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Edited Transcript of VCT.L earnings conference call or presentation 4-Dec-18 9:30am GMT

Full Year 2018 Victrex PLC Earnings Call

London Dec 11, 2018 (Thomson StreetEvents) -- Edited Transcript of Victrex PLC earnings conference call or presentation Tuesday, December 4, 2018 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jakob O. Sigurdsson

Victrex plc - CEO & Executive Director

* Martin L. Court

Victrex plc - Executive Director of Medical & Executive Director

* Richard Armitage

Victrex plc - Group Finance Director & Executive Director

* Timothy J. Cooper

Victrex plc - Executive Director of Industrial & Executive Director

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Conference Call Participants

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* Adam Robert Collins

Liberum Capital Limited, Research Division - Analyst

* Andrew Gregory Stott

UBS Investment Bank, Research Division - MD and Research Analyst

* Charles L. Webb

Morgan Stanley, Research Division - Equity Analyst

* Chetan Udeshi

JP Morgan Chase & Co, Research Division - Research Analyst

* Georgia Emily Mabel Harris

BofA Merrill Lynch, Research Division - Research Analyst

* Sebastian Christian August Bray

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Thomas P Wrigglesworth

Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst

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Presentation

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [1]

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So good morning, everybody, and welcome to Victrex's full year results for 2018. It's been quite a historical year for Victrex in many sense. First of all, it's 40 years since the invention of the PEEK polymer platform. Secondly, it's about 25 years since Victrex was spun out of good old ICI. And last but not least, we've had a record year in terms of volume, revenues and profits. So a lot of things to celebrate in 2018. Great past for sure, but I would say that the past is a great foundation, but it's really all about the future and the future health and the strength and the prospects of the business and the faith that we have in that. And sure enough, Victrex has an enormous wealth of opportunities as appears in the numbers today and as appears also in the progress that we've made on our mega programs throughout the year, and we hope to give you more insight into through the presentation today.

Delighted to be joined by a full executive team today. Richard, Tim and Martin will all be involved during the presentation. Richard for the financial chapter of it, and then Martin and Tim for the Q&A.

I think the key metrics today is that we have delivered a very strong growth in our core business and some significant progress in our mega programs as well. We've got a strong investment case, where growth is a key attraction. It's not just about our mega programs, however, and I think as you've seen in the past couple of years, there is resilience and growth opportunities in our core business as well, which really has sort of fueled the attractive growth that we have enjoyed for the past couple of years. On top of that, cash generation is an additional attraction with the opportunity for incremental returns to shareholders. But the key for Victrex going forward is to deliver on our growth opportunities with both speed and efficiency.

So if we look at the highlights for the year, as I've said, a very strong year indeed. We did see continued broad-based growth, with volumes up 10%, driven by growth in the core, and it's maybe worth noting that when we speak about the core, we exclude the volumes from the last Consumer Electronics order and from our mega programs. And the growth in the core is coming from a broad-based set of applications, and it's very pleasant to say that we continue to find new applications for PEEK that fuel our growth.

Revenues were up 12%, helped by currency, and remember that currency was very first half weighted this year as well. In constant currency, we grew 7%. We had a good performance across our main markets, particularly strong performance in Auto, Energy and Electronics. And profit grew 15%, supported by currency as well.

On the new product pipeline, we continue to deliver on the milestones across our new product pipeline and as I said there, speed and efficiency is key.

In Dental, we did sign a supply agreement with Straumann, which gives us an order of magnitude, if not a couple of orders of magnitude, increased penetration in terms of access to their sales force. And you'll probably hear more about it from Martin later on.

Our Gears mega program is now supplying parts to a major European car manufacturer, and we do have cars on the road with PEEK Gears, and we're closing in on other opportunities with major OEMs.

MAGMA secured a notable deployment with Tullow, where we extruded the largest PEEK part that has been extruded, 2.5 kilometer length of a 6-inch pipeline, that has been sold to Tullow and being deployed by Tullow. And on our TxV Aero Composites joint ventures, we are closing in and starting commissioning of that facility in Rhode Island. We're also very close to securing an Aerospace alliance, which will support future growth of composites. And we hope to report back to you on further details on that earlier next year.

And finally, on Knee, we submitted the clinical trial packet, and we'll be moving forward with patient recruitment shortly.

Cash has been particularly strong this year, up 20% to GBP 144 million roughly, gives us the ability to support further investment in the growth of the business, but also supporting shareholder returns.

So with this summary, I'll now hand it -- hand it over to Richard, who will cover the financial performance in greater detail.

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [2]

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Thank you, Jakob. Good morning, everyone. I am very pleased to be able to report on what has been a very good year of broad-based sales growth and strong cash generation that has allowed us to continue our investments in the future growth of the company.

Our sales volumes grew by 10% to 4,407 tonnes, this includes around 200 tonnes in relation to the significant Consumer Electronics contract that was substantially fulfilled during the year. Growth was broad based, with double digit or near double-digit growth in all our industrial end markets, albeit that, that growth did slow somewhat in the second half due to some softness in some of those industrial markets, notably Automotive and Electronics.

Revenue increased 12% to GBP 326 million or by 7% on a constant currency basis. This reflects a slightly weaker mix, which is mainly due to the Consumer Electronics contract as well as a weaker mix within Medical. Gross profit increased by 13% to GBP 208 million or by 6% on a constant currency basis, and I'll come back to that shortly.

Overheads have increased 12% to GBP 81.1 million, this is an increase of -- this includes an increase of GBP 4.6 million in the accrual for our employee bonus and LTIP scheme compared with the prior year. Excluding bonus accrual and currency, overheads have increased by 5%, driven by a continued investment in front-end technical sales and marketing costs as well as overheads associated with our new acquisitions. Profit before tax increased 15% to GBP 127.5 million. In constant currency, PBT increased 3% as a consequence of the overhead increase I have just noted. Earnings per share increased by 11% to 128.8p. Our effective tax rate of 13.4% was higher than expected due to a number of adjustments within the Patent Box mechanism. These adjustments may lead to more variability in our effective tax rate over time than previously thought, with the range expected to be roughly between 10.5% and 13.5%.

A final dividend of 46.1p per share has been proposed to give a regular dividend for the year of 59.6p, an increase of 11%, in line with earnings. A special dividend of 82.7p has also been proposed to give a total dividend for the year of 142.2p.

