly being specified where traditional materials approach the performance limits. So many of you have heard us talk about Magma and flexible piping. And the opportunity continues to progress, but it's worth revisiting. But I've seen it. It's always there. At its core, this is about Victrex PEEK carbon fiber composite pipe operating in some amazing and most demanding offshore environments.

At depths of nearly 2.5 kilometers, infrastructure faces extreme pressure, temperature and corrosive conditions. In these environments, -- the technology offers higher pressure capability. So corrosion resistance, reduced weight, improved fatigue life. However, technology alone is not enough. What makes the opportunity compelling is the collaboration across the value chain. So Victrex provides the proprietary PEEK and composite technology, Relax. TechnipFMC, our customer, provides a flexible piping. It engineers expertise. It deploys the solution to their end customer, Petrobras. Petrobras provides a real-world demand and qualification pathway. So this has been a long-term partnership, about 16 years. But Victrex and its partners have invested in developing and qualifying this technology, progressing it from concept to a qualified route to market.

Petrobras, it accounts for nearly 60% of the global flexible piping demand, making Brazil's pre-salt reserves one of the most attractive uses of this technology. More importantly, this opportunity is not included in the guidance case or forecast that James will discuss later. It represents additional upside. As we have highlighted previously, the single application with a single customer has the potential to deliver revenue equivalent to about 10% of today's group revenue by 2031. This will be further opportunity beyond as the customer and geographic adoption expands. Speaking of geographies, China.

China is an established and strategically important market for Victrex. We have a brilliant business in China. It has grown over 17% compound annual growth rate over the last 10 years. It is by far our clearest and strongest growth opportunity going forward. In China, our operations comprise of 3 elements: one, Asia Technology Center. This is based in Shanghai. It supports our customers across Asia Pacific from material selection and prototyping to tool design and simulation. Two, our Shanghai compounding plant enables tailored formulations to meet our customer needs in China. Three, our Panjin polymer plant produces type 2 polymer, which supports a volume-driven industrial business in China.

Today, this remains a relatively minor proportion of our revenue. As James has shown, we have maintained strong double-digit market share since 2019. Importantly, our growth in China has been driven by our U.K. manufactured PEEK core, demonstrating Victrex retains a defensible premium position in the market. This is driven by applications where qualification, reliability, quality, performance and consistency, these are critical in some of the industries that we operate in, aerospace and electronics. New entrants have largely grown in the lower spec industrial applications. Our local competitions continue to commission new plants, okay. However, it will take many, many years to achieve the product consistency and quality that Victrex has.

So this has enabled Victrex to compete effectively in China without diluting our premium offering. Our global customers are specifying Victrex products manufactured in China for the quality of our PEEK. However, as I mentioned, our polymer plant in Panjin, it has some headwinds. So let's address that. We will have a revised operating model, which will reduce the cost, improve the flexibility and support growth without any further capital investment. Suranjan will explain more about the next steps in his presentation. So the message for Victrex in China is clear. Market opportunity, that's very attractive. Our premium offering position, that remains defensible.

Our facilities in Shanghai plus Panjin is pivotal to selective market segments for our growth in China. So to summarize, this matrix shows our focus areas across end applications and regions. The pluses on the matrix. It represents the focus areas that we want to be in the short and medium term. Now given our previous underrepresentation in North America, remember, I'm fixing that. We are fixing that. And in this region, this is now our #1 focus across all market segments. It is. Well, you know, I've done 3 trips in the last 4 months to the U.S. and here to visit all our customers and partners. We have an incredible opportunity here to pursue the new business opportunities at pace, and we will ensure it is fully resourced to drive revenue growth going forward.

Some of my colleagues are actually here from the U.S. Within EMEA, we will have a particular focus on higher-margin Aerospace and Defense segments. There are also future opportunities for the rapid growth from the 800-volt architecture for the EVs. Remember, the demand for fast-charging EVs, that's real. In Asia Pacific, the EV market opportunity is automotive. And as previously mentioned, the CMP rings in the Electronics segment, that's very attractive for us. So we remain strong in a defensible position in other market segments where premium applications have the highest conversion potential.

Execution will be focused, disciplined and customer-led. So as James set out, our priorities are clear: build a customer performance-focused culture, deliver profitable revenue growth and drive efficiency through cost optimization. For me, that starts with simplification. In VPM, we will simplify how we work. We will move decisions closer to the customers, focusing resources on opportunities with the strongest commercial return.

It's okay. We are moving away from a model that has become too centralized, too complex. Regional P&Ls will strengthen accountability and give teams sharper ownership of customers, growth, profitability and execution. The second area is project rationalization. We are focusing R&D and commercial resource on fewer higher value opportunities with clear customer need, a defined route to revenue and attractive returns.

The aim is a faster and more commercially disciplined business. A good example of this is how we are managing the value chain and product pipeline. When I joined, the pipeline responsibility was across four separate teams, four, industry, project management office, strategic portfolio and product portfolio. Each had a role, but priorities were not aligned and R&D interfaces overlapped. And then the decision making, well, it was just slow.

We've brought that together into a streamlined product portfolio management team under one director. She's here too. I'll introduce her later. One team now manages the full product life cycle from early R&D and launch to mature product optimization, giving us one point of accountability for resources and priorities and the roadmap.

The third area is regional empowerment. By moving decisions closer to customers, regional teams can respond faster to local needs. This will help give clear ownership of customers, pipelines, market priorities and financial performance and execution. Asia Pacific demonstrates this opportunity. It is new decentralized model, combines local sales and customer facing capability with the ATC, the Asia Technology Centre based in Shanghai.

