Victrex H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 3, 2024

There are 7 speakers on the call.

Operator

And welcome to the Vitrex full year results presentation. I'm Jakob Siguelson, CEO of Vitrex. And we also have here in the room with us today, Ian Melling, our Chief Financial Officer and Andrew Hansen, our IR Director. Welcome to those joining us in the room here at JPMorgan, as well as those that are dialing into the call. First, some housekeeping.

Operator

The slide presentation is on our website at www.victraxplc.com under the Investors tab and by clicking on Reports and Presentations. And I will call out the slide number when we are speaking. I will kick off the presentation with our key messages and a summary of the results materials and Ian will then cover the financial details and will summarize the business performance and our outlook towards the end of the presentation. And once we finish that, we'll go into Q and A. We'll take questions from the room first and then subsequently, questions from those on the call.

Operator

So if we now move to Slide 3. We call the headlines for FY 'twenty four. Firstly, we saw solid volume improvement, particularly in the second half, with a 15% increase in the second half versus the first. Full year volumes were up 4%, and we also saw our first 1,000 tonne quarter for a couple of years in our Q4. Medical destocking did continue to impact us and remain soft right now, but we're anticipating some improvement in FY 'twenty five based on normalizing demand or based on demand normalizing in the calendar year 2025.

Operator

As a reminder, surgery rates are growing. And if you look at the medical device industry forecast, surgery rates are increasing by around 4% year on year. The midterm outlook to 2,030 forecast around 7% revenue CAGR for medical device companies and we'd be looking to grow above those levels in the medical once destocking is over. Ian will cover pricing shortly, but it is pleasing to see robust ASP despite the tough period the chemical industry has seen and the negative mix impact derived from medical destocking in our specific situation. At the PBT level, it's clear that profitability took a big impact, a large year on year impact from much lower asset utilization and also medical destocking, both of which impacted our gross margin.

Operator

I will cover our self help program later, but this program will help us underpin profitability over the years ahead. We have been taking strong actions to contain costs in the light of the volatile business environment, and that's clearly reflected in our SG and A line. And as I said, Ian will take us through that in greater detail. Finally, strongly improving financial position. Good cash conversion of 114% during the year.

Operator

Inventory has been unwinding in accordance to plan and guidelines. And we're also entering a period now where we have done most of our foundational investment, and we'll be moving in 2 years of significantly lower CapEx than we have seen over the last 3 to 4 years. Last but not least, we fully paid up our RCF facility at the end of the financial year. Turning to Slide 4. Taking a step back and looking at the bigger picture over the short to midterm, I'd like to cover 3 key messages.

Operator

Firstly, we we are signaling the opportunity to return to growth. This will be driven by demand normalization, both in the core business and Medical. We have seen improvement in the former but not seen the latter yet, as I indicated in my opening words. We are aligned well to global megatrends, CO2 reduction, energy efficiency and clinical outcomes, as three examples. We're also expecting a step up in mega program revenues in FY 'twenty five.

Operator

On margins, there are a number of factors that support margin improvement going into FY 'twenty five and beyond. We'll be seeing better asset utilization as well as some input from cost as well as some positive impact from input costs. Ian will cover those in details at a later stage. Medical mix will clearly help once medical starts to recover after the period of destocking. And as it relates to China, as a new facility will start to build up volume, it will reduce the drag that it is currently on the margin line.

Operator

And last but not least, as I said before, we are ensuring that self help remains strong, and we will cover that at a later stage in the presentation. We have completed our investment phase with well invested assets now that underpin our growth and give confidence to customers in our support and our ability to support them in the longer term programs. Inventory unwind is on track and CapEx is coming down. So a good opportunity to further improve our cash generation over the coming years. So all in all, strong foundations and foundations that have been significantly invested in and improved over the toughest cycles that the chemical industry has seen for a long, long time.

Operator

Turning to Slide 5. Briefly on run rates. A very interesting one. We had a soft start to FY 'twenty four, a weakest Q1, in fact, since the COVID period of only 7 51 tonnes in the quarter, but an average of 9 32 tonnes across the 4 quarters, even allowing for a weak start. And we started FY 'twenty five well solidly in October November and with a good outlook for December as well.

Operator

We will see some seasonality in the current quarter as normal, and trading contingencies are mixed. Medical remains soft right now, but electronics and VARs have shown some improvement of late as two examples. We are anticipating improvement through the year in Medical, but we haven't seen this yet. But even with seasonality in the Q1 delivering run rate similar to our Q4 exit rate in the order course. This helps to support at least mid single digit volume growth for the year based on demand remaining robust in sustainable solutions.

Operator

Medical is expected to see some improvement as we move through the year, but clearly not until we're into the calendar year 2025. And with improved asset utilization and raw material benefits, even after the impact of China, this impacts our goal for PPPT growth ahead of volume growth. As you note in our outlook statement, the timing of medical recovery will play a key role in the scale of PPT growth, but other factors do support an improvement for FY 'twenty five. Thank you, and I'll now hand it over to Ian for the financial review.

Speaker 1

Thank you, Jakob. Good morning, everyone. Firstly, I'd like to echo the key messages that Jakob has given us. A key message from me as CFO is that we've navigated a very tough year for the business. Clearly, we're not where we want to be, but we've seen some volume progression, robust pricing and run rate improvements in recent quarters.

Speaker 1

Our overheads were down for the year, CapEx and inventory is lower, cash conversion was strong and we've maintained our dividend. As we noted this morning in our outlook, we are focused on delivering growth in FY 'twenty five with the opportunity for good top and bottom line growth supported by cost control and our self help program, which will help enhance profitability in FY 'twenty five and the short to medium term. Term. Starting with Slide 7 and the income statement. Full year volumes were up 4% to 3,731 tonnes.

Speaker 1

This was driven by some end markets improving in the second half with a solid finish to FY 'twenty four and over 1,000 tonnes in the final quarter, our highest since Q4 of FY 'twenty two. Jakob will cover the end markets in his section shortly. At the revenue level, we reported full year revenue of £291,000,000 down 5% on the prior year or 2% down in constant currency. Medical remained soft through the second half year as the industry destocking effect lingered. This was despite good growth in procedures across the medical space.

Speaker 1

As customers reduced their high inventory levels, we have seen this flagged by our peers and other companies supplying into the medical device space. This was a key impact on our revenue decline with medical itself down 19% or 16% in constant currency, with the second half being flat on the first half of FY 'twenty four. Sustainable Solutions revenue was down 2%, up 2% in constant currency. After a soft first half, Aerospace, VAR and Electronics drove an improvement in the second half, Sustainable Solutions revenue was up 9% in H2 2024 versus the first half of the year. The summary of our business unit income statements is shown in the appendix on Slide 34.