[Well, I can turn to] gross margin and pricing. Our average selling price was GBP 74 per kilo, 2% up on 2017. This was driven by currency, partly offset by the effect of the Consumer Electronics contract and the slightly weaker Medical mix that I've already noted. Gross margin improved 50 basis points to 63.8%. Gross margin did benefit from currency but the effect was partly offset by the weaker sales mix as well as a small diluting effect from our downstream businesses. Our manufacturing costs were broadly in line with the prior year.

Aside from currency and mix, our underlying selling prices are stable in all of our end markets. We did start to see currency move against us during the second half, which will impact our gross margin in FY '19, particularly in the first half. We're expecting moderate raw material and Energy inflation amounting to slightly over GBP 3 million which, together with the currency movement, is creating a currency and inflation headwind in the range of GBP 6 million to GBP 8 million. As a consequence, we expect gross margin in FY '19 to be slightly below FY '18, although our average selling price will be slightly better than FY '18 due to the absence of volume from the Consumer Electronics contract. Our increased investments in overheads demonstrates our commitment to continued growth in our core industrial and Medical businesses as well as in our downstream capabilities. New investments in our sales, technical service and R&D capabilities, which is critical to the growth of our core business, has this year totaled to GBP 2.5 million. We have also made further investments in downstream capabilities aimed at supporting the market adoption of our new products. This has amounted to GBP 2 million this year, which was largely focused on growing our capabilities in automotive gears and Aerospace Loaded Bracket manufacturing. We expect this trend to continue in FY '19, with potential new investments in the range of GBP 8 million to GBP 10 million.

This will again be focused on our R&D technical service and sales functions as well as in manufacturing and enabling capabilities. However, a lower bonus accrual reflecting consensus expectation of limited profit growth will offset this to leave overall overheads broadly in line with FY '18.

The next chart shows the exchange rates affecting our results, which gave us a benefit of approximately GBP 13 million in FY '18. For FY '19, we're roughly 80% hedged for the year, which together with inflation, as noted, is expected to give us a headwind in the range of GBP 6 million to GBP 8 million. It should be noted that more than 100% of the currency headwind falls in the first half of FY '19, with the potential for a slight year-on-year currency benefit emerging in the second half. Clearly, Brexit brings additional volatility to this outlook, and we will update you at the Q1 IMS.

Now I'd like to move on to cash, where we have enjoyed another strong performance with a free cash flow generated of GBP 139.6 million (sic) [GBP 139.8 million]. You will note a GBP 5.5 million inflow in relation to our investments, this resulted from the Technip acquisition of 25% share of MAGMA, which resulted in a number of our preference shares being liquidated. Our equity stake there is 7.5% as a result.

We have invested in GBP 7 million of additional finished goods inventory as part of our Brexit contingency plan, which aims to minimize any potential disruption to our customers. We have established a new warehouse in Germany, from which we will supply our European customers; and we are increasing our inventories in the U.S. and Asia. Overall, we expect by March to be holding around 2 months of finished goods demand outside the U.K. as well as additional raw materials with our U.K. manufacturing sites. As a result, inventory could exceed GBP 80 million by the end of March, which we would then expect to unwind during FY '19 and FY '20.

Capital expenditure has been low in the year at GBP 9.9 million. Our forecast for FY '19 is for CapEx of around GBP 20 million. We have paid out GBP 105.6 million in dividends to give a cash balance at the end of the period of GBP 144.3 million, which includes GBP 73.2 million that has been placed on deposit.

Given that strong cash generation is such an important part of our business model, it's worth focusing for a moment on how we have used our cash historically, and how we expect to use it going forward.

Looking at the past 5 years, we can see that CapEx has averaged a [flat] GBP 30 million a year, influenced by some innovation-related investments early in this period. Our expectation going forward is this normal level of CapEx will be in the range of GBP 20 million to GBP 25 million or around 6% of sales. In addition, it remains our intention to invest in capacity ahead of market growth, and we're currently examining options to make a potentially substantial capacity investment to meet the growth needs identified in our 5-year plan. We have also invested in a number of bolt-on acquisitions over the period, principally to acquire new production capabilities in support of our downstream opportunities. We would anticipate continuing to pursue such opportunities going forward. Regular dividends have grown roughly in line with earnings per share at 8% per annum, and we have also been able to pay a special dividend in 3 of the last 5 years. As a consequence of the need to retain flexibility in how we use our cash, particularly in the likes of a potential capacity investment, the board has decided to retain our current dividend policy for the time being. To reiterate, this aims to increase regular dividend in line with EPS growth, whilst paying out 50% of year-end cash as a special dividend whenever possible, subject to a 50p per share de minimis.

The key message remains, therefore, that whilst we will continue to focus our investments on our growth opportunities, there also have been and will continue to be opportunities for attractive returns to shareholders.

Finally, we have not spoken much about the opportunity to drive operation improvements. Having been in this role for 8 months, I'm still very firmly of the opinion that this is a very well-run business; but equally, that there are opportunities for us to get better at what we do, such that we will be in good shape to exploit our growth opportunities efficiently and effectively. To that end, we have already embarked on a number of programs that we think will bring real benefit to Victrex.

In the area of operational effectiveness, we feel we have a substantial opportunity to de-bottleneck our processes and improve efficiency. We have launched a continuous improvement process to address this. We are also implementing an integrated business planning approach that will make our planning more effective and help us to manage our diverse growth opportunities.

Similarly in our wider business processes and in our innovation, we have an opportunity to get better, faster and more effective. We have launched a continuous improvement initiative here as well, covering a range of these activities. Most importantly, enhancing our customer experience is critical to our ongoing growth, and we're taking steps to improve this all the time. These are critical actions given our need to grow profitably whilst also investing in our downstream opportunities, and we will comment more on our progress over time.