It has delivered growth well ahead of the wider group and it provides a blueprint of how we move forward. The divestment of Grantsburg, it's another example. We successfully seeded the PEEK gears market, but this parts based business is no longer our core. The divestment sharpens our focus on core operations where Victrex can create the greatest long-term value. So the direction is clear. The sharper commercial focus also changes how we allocate resources.

We are shifting from spreading resources too widely to focusing them on where they can create the greatest value. New product opportunities will be governed by the sharper 70/20/10 discipline as outlined by James. Most effort will be directed to near term opportunities with a clear path to revenue. Our effort will be focused on opportunities capable of generating revenue within five years with the greatest emphasis on those that can deliver within two.

Every project must demonstrate customer need, customer commitment, a credible route to revenue and an attractive return before resources are committed. This creates a more disciplined innovation model, less technology for tech's sake and more focus on what customers will specify, buy, and pay for. And in terms of existing product opportunities, we will also extract more value from the existing portfolio through stronger sales capability, pricing discipline, and more active commercialization of our operating assets. We will focus on the vital few products that drives the majority of the revenue and profit while actively managing the remainder that add capacity, cost and complexity without equivalent value. Sites such as Stonehouse Fibres, Magma Tubing in Portsmouth should not simply fulfill customer orders passively. They should be positioned and promoted as growth assets that can contribute directly to revenue.

So in summary, our commercial efforts are focused on increased revenue, profit and cash with a focus on maximizing near-term opportunities and we're already making progress. I've been very busy. The changes I've described are already well underway and many are now complete. In terms of the regional structure, we've simplified the organization and clarified ownership across the board.

Alongside this, changes to our sector leadership have created one point of accountability for the product roadmap, customer led priorities and resource allocation. I've also undertaken extensive customer visits across EMEA, the Americas and Asia Pacific. These have confirmed to me the strength of the Victrex brand and the value proposition. Customers consistently highlighted their trust in our product quality, technical expertise and security of supply.

Finally, I've implemented a performance culture with clear P&L accountability. This has reduced duplication and align activity directly to commercial execution. We are now focused and we will not be distracted, but we have been very, very busy. In conclusion, I've been here before. Victrex has strong foundations. It has differentiated technology, trusted customer relationships, substantial manufacturing capability and talented, amazing people. The opportunity is to convert this consistent profitable growth, stronger returns and cash generation.

We have simplified our business at pace, sharpen accountability, moving decisions closer to customers and focusing resources where they create the greatest value. I'm excited about the future of VPM. My team and I, we're ready to take on all the challenges and we know we have the right to win. So thank you and I'll look forward to the Q&A session.

Allow me to thank you all for coming to our capital markets event and also thank you for coming back from the break. Actually, we had quite a lot of you come back and that's never a guarantee. Before I begin my remarks, I'd just like to say I'm a little bit trying to decide what's more daunting in terms of presenting to our investors and shareholders after several years of underperformance in our medical business or if it's getting stared down by this oversized zebra in the corner over here. And yeah, it's you all actually.

So okay. All right. So I am Daniel Diffenderfer and I am the managing director of Victrex Medical. I joined Victrex Medical three months ago. Before that, I spent my career in the engineered polymer and medical manufacturing space at Trelleborg, where I most recently served as the business unit president for their medical business in Europe. My experience spans strategy, organizational transformation and commercial leadership.

What attracted me to Victrex was simple. It's our market leading position in medical grade PEEK and the opportunity to improve a business that had fundamentally underperformed that market leading potential. Today, I want to share my plan to unlock the potential of our medical business.

I want to organize my remarks around four key messages. First, Victrex Medical has strong foundations. We hold leading positions across a diverse medical portfolio, differentiated technology and deeply embedded customer relationships. Second, there is significant untapped potential to drive improved business performance in the near term. Third, we have a clear set of strategic priorities. We are going to grow through stronger commercial execution and we are going to align our organization around the areas where we have the strongest right to win.

Finally, this is not simply some theoretical aspirational future oriented plan. Action is underway as we speak. We have a clear plan we are currently executing to drive that improved business performance. Before we get into the plan, I also wanted to clarify what is our business exactly and who is it that we sell to? The answer here is simple. We are primarily a medical materials business. We develop and supply medical grade PEEK, powder and granules through both our Victrex and Invibio brands, and our customers then transform these into finished medical devices and products using shapes such as rods.

This distinction is really important and I wanted to make that clear for our investors because sometimes there's a misperception that we are associated with finished medical devices or large programs. In reality, the overwhelming majority of our revenue today comes from medical grade materials and forms. Devices and components contribute a minor portion of our current revenue profile.

So throughout this presentation, I am going to refer to the core business. And when I refer to the core, I mean something very specific, our medical grade materials and forms business. If you look at the markets we serve, spine remains our largest by value, but is today less than a quarter of our overall revenue. Our customer base in medical today is broader and more diversified than at any point.

We support diverse applications ranging from cranial implants to inhalers. We have 450 active customers from early stage innovators to leading medical device companies. Importantly, no single customer represents more than 8% of our revenue. So while our customer base is broad, our value proposition is simple. We are the global leader in medical grade PEEK. I wanted to explain how we built that leading position and it's not just the polymer itself. It's about the evidence and the experience that comes with more than 25 years supporting implant grade medical applications.

We have over 15 million implants using PEEK-OPTIMA in humans today, and in medical, that history matters. Our customers and partners, they want robust evidence as they prove patient safety. And here, Victrex is the PEEK partner of choice for medical device companies globally. Second, it's our regulatory and quality support. Our customers rely on us for consistency, traceability, documentation, change control, and long-term reliability.

We have built an audit-ready quality management system that supports these complex medical requirements. Third, it's applications expertise. In medical, we work alongside customers from concept through regulatory approval to commercialization. We both understand the performance requirements for medical as well as the intended clinical outcomes our customers are trying to achieve. We provide key evidence and data that is used by our customers to get approval by regulated bodies such as the FDA in the United States.

