Victrex plc

Good day, ladies and gentlemen, and welcome to the Victrex interim results. At this time, all participants are in listen-only mode. Later, we will pick up the question and answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to CEO of Victrex QSC, Dr. James Rickard, for the presentation. Please go ahead.

Good morning, everybody, and welcome to the Victrex interim results presentation. For those that don't know me, I'm James Routh, and I've been CEO at Vectrex since January. And I spent the first four months working at pace on the short-term actions needed to address the performance issues we've seen over the past few years, along with reviewing and updating our medium-term strategy. That being said, I've been greatly impressed by the passion and capabilities of the Vectrex team, and the fundamentals of the business remain robust. So, I'm confident that we can drive dramatically improved financial performance over the medium term. Today, I'm joined by our CFO, Ian Melling, and our Director of Investor Relations, Andrew Hanson. So in terms of the agenda today, I'm going to take you through the headlines of our H1 results, and then some updates on our end market. Before Ian will take you through the financial performance. Then I'll come back and give you my initial observations of Bitprep, provide an update on the previously announced profit improvement plan, and provide a high level overview of our strategic framework before providing a summary announcement. and then we'll turn to Q&A. So, overall, the first half of the year was characterized by a weak Q1, offset by a strong Q2, resulting in overall revenues up 1% on the prior year. The weekly Q1 period was due to particularly low seasonal sales in December, with some deferments into January, particularly with Avar discussions. And the gross margin of 41.7% was down 240 basis points on prior year, for a combination of price pressure, mix, and currency. This all fed through into an underlying PDT of 19 million, 18% lower than prior year, while free cash flow was good at 22 million. I'll provide more information later in the presentation, but in summary, the profit improvement plan is progressing well, with actions already taken to reduce global headcount by around 10%, and the launch of a new organization structure best aligned to growth and performance. The strategy review is nearing completion, and today I'm announcing we'll be holding a capital markets day in September, detailing our approach to dramatically improve financial performance. As part of the strategy review, we're actively reviewing and simplifying our portfolio of products, facilities and operating sites, and as a result, we've recorded a non-cash impairment of our China manufacturing plant of £60.6 million, which Ian will talk through in more detail later. And it's really important to know this relates to operational capability of the plant itself and not market demand. Demand in China remains robust. It's our fastest growing region. The continuing growth in the period has got the broad range of industries, including aerospace, automotive, and medical. For those that aren't aware, we service a wide range of end market segments and geographic territories and are split into two primary divisions, medical and sustainable solutions. By end market volume, value-added retailers, or VARs, are the largest of 42%, where we use Xtrex peak to form stock shapes or compounds, and these are then sold on to a wide range of end market sectors. The next largest sector by volume is transport, which consists of specialized applications for peak in automotive and aerospace. Energy and industrial consists of customers in oil and gas, renewables, and broader industrial applications. And electronics consists of peak used in consumer electronic devices, including smartphones and home appliances, as well as in semiconductor manufacturing. Finally, medical is the smallest market by volumes, with a considerably higher average selling prices, and made up of peak sales of implantable materials and devices, and peak use in non-implantable medical applications, such as tools or pharmaceuticals. Overall, our volumes are up 6%, with AST down 4%, for a combination of mix and price. with lower proportional medical volume and an increase in lower price point sustainable solutions sales. Overall, sustainable solutions revenue was up 3%, driven by good performance in electronics, energy, industrial, and in bars, with medical sales down 9% due to mixed competitive prices and some order phases. And importantly, we've seen some stabilization in spine sales over the period. By region, EMEA remains our largest territory at 44% of revenue, with Asia Pacific running around a third, and the balance in the US. APAC revenue grew by 1% in the first half, led by Greater China, with our other two regions broadly flat. The APAC region, and China in particular, is