Speaker 1

Moving on to gross profit, which was 17% lower than the prior year at £134,300,000 This is after the effect of the gain on currency contracts of £5,200,000 We saw a less favorable sales mix during the year after a record medical performance last year and an improvement in sustainable solutions with the likes of VAR driving this progress in the second half. Our higher cost of sales reflects a much lower asset utilization this year with approximately 1,000 tonnes lower production year on year as we unwound inventory and demand remained muted. The impact of selling inventory built at a higher cost during FY 'twenty three was also a year over year drag, which should now be behind us. This led to a £10,000,000 impact from under recovery of fixed costs, including the impact of China, which only started up during the second half of our financial year. We saw raw material costs start to ease in FY 'twenty four, and this will see more of a benefit in FY 'twenty five as supply price flows through inventory.

Speaker 1

I will cover the FY 'twenty five guidance shortly. Gross margin was down 6 80 basis points, up 46.2%, with the major impacts directly related to lower asset utilization and cost impact from inventory. These items are shown on Slide 10, which I'll come on to in a moment. Turning to overheads. Overheads for the year were down 10% at £74,000,000 excluding the impact of exceptional items, with tight cost control and careful innovation spend, primarily in our medical acceleration program.

Speaker 1

We also incurred some China costs and wage inflation based on average salary increases of 4.5%. No payout for our all employee bonus scheme was triggered during the year for both employees and executives, though we are revising the scheme for FY 'twenty five to include other key metrics such as operating cash conversion as well as strategic objectives. This will support retention whilst retaining PBT as the primary metric for bonus purposes. We have now written to our major shareholders regarding this change and we'll include details in our annual report. As I have signaled previously, we continue to focus on limited increases to operating overheads going forward.

Speaker 1

Interest was an expense of £1,200,000 this year, reflecting both our China loan, where the interest will be expensed going forward and interest due on our revolving credit facility, which was fully repaid before the end of the year. Going forward with China seeing its 1st full year of operation in FY 'twenty five, interest is expected to be an expense of approximately £2,000,000 per annum. Our underlying profit before tax was £59,100,000 down 26% or 32% in constant currency. Reported PBT was £23,400,000 down 68%, which reflects exceptional items of £35,700,000 These exceptional items reflect the impairments on Bond 3d as we signaled at the half year, totaling £21,200,000 our ERP system and wider business improvement program together at £9,900,000 and a noncash impairment relating to one of our U. S.

Speaker 1

Downstream facilities of £4,600,000 Reported earnings per share was 19.8p. One item I do want to flag is our effective tax rate of 32.5%, which is materially higher than the 15.9% in FY 2023. This was due to the impact of bond and the U. S. Downstream facility impairment being non tax deductible as well as a lower proportion of profits being eligible for the patent box.

Speaker 1

Excluding the impact of exceptional items, our effective tax rate was 22.2 percent with the increase relating to U. K. Corporation tax rates, China startup losses and the lower proportion of profits eligible for Patent Box. We continue to benefit from Patent Box, but as previously noted, the benefits on the rate increases in line with profits as there is a baseline of profits that do not benefit. Our midterm guidance is for an effective tax rate of 14% to 18%.

Speaker 1

Finally, turning to our dividend. We are pleased to maintain the dividend with a final dividend of 46.14p per share proposed, giving total dividends of 59.56p per share for the year. I will come back to cash flow later and how our cash profile should further improve as we move through the next 1 to 2 years. Moving to Slide 8. This shows the underlying year on year PBT movements.

Speaker 1

As I noted in my summary of the income statement, the key drivers on profitability during the year were the trading environment and in particular Medical and a much lower level of asset utilization that created a material under recovery of fixed costs in the P and L. Whilst we saw a £3,000,000 improvement in sustainable solutions, medical impacted us adversely by £9,900,000 with the destocking effect within the medical device industry. Cost inflation in inventory showed a £7,700,000 year on year impact. This was all in the first half of FY 'twenty four. The underutilization impact was a £9,900,000 year on year movement as we unbound inventory.

Speaker 1

This includes the impact of China. Wage inflation, I've already touched on, was a £2,200,000 year on year movement with targeting growth investments of £600,000 year on year, largely in medical to support the scale up with new customers in trauma and knee at our new product development facility in Leeds. Overhead savings represented a $2,500,000 favorable year on year movement in Bridge as we continue to control costs carefully. Interest was a 1,800,000 pound year on year movement as we move from net interest income to net interest expense due to the interest incurred for our China loan, which was previously capitalized and the RCF. Finally, currency was a £4,400,000 PBT benefit in the year, leading to underlying PBT of £59,100,000 broadly in line with our expectations and reflecting that Medical remained soft during the second half.

Speaker 1

If we move to Slide 9, price and margin. I'm pleased to say that our like for like pricing was robust with mix and FX the key drivers on our full year average selling price. ASP of £78 per kilogram was broadly in line with our expectations and guidance of high 70s. Remember that sterling strengthened in FY 'twenty four through the course of the year and medical remained softer for longer. ASP in constant currency was down 5% with mix and the impact of much lower medical revenues being the key driver on ASP split roughly equally.

Speaker 1

The second chart on the slide is also worth noting. For us, this demonstrates the ability to price Victrix Peak for its performance benefits and indeed the technical service and application know how across economic cycles. Remember, we also invest 5% to 6% of revenue back into R and D. This was 6% in FY 'twenty four as evidence of the focus and innovation we drive in the business to support customers. So in the financial years from FY 'twenty one to 'twenty four, we have seen price accretion to reflect recovery of inflation in that period.

Speaker 1

A quick word on ASP guidance for FY 'twenty five. Whilst we have seen a solid start to the year, medical will be a key driver on ASP once we see signs of recovery there. Consequently, we are guiding to a range of £75 to £80 per kilogram for ASP in FY 'twenty five. Turning to Slide 10 and gross margin. This chart shows the main drivers on our gross margin during the year, which moved from 53.0% to 46.2%.

Speaker 1

As we have signaled already, lower asset utilization and the cost impact from inventory were the key drivers. These two factors accounted for 6 70 basis points of the 6 80 basis point margin decline. MEGS was obviously softer during the year, which reflects the challenges in Medical and then Sustainable Solutions improving during the second half, but being driven by the likes of VAR. Looking forward, we are focused on gross margin improvement to around 50% in FY 'twenty five. And as you can see on the chart, we show the key drivers influencing our margin.

Speaker 1

Improved asset utilization will be positive in FY 'twenty five as we expect to produce more supporting volume growth. In FY 'twenty four, we were approximately 3,100 tonnes of production, whilst in FY 'twenty five, we expect to be significantly above that subject to underlying demand. So a year on year tailwind from better asset utilization, though noting that China annualization will offset some of this benefit. Secondly, we are also anticipating some modest benefit from raw materials in FY 'twenty five. China will be ramping up in FY 'twenty five and I'll cover that shortly.

Speaker 1

It will be dilutive to margin in FY 'twenty five on its own. But with the improvement in asset utilization and lower raw material costs, we are focusing on improvements in gross margin even after the impact of China. A quick word on the midterm outlook for gross margin and the basis for our mid to high 50% target, as shown on Slide 11. Firstly, we are seeing improving asset utilization moving into FY 'twenty five. Even though we will continue to unwind inventory, we will be producing more than FY 'twenty four.