Thank you. And I'd like now to hand back to Jakob.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [3]

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So thank you, Richard. If we now cover our key markets and their performance for the year and then look at the outlook, we can continue to focus on the 6 core markets of Auto, Aerospace, Energy, Electronics, industrial and manufacturing and Medical. On the Automotive side, continues to be -- or continued to be good growth for us in 2018. We grew 8% versus a market that was growing at 2%, basically signifying increased translation of our technology into existing applications. And as you will remember, we primarily are part of braking parts. We're in the chassis in transmissions, and we are basically focused on the powertrain ideas. Our next generation products are Gears, which I will come on to later. We're working hard on electric vehicles as well, and we have a play across both the internal combustion engine and the EV, and it's important to keep that in mind. Our estimation is that, on average, you have 8 grams of PEEK in a car on the road today. Through increased translation, we can see our way [towards] to roughly 12 grams per car. With Gears, the path is safe towards roughly 20 grams a car. But to put it in perspective, we believe that there is roughly 100-gram opportunity for us in the EV world. So a significant growth opportunity for us. That will be primarily around wire coatings, insulations, wire wrapping, slot liners and other applications that require actuators. We've brought in external resources from -- into that area as well from OEMs to help us drive growth in that area, and we're working on some interesting leads there, about which we hope to update you early next year.

We'll come back to you on the Auto outlook. But you have seen, like most others, recent weakness in Euro market, including for the first months of FY '19 for ourselves. However, we still see very good structural growth trends, and PEEK penetration in cars is unchanged. And our focus remains to grow Automotive during FY '19, and all the indicators would suggest a better half in the second part of the year than the outlook would imply for the first half of the year.

On Aerospace, very strong volume growth, up 23%, driven by incremental applications penetration and plain built. We are specified with all the key OEMs, including COMAC in China. The key for us here is to drive forward the use of thermoplastic composites. We have our AE 250 grade. We have started getting very good initial traction and performs well against PEKK and other polymers. Projection for thermoplastic composites for roughly 11% accumulated average growth rates between now and 2025, according to CompositesWorld. And we're very well placed to capitalize on that growth.

Loaded Bracket opportunity is moving ahead, as I said in my opening remarks, and we'll be commissioning our Rhode Island facility there shortly. We have the capability to make around 150 tonnes of composites there, and with an ability to increase as we go.

As I mentioned before as well, we are in advanced discussions for a new Aerospace alliance, which we will seek to capitalize on the trends and the move from thermosets into thermoplastics in the aerospace world.

On Electronics, growth for the year was around 17%, excluding the last Consumer Electronics order, and I think we've proven that we're much more than just a single Consumer Electronics order in this market space.

Semiconductor was strong for us this year. Data use and storage requirements are helping here. The forecast for that segment is around 4% growth next year as well. So a significant opportunity for us there.

On home appliances, we have entered some new applications. PEEK heat resistance and durability serves well in markets like vacuum cleaners and hairdryers. As an example, the last Consumer Electronics order was around 200 tonnes, as Richard mentioned in his remarks. And in 2018, it was mostly in the first half of the year, so that will have a notable impact on the comparison between the first half going forward. But overall, the structural trends there are in favor of PEEK. And with the advent of 5G and greater connectivity in the future, we see a number of interesting growth opportunities there. And Electronics will continue to be an attractive segment for us.

Finally, our Value Added Resellers, good business for us. Up 5% this year. A little bit of a software impact on the mix for us, and here we have many of our legacy relationships that actually create and continue to create a pull for Victrex PEEK into the marketplace. Robust industrial demand, that has served us well throughout the years and will continue to do so.

Just ever so briefly on some of the incremental opportunities on the industrial side. One of the great things about Victrex is that we are continuing to find new areas and applications for the product. And this year, I want to highlight a couple of them.

In home appliances, we've developed some applications to support the demand, provide sort of more durable materials in vacuum cleaners and hair dryers. PEEK has a fantastic play here, strong, light and durable. So this creates an opportunity all of itself in entering at the early beginning in the high end. But creating increased and translation opportunity for us across other kinds of equipment for this particular customer, but also for additional parts in the product line and in the broader-based market subsequently.

Here the value proposition is all about lightweighting again and noise setting. In this case, 50% noise reduction by using PEEK and a weight reduction of around 40% is the core of the value proposition. And it's currently, like I said, in high-end models, but an opportunity to translate across models, applications and manufacturers.

On food applications, another emerging segment for us, the World Health Organization is indicating that there might be 3 billion more mouths to feed by 2030 already. So more efficient food manufacturing is essential, and that's where our new Victrex FG, food grade products, come in. PEEK is very inert, so it works well. With regulatory standards were met, may comprise the production process by reacting with food. And we have already indicated and capitalized from a number of opportunities in this area. Food application processing is -- food processing applications are also growing at around 2x the industrial average. So a significant opportunity for us going forward.

Quick update on the mega programs in industrial, the MAGMA has had really good progress throughout the year. Our materials in both the core of the pipe and the tape that is used to wrap it and reinforce it help to manufacture 2.5 kilometers of continuous pipe, the world's longest PEEK structure. We booked over GBP 1 million of revenue for this in the year, and it's planned for this planned deployments for MAGMA. Tullow actually has referenced that this has resulted, or will result, in a 65% reduction in deployment costs, which underscores how strong a value proposition this is. In addition to that, we've got several opportunities that we are working on, both with Equinor, the former Statoil, in Norway, where we're exploring opportunities for flow lines and jumpers; and finally, on TechnipFMC, who are looking at using M-PIPE offshore in Brazil for the Libra field. And if successful, this would really support quite an impressive long-term growth case for MAGMA.

On Gears, as I said before, we've now got Gears on the road already with a leading German manufacturer, value proposition here is weight savings again, where we can save up to 75 -- 70% of the weight, reducing noise and vibration by 50% and offering around 20% quicker processing time as well. As I said before, we're growing through increased translation from 8 to 12 grams per car through Gears to 20 grams per car and EV growth up to 100 grams per car.

We are closing in on another large opportunity, which we hope we will be able to deliver some news on in 2019, which will get us over the meaningful revenue mark for Gears and will be a significant step-up and a validation, a significant validation for our Gears program. We continue to invest for growth. I talked about Gears, as I said, and we've added capacity there to be able to meet demand from the opportunity that I indicated.

But on TxV Aero, for the composites, remember, that's our joint venture that is being commissioned in Rhode Island. The trend for thermoplastic composites is indicating a strong growth consumer -- consolidated -- aggregated growth rate of around 11% for the next 7 years. We are prequalified with our AE 250 composites grade, which is getting great traction, competing against PEKK and the applications we're focusing on includes [heat pants] and structural parts such as Loaded Brackets. And we hope to have some further news early in 2019 related to the Aerospace alliance that I mentioned before, which is focused on composites -- thermoplastic composites reinforced with carbon fiber.