our fastest growing territory, and along with the US, are our focus areas for growth. By end market, we saw all market segments deliver volume growth growth except for automotive, which declined 6% on volume and continues to be impacted, particularly in Europe due to the well-documented challenges with European automotive OEMs. In general, this remains a challenging market driven by lower production and lower than anticipated EV sales. And the industry production forecast for 2026 is down 1% at 92 million cars, with ICE production down 7% and EV and hybrid vehicles up 4%. with ICE accounting for the majority of the 92 million cars forecast. It's important to note that most Victrex applications are drivetrain agnostic across both ICE and EV, for example, ADF and . So, the EDF side of the opportunity that we talked about before, particularly in batteries and motors, for Victrex has not yet been realized. In aerospace, volumes are up 9 cents after slow start in Q1 with strong improvement in Q2 and continuing momentum as start of Q3. We see really good opportunities for peak thermoplastic composite solutions, alongside full applications in brackets, fasteners, and thermal acoustic blankets. The sector saw slower production rates in 2025, with some improvement at the start of 2026. Both Boeing and Airbus bill rate forecasts show a 20% increase in 2026, driven by the 737 match recovery. And VEXPEC has also been specified on the COMAC C919 aircraft in China, the COMAC forecasting 25 aircraft to be built during 2026. Electronic volumes were at 14 cents with a strong recovery in Q2 after a weak first quarter. Semiconductor demand is recovering well, mostly driven by AI-related infrastructure rather than broad consumer volume growth. Based on the consensus of all industry forecasters by TMFC, Samsung and Intel chip demand is forecast to be up 4% in 2026. Smartphone shipments are down with industry flagging memory shortages as Samsung reported a 6% reduction in the first quarter this year. Energy and industrial volumes were up 19% as momentum continued throughout Q1 with an acceleration in Q2. and with a buoyant oil market and a desire to maximize output, maintenance capacity is spent by our customers, although global risk counts is down 70% year-on-year. And in general industrial, global PMIs are variable and volatile, but all above 50 at the end of the first half. In medical, given the high value nature of our business, revenue is a key metric we look at rather than volume. H1 reflected a real mixed shift, with fine broadly stable, but with non-fine growing much stronger in non-infantile applications, and pricing within certain applications was softer, particularly in China. Order failing was also a key factor during H1, with some orders shifting out into the second half. In medical geographically, the U.S. remained weak, with China and Asia Pacific seeing strong growth opportunities, and Asia Pacific now represents 24% of medical, and that was 9% 10 years ago. VAR volumes are up 5% after a very slow start in Q1, as already noted, through improvement during Q2. This remains a highly competitive market for a typical contracting yield occurring in calendar Q1. And it's really important to note that VAR are key partners to help us grow the market for Victor XP. So, I'll now hand over to Ian to take you through more detail on the financial results. Thank you, James, and good morning, everyone. As James noted, it was a soft start to our financial year in the first quarter, but momentum improved significantly in Q2. I'd like to cover the key drivers for the half, starting with our income statement, then covering our profit and gross margin movements. We'll then turn to the key cash license, cover the detail around our exceptional license for H1, but also our expectations for those for the full year as we proactively suggest the number of actions as part of the profit improvement plan. Moving to slide seven in our income statement, starting with revenue, up 1% to 147.1 million pounds, and up 2% in constant currency, driven by good volume growth of 6%, offset by next price in currency. In Q2, revenue was up 7%, driven by volume growth of 14%. James has covered the detail of the end markets, which are driving these volumes, but it's worth reiterating the overall sales mix in the first half, which shows sustainable solutions increased in proportion compared to many. There was also an adverse impact on AFP caused by mix within both divisions. In sustainable solutions, we saw a much stronger performance in bars during key two, after a softer start to the year, and strong momentum from energy and industrial where volumes were at 19% and a half. At the same time in medical, while spine was stable, we saw an adverse mix within non-spine, including growth in non-implantable applications, alongside some price pressure in certain applications and drugs. Finally, it's worth