So while it can take years to introduce a new medical device to market, once you are in, the revenue that results is both high quality as well as moat driven. Our collaboration with customers result in us being a trusted solutions provider across the product development cycle. But I don't want you to just trust me on this. I want you to hear from one of them directly. AESCULAP, which is part of the B. Braun Group, is an established leader in knee arthroplasty. Its Columbus Knee System alone has more than two decades of clinical use with more than 650,000 implantations worldwide. Let's hear directly from them.

[Presentation]

What you've just heard is a leader in knee arthroplasty describe the clinical benefits of PEEK, and I just want to point out that this is a company with a proven track record of commercializing and scaling knee platforms. It also illustrates the depth of the relationships we have with our technical expertise and application support as we continue to partner with medical device companies to bring PEEK innovations to market.

As our shareholders, you're probably wondering if our market position is strong, then why hasn't our performance been stronger? And here the answer is very straightforward. We have not converted our advantages into commercial outcomes. There's four reasons for this. First, some of our programs have failed to commercialize both at the scale and within the timeframes originally anticipated. As a result, we've increased our costs that were not offset by new revenue and profit.

The second reason is we did not consistently capture the value of our unique position. This includes not fully covering development costs as well as under-leveraged pricing opportunities, which I'll discuss. Third, we expanded beyond our core capabilities, and this is particularly evident if we look at efforts to grow through finished device, design and manufacturing.

Fourth, our organization's structure became fragmented. Within medical alone, we operated as two businesses. One was focused on our core materials business and the other was focused on parts. This reduced alignment, increased costs, and ultimately decreased our business performance. We are addressing these through three connected priorities as we transform, grow, and optimize the business.

Transforming and optimizing means creating a simpler and a more focused business with resources focused on our core medical grade materials business. Growth means leveraging commercial excellence to turn our market leading position, customer relationships, and sales pipeline into business results in alignment with the 70/20/10 principle outlined by James. These are practical management actions and they will unlock the potential of our medical business.

While we've had internal issues, we also have faced significant external factors that we need to recognize and address here directly. I want to describe our plan to mitigate these impacts on our business in the future. First, spine. We've talked a lot about spine over the last several years. 10 years ago, our medical business could be described as a spine business with spine contributing over 60% of our revenue in medical. Today, spine represents less than a quarter. That decline occurred because the market shifted toward 3D printed porous titanium spinal cages, and this has resulted in sustained 10-year decline in our spine portfolio.

We do have reason to believe that spine is stabilizing over the near term, but while spine has declined, that decline obscured a really important fundamental fact. The rest of our portfolio has grown at a compounded annual rate of 6.5% across that exact same time as our spine portfolio declined. This reflects what has been true all along, which is that PEEK remains a compelling material choice for medical device companies globally.

PEEK is also expanding into new platforms as we'll discuss. So while our 10-year performance has been largely flat, it's been driven by a significant portfolio transformation. The second issue we face as a business is in China. We continue to believe in the long-term growth outlook for China, where we hold a significant market leading advantage over our next competitor.

Our data indicates that PEEK will grow in China on a volume basis at a rate of 9% across our planning horizon. However, we have to recognize that short term, we have experienced headwinds in China on pricing. Those headwinds began with volume-based procurement. This policy introduced new pricing pressure for finished device companies. That pricing pressure made its way up the supply chain to material suppliers.

So what do we do? In China, our approach is going to be pragmatic. We will protect our customer relationships and partnerships and defend our market leading position while we remain disciplined on price as the situation stabilizes over the near term. While both spine and China remain risk, these risks are understood, managed, and increasingly balanced by growth across our wider medical portfolio. So I've just shown how our non-spine medical portfolio has been growing at 6.5%. And the question is why is that happening? I want to share with you the underlying reasons for that growth.

Our growth expectations in medical come from two factors, PEEK's unique properties and our unique positions in the medical PEEK market. Our market assessment supports a 5% annual growth for medical grade PEEK across our planning horizon. This is driven by higher volumes and increasing PEEK adoption. That underlying demand is supported by durable trends. We've got ageing populations, rising chronic disease, expanding access to care, and continued innovation as companies seek to deliver improved clinical outcomes.

But market growth alone does not guarantee growth for PEEK. PEEK must solve specific clinical problems for patients through its unique characteristics and properties. And here, PEEK excels as a medical material. PEEK is both biocompatible and offers high mechanical strength with a modulus and density closer to bone than any traditional metal. PEEK is radiolucent enabling clearer imaging before, during, and after procedures.

And in select applications, PEEK can support blood contact. PEEK is also unique in that it's transmissive to wireless and electromagnetic signals, which is increasingly relevant as medical devices become smaller, smarter, and more connected. Taken together, we believe our medical

Business will grow at a mid single digit growth rate with additional upside potential from our long-term growth programs.

I want to bring that growth outlook to life through three examples. The first is in pharmaceutical applications. We have 20 years of experience in pharmaceutical contact applications. This gives us both evidence and customer credibility on which to build. Our Victrex PC grade creates opportunities for new drug platforms that require chemical resistance, low extractables and leachables, precision, and a PFAS free material. A practical example of this is in drug delivery platforms. Here, components must perform consistently in demanding mechanical and chemical environments.

These markets are different than what we've pursued in the past and they offer significantly higher material volumes than traditional implant grade applications. This creates meaningful growth opportunities supporting our mid single digit growth ambitions. The second area is in active implantable devices. These are technologies placed inside the body using electronics to stimulate, monitor, and support a patient. Examples here include neuromodulation systems, cardiac devices, and next generation connected implants such as brain computer interface devices. These technologies are becoming smaller, smarter, and more connected and materials must provide mechanical protection, biocompatibility, and without interfering with signal transmission.