Speaker 1

Secondly, we're seeing some recovery in volume run rates, Jakob explained in his introduction. And thirdly, as I've mentioned, raw material price reduction will see some benefit for us over the next year and into FY 'twenty six. On MIGS, whilst medical remains soft right now, surgery growth in the industry is healthy and it's clear that Medical will see a recovery with timing at this stage uncertain. With depreciation and a full year of China operations, this will be dilutive to margin in FY 'twenty five, but will steadily improve its contribution as we ramp up and sell product from this facility. Despite the currency headwind in FY 'twenty five adversely affecting gross margin, the other factors support an overall improvement in gross margin to around 50% in the coming year.

Speaker 1

On Slide 12, we cover currency. As usual, the impact of currency hedging is shown on the face of the P and L in line with IFRS 9. Note that the offsetting currency impacts on underlying trading are embedded in other lines, most significantly the adverse impact in revenue. We saw a £4,400,000 tailwind at PVT level during FY 'twenty four. This was the net impact of the benefit from hedging with FY 'twenty four seeing a positive impact of £5,200,000 compared to a £7,600,000 loss in FY 'twenty three, a favorable year on year movement of £12,800,000 partially offset by adverse spot rate movements following the strengthening of sterling during the year.

Speaker 1

Currencies hedged at the dollar and euro, although it's worth noting some unhedged Asian currencies are becoming of greater importance as our growth moves faster in those regions. We keep our hedging policies under review in respect of these currencies. Against the dollar, our effective rate, which includes the impact of hedging, was 1.20 for FY 'twenty four versus 1.30 in FY 'twenty three. Against the euro, the effective rate was 1.13, slightly favorable to FY 'twenty three at 1.17. Looking forward, it's important to fight that Sterling strengthened through FY 'twenty four and without the benefits of forward contracts seen in FY 'twenty four from deals placed in FY 'twenty three, there is now approximately £7,000,000 to £8,000,000 adverse impact to PBT for FY 'twenty five.

Speaker 1

This is higher than the £3,000,000 to £4,000,000 headwind we had signaled at the half year in May. On slide 13, we cover cash. With a heavy period of investments in capacity and capability concluded and with improved trading and further inventory unwind, we do see an opportunity for further improvement in absolute cash flow over the next few years. Looking at the main movements in FY 'twenty four cash flow, firstly, from an operating profit of underlying operating profit of £60,300,000 we saw a slightly higher level of depreciation as our U. K.

Speaker 1

Asset improvement program completed and our China facilities came online in the second half of FY 'twenty four. Depreciation was £23,300,000 compared to £21,600,000 in FY 'twenty three. We expect this number to increase slightly to reflect an annualized depreciation. Working capital was an inflow of £17,500,000 driven by our inventory was an inflow of £17,500,000 driven by our inventory unwind of £115,100,000 from £134,500,000 in the prior year as we made good progress towards our inventory target level of around £100,000,000 Capital expenditure was lower at £32,600,000 as we concluded our China investment and also the U. K.

Speaker 1

Asset improvement program that gets our U. K. Nameplate capacity to around 8,000 tons, supporting high volume programs like MAGMA, Aerospace and e Mobility. These items drove a strong operating cash flow performance with operating cash flow at £68,500,000 and an underlying operating cash conversion of 114% compared to 18% in FY 'twenty three. The net outflow of income tax totaled £4,300,000 slightly higher than the £2,000,000 last year.

Speaker 1

Cash exceptional items of £9,500,000 related to our ARP system and a slightly higher cost versus to our ARP system and a slightly higher cost versus FY 'twenty three of £7,500,000 remembering that we are targeting go live of our D365 system in the first half of FY 'twenty five to leverage and enhance our digital capabilities. As a result, free cash flow was materially higher than the prior year at £51,400,000 versus £3,200,000 in the prior year. On dividends, we were pleased to have been able to maintain our dividend through this challenging period with cash generation now improving. Our closing position show saw us with a small increase in net debt position in the year to £21,100,000 including cash and cash equivalents of £29,300,000 As a recap, we also drew down and paid back our RCF during the financial year and we retained these facilities, which we renewed last year totaling £60,000,000 £40,000,000 committed £20,000,000 accordion as facility expires in October 27. Moving on to Slide 14, a quick word on CapEx.

Speaker 1

We've now concluded what has been a major investment phase over the past 4 years, investing in assets, people and capability. FY 'twenty four CapEx came in at £32,600,000 with China and our U. K. Asset improvement program the key items. The benefit from these projects is that we have well invested assets and significant capacity for the coming years to support our growth programs.

Speaker 1

On the chart, we also show our capital allocation policy with CapEx guidance of 8% to 10% of revenues going forward, including some ESG and decarbonization CapEx. With cash generation improving as FY 'twenty five progresses, we will be in a better position to start to think about incremental shareholder returns. On Slide 15, we're pleased to update investors that we are commercially operational in our China facilities. China for China is the key message here. This is a strategic asset built for the mid- to long term underpinning our growth opportunities across several end markets in the region.

Speaker 1

Remember, this is a portfolio extension as we manufacture Type 2 PICA. Whilst China has also been challenged economically of late, our long term opportunities remain significant in a region which accounts for around 20 percent of our group volumes. For FY 'twenty five, we do not expect a material contribution to the top line with up to 150 tonnes of production but with further ramp up over the next couple of years. My final slide is Slide 16, and I'd like to spend a moment summarizing what underpins our expectations for growth in FY 'twenty five. As we note in our outlook statement, we have seen a solid start to 2025 even if trading conditions are mixed and the macro environment remains muted.

Speaker 1

But with better asset utilization, lower raw material pricing and improving sales volume run rates, we do see the opportunity for growth. Briefly then on the key items. On volumes, the FY 'twenty four exit rate of approximately 1,000 tonnes per quarter supports FY 'twenty five delivering at least mid single digit volume growth. This is being driven by our Sustainable Solutions business. Our current quarter, Victrix's Q1 is traditionally our weakest seasonally, but we are tracking ahead of the prior year in overall volume and revenue terms.

Speaker 1

Medical does remain soft currently. Though we do expect some improvements in medical through the year, the timing of which will determine the scale of revenue and PBT improvement. ASP, I have touched on already, we're guiding to £75 to £80 per kilogram at current FX rates. Turning to gross margin, higher production levels moving closer to 4,000 tonnes and a medical improvement should support gross margin growing to around 50% despite China annualization. On OpEx, we see relatively stable OpEx ex wage inflation of close to 4%.

Speaker 1

There will be an OpEx increase driven by employee incentive plans, which have not paid out in the past 2 years. Finally, on Self Help and Project Vista, which Jakob will cover shortly, we will have some modest costs in addition to the final ERP costs in the year, meaning exceptional to £5,000,000 to £10,000,000 as we seek to enhance our go to market and sales effectiveness and how we serve our customers. In summary, we're mindful of the macro outlook right now and trading does remain mixed with medical remaining soft. However, we are expecting top and bottom line growth this year with self help, cost control, efficiency and run rate supporting us. Our expectations for PBT growth are for it to be ahead of volume growth, notwithstanding the higher FX headwind versus current analyst estimates in the market.