In [grams], spoke about that, very good traction throughout the year and significant opportunities in the pipeline to the extent that we've added capacity there. And on Zyex, which is a business we bought in April in 2017 for around GBP 10 million, it was running at around GBP 7 million annualized revenue before we bought the business. It is getting to close to double digits now. And in June this year, we had our first GBP 1 million month -- a GBP 1 million month there. And remember that Zyex Fibres have uses ranging from aerospace through to general industrials and all the way down to tennis strings and violin strings. So quite a diverse set of markets that we're serving there.

Moving on to the Medical side. Spine is entering sort of a mature phase of the product life cycle, but have been stable for us this year. Overall, Medical was 3% ahead in revenue but flat in constant currency terms. HA Enhanced, which is our next-generation product, we've seen a similar performance as last year. Sales above the GBP 1 million mark. However, we do have over 10,000 patient implants now using HA and remember that the value proposition here is enhanced bone on growth. We've got 40 regulatory approvals globally, including U.S., Europe and Australia. We have seen good growth outside of the U.S., but obviously, from a smaller base than we have in the U.S. Going forward, in Medical, we need to grow through, number one, increased innovation around the existing product line, namely HA Enhanced and forward stage is going forward through growth and emerging markets and obviously through the new platforms. So it's Trauma, Knees and Dental.

And speaking of Dental, we're in the premium end here of prosthetic implants. We have proven our clinical evidence that our PEEK dental products lower infection rates. Peri-implantitis rates are 1% using PEEK after 5 years and 10% using titanium. And as we announced in May, we partnered with Straumann, one of the world leaders, with around 25% market share, which gives us an order of magnitude greater presence on the sales side than we've ever enjoyed before.

In 2019, Dental should reach meaningful revenue again and we are also working on securing additional agreements in Europe, 2 of which we've already secured in FY '18 and we hope to see more coming in FY '19.

On Trauma, pleased to say that we now have a collaboration with one of the top 5s in trauma, so resulting in, hopefully, a joint development agreement shortly. Trauma plates have been in people's bodies already, but driving market adoption is key and that's why we need to work with a medical device company. So it's a significant step for us to have secured a collaboration with 1 of the top 5 in the business. And we're also working on a couple of other agreements in this area also, on which we'll hopefully be able to report shortly.

On Knee, pleased to say that the clinical trial has been submitted. We have obviously the approvals of the ethics committee. We're working with the Italian hospitals, where our lead investigator has been appointed. And remember here, we're working with our partner, Maxx Orthopedics. Patient recruitment was started early 2019. And as a reminder, the knee market is a GBP 6 billion market, where there is a significant value application for PEEK, as 1 in 5 patients are unhappy with knee replacements today, which are mainly metal based. So a great opportunity for us to offer both patient benefits and clinical benefits in terms of outcomes, we hope. So great progress and a good long-term opportunity in a market which is looking for alternatives.

Trauma, ever so briefly, like I said, we're closing in on our alliance with 1 of the big 5s there. Significant improve in patient outcomes, where with -- in comparison with stainless steel plates, we have a significantly reduced number of complications. In the clinical study that we're referencing here, 0% complications with carbon fiber PEEK plate, 8% hardware failures with steel plate; and patient outcomes in terms of bone union, 100% with carbon fiber PEEK plates and 75% with stainless steel plates. So a significantly improved outcome, both for the patient and the physician.

Moving on to the bubble chart ever so briefly. Progress this year in all programs, we're now showing those which have delivered meaningful revenue to the left of the Y axis. So Magma is in that territory already. HA Enhanced is there. And as I said before, we're expecting Gears and Dental to move into that territory as well this year. The main mover, however, this year is Aerospace, which now is in Horizon 1. So 1 to 2 years away from meaningful revenue. This is driven, obviously, by the commissioning of our aerospace composites facility in the U.S. and strategic alliances which we hope to have news on in 2019. Finally, remember, we're standing behind our aspiration to deliver 10% to 20% of our sales from new products in the medium term from around 4% we released today.

Flip this one up ever so briefly, we won't belabor it in detail, but it's a good way to compare our FY '18 milestones and the focus for 2019, with MAGMA driving further opportunities with Tullow and Equinor on flexible pipe; HA Enhanced, secure commitments from top 10 device companies, which we are well advanced in; on Dental, further supply agreements in the U.S. and focus on getting past the meaningful revenue mark; on Gears, closing additional supplier agreements and delivering meaningful revenue also. As I said before, Trauma, 5 projects already agreed for launch and we're well underway to secure that and to development additional capacity for manufacturing. And on Aero Brackets, getting the commissioning of AE 250 and closing discussions on the alliance for the composites opportunities within Aerospace. On Knee, getting the first patient into the clinical trial would be a significant milestone for us and we'll hopefully be able to report on the progress of the clinical trial as we grow throughout the year.

If we look a little bit further into the future and what's happening, if you wish, in the third generation or in the third horizon of product development, sort of moving beyond the mega programs, we have some early success in the 3D printing area, where we've been developing prototypes and PEEK production models for brackets and manifolds for Aerospace. Aerospace seems to be one of the areas where the greatest interest is, is for 3D-printed parts out of PEEK, but Medical is obviously another one. We're pleased to announce that we concluded a partnership with Exeter University to support development of PEEK in the 3D printing industry, and we've launched a couple of new grades to support that, offering better yields and lower printing temperatures. And here, it's all about building the ecosystem that is needed to support the commercialization of the opportunity. And our ecosystems involve ability to trial new polymers, and that's where our new polymer innovation center comes in strongly. It involves consortiums with both [our demand] industry players, so we're working within Innovate UK in collaboration with parties like Airbus, R&D alliances with the likes of Exeter University, as I indicated before. But then also, looking at ways to find enabling technologies both in hardware and software that can create the pool similar to what Kleiss gears did for us on the Automotive side.

Quick word on the strategy. After a year in a row, and I've said it before, I'm convinced it's the right strategy. We've got a healthy core polymer business and we have the ability to make both forms and part to capture increased value from our innovation and from our technology, but also to drive market adoption in general.