PEEK's transmissive characteristics can offer a meaningful advantage over metallic enclosures in selected implant grade designs. The third area, knees. Some of you who've been around a while might have heard about knees. Before I speak on the potential of knees, let me just say I understand where you're coming from. We've been talking about knees for some time. However, we do believe that PEEK has a compelling long-term potential in total knee replacement.

Its modulus characteristics, transparency and metal free proposition provide a basis for differentiated platforms for the orthopedics industry. It's not just us though. You just heard from one of the leading companies in this space essentially say that exact same message. So while our opportunities are currently in preclinical or regulatory approval stage, we have seen promising results from both in-human safety studies, but we have additional in-human trials planned with partners in the near term.

Despite these positive developments in knee, we're making a change. We are deliberately excluding knees-based revenue from our midterm guidance. This is upside potential given the uncertainty of the regulatory approvals and the timing of market adoption. And this illustrates an important new discipline that we're bringing to the business. We want to retain the long-term potential and upside of knees without relying on it to deliver our medium-term plan.

As we look to accelerate our performance in medical, we have three priorities. The first, prioritize the core. Historically, the majority of our efforts in medical were focused on these long-term growth programs. We are right sizing delivery costs and we're redirecting resources towards our materials and forms business. The second, organizational simplification.

Historically, we were divided across our medical business and our materials business -- sorry, our materials business and our programs-based business, operating under separate organizational structures. But it's even worse than that. Within our programs business, we established separate development teams around specific product level categories rather than working flexibly across. This added costs and reduced our flexibility and limited our ability to respond to new market opportunities.

Moreover, we're establishing clear P&L ownership to ensure our teams drive outcomes aligned with our business objectives. Our third priority is on commercial excellence. We're improving pricing and contractual discipline while we work to convert our opportunity pipeline.

Regarding pricing, we anticipate near term opportunity here. The price increases we've delivered to the market have not offset our inflationary cost drivers and we're taking immediate action to address this. In alignment with the 70/20/10 framework, we will allocate resources towards winnable convertible business anchored in our core right to win. Together, these create a more focused medical business and will accelerate our business performance.

A central part of the change is being clearer about where Victrex should participate in the value chain. Historically, we extended from materials and forms to finished device design and manufacturing. The rationale here was understandable. We were trying to create new markets for PEEK and we believe that taking greater control over the device would accelerate adoption. In practice, it did the opposite. This increased complexity, it lengthened development pathways and required us to fund capabilities that are better owned by our customers.

Our future model is more focused. It starts with a basic recognition that we are not a finished medical device company. We are a partner to finished medical device companies. We are going to concentrate on materials and forms and designed for manufacturability.

We will pursue vertical integration only when three criteria are met. First, genuine customer sponsorship, including resources, milestones, and direct customer funding. Second, these opportunities must be simple and anchored in our core capabilities. And third, they must have clear commercial outcomes identified at the outset and a willingness to walk away when the assumptions behind those outcomes change.

We will still help our customers innovate. We will still create new markets for PEEK, but without the cost, complexity and overhead burden of our prior approach. I want to bring this to life through two examples of this model in action for both our knee as well as our trauma programs. First, regarding our knees program. Historically, our knees program involved developing complete knee platforms. We believe in the long-term potential of PEEK in knees. Our efforts here built valuable knowledge, intellectual property and capabilities through our investments here, which we still believe will return an investment to shareholders, but the scope of our future involvement will be narrower.

These engagements will be increasingly partnership led and customer funded. We want to preserve the upside, but no longer carry the disproportionate development costs or rely on knee revenue to deliver our growth plan. In trauma, the shift is even more decisive. Our previous model involved designing and manufacturing bespoke finished

trauma plates. This stretched us beyond our core capabilities into device design and manufacturing.

The future model here is advanced forms led. We will supply our differentiated composite blanks and forms and our customers will convert those forms into finished medical devices in accordance with their specification and their intellectual property for bone fixation. This is a simpler model. It's better aligned with our core capabilities. It lowers our delivery costs and it still gives us a route to participate in a long-term growth market where we believe PEEK offers differentiated capabilities.

For both knee and trauma, the principle is the same. We're going to narrow our scope to our areas of differentiation and we will partner with leading medical device companies to bring those innovations to market. We will only share further updates on both these programs if and when we have new information to share.

Actions are underway. This is not a theoretical plan. This is in progress as we speak. We've already established the target operating model for medical and we've begun rolling out the associated organizational design. We've narrowed the scope of our program engagements as I've just described. We're right sizing our resources supporting our knee and trauma program.

We've unified the medical management structure and we're recruiting talent across medical, particularly in our commercial teams. That investment is important because we have not consistently equipped our organization with the commercial capabilities required to capture the full value of our market leading position. The important point for investors, we are no longer diagnosing the causes of our underperformance in medical. Instead, we're taking decisive action to fix it.

Let me finish with four messages that I want you to remember today. First, Victrex Medical operates in attractive markets supported by strong demand tailwinds. Second, our leadership position is defensible. It's not simply PEEK. It's 25 years of clinical evidence, 15 million implanted devices, and the key relationships with the right partners to bring PEEK innovations to market in medical.

Third, our business today is a more diversified business. We are not relying on one application, one geography, or one large development program for growth. Our growth will come from our core materials business. Fourth, we are applying much greater execution discipline as we seek to win and expand our market leading position. That is why I'm confident in our outlook for medical. This is a high quality business that needs to be focused and executed more effectively.

Our path forward is straightforward. We're going to optimize the business. We're going to grow through commercial excellence, and we're going to continue to expand PEEK adoption across a growing array of platforms and devices. And the best part, most of the factors to drive this improvement in our performance are fully within our control. Thank you. I'd like to introduce Suranjan to talk on operational.