Speaker 1

Thank you. And I'll now hand back to Jochen.

Operator

So, thank you, Jan. We'll now move to Slide 18 in the pack. On Slide 18, we cover the summary of our sustainable solutions performance over the year. It was a mixed year indeed, but better indicators at the close across most of these markets. We start with automotive.

Operator

Volumes were up 5% for the year, in line with our guidance of the half year. In this case, the growth came during the first half of the year with some restocking benefit, followed by a much tougher second half year, as expected. Volumes were down 4% in the second half versus the prior year and down 15% half two versus half one. If we look at S and P data, the forecast for car production in 2024 is 2% down for car build, but up 2% for car sales. 2025 shows an industry forecast of 1% growth in car build.

Operator

We know that auto headwinds remain on the horizon, and we're cautious on the near term outlook, even if we're well positioned across different application areas. On e mobility, we saw a slightly lower revenue performance in our mega program, but importantly, some broader battery and EV applications plus new platforms that will support growth in e mobility as we head into 2025. Turning to Aerospace, a very strong performance. Build rates are improving, and we're seeing new application growth as well. Volume were up 15% for the full year.

Operator

Half 2 was up 12% versus the second half of last year. And volumes were also up 16% in the second half versus the first. So what's driving this growth? Well, build rates have been increasing steadily. And if we look at Air Buds, which we have a greater weighting to, their Q3 indicated a 2% increase year on year in deliveries in that quarter.

Operator

And don't forget that we also have a growing business with Comac in China, with Comac doubling their build rates in 2024 from 10 to 20 planes on their C919 model, and we have over 300 kilograms of peak on this plane. And their forecast for 2025 is to double their output again from 20 planes to 40 planes. A brief word on LMP AAK or Low Melt Peak. This is a new patented grade we developed to support compasses in aerospace and in particular, faster processing with the ability to process at 40 degrees lower. It's building commercial revenues and getting strong feedback from customers, which supports the upside opportunity in the coming years.

Operator

Moving to Energy and Industrial. Volume is down 5% for the year, but second half volumes were up 6% versus H2 last year, and half 2 was up 17% versus the first. In context, rig count was down 1% year on year to November. And in the sustainable solutions space, this is still a mixed picture with PMIs below 50 in Europe, actually 45 for November in the year or so, 50 in China and the U. S.

Operator

At 49, but moving upwards. But we do have some strong opportunities in this space. One of these is replacing PFOA or PFAS materials with PEAK, which you may have seen in some of our social media posts and marketing activity. It's a good opportunity for us in applications, including cookware, cabling and other industrial equipment. I spent some time in Asia, the U.

Operator

S. And on the continent in Europe recently with customers, and it is surprising to see how strong the potential for this replacement opportunity is. Actually, in some cases, quite a bit ahead of the legislative impact that might be on the horizon for limitations of use of PFAS and PAF OAS. Turning to electronics. Electronics volumes were down 12% for the year, which really was a year of 2 halves, if you wish.

Operator

2nd half volumes were up 19% versus the second half of twenty twenty three and 39% up versus the first half of the year. So a soft start, but a very good finish and in line with our expectations, mainly predicated on an improved situation in the semiconductor market as well as with some nice opportunities on the consumer electronics side. As I said, much of this was driven by improvement in the semiconductor cycle. And I think JPMorgan's estimate is for 19% growth in semis for 2024. And if you look at WSTS figures, they are expecting and forecasting continued growth in semicon as we head into 2025.

Operator

With AI, increased memory and peak being used in both the CapEx and OpEx part of the semicon process, this presents a good opportunity for us. If we look at smart devices, also a strong area for us, however, with more limited growth this year compared to Senecon. IDC estimates that smartphone shipments should grow by 2.5% in 2025, driven by 5 gs and AI enabled handsets. So this is something that definitely supports our peak content per phone. Remember that peak has a good play in these devices, including our OptiFilm, with film supporting heat resistance, durability and quality requirements for a range of smart device brands.

Operator

Finally, on value added resellers, volumes up 14% for the year. Volumes were up 55% in half two versus the second half of twenty twenty three. So some encouraging signs of progress and a really solid exit rate for the year. H2 versus H1 was up 25%. But we are mindful that the outlook is not always clear until we move into our Q2, so current year 2025, though we're tracking nicely ahead of Q1 last year overall, and that includes, obviously, ours.

Operator

Slide 19, medical update. It's clearly been a tough period for those working with medical device companies and supplying into this space. Revenue was down 19% for the full year at £53,000,000 with a flat second half compared to the first. So the effect of customers destocking and high inventory levels lingered through the year. We've seen our peers also comment on this impact, that is those that are not in peak but who supply into the medical device space.

Operator

The destocking impact is despite surgery rates remaining in good growth. Destocking did impact across most application areas, but particularly in spine. One application area that continued to enjoy good growth was craniomaxialfacial or skull plates, 7% growth in this application. It supports improved brain function post surgery with a very strong clinical study in this area. This is now over £11,000,000 of our revenue, making up around 40% of our non spine business.

Operator

Despite the challenges of destocking this year, it's worth noting that we are a much broader medical business now, more application areas and more opportunities, 60% non spine, including CMF, arthroscopy, drug delivery, cardio and, of course, growing revenues in trauma and with a significant upside potential in knee. Innovation is strong in this area. Remember, we've invested incrementally in medical since FY 2020 to support our new product pipeline with a facility in Leeds, which is primarily dedicated to design specific trauma plates and specific knees for the customers that we signed joint development agreements with. And you may have noted that Peak secured an approval for 3 d printed spinal case back in September, a really strong milestone for us as well, sort of representing in many ways the Holy Grail of spinal implants. Taking PEAK and combining it with 3 d printing capabilities in a portal structure, which could offer the best of both worlds for peak and spine going forward.

Operator

Slide 20, on the medical outlook. A brief word. Slide 20 shows a breakdown of our geographical and also non spine versus spine revenues. Spine was 3 quarters of our medical revenues 10 years ago. Now it's 40%.

Operator

And it's and importantly, Asia and Europe are together larger than the U. S. By now. The U. S.

Operator

Remains a key health care market for us, though. There's high degrees of innovation taking part in that market. There's an attractive regulatory regime, but the challenge from titanium is more evident there in porous and titanium expandable cases. In Asia, the speed of innovation is just remarkable. But we, like all other medical players, have been going through the challenges of volume based procurement in China.

Operator

Europe is has Peak well placed, and we see the opportunity for Peak Knee to seek its next regulatory submission in this region following the submission in India in September. Overall, the key message here is that we are a much broader and more diversified business in medical today than 10 years ago. Many of these opportunities do take time to come

Speaker 1

to

Operator

fruition, but with the likes of CMF in the core medical business with drug delivery applications and then the MEKA programs like trauma and knee gaining traction, we can see a strong future for our medical business. Slide 21 on our mega programs. Five potentially game changing projects. There's also Slide 31 in the appendix, which shows the detailed milestones for each of these programs. We know they have not delivered as fast as we would like or as fast as investors would have wanted.