So clearly, the right strategy and the focus has to be to continue to grow the core business, deliver on the mega programs, improve efficiency in the business and with that, support investment for further growth and to return attractive returns for shareholders.

Mega brands are still supported. Even if we may be facing short-term headwinds in the business, the structural elements that are driving the need for PEEK in all of our segments is still there and we'll continue to see the pool from those. I'm not going to label -- belabor them, each and every one of them individually, but it's clear that we've got a strong and compelling value proposition in all of those. And in spite of short-term headwinds, the potential here will carry the business going forward.

Turning to the outlook. The main changes here as you will see are in the Automotive and Electronics side. We moved up medicals and Medical spine, reflecting the fact that our stable performance in 2018 is expected to continue, but with slight growth in 2019 for the first month of trading at least. In spite of the short-term headwinds in automotive driven by the emission testing procedures and situation, we continue to feel positive about Automotive longer-term, global translation and further lots of opportunity in the Gears together [within PEEK flow] driver business. Although we will be facing headwinds in the first half. We also anticipate that on the long-term basis, we will be growing ahead of the market. Remember, that the Automotive market has been growing at around 2% historically or in the last semesters has been growing at around 3x to 4x that rate. We note the caution around auto driven by the new emissions testing, [agreements] and trade relations, and we have seen some slowdown in the automotive market in recent months in-line with others, although we believe that we will see an improvement in the second half. Electronics, the fact that we have a neutral year is principally explained by the fact that we expect 0 volumes from the large consumer Electronics contracts in FY '19, although there remains a lot of opportunity for us beyond smartphones. I would underline that. Semi-connectivity requirements, home appliances -- semi-connectivity is expected to grow around 4% this year and we have been doing good business in semi-con for the past couple of years. And we still have opportunities in the undisclosed segments that we mentioned to you last time, which is still providing to be a good source for growth, and we expect to see moderate growth there as well going forward. On Aero, like I said, focus on using -- driving increased use of thermoplastics composites and we note that the build-rates are forecast to increase in 2019, for example, on the 787 Dreamliner, forecasted to move from around 12 planes to 14 planes a month. On Energy, although oil prices have come up a little bit as of late, we still see good growth opportunity there with rig counts forecasted to increase around 6% and oil sort of expected to be somewhere between 60 and 70, so both of these being a key driver in our business in Energy. Medical, new markets, optimistic on that with an OEM agreement now with dental in place and adding new players in Trauma as I mentioned is a reason for optimism there. And on Medical spine, we have improved our [new-to-neutral] mainly reflecting a stable performance and the growth in Asia that has been healthy.

So in summary, while we're focused on year-on-year progress in volume terms, we have had [wins] and from currency and auto -- and Consumer Electronics this year, and obviously, we have seen the recent slowdown in auto. This will impact us in the first half. So we will have headwinds, which may hold back our ability to substantially improve on our 2018 performance. But we see the opportunity for an improved second half both in our core product business and the mega programs, with fewer headwinds and us closing in on more Gear and Aerospace opportunities in particular. And we continue to be well-placed for medium and long-term growth opportunities based on the progress of our mega programs. So the key takeaways for the year then are strong core business with greater opportunities in new segments and increased translations. We continue to build new markets and develop new applications, Manufacturing & Engineering and the food applications being an excellent example of that. Mega programs have progressed in several areas as well as new grades of product. Cash generation has been very strong, and will provide a continued opportunity for increased sales returns on a medium- to long-term basis as well as supporting investments for growth. So I think that sums it up. We'll open it up for questions after this. Thank you for your time, and thanks for coming. I will open it up for questions to the executive team.

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Questions and Answers

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [1]

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In the back there. I think that was the first hand up.

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Unidentified Analyst, [2]

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It's Alex (inaudible) from Barclays. The aerospace segment is presumably one in which you've got more visibility through your order book than others. So it was interesting what -- I suppose if I could ask you, your opinion on why the outlook this time last year for aerospace was neutral and you ended up doing 23% volume growth. What changed in that market that meant demand was considerably stronger than what you'd expected? And then I was also interested in (inaudible) in your Electronics comments in which you point out that without the loss of the Consumer Electronics, would you probably be more positive on Electronics, but as far as I can tell, the semi-conductor outlook for next year is flat, if not negative. So which part of that electronic segment are you confident on, excluding the Consumer Electronics [program]?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [3]

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So on the aerospace side, we might have been a little bit more conservative when we upgraded the outlook last time around. But you're right, the visibility there is much greater than in many of our other segments. On both Boeing, I think Boeing is predicting roughly 10% increase in build-rate if I recall right. Airbus is expecting around 12% increase in build-rates as well. So that gives us the reason for upgrading the outlook right now. Then the question on the electronics side, we do -- we will see increased growth in semi-con, but at a slightly slower rate than we saw last year. We have this undisclosed segment as well, which is in the consumer area. And thirdly, I think we see increased translation opportunities in home appliances on top of that. So I think these will be the primary drivers of optimism for that. But there will be obviously a dent left by 200 tonnes of the last Consumer Electronics order that was [solely] in the first-half last year and we are not predicting anything. So if you just put that in context, that's around 5% percent -- percentage points of our total volumes.

And how have you then been keeping track here?

Yes.

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Charles L. Webb, Morgan Stanley, Research Division - Equity Analyst [4]

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Charlie Webb, Morgan Stanley. Maybe if you can help us with the bridge for next year. If you're guiding to flat year-on-year, you talk about [a fixed payment] of FX headwinds and MG headwinds and then overhead growth again of something similar to what we saw this year. So I guess somewhat similar to GBP 6 million to 8 million headwind there, which implies close to GBP 12 million, GBP 16 million of underlying growth in the core business here and that would imply over 10%, something similar to what you did this year. And yet, we're starting on a -- I guess on a slower footing, so what is it in there that is accelerating in the next year perhaps?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [5]

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Richard, you want to comment on the bridge?