Thank you, Daniel. Hello everyone. I am Suranjan. For the past 25 years, my career has centered around manufacturing, operations, strategy and transformation roles in sectors like industrial, advanced materials, chemicals. And in all those companies, what I've done is pretty simple, make operations better, that helps us be more profitable.

My role within Victrex is that of the Chief Operations and Transformation Officer. My purpose, pretty simple, make Victrex better, better in serving our customers by making better quality products by better plant performance and transforming our operations with our people to make it more profitable for our shareholders.

Over the next 20 minutes, I would like to share with you the journey that we are on with within operations. I will give you details about our operations and if you haven't figured it out yet, why we have strong foundations, but that strong foundation is a great platform for further improvements. I will walk you through our value chain. I may geek out a bit. I'm an operations person talking about value chain, kind of, really gets me going, but I will also share with you opportunities that are within our control.

I want to share with you the operations transformation program. This is not only what we are doing, but also how we are doing it, how we are translating these improvements into opportunities. This transformation program is CapEx light. It's an improvement program that with disciplined execution will transform our business. I will also share with you three proof points, case studies perhaps, that should give you more granularity, perhaps the reason to believe on why me and my team will achieve this.

What will we achieve? Through the end of our program, we will reduce our cost of manufacture per kg by high single digit percentage, and that should contribute about 300 to 400 basis points improvements to our gross margin. Let me walk you through the opportunities that really excite me.

I think we may have to go to the next slide. Thank you. Victrex has a long technical heritage that is a strong and substantial asset base. This asset base has the ability to be even more better by reaching what I would call as cutting edge. For that, we will have to improve our performance. When I talk about people, I have been impressed, perhaps at time blown away by the technical knowledge and expertise that exists within our business.

This knowledge, unfortunately, has been people centric, not always process centric. And what that means is there is an opportunity for us to codify this knowledge, things that exist in our people's heads, we should be able to get into our ways of working. Functional expertise, complexity, silos and boundaries. I want to share an anecdote, this was something that happened about 11 months back. We had one of our top three customers reach out to us and said they wanted

To audit us because we were a key supplier for them.

And for me, it was fascinating, more like eye opening to see multiple emails going around through different functions where rather than functions reaching out and saying, "I want to own this, I want to make a difference to this customer," every function was saying it was the other function's job to lead this.

Perhaps this example also gives you two things. One, we had forgotten the reason why we exist. We exist to serve the customer, but I think the second thing it also articulates is we had forgotten it is not about focusing on activity, but focusing on delivering the outcome that is important and the outcome that is important is serving our customer or ensuring that their audit went off very well. There is another opportunity which is about digital. I will come to that later because that's a topic that's really close to my heart.

If I was to summarize all these observations, Victrex is an opportunity rich organization and the challenges that we have that we will overcome are all within our control. And the focus that me and my team have through the operations transformation program is centered around three priorities. First, drive operational performance, improve asset utilization, better reliability, better execution, and generating stronger returns from the asset that we have.

Second, disciplined execution, getting things done, simplifying ways of working, reducing complexity, accelerating decisions, moving it to the front line. This would improve our culture to be more customer-centric and improvement focused. And last, is about delivering projects, step change projects. In this case, I've used digital or automation, which will then drive a much more customer-centric value chain.

Let's now go to our value chain. What is a value chain? A value chain is a collection of assets. It's our processes, it's our know-how. That's how we convert our raw material into our products for our customers. That you see that diagram, that's our value chain. I am going to start by the end of the value chain, which is where our customer is. Be it the 450 customers in medical that Daniel and his team serve, be it the multitude of customers in VPM that we serve all across the globe through the different regions, we have regional warehouses that are closer to the customer that allow us shorter lead time.

Those regional warehouses are served from our UK operations. As James alluded, 98% of our products are made in the UK, and this supply chain, this global reach, that service capability is one of our competitive strengths. Let me talk about the next competitive strength, the value chain. The journey in this value chain starts from raw materials and chemical processing within our integrated upstream monomer manufacture. This monomer, it's the building block. It's the important starting point that feeds into our polymer manufacturing operations.

Over the years, we have developed phenomenal technical capability to know how our monomers make a difference. Our polymer plants then use those monomers, and not only can we use our monomers, but we have the ability to use different monomers at different stages, so we are able to balance our supply chain, find the right balance between costs as well as supply chain resilience. Then when those monomers are used within the polymers, that's when we make the magic happen.

Our polymer is created within our polymer streams. We have about five of them. Once we make that polymer, we have to refine it. Refining is nothing more than perhaps removing the byproducts, so what you're left with is the polymer powder, and this is the heart of Victrex manufacturing. From that polymer chemistry, we can create the extensive range of forms that our customers value.

Some of this powder can be sold directly to some of our customers. Some of these powders can be value added to make granules and compounds. These granules and compounds can go to our customers or should we choose, we can convert it into really specialized downstream forms, be it films, be it tapes, be it fibers, be it tubes. The reason why our customers choose us is our know-how. We know how to combine different materials like our monomers to make that magical polymer chemistry. We know how to make that powder into different forms that our customers would like.

This could be different forms like the thin film that is used to produce the fidelity and crispness of the sound that you can see in one of your electronic devices. We have a sample there, it goes down to 6 micron, that's nearly 10 times thinner than a human hair. We have the ability to convert material into pipes and tubes. These tubes can go under the surface under the sea and withstand phenomenal amount of pressures. That is our know-how.