Operator

But the important point now is that the key milestones are coming through strongly, offering us the prospect of a significant step up in revenues in 2025 towards our target from £10,000,000 today. Now we are mindful that the timing of Magma may have offset overall progress, but that program is at a very advanced stage with Technip FMC and Petrobras, and we have regulatory pathways in medical which can't be compressed. I was fortunate enough to visit Technip facilities in France in Le Plait recently where we had a steering committee, and it was truly impressive to see the qualification trials that are going on there and how VICTUREX PEEK and flexible composite pipe is passing all qualification trials in flying colors, but also to see the commitment that Technipi is placing to development of this opportunity and a close collaboration that we have with Petrobras. I don't intend to go through all the mega programs in detail, but the key milestones have been strong. Trauma delivered strong revenue growth above £1,000,000 and now has a broader customer base.

Operator

E Mobility, this will be a key driver on progress in FY 'twenty five and the step up in revenue in 2025 with broader EV platforms. Knee, really strong progress, a regulatory submission in India, and we await the opportunity for the 1st commercial peak knee to be available in that market during 2025. I also want to add that on knee, we have a significant interest from top 5 knee players. Remember that we signed up with the 5th Aesculab, but others are showing great interest in partnering with us to develop their own slate of peak based knees with discussions ongoing. Slide 22, on e mobility, a quick word.

Operator

Clearly, there was a headwind in EV sales during 2024, which meant no progress on our e mobility revenues. But the shift to faster charging and long range has been making great strides and is a place where we are well placed for increasing peak content in electric vehicles with the opportunity of around 200 grams per 800 volt motor, as an example. And this is coming from a place where we, on average, have around 11 grams of PEEK in a car today. PEEK isn't the only material competing in this space, but with durability, fast processing and higher heat and higher voltage performance requirements are higher, which plays well for peak performance and the total cost of ownership per application. So great opportunity, and I think we'll be able to report on a step up in demand in that specific sector as we go through 2025.

Operator

Trauma and Knee, on Slide 23, we recovered the pathway for Trauma and Knee and how our strong pipeline then feeds into a development partnership with a customer and then the regulatory process towards validation and commercialization. Remember that our peak thermal plates are commercially available and already in the body with over £1,000,000 in revenues for TORON plates this year and more to come in FY 'twenty five. Plates include foot and ankle plates to support fracture fixation. Knee has some limited development revenue coming through, which is set up to step up in FY 'twenty five and beyond. What this slide shows is the state and gate process across these two key programs.

Operator

Trauma has a quicker regulatory pathway, given that it's a Class 2 device compared to knee with Conmed, our key customers and then additional customer launches in the U. S. And China coming behind them. So a broader customer base in trauma, which will support revenue growth in FY 'twenty five. In knee, it's a more complex pathway to commercial revenues.

Operator

We've had to work through additional clinical work as this is a Class III device. The clinical trials in India, Italy and Belgium have progressed very well. 57 patients been implanted and 20 post the 2 years already with no intervention. As you can see, the submission for PEAK Knee in India was completed in September 2024. In the U.

Operator

S, there's a clinical study underway with 120 patients once fully recruited, and we look forward to getting this underway as well. So key milestones delivered and strong progress. These milestones also support how we're seeking to increase the percentage of revenue from medical over the longer term, delivering the return to our medical delivering the return on our medical acceleration investment. Slide 24. I want to mention that we aren't just waiting for sustainable recovery in the macro environment, of course.

Operator

We've been working hard on self help through cost control, as evidenced by the 10% reduction in overheads last year and through a new program called Project Vista, which is focused on improving how we go to market. It's targeted at improving our sales effectiveness, greater deployment of digital solutions to support both customers' R and D work and process optimizations. We'll also target greater efficiencies on the back of our ERP system implementation that is coming to a close and also leak seeking opportunities in the procurement area. Some of these measures are simple ones, a more regional sales team structure, for example, salespeople selling across end markets, a broader range of end markets and driving efficiency. Overall, this will help support profitability in FY 'twenty five and in the years ahead, and we will update investors on our progress and the associated outcomes as we move through FY 'twenty five.

Operator

Slide 25, wrapping up with our outlook slide. You can see our view on the end market outlook. We're optimistic on aerospace driven by plane build, Comac business increasing in China and our additional composite business based on our LMP AK platform. VAR and electronic visibility on VARs remains limited and, in fact, always has been limited. But we're optimistic to neutral here, but we do see growth for the year as a whole in VARs.

Operator

And remember, there's also a strong correlation here with some of the key end markets, particularly electronics. Electronics itself, as I covered earlier, semiconductor indicators are more supportive this year. RC is the outlook for smart devices. On medical, we're expecting an improvement based on customer engagement, but we haven't seen this yet as we've, I think, clearly articulated both Ian and I, but we will be expecting to see it at the very latest in the second half of this financial year. Energy and Industrial, some caution here as rig counts are down year on year, but let's see what comes through, particularly in the U.

Operator

S. Next year. And finally, on auto, we are mindful that all of our peers have flagged headwinds in auto over recent months, and we share this caution with S and P forecasting only 1% growth in 2025. Though in e mobility significantly or specifically, we do expect to see some progress as new 800 world platforms commence, production with peak in electric applications. Just to summarize on Slide 26, it's been tough times for the chemical industry and ourselves in the last couple of years, but we have strong foundations.

Operator

We have invested through this period to underpin our future. Overall, £170,000,000 in CapEx since 2020 as an example. We have a very attractive recovery opportunity once demand improves more sustainably, and we have been seeing improving run rates, as we have talked about during this presentation. We are also playing our part with self help and cost control and improving how we serve our customers and go to market to increase our differentiation as well and our leadership position in Peak. Overall, the addressable market remains attractive in all application areas, and we estimate that at least 5x the size of the application that Peak serves today is available to us in the years going forward.

Operator

So, our core and our macro recovery, self help and then increasing commercialization in America programs with a step up in FY 2025 to underpin growth. Finally, an opportunity for improved cash generation and improving returns over the short term. So really, three key points. We can see our path towards volume growth through demand normalization. We've seen it on the industrial side.

Operator

We're expecting it during the year on the medical side. So that will definitely contribute to volume growth as will the fact that mega programs will start to contribute during the year. On the margin side, we should be expecting better margins associated with the volume growth, improved production rates and better overhead absorption and with the return in medical. And then on the cash side, well, clearly, volume will help there. We're coming off a high CapEx cycle and inventory will continue to run.

Operator

So we should see significantly improved cash flows as well as we go through FY 'twenty five. So that was the end of our formal presentation. I think we'll take questions from the audience first here in the room and then from those on the phone afterwards.

Speaker 2

Hi, good morning. Lior Baker at Peel Hunt. I have a question about the mega program. In last year's results, it was said that the revenue contribution from the mega programs for FY 'twenty five would be €25,000,000 to €35,000,000 And today, you're saying it will be €25,000,000 So, what is causing this decrease in guidance? Is it mainly because of the Magma delays and the medical progress being

Operator

sold because

Speaker 1

of the Yes.