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [6]

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So right -- your analysis is right. We are expecting a stronger second half and clearly, there's a lot of uncertainty around, but if you take [-- also noted,] for instance, indications are that the current slowness has been influenced by the harmonized testing procedure, which is causing the stocking more than any other particular problem, by concerns over tariffs that could be receding this week, but clearly that's one to watch. So therefore, there is an expectation to a degree that, with some of those [industrialized] effects, could be fairly short-lived and it is our own growth, our own penetration, our own new applications should help our second half in Automotive and other sectors. And then outside of Automotive and Electronics, as Jakob has referred to, we have a number of new developments coming along in aerospace as well. So there are a number of sectors here which ought to help our second half grow.

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Charles L. Webb, Morgan Stanley, Research Division - Equity Analyst [7]

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So if we take that into account, are we suggesting that you are able to grow underlying PBT in the second half, I guess, closer to 20% if that's not a bit slower? Because I guess that's what's implied.

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [8]

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Yes, I don't think it quite gets to 20% but yes, we would see a small decline in PBT in the first half, clearly offset by -- an offset in the second half.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [9]

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I think we know -- just to add little bit, we're expecting strong growth in Energy sector as well in double-digits. That's a driver for growth that helps us abate some of the weaknesses on the electronic side and -- on the whole on the electronic side and the weakness on the automotive side in the beginning of the year.

Second row.

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Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [10]

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Tom Wrigglesworth from Citi. Just two questions if I may. Within your obviously cash flow assessment in your dividend payments, there's a number in there for the new capacity. How should we think about what you budgeted for new capacity spend going forward? And then looking at the Medical, obviously flat growth, but if we took out the spine, what would have the rest of the business been growing at? So we can get a sense of what new Medical markets might do for 2019?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [11]

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Yes, Martin take the medical...

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Martin L. Court, Victrex plc - Executive Director of Medical & Executive Director [12]

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So we've indicated that CapEx in FY '19 should get to about GBP 20 million. We haven't guided to what new capacity investment looks like yet, because we have several alternatives with several different spend profiles, one of them has a relatively upfront level of investment, one could look like our last investment with a sort of 3-year plan with a peak in the middle. And a couple of other permutations on that. So that's not very helpful but currently, we're in -- we're evaluating other options and we're leaving ourselves with the flexibility to be able to cope with any of those.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [13]

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And to be precise on that. We said that within our strategic planning framework, which is 5 years, you would see the need for having extra capacity towards the end of that. And like Richard said, if you put in the context of the last capital expansion, PP3, was around GBP 19 million investment at the time. So that's maybe a benchmark that you can use, and that was spread over 4 years -- 3 years, sorry and the peak capital consumption throughout these 3 years was around GBP [16 million]. But as we showed in his slide, and see over the last 5 years, we still paid special dividends.

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Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [14]

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And Medical growth ex spine?

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Unidentified Company Representative, [15]

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Yes, so if we look at what we said about the mega programs, we are not at meaningful revenue with anything in medical yet. So the numbers outside of our traditional business, you are talking less than GBP 0.5 million in terms of sales there. But if you look at the balance between spine and sort of our more traditional space, so if you look at Maximal Facial and Arthroscopy, then certainly in Asia we have seen good traction in those 2 segments and a big chunk of the growth in Asia is coming from progress in those spaces, which is quite encouraging because for a few years, we thought that's a pretty saturated space, but there's really good traction in Asia there now in those 2 segments.

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Chetan Udeshi, JP Morgan Chase & Co, Research Division - Research Analyst [16]

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Chetan from JPMorgan. On Electronics, if I take the consumer electronics, the big one, it's roughly 26% of your total electronic volumes last year. So when you say neutral, are you saying the rest of the business will grow as fast to offset all of that decline from the large order? Or how are you thinking about the Electronics, ex the last -- sorry, say large consumer order in terms of growth? So are we going to fully offset that decline for that segment as a whole? That's number one question and number 2 is, it's encouraging to see bubbles moving to the left as such but would you say, HA-enhanced, flat revenue versus last year, is that some sort of a disappointment to have not seen increased revenue in that business?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [17]

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You want to take the Electronics one?

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Martin L. Court, Victrex plc - Executive Director of Medical & Executive Director [18]

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Just to be clear then, Chetan. In FY '18, the level of volume from consumers electronics was roughly the same as in the prior year. So it doesn't materially affect the underlying growth rate. If your question is then about what we anticipate in FY '19, we do expect growth in the underlying electronics business to help us catch that volume back. I don't think completely in FY '19 but partially, and then help us to make up that difference again in FY '20, if that helps.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [19]

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[On HA Enhanced?]

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Unidentified Company Representative, [20]

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On HA Enhanced, I think you have to reflect a bit on how adoption happens in Medical industry. So when customers move into new space, they stock up quite heavily with inventory and then the sales that come out they continue, are more reduced. So we're seeing very good penetration and good traction with the guys who have deployed. I guess, the disappointment for us last year was that the number of new adopters we got. And we've got some really encouraging leads that we're hoping are going to pull that through in the next year or so. We shouldn't be confused by the fact that the level of deployment with the customers who have adopted is very good and plentiful outcomes are being very successful.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [21]

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Adam?

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Adam Robert Collins, Liberum Capital Limited, Research Division - Analyst [22]

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It's Adam Collins from Liberum, and I had 3 questions, couple on the operations and 1 financial. On value-added resellers, wondered if you could just help us understand the significance of the [clear] markets perhaps in sort of descending order? Comment a little bit about the factors driving that area last year? I mean, I see there was a significant growth in the first half, but a different picture in the second, and perhaps, just again, reprise the outlook there, that's the first question.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [23]

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I think we have limited visibility into value-added resource. But it is largely comprised of Energy, Electronics and auto. And if you look at the data now retrospectively, you could say that they might have been the canary in the coal mine because they started to slow down a little bit earlier than our [direct] business in that area. So we're expecting only a moderate recovery there going forward in the first half of the year. Although I think, the business prospects there are strong for the second half as well, according to what we hear from them. I think right now they -- the way the supply chain works, they do actually hold quite a lot of inventories, because that is the nature of their business. They almost sell you watts by the meter, if you wish and mix shipments of all kinds as well in terms of different thicknesses and lengths and shapes and what have you. So they do carry high inventories, but I think they're moving cautiously, as we speak, as well. You're probably seeing a conservative stance as it relates to their management of their inventories right now, and particularly when we're heading up towards the end of their financial year, which is, obviously, a calendar year for most of them. So I think they're trading cautiously as a consequence of that and that's probably reflected to some extent in our numbers.