Our know-how is also the technical attributes that come within PEEK, be it the chemical resistance, the high strength, the light-weighting, and last but not the least, the biocompatibility that is absolutely important for our medical customers. Now, while our product performance is world-class, our operational performance has not always matched the strength of our underlying technology. To deliver the consistency that our customers really expect from us, most of the times, perhaps sometimes, we rely heavily on our operator expertise. We rely on the intervention and additional processing.

Rather than having processes that are inherently capable, repeatable manufacturing processes, we sometimes have recycle loops. This creates unnecessary complexity and cost in the value chain, but it creates a phenomenal opportunity for me and my teams to add value. And that's why within our operational transformation program, we are not only focused on improving our plant performance, but it's also about process capability, improved quality, which together drives improved productivity, and that drives cost and that drives service across our business.

To now move from where we are today to where we want to be, which is really improved margin and performance, there are a few things that are integral to what we do. You will get bored about me saying how much I want to drive plant performance and how quality is important for us, but also there are these step change projects.

Disciplined execution happening in every shift and every day, in every week and every month is how we will increasingly drive this, moving decision making to the frontline where our operators are empowered to do this. Operations transformation program is the program in which we will deliver this. There are two very critical points I want to make at this point. First, all of these improvements are within our control. I, my team, we are not waiting on a market rebound. We don't need new technology. We do not need significant capital investment before taking action.

Second, this value creation opportunity is CapEx light. Should capital be required, it'll be selective and disciplined. It will be clearly within the way we do things and the guidance to that is something that James will cover later on in our slides. So the operation transformation program is everything that we can do to help ourselves. It is CapEx light, and if I was cheeky, I would say execution heavy.

Let's now zoom into three examples of how this program is adding value. I will start off with China, perhaps the elephant in the room. Andrew has already shared with you how important the China market is and how we have been growing there well. He's also shared the value chain that we have on the right. I would like you to focus on the section that is refining.

On the picture on the right hand side, you can also see this extent of our site that is there in Panjin in the Northeast in China. There is no denying we have had operational challenges since we commissioned the plant. Hindsight, this is an exact science. It was the technology that we chose for the refining section that is the key contributor to the challenges that we've had in Panjin.

We chose ethanol as a solvent rather than acetone as a solvent as we have in our UK plants. That was a new technology for us and we have not been able to execute that well. So when we did the real comprehensive strategic review, we evaluated whether we need to change our technology and invest more or are there other ways of doing things? We took the prudent decision that we will focus

on outsourcing the refining, have another person do the refining where they can add value because they have expertise. We have trialed and proven this mechanism to outsourcing.

The cost of outsourcing refining will more than be offset by the benefits that come out of this. This enables us to match our supply capability to the demand that we see within the market. As the demand grows, there will be a point where we will break even, but also we then have the optionality of choosing whether we want to put more capital into this to switch technology or any other option. This new operating model that we have is expected to reduce the losses that James had alluded to by about 25% in the near term. Let me switch to another example where I will talk about operations

improvement, but also talk about network optimization.

I'd like you to focus on our powder plant where we have five streams. Historically, we managed to constrain ourselves. Some of our specialist regular products could only be made in some of our specific lines. Unfortunately for us, those specific lines were some of our older streams. Over the last 12 months, we have invested capability, not capital, to improve our product flexibility so that we can now make those products on our newer efficient assets, thereby giving us flexibility.

This has allowed us to put one of our older lines in what I would call as a state of suspended animation so I don't have to invest in CapEx or maintenance. Should demand grow up and at some point it will, I get to bring this line back up. Moving this product from our older, less efficient line to a newer one has had cost advantages, but a side benefit that we've also found is the quality of product that we have from our newer lines is better, which then reduces the amount of reprocessing which further improves the economics of this.

As you can see, this example is one where the network optimization has helped. Andrew was talking about simplifying our product portfolio, reducing our manufacturing complexity, and that is music to my ears because as we reduce our product complexity, as we have lower products, less changeovers, lower operating costs, enhanced manufacturing performance.

It's a small example, but a pertinent example that will drive about GBP 200,000 to our bottom line. It is the sort of examples that we are showing you, which give a lot of benefits to us when applied across the organization.

Digital, a subject that is close to my heart. Within Victrex, I was shocked when I came because for the first time in my 10 years as a senior executive in operations, I could not see, I, me, my manufacturing director, the plant managers, did not have real time visibility of what was happening in our manufacturing assets. We have great control systems, but the data was not accessible beyond that control room.

So if I had to know what was happening on my plant, I or people in leadership positions had to go to the control room. In the last year, we have invested in our digital infrastructure. This gives our operational teams real time visibility of plant performance, and that visibility allows us to identify issues early and act before things.

Let me walk through a case study of what we've done in the last 12 months in the place where we did the proof of concept. The bar graph that you see on the top is about plant changeovers. Plant changeovers is when you go from one product to the other product. By using the process data, we were able to identify triggers, triggers that predicted when a changeover could happen so that we could get everyone aligned.

Quarter by quarter, you can see how we have been reducing the average changeover time, to the extent that in the last 12 months, we have nearly halved our changeover time, which means my plants are operational more of the time. It improves asset utilization, it improves reliability, it improves customer responsiveness and reduces manufacturing costs. And the beauty of this example, most of the improvements have been driven by the operators, the frontline staff, where they are almost wanting to make this improvement because there is a shift by shift rivalry.

Another benefit from this real time visibility is the graph that you see on the bottom. This is showing how we are able to optimize our operating conditions to deliver higher production rates. That graph is the weekly production rate that we have from one of our lines. We were able to identify a mechanism by which we could optimize the conditions and that's allowed us to improve our production rates by about 6%. And that's the data from the last 30 weeks.