Operator

There's a couple of things there. I think this year, there has been a slower uptick in e mobility that has impacted it this year. And actually, a bit of a, how should I say that, transition in the asset strategy associated with Technip and Magma. So there is an investment going in, in the extrusion facilities in Portsmouth right now to support growth. And that means that, that equipment has to be taken down while that capacity increase is being embedded.

Operator

Once that's up and running, we'll start to see contributions from that. But clearly, the time frame has been pushed out a little bit as well. So e mobility and Magma this year and Magma going into next year and trauma played more slower this year than we had anticipated in the early stages. But in any event, we will see a significant step up in mega program revenues for the year.

Speaker 2

Thank you. And just another question. On Page 20, when you see the medical revenue split, what is the goal between spine and non spine? And then also if you can comment on the margins from spine and non spine, how they compare? I'll take that one.

Speaker 1

Yes, sure. So, we don't have a stated goal for split between spine and non spine. What I would expect is that we have more new opportunities outside of spine at the moment. So, I think we can continue to build that diversity. And remember that non spine in itself is quite diverse across arthroscopy, the mega programs, CMF, cardiovascular.

Speaker 1

So, we have a broad range within the non spine piece. So, I would expect that to continue to grow. And your other question was the relative pricing. I would say there's a fairly broad range of pricing in the non spine piece. Some of the more kind of core implantable technologies that where you make specific implants, they're quite spine like in pricing.

Speaker 1

Some other applications a little bit lower where we maybe sell larger pieces of peak that are then machined down, then those ASPs can be a little bit lower in the medical spectrum, but still significantly higher than the sustainable solutions space.

Speaker 2

Thank you.

Speaker 3

Hi, Chetan from JPMorgan. Few questions. Maybe for Jan, can you walk through the bridge for 2025 PBT because I was just trying to do some math on my head. You've got €7,000,000 of FX headwind, maybe €4,000,000 to €5,000,000 from bonus. That's already €12,000,000 of headwind to offset and grow the earnings.

Speaker 3

So what are the tailwinds? And if you can quantify on the other side. The second was the comment on raw material price benefits. Can you talk about which other raw materials you actually see coming down and what is your pricing expected to do this year in 'twenty five? And one just a broader question, most of your production is in the UK, you're selling it into the U.

Speaker 3

S, especially for the medical market. Now there is a threat of tariffs. So there are 2 questions here. How are you going to manage that if there is going to be a tariff on imports of peak from the U. K.

Speaker 3

Into U. S? And number 2, are you actually seeing your customers to restock ahead of that tariff in any of your markets?

Operator

Yes. So maybe I'll start with the last one first here, and I'll take the tariff situation. I think there is a 6% tariff on peak into the U. S. Currently.

Operator

Nobody knows what it might be or where it might end up. It's interesting to note, though, that before the first Trump administration went out of power, there was pretty much a free trade agreement on the table between the U. K. And the U. S.

Operator

So it will be an interesting thing to see whether that will be sort of resurrected. And that was a pretty favorable one for Chemicals and for Peak. But 6% is a tariff right now. There's only one competitor making Peak in the U. S.

Operator

Currently. They, however, are importing all the raw materials from China, pretty much, or India. So I think there might be a potential target coming on the monomers going into the U. S. That would sort of mitigate the relative impact of cost for both parties, if you wish.

Operator

And then other competitors are solely dependent on Chinese monomers and obviously only exporting from China. So that's sort of the competitive landscape around tariffs as we speak. You asked whether we're seeing any pre buying impact, and the answer to that is no. And most of the customers that we have talked to expect to deal with that in through pricing in due time should that lead to a cost inflation on their side.

Speaker 3

You're not expecting to raise your prices to pass on the higher tariffs?

Operator

Wouldn't exclude anything in that context. Okay.

Speaker 1

Good. Okay. Shall I go back to your first one on the bridge, Jason? So you correctly identified foreign exchange and bonus hopefully as headwinds this coming year. I think the major tailwinds, so you do have better asset utilizations.

Speaker 1

That was a $10,000,000 headwind this last year. I wouldn't expect to reverse all of that, but a significant portion of it. So, let's say half ish of that reversing this year, that's a tailwind year over year. The benefit of lower cost inventory and raw material pricing coming through, some of that's in inventory now versus last year. Some of that will come in raw materials we purchased during the year.

Speaker 1

And I'll come back to your question on that in a moment. And then the remainder would be just the volume growth coming through, the drop through on gross margin from sustainable solutions growth that we've talked about plus medical improvement later in the year. So those would be the big positive items in the bridge. On pricing, your pricing? So pricing has remained robust.

Speaker 1

You saw the charts on that. I think we've been clear that we don't price our product based on the input costs of our products. That meant we couldn't pass that price on very quickly, which you saw. But we are now in a place where we've recovered most of the inflation we've seen through the pricing that we've put in and maintained over this year, FY 'twenty four and into FY 'twenty five. So we will continue to price Peak based on the value it brings to our customers.

Speaker 1

And we whilst there will be we don't see a significant movement one way or the other this year, there will be places where price increases and there will be places where price decreases depending on the competitive situation, the geography, currency, potentially in the future tariffs and other things. But we continue to price peak based on the value it brings, not based on the input costs that make it up.

Speaker 2

Vanessa Jeffries from Jeffries. First, I was just wondering your end market outlook. I guess it's pretty easy to see 80% of your markets potentially go the right way next year. But on automotive, you're still saying cautiously neutral. I would think it would be a bit more cautious than that just given the data we're seeing on light vehicle production in the EV market.

Speaker 2

And what do you think the downside risk is there?

Operator

Yes. I am specifically asking about the automotive outlook. I think it's interesting. So, car production is going 2% down this year and we are up 5%. So I think we're also getting into new applications and that is starting to show up in the numbers.

Operator

And in fact, most of the decline in the outlook for car production this year and the latest revision from IHS is driven by Europe and the U. S. Actually. And then at the high level, we're forecasting 1% growth next year. Our exposure right now is roughly 40% Europe directly in automotive.

Operator

It's 50% in Asia. And from the Asia fraction, twenty 5 or half of it is China and has been growing very rapidly in the last 5 years. So I think we're well positioned. We are and automotive is the one that we're most cautious on. So we saw 5% growth this year.

Operator

Year is starting in line with our budget. But we are well aware of the uncertainties around the auto demand, but we're not seeing it go backwards for sure. I think we're seeing modest growth for automotive with some risk attached to it. I think what's encouraging for us to see is the better outlook in electronics, and we clearly saw it coming through in the second half of the calendar year, mainly driven by semicon again and then, to a lesser degree, consumer electronics and the positive outlook for that market. And there is also sort of a derived benefit from that, if I can trace it that way, and that is that quite a bit of the VAS business is associated with electronics as well and semicon in particular.