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Adam Robert Collins, Liberum Capital Limited, Research Division - Analyst [24]

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Okay. Second one on [Energy O]. Was intrigued that you were talking about double digit expected growth in Energy. Now some of that, of course, is MAGMA, but could you talk a little bit about the non-MAGMA development in the last year? And why that area would seemingly be growing in the coming year in the [Northcross] environment, which looks to be quite subdued at this point?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [25]

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We are still looking at oil being in the range of 60 to 70, depending upon what statistic you look at. Rig count is expected to grow further as well. So I think the overall macroeconomic environment for Energy looks relatively positive. Number one. Number two, we have the impact of what's happening with MAGMA. And number three, there are other segments that we have been exploring there, such as wind energy as well. So when we look at oil across that, across our portfolio, that's what gives us a connection, that we will see good growth there going forward. These would be the 3 key items.

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Adam Robert Collins, Liberum Capital Limited, Research Division - Analyst [26]

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Okay. And then just then on the financial side, the guidance of flat performance, I think that probably means profit before tax. Is that baking in the guidance of a non-cash related GBP 1 million to GBP 2 million charge from the pension provision?

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [27]

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No (inaudible) Adam. We've been seeing the outcome of the Lloyd's case. We have not passed that to our actuaries yet, so it's quite a range that could be and if indeed the ruling is upheld, we would probably push that through as an exceptional non-cash charge later in the year, but there's quite a lot of ifs in that.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [28]

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Do you want to add anything on the Energy side, Tim?

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Timothy J. Cooper, Victrex plc - Executive Director of Industrial & Executive Director [29]

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No. I think the other thing as well is in terms of geographical penetration, we've got quite a good focus in Asia for the moment and there are opportunities there that we're leveraging that historically we haven't been adapted, previously [shopping that]. So that just builds on the comments that Jakob made.

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Unidentified Analyst, [30]

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Martin (inaudible) from HSBC. Can I just get back to the guidance again for this year? I just need to be clear about this second-half optimism, which is only a few months away, given the headwinds that you can see you face for the year on FX, on soft auto, on consumer volumes falling away and so on. I mean mathematically, as Charlie asked earlier, you can estimate a lot of ground from April to be flat for the year, which seems to be your expectation. Is it now because Victrex is so much more confident about these new projects coming through and you have clear visibility 4 months ahead which maybe historically you haven't had because visibility in the past has been very short? So can you give a little bit more concrete details on your optimism for your second half?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [31]

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If you -- maybe it's worthwhile to put in the context of our exit rates as well for FY 2018. So in the fourth quarter, exit rate, excluding consumer electronics was around 6%, as an example. And then, we were probably, like I said before, we were starting to see a little bit of a tapering off on the oil side so I think we're probably at a stable ground there, if you wish. Sure enough, when it comes to first half comparisons, you know we've got to fill up the void of our Consumer Electronics order, that was in the first quarter last year. But the growth and most of the underlying exit rate would do that and that gets you to a flat standpoint and then if you just look at it in simplistic terms on the second half, ignoring the moving parts below that, continuing at that rate puts you in net 6% growth, roughly. Just to bracket it off for you. That is obviously not that simple. So mathematically, you think if you use that approach, then it's not that unbelievable that we would be delivering that and that's our basis for saying, yes, we expect headwinds in the first half and strong headwinds, but given the exit rate that we saw at the end of FY '18, we are expecting to continue at similar rates in the first half and then sort of emerging in the second one. That's obviously underpinned by more detail plans by its segments and as I alluded to on the energy side, on the electronic side where we see a favorable outlook and with new programs actually coming in on the automotive side as well, which will hopefully abate the decline a little bit as well. So that's roughly (inaudible) I don't know if you want to add anything to it?

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Martin L. Court, Victrex plc - Executive Director of Medical & Executive Director [32]

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Yes, we just think about how overheads behave. In terms of the investment in sales, technical service, R&D and so on, we had action, a lot of that before the end of FY '18. So that gives us an underlying overhead profile that is relatively flat through the year. In terms of year-on-year, you see a lot of the year-on-year increase falling in the first half and not in the second. So I think that probably distorts it some more. And then our bonus approval, which is our employee profit-sharing scheme effectively, we took a very big accrual in the first half of last year and clearly, given a slight decline in performance in the first half of this year, there will be no accrual. So again, you get a sort of offsetting effect in the first half and then a small increase in the second half, so I think it's those two that sort of distort the understanding of it somewhat, if that helps.

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Andrew Gregory Stott, UBS Investment Bank, Research Division - MD and Research Analyst [33]

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Andrew Stott, UBS. Couple of questions. First of all on short term. What are your thoughts on the ASP side of things? You had the 2% growth last year, partly FX. Given the mix that you've already highlighted -- sort of I would be assuming a small natural increase, but then FX does obviously muddy the waters. So any guidance there would be helpful. Second one is a question on the knee side. So I mean 5 years is obviously a long time for your clinical trial basis, but will we get milestones between now and the end of that period? I mean, how are you going to -- and when are you going to get to the point where there's a green or red light? I'm just interested in how that patient trial is actually designed, and then the chronology along the way? Thank you.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [34]

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Take the -- Martin, question first, Richard? And then Martin?

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [35]

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Yes, Andrew, you're absolutely right on ASP. So we would expect it to be a slightly up for the year, I think it's something like a GBP 1 a kilo and if you think about firstly the effect in currency probably drops it by about to GBP 1 a kilo. And then that is more than offset by not having the Consumer Electronics contracts in there at the lower price. (inaudible)

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Martin L. Court, Victrex plc - Executive Director of Medical & Executive Director [36]

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So Andrew, that was a really good question, so part of the submission to the ethics committee is all about how many patients you need and for how long, and when you're going to -- where there are going to be checkpoints to say that the product's safe. We have less than 100 patients in the trial. There will be checkpoints in it. There's a checkpoint at 3 months, a checkpoint at 6 months and a checkpoint at 15 months. The view is that by 15 months we'll have demonstrated that the product is safe, and at that point then we can think about what's to come -- the detailed commercialization strategy by marketplace and we'll definitely keep you up to date on the progress there. We still have yet to get final approval from the ethic -- from the Ministry of Health. One the hospitals has already given ethical approval, so we're really close now to getting to the point now where the lead investigator can begin to recruit patients and start progress. So that's a very -- we can give you a very substantive timeline about how that's going to build out.