Each of this improvement may appear modest in isolation, but together they are an example that demonstrates how you can use data combined with disciplined execution unlocks productivity gains without significant capital investment. This improvement is of the order of GBP 250,000. Now this is one improvement on one equipment, on one line, on one site. As we apply this across multiple equipment, across our different lines, across our different assets, this will lead to substantial improvements. And as we build this digital foundation, that gives us something that over time we can apply automation and machine learning, but that is something that we'll have to do. Let's crawl and walk before we try to run.

Over the last three examples, I have given you how we are having tangible improvements within our operations. I want to focus, give you more detail about the operations transformation program. We are managing this program as a structured portfolio. Being Indian, cricket is like a religion to me and those who play cricket know that fours and sixes are good, but the great teams that win over five days or five years are the ones that really focus on the singles and the doubles.

The singles and doubles are the small improvements, the incremental improvements that are being owned by our plant operators and our frontline staff. We then have step change initiatives, the fours and the sixes. These are program managed to accelerate execution and ensure we do value capture.

My team is having a portfolio of all these improvements, but beyond what, there is also a cultural program that is happening so that these improvements become sustainable. We get teams that are engaged and empowered. We get teams that make continuous improvement a part of their DNA because that's what's going to endure long term after this program is complete.

In terms of outcome, I had earlier said we will deliver a high single digit reduction in our manufacturing costs, which will give about 300 to 400 basis points. A large part of that will come from the operational performance and the leverage, nearly 40% of it. The rest of it comes from programs like quality, process improvement, digital automation, optimizing our network, our plans, our lines.

I have to state, procurement and cost out will be an underlying thing. We constantly look at it and it continues to improve our performance. This transformation program has multiple constituent projects, ones of different scale, ones of different benefits, ones of different duration that we are driving through. There are things that me and my team are focused on for the next hundred weeks, and as we progress through those hundred weeks, there will be other projects that come up our priority list that help give me the confidence that we will be delivering on this.

So let me summarize. Victrex really has this fantastic strong operational foundation, long established assets, deep process expertise, really knowing how the monomer and the polymer make a difference. We have a reputation for security of supply, but with all of that, there is phenomenal opportunity, opportunity that me and my team are translating into financial outcomes. We're doing that by the operations transformation program. I don't want to bore you to death about all the things that we've been doing, but plant performance, improving quality and step change projects.

What will that give us at the end of it? At the end of it, we will have a supply chain that is really geared towards serving our customers in the region, the right product, in the right place, at the right cost, for the right service. We will reduce our cost of manufacture. We will also reduce our inventory within the supply chain to release cash, but it's about finding the balance between how we service our customers and how we manage our raw materials, our work in progress and our finished product. And we will deliver 300 to 400 basis point improvements in our margin.

As I leave you, I want to reiterate the following. Victrex is opportunity rich, but it provides a phenomenal platform. You would have seen examples of how we are leveraging those opportunities into real tangible value for the business. We are transforming our business to a performance and customer centric organization. We are optimizing with a relentless focus on cost reduction and efficiency. We are growing, driving profitable revenue growth, and in my case, also growing the gross margin.

Thank you for your attention. I will hand you over to James who will speak about how all of this gets translated into the finances. Thank you.

Okay. Thank you, Suranjan. That was very helpful. You've heard about the extensive and urgent actions that we're taking to optimize our commercial performance and our operational footprint. So let me now summarize how all this shapes our financial ambitions and how this will drive attractable and sustainable shareholder value creation.

So before getting into the detail, I want to step back and be clear about the five principles that run through our financial framework. Firstly, and importantly is clarity and simplicity in our guidance. Second, we're focused on maximizing the value of our core business today. We've clearly outlined the substantial growth opportunities across our key geographies and end markets, and together with our well-invested portfolio, we can expect to deliver higher return on invested capital as we unlock Victrex' full growth potential.

Third, cost and CapEx discipline. We're driving significant cost reduction through the core of the business, leaving no stones unturned. We'll be disciplined through investing only in the highest returning and deliverable future growth projects that are value accretive to our core business, not "jam tomorrow" programs. As I mentioned earlier, the benefits from such projects will be incremental to not part of our financial guidance, and we expect this to deliver a credible recovery in gross margins to historic levels, compounding earnings growth from a growing top line and operating cost control and sustainable cash generation.

And importantly, our strong organic cash generation will enable us to self-fund a sustainable and attractive level of shareholder distributions whilst maintaining our strong balance sheet. So over the next five years, we will aim to deliver mid single digit compound annual growth rate over the guidance period. This is consistent with where the business is operating today.

Significant margin accretion with circa 50% gross margin and mid 20s operating margin by FY '31 and maintaining CapEx at 5% to 8% of annual revenues consistent with prioritizing investment in our well-invested existing portfolio. Strong and improving working capital as we continue to reduce and optimize our inventory position and average annual cash conversion of at least 90% consistent with historic levels. This all results in our ambition to deliver approximately GBP 250 million of free cash flow on the basis we've defined over the next five years.

This represents all the post CapEx cash flow available for shareholder distributions, additional discretionary growth investment and deleveraging. And then beyond 2031, we expect continued growth and significant cash generation. And importantly, I want to make it really clear that these are an ambitious, but achievable set of targets that we've set ourselves.

So let me now give you the building blocks on how we plan to deliver these targets. Going forward, we will be disclosing segmental revenue and gross profit for our VPM and medical businesses. Across both areas, a core priority is the optimization of pricing across the portfolio as explained by both Andrew and Daniel. This will be supported by mid single digit volume growth across both segments. As you've already heard, we are over-indexed to the fastest growing segments of the PEEK market and we will continue to focus our commercial efforts on driving growth in these sectors alongside penetrating new markets for PEEK.

We'll simplify our portfolio and focus on growth products and developing new products through commercially led product development, partnering with customers wherever possible. In medical, we'll protect and grow the core business in medical grade PEEK polymers and selected forms, focusing on growing the non-spine parts of our portfolio. There'll be an absolute focus on converting our medical pipeline and driving the specification of PEEK in next generation medical devices, and we'll aim to capture additional medical revenue from funded value added services.