Operator

So that gives us confidence. We've seen actually good traction in energy and industrial as well in these first couple of months of this financial year, as we saw in the last quarter. And I think there's a reason to believe that there will be a modest momentum behind that, where that's suffered significantly in the earlier part of FY 'twenty four. So when you look at this in the roundabouts, guiding to volume growth in the mid single digit area is something that we can stand by, recognizing the overall sort of balance of risk and upsets, if you wish. But you are right.

Operator

Everybody is most concerned about auto these days, and that's our reason for caution here, but stating the facts that are underpinning the assumptions of modest growth, if but a small one possibly.

Speaker 2

And then following your China expansion, I think you have between 30% to 40% of total peak capacity in China. I don't know if that's right, but I mean I find it fairly difficult to get insight into that market, and you'll be utilizing about 10% of that next year. Maybe if you could talk us a little bit through the competitive landscape there and if you're seeing other capacity expansions?

Operator

Sure. Sure. So in China, we have a nameplate of 1500 tonnes. Remember, the industry talks in nameplate, but that's not a fair representation of what can be probably derived from that plant or those plants. So everybody talks in the impact, by the way, and that's why we're doing it for consistency's sake.

Operator

But if you look at it, on the face of it, that's probably demonstrated capacity close to 1200. So let me make that caveat. We're saying we'll be well over 100 tonnes from that plant this year. And it is primarily geared to serve our value added resellers customers, but it will also play a very important role in e mobility. And that's where we have been nurturing opportunities for 5, six years right now that are really starting to come to fruition.

Operator

So the fact that we have that asset there is absolutely key for us. Specifically, on a competitive landscape, Evonik has their manufacturing facilities out of there and have had for quite some time, making peak in China with Chinese based input. There is a local company. There have been many in the past that have been claiming to put in peak capacity and manufacturing peak. Actually, few that have survived the journey from designing, building, making, making quality and then building a market that is conservative.

Operator

But there is one company that is there to stay called Jilinjiang primarily. And there might be a few smaller players, but I think these will be the significant ones. So if you look at the peak universe today, it is the science core of this world. It is Evonik and this local Chinese player that I mentioned. The latter 2, completely operating out of China.

Operator

So, Cyenceco operating out of India and the U. S, dependent on monomers coming from China and or India.

Speaker 1

I think it's worth saying it's close to 15% of our capacity in China.

Speaker 2

I mean, I'm just looking at all these kind of articles from the Chinese players in 2018, it's very difficult to get a sense of the market there. So yes, that's

Operator

Yes. Yes. And sometimes, just sort of food for thought is that when and if there's a capacity announcement in a certain country, it happens that they do add the capacity of each process step, and that then defines the total capacity that is in the announcement. So it basically means that you take all the different vessels from the pre blending stations, the reactors for actually creating the TIC itself and the refining steps and the solvency recovery steps, and you add that up, and that's quite often presented as capacity. So just a food for thought when you're calibrating your assessment of what is actually installed.

Speaker 4

Good morning. Adam Cakarelli with Werneck. Thanks for the presentation. Perhaps maybe can you shed some light on your current level of capacity utilization as you exited Q4? And as of today, what expectation do you have for production into 2025?

Speaker 4

Then maybe just a follow-up on pricing. There's a clearly a wide range, I think, depends on medicals. But what are the end markets where you feel most confident about raising prices going to 2025? And on your raw material basket, I assume you're still seeing benefits simply because of the inventories you have now in your balance sheet. If you have to buy raw materials today, what's the year over year change in raw materials?

Operator

So I'll take the first two and then Jens, maybe you can elucidate a little bit more on the raw material purchasing price. So current level of capacity utilization, let me start by, again, using nameplate. So in China, we've got 1500 of nameplate. And then at Hill House right now, having totally renovated our oldest asset, which was called PP1, Polymer Plant 1, totally revamped that and taken the opportunities as well to get more out of it at the same time, which makes sense given the future outlook. We have around 8,000 tonnes of nameplate there.

Operator

So previous figure there was 7,150, but through what we have done at Hill House and mainly through this refurbishment of all those assets, we've gained probably additional 8 50 tonnes of nameplate. So that's that. The utilization right now, so we sold just sort of through 3,700 tonnes last year, just in excess of 3,700 tonnes. We made less. We will be making more this year.

Operator

How much? I cannot exactly say, but we will be making significantly more in the coming year based on the demand that we were expecting, still working down the inventories. And remember, this is overall inventory, so it's inventories of both finished products, working process and raw materials and actually spare parts as well. So there's a lot of factors in there. But overall, we will be reducing inventory.

Operator

We will be producing more. I think it's one of the supporting arguments for why we're saying we're getting better cash flows or continued growth cash flows and better margins as we head into FY 'twenty five. On pricing, it's not necessarily the different sectors. It may also be based on application within a sector. So that's where you have to be highly surgical.

Operator

And remember what Ian said, peak is price to value. So it can be very different even in the space of electronics, how you would price a certain form or a grade of peak, whether it's just pure granules, whether it's powder, whether it's a compound or whether it's even a film. And film actually represents a big part of what we sell into electronics. So I think that's an area where you wouldn't make a general statement across sectors, but it's more driven by specific applications and the value that you bring to those and the delivery form of the peak. Ian, maybe you can shed a little bit of light on the raw material side.

Speaker 1

Yes, I'll try and I might ask you to clarify a little bit your question. But I think on raw materials, generally, we're seeing raw materials have come down in price over the last 6 to 12 months. We continue to see them competitively priced now. And we continue to lock in those prices where we can and agree purchases for the next few months ahead, year ahead or so. As we go through the year, we continually talk to our suppliers and we talk to potential new suppliers as well who might have more competitive prices too.

Speaker 1

So we're always we have an active procurement program that's always looking at raw materials and getting the most effective sources of raw materials. Does that answer your question or?

Speaker 4

Yes. I just wanted to know maybe if you can quantify what is today versus like a year ago. Is it down? Is it flat?

Speaker 1

I would say versus a year ago, probably

Speaker 4

marginally down in the round. Clearly, there are ups and downs

Speaker 1

across the piece. I'd down in the round. Clearly, there are ups and downs across the piece.

Speaker 4

I think we

Speaker 1

saw that decrease, I would say, probably 6 to 12 months ago. And since then, it's been relatively flat.

Speaker 4

But if you

Speaker 1

go back a full year, we're probably a little bit lower now than we were then.

Speaker 4

Are you not seeing competitors pricing down in this environment where raw materials are still down and the end markets are not fully back?

Speaker 1

So we do see pricing yes, we do see competitors competing on price. We've always seen our competitors compete on price. And there are places in the market where we have to respond to that and we do when it's necessary. It's not a peak is not a somehow special. There is always price competition in the market.

Speaker 1

But for our competitors as well, peak is the premium product. So they need to price it relative to their other products as well. So I think we're always sensitive to the pricing dynamics. And yes, I would say overall the pressure is downwards and that's why Yaacob said, we're not seeking like maybe where we were 2 years ago to push price up everywhere. I don't think that's realistic.

Speaker 1

But we look at where the value of peak is, as Yaacob said, what the form and grade of peak we're selling and we price accordingly.