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Unidentified Analyst, [37]

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(inaudible)

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Martin L. Court, Victrex plc - Executive Director of Medical & Executive Director [38]

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Well, when you do first of 9 trials, you have to be very careful and there has been quite a bit in the press recently about all this stuff, about how much risk you put people to. So the smaller the trial is, the less risk there is for first-in-man studies. But also, you have to be careful about how you contain that to make sure you got good follow-up. So we have chosen some specific surgeons that have got a good track record in terms of patient follow-ups so we can make sure that we maximize the benefit of the few patients that we use in terms of that 15-month period, so we have been quite selective about surgeons and been very careful about the way which we structured the trial to deal with those concerns over some medicalized companies. And I have to be careful, as Jakob said earlier, this is not -- it's not an in vivo trial, this is with max orthopedics, so -- and we have worked very diligently to get this balance of patients safety, the first-in-man and getting the appropriate checkpoints early on.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [39]

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On the right side here, or left side.

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Georgia Emily Mabel Harris, BofA Merrill Lynch, Research Division - Research Analyst [40]

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Georgia Harris, Bank of America. Just going back on aerospace, you previously mentioned pricing competition there. Can you maybe give us an update on if that's still ongoing and the outlook for that into next year? And then on the TxV manufacturing facility, what is the ramp-up on that and what sort of contributions should we anticipate from that in FY '19?

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [41]

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I think the pricing competition in aerospace is the way that, that industry has gone. I think both at Boeing and Airbus, there are lots of people with Automotive experience going to the procurement teams. And so it's just a way of life there. Where it plays to our advantage looking forward is around this -- the thermoplastic composite opportunity because we can prove that you can make parts quicker and cheaper with some plastic composites, which is where the TxV thing links in. So that's why both of the big OEMs over the last couple of years have invested a lot of time and people now on trying to understand thermoplastic composites, having sort of gone through the thermoset phases, the base technology on the 787 and the A350. So although in the short term, you've got the pressure on the business that you've had for the last few years in terms of price, I think that really opens up new growth opportunity on the next technology platform that both Boeing and Airbus, they are and will adopt. For me it's a question of when and then how much of that pie does Victrex get?

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Unidentified Analyst, [42]

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[So if I can ask another question.] Can you remind us how much the special Consumer Electronics [order] was this time in the fourth quarter of last year?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [43]

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How much the last consumer electronics was in last quarter of the last year?

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Unidentified Analyst, [44]

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The last quarter of 2017.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [45]

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In the fourth quarter of last year, it was 200 tonnes.

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Unidentified Analyst, [46]

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200? 200 [in the nautical sense?] Okay.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [47]

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It was roughly 200 tonnes in the last quarter of 2017 and it was about the same amount in the first quarter of 2018.

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Sebastian Christian August Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [48]

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Sebastian Bray of Berenberg Bank. I would have 2 questions please. The first was on the level of the group CapEx recorded in 2018, I think this came out a bit lower than expected. From memory, it was in the single digit area. Why exactly was this the case? And -- as another question, how far in advance do you -- of hitting your capacity limits do you have to start investing? Because if I take this year's volume growth rates, which was quite good at 400 or so tonnes, you're still, give or take, over 5 years away from hitting capacity constraints. Do you really need to start making decisions on capacity for next year? And the second question is the guidance in the press release for -- I think it is for flat overheads, can I just clarify on the GroupWise profit guidance for next year? Is it basically growth in underlying business offsets FX headwinds of GBP 6 million to GBP 8 million with no impact from overheads or other?

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [49]

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I think you've asked 3 questions. If you take the CapEx for 2018 and the overheads, I will take the lead time for capacity and the profile that we're looking at. Yes, you're right, the momentum in the underlying businesses is one element of it that drives the need for new capacity. And just to give you a few figures to put into context, nameplate is around 7,150; demonstrated is probably around, let's say, give or take, 6000; and obviously, one of our key mission is to get demonstrated as close to nameplate to de-bottlenecking and/or productivity improvement. So that's one sort of vector that we're driving. It did take us around 3 years to build the last [reactor, the last train] and if you put that in the context of the fact that we might not necessarily do it in the same location this time around, it would be prudent to assume that we would need a little bit more time. So that's why -- and the third element being that Victrex has had a history of building ahead of demand. So investing ahead of demand. I think that then tells us yes, if we want to have new capacity onstream 2023 at the latest, we got to start in 2022 the latest. Roughly. And then obviously, depending on how demand profiles and patents will fluctuate on the journey towards there, we might need to move it up or we might need to push it out. But we felt that, given the movements in the business, the underlying growth in the core and then when we look at some of the progress in the mega programs that will consume higher volumes, notably MAGMA, Gears, and probably not Aerospace within this timeframe, but soon thereafter. You know when you want to add all of that up, that basically tells you yes, if we want to be part of the same strategy as we have done, we're going to be in need for new capacity, roughly around that timeframe and therefore we want to flag that area. And then if you take the CapEx question, Richard.

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Richard Armitage, Victrex plc - Group Finance Director & Executive Director [50]

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Yes, so FY '18 CapEx was low actually for no particularly great reason. The business had finished a previous bigger investment in part of capacity in the U.K. We determined that, that spend in the year, we'd started making some small investments in further capacity in a couple of our downstream areas and other minor expenditures, but I -- in a way, it was just one of those years where no major projects have started and no major capacity expansion was needed. And why slightly lower than expected, in fact, one of the reasons that we commented on some operation improvement was the manufacturing team had focused this year more on efficiency and quality of process rather than particularly CapEx driven projects with good results. So they made very good progress indeed and therefore, there has not been any particularly major capacity -- major capital investments this year. As regards to the evolution of our profit in FY '19, I think you pretty much got it. So yes, we would expect overall overheads to be broadly flat given the lower profit related bonus accrual. So yes, the headwinds would be offset by underlying performance.

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Jakob O. Sigurdsson, Victrex plc - CEO & Executive Director [51]

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Well, if there are no more of questions, thank you for coming, and we look forward to seeing you soon again.

Thank you.