All of these together provide confidence in the overall delivery of mid single digit revenue growth over the guidance period. To be clear, recovering margins is core to my ambition for this business. Clearly the world has changed over the last few years. We're operating in a more volatile macro environment. The industry dynamics have changed over this period with a changed competitive landscape and structural shifts such as volume-based procurement in China.

Equally, the business has not adapted quickly enough to respond to these changes, which is why our margins are where they are today. Our strategy is to draw a firm line under that from the current trough point and is designed to improve margins to a level that is more consistent with where we should be operating given our scale and attractive prospects. In particular, we're laser focused when it comes to our price and cost saving initiatives to deliver this margin increase. We're paying a particular attention to our pricing and addressing some of the historical price downs we've accepted, driving improvements in margin across higher margin sectors such as medical, aerospace, and semiconductor.

As you heard from Suranjan earlier, we're taking action to transform our operations to deliver high single digit reduction in cost of manufacture, improve yield and quality, and deliver operating leverage, which will result in a 300 to 400 basis point improvement in our gross margin. We're actively addressing the issues with our manufacturing plant in Panjin in China to reduce the operating losses and the 300 basis points drag on operating margins.

And through the work we're doing to redesign our organization structure and operating model, we will further reduce our operating costs as a percentage of sales, delivering a leaner, more decentralized business with a much smaller corporate center as well as continuing to rationalize our portfolio across operating sites and the product range.

So this underscores our confidence in restoring gross margin to circa 50% and operating margins to mid 20s by FY '31. And it's very important to note, as you've heard many times, the majority of this is entirely within our control. This materials earning growth translates into substantial cash generation of around GBP 250 million over the next five years.

For annual CapEx, we expect to spend around 5% to 8% of revenue as our assets are well invested and it enables us to maintain the advantages of our integrated upstream strategy. Spend will be primarily weighted to maintenance CapEx and process improvements to enhance growth and profitability from the core business. Our CapEx guidance includes any potential future CapEx spend in China, which will be immaterial going forward. Therefore, we expect CapEx to broadly track D&A over the period.

We'll make a material improvement in working capital. This will principally come from inventory reduction. We're rationalizing our product portfolio, reducing slow moving inventory and rebalancing stock across regions to better support local customer service requirements. We have very low financial expenses given our strong balance sheet and

there'll be minimal cash restructuring costs given the majority is being incurred this financial year, and we expect our average annual tax rate to be 17.5%.

All of this delivers approximately GBP 250 million of free cash flow over the next five years based on that annual average cash conversion of at least 90%. And all of this is the discretionary cash flow available with a focus on cash returns to shareholders.

Let me start by giving some important context. We recognize that our distribution policy is important for shareholders, and this topic has therefore been a key focus area for me and the Board. Our underlying principle has been to establish a policy that is sustainable, attractive, and fully funded throughout organic cash generation whilst maintaining our strong balance sheet. So under our new policy, we are committing to returning at least 75% of the free cash flow we generate to shareholders over the next five years.

We'll deliver the returns through an ordinary dividend of GBP 0.30 per share in respect of FY '26 with the intention to grow this over the period and for earnings cover to be around two times by FY '31, and the remainder will be through buybacks or special dividends. You can see on the right hand side of this page why we believe this is superior to our old policy.

Firstly, our old policy wasn't sustainable, uncovered by earnings and cash flow, leaving the business starved of oxygen with no surplus capital. This policy directly addresses those issues. It delivers sustainable and attractive cash returns to shareholders over the life of our plan, underscoring our high confidence in delivering it. We're not borrowing to pay shareholders, cash returns will be covered by organic cash generation from day one, implying a dividend cover around two times at the end of the period.

Importantly, we maintain a strong balance sheet with sufficient but not excessive surplus capital that we will prioritize for additional cash returns to shareholders in the near term. Therefore, our disciplined capital allocation policy comprises the following key elements. We focus on critical investment priorities only to contribute to our revenue and earnings growth targets with CapEx at 5% to 8% of revenue. We return at least 75% of free cash flow to shareholders over the next five years, and we'll prioritize surplus capital in the near term for additional cash returns to shareholders.

Any potential bolt on M&A will be subject to disciplines, strategic and financial criteria only to be considered once we've delivered a sustained recovery in our organic performance, which remains our absolute immediate priority. This capital allocation policy will be subject to maintaining a strong balance sheet with less than one times group leverage over the five year guidance period.

So putting our framework on a single page, we'll execute a compelling growth strategy focused on the existing portfolio. This will deliver mid single digit revenue growth with operating leverage driving a substantial margin increase and enhanced operating profit. This will translate into significant free cash flow of around GBP 250 million, of which at least 75% will be returned to shareholders over the period.

Beyond 2031, we expect continued growth and significant cash generation. So I'd like to come back now to the four key messages that I wanted you to take away from today. Firstly, PEEK is a compelling growth market in which Victrex is the clear market leader, and we are over-indexed to the fastest growing end markets. We have strong and enduring competitive advantage through our vertically integrated manufacturing, unique properties of Victrex PEEK, applications engineering expertise, and long-term customer partnerships that drive high barriers to entry with around 90% of our portfolio structurally protected from Asian competition.

We're actively transforming Victrex into a customer and performance focused organization, simplifying the business, removing unnecessary costs, and focusing our resources on nearer term opportunities to drive financial performance. In aggregate, we expect this to deliver exceptional value creation for our shareholders, restoring the group's valuation to a level that is more consistent with its fundamentally compelling growth prospects, scale, and unique competitive advantages in PEEK.

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.