Operator

I think it's worth making the point as well that if we look at the polymer pyramids, the pricing mechanisms are wildly different if you're at the in the upper half of it, let me say, and if you're at the bottom half. When you are dealing with polyethylene, polypropylene, polystyrene, most pricing contracts are indexed to some feedstock materials, C2 or C3, but sort of automatically sort of progress accordingly and you'd see much more swings in pricing, whereas the higher you get in terms of performance into engineered and specialty polymers, the more stable it is, as a general rule. And you will not have the same indexing mechanisms at play. So seems like there are not any further questions from the room at the very moment. Should we take questions from the audience online?

Operator

And your first question comes

Speaker 5

from the line

Operator

of Martin Evans at HSBC. Your line is open.

Speaker 5

Thank you. Just following on again from Chetan's question on the bridge and where that leads us with consensus for this year. I mean, there's obviously a lot of positives to build on your €59,000,000 just reported, as you said, in terms of operational leverage and volumes and so on. But if we take that FX hit, the €7,000,000 to €8,000,000 plus the auto uncertainty, plus medical still not recovering fully,

Operator

Is it enough? I'm looking

Speaker 5

at the Street's numbers for 25 here. It says on your website and on Bloomberg, dollars 74,000,000 pretax this coming year. I mean, that does seem pretty ambitious given all the ifs on the growth outlook. So are we looking more in the sort of early to mid-60s for this coming year, which would make you feel more comfortable in the early 70s on consensus? Thanks.

Speaker 1

Yes. Thank you, Martin. I mean, I don't think we're going to give a specific number. I think what we have said is that most that the current consensus, a lot of people updated following the half year results in the summer. Some have updated since and are probably at the lower end of those ranges, I think, of the current consensus.

Speaker 1

I think FX has moved adversely since then. So what was a $3,000,000 or $4,000,000 headwind at the half year is now 7000000000 or 8000000. So I think that's certainly kind of new news versus consensus. So I wouldn't be surprised to see the overall number come down a bit from where it is. I'm not going to be drawn on specifically what number.

Speaker 1

We're not guiding to a specific number, but we have said with volume growth in the mid single digits, we would hope to grow PBT faster than volume. So, I think with those pieces, you should be able to put something together.

Speaker 5

Sure. Thanks. And just a second, very quick follow-up on pricing versus raw materials. I think the earlier question sort of hinted at the possibility that in response to, as you say, lower raw materials, which your customers will hear about, that competitors may undercut you and therefore, you get deflation, which doesn't help anyone. To what extent do you think on your contracts you have that famous quality pricing tower?

Speaker 5

Or would you find that as the year progresses, you also have to begin to lower prices on new contracts in order to keep the business?

Operator

I mean, I think that's just the reality of the everyday business world that you need to play this by ear. Clearly, we do have competition. We are pricing at a premium for a variety of reasons and we believe justifiably so. But as things progress, we may need to react as well. Most of our contracts are longer term, though, remember.

Operator

So in most cases, we've got a contract for a year and sometimes longer. Although, after the inflationary period a couple of years ago, we built more flexibility in those prices as well. So that is a dynamic situation. And as I said in relation to the specific comment that was raised on tires, we wouldn't exclude raising prices if there is an incremental tariff placed on a product imported into the U. S, as an example.

Operator

So it is a dynamic situation, Martin, and with no absolute answer, but with the flexibility that we have, particularly to cope with upside swings. Now could that flip backwards, giving customers added flexibility when things are going in the other direction? Of course, but that then is a subject of a negotiation, but most of our contracts, as I said, are placed at least a year out in advance. Your next question comes from the line of Kevin Fogarty from Deutsche

Speaker 6

Hi there. Good morning everyone and thanks very much. Two questions if I could. Firstly on Medical, I just wondered if there's any change in terms of your visibility over customer inventory levels, just that might sort of underpin your confidence of that coming back into sustainable growth in

Speaker 4

the year

Speaker 6

ahead? Because obviously that sort of inflection, I guess, will sort of drive help to drive at least the overall group. And secondly, just in terms of the kind of shape of volume growth in the year ahead, given what you've said about Q1 and the volume levels there. I just wondered sort of is there any feeling on the sort of H1 versus H2 split for the year ahead on volumes, I. E, is there anything kind of exceptional or seasonality, I guess, in Q1 or sorry, in Q4 that you might sort of influence how the year pans out from kind of H1 and H2 split?

Operator

So on the visibility for Medical, this I had an absolute answer for you on that one, but I don't. What I can say is that we're not seeing recovery yet, Depending on what tiers supplying the medical industry you talk to, they're expecting recovery in the calendar year 2025. Some are saying Q1, some are saying Q2. I'm not sure we'll see it in Q2. Our financial quarter Q2, I'm not sure we will see it in the time frame between January March.

Operator

I think it's more likely to see it we are more likely to see it in the second calendar quarter, so our 3rd financial quarter, and that's sort of our base assumption. Now if we do our technical analysis segment by segment and look at sort of the growth trends for different segments, we look at the area over the curve, we look at the area under the curve post COVID or post the period or point in time when the system was in equilibrium the last time around, then we see that the area under the curve is greater than the area above the curve for all of them. So that means that we're probably getting to lower inventory levels than we had seen prior to COVID, but it's not yet leading to any uptick in demand. Now we do get an insight into, in some cases, into the sale of parts that contain our peak from some of our customers. So we can see that the run rate of the sales of those parts are consistent with the growth rates that we're seeing in the market, but we don't have that for all customers.

Operator

That gives us confidence in the fact that it is indeed destocking in our case, which is the hypothesis anyway for the sector in general. But so I think these are sort of pointers, if you wish, Kevin, but I do not have an absolute answer for you, unfortunately. As you say as you ask about volume growth in 2025, Q1 is always our seasonally weakest quarter. So October, December is always the lowest volume quarter for us. And then Q2, Q3, Q4 tend to be similar and no one necessarily sticking out there.

Operator

We are encouraged by what we see in Q1, October November and what we've seen on the order books in December will already take us ahead of where we were last year. But we are cautious because of limited visibility as always and I think as well documented. But we have stated our assumptions for why we think we should be aiming at mid single digits volume growth going into the year with a correspondingly higher profit growth. And Ian has sort of explained the key rationale for arriving at that conclusion. So hopefully, that adds a bit of a color, Kevin, even if I cannot give you an abstract answer in these uncertain

Speaker 1

times. There

Operator

are no further questions on the conference line. I want to hand back over to the management for closing remarks. So thank you very well, everybody, those that joined us in the room here at JPMorgan today and those that were on the line. Clearly, a tough year behind us, but a year and a period during which we have really focused on strengthening the foundations of Vectrex and prepare it for the future. And hopefully, we communicated clearly how we can see our return to growth in volume, in revenues on the profit line and as it relates to cash generation going forward as well with enough detail on the assumptions to help you update your opinions.

Operator

Thank you, everybody, and have a good day.

Speaker 1

Thank you.

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Earnings Conference Call
Victrex H2 2024
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