noting that many of our contract renewals take place at the start of the calendar year, particularly in the VARs. These negotiations took place in a challenging price environment, price in the Middle East conflict, but we were largely successful in retaining and in some cases growing business with modest price concessions. The same is true in energy and industrial where we continue to regain business, previously lost to competition on price. On average selling prices, H1 ASP was down 4% year on year, driven by mix in price, but we saw a stable ASP sequentially for H1-2026 versus H2-2025, and the detail of this is shown in slide 25 in the appendix. The market repeat remains competitive, particularly in the bars and energy and industrial end markets, which are seeing the most price pressure. Price is more stable in other end markets, so the competitive start remains. Taking an overall view on like-for-like pricing across the group, the continuing average pricing impact overall is a decline of around 1 to 2% per year. The divisional revenue summaries are also shown in the appendix on slide 23, with sustainable solutions revenue at 4% and medical down 9%. Moving on, currency weighed slightly on our half-year revenues with the corresponding gains in currency hedging of 1 million pounds as shown on the chart. First profit was 5% lower than the prior year at 61.3 million pounds, or down 2% in constant currency. Other than currency, gross profit was impacted predominantly by sales mix and price. In respect to cost of manufacture, we expect to produce broadly similar volumes to the prior year, and therefore do not expect to see any noticeable benefit from asset utilisation this year. We did see some increased costs in respect of wage inflation and the annualisation of the NI increase, but we were more than upset by raw material benefits that I'll come onto in the next slide. Turning to overheads, overheads for the half were up 3% to 41.3 million pounds. Excluding wage inflation and reward, overheads were globally stable with strong cost control in place. H1 did not see any material benefits from our profit improvement plan with these coming in H2. Interest was an expense of approximately 1 million pounds to the half and is expected to be around £2 million expense on a full year basis. Currency was adverse during the period with just over £1 million impact to PDT. And we anticipate this being slightly first half weighted, meaning an approximate £2 million headwind based on current spot rates and hedging in place on a full year basis. More detail on currency is shown in the appendix on slide 28. This results in underlying profit before tax of £19 million. down 18%, down 14% in constant currency. After the impact of the 63 million pounds of exceptional items, we reported in H1, we saw a loss before tax of 44 million pounds versus a reported profit before tax in H1 2025 of 17.2 million pounds. I'll cover exceptional items shortly. Underlying earnings per share of 17.9 cents was down 21%, slightly worse than the movement in underlying PVT. The tax charge in the period was £4 million compared to the prior year charge of £3.6 million. The reported tax rate of minus 9.1% is impacted by the non-taxable impairment of the China manufacturing site. The H1 underlying tax rate of 24.4% is based on the expected full year rate. This is above our mid-term guidance of 15 to 19%. as a result of unrecognized losses in China and the proportion of UK profits available to the patent box. Turning to slide eight, which shows the underlying PDT movements. Looking at the key movements beyond the 1.1 million pounds adverse impact from currency, sustainable solutions volume was a 3 million pound benefit with good growth in a number of home markets. Sustainable solutions pricing next with an adverse impact of 2.8 million pounds. which reflects some of the points covered earlier, including an adverse mix of the likes of energy and industrial, so good growth in the half, alongside some contract renewals or regained business at lower prices. Medical pricing next was a 1.7 million pounds adverse year-on-year movement driven by the mix of applications and particularly strong growth in non-impossible. Raw materials provided the benefits of 1.2 million pounds, as we continue to make good progress in our procurement processes, allowing us to take advantage of favourable market conditions. So, as we noticed in our announcement, we are mindful of potential future energy and raw material price inflation in FY27. Wage inflation and targeted investment totals of £2.8 million, including the impact of the NI increase and a below-inflation pay increase across the organisation. As a result, underlying PVT was £19 million. Turning to slide nine, where we cover gross margin. Disappointingly, gross margin was below our guidance for the half, and we do now expect gross margin for the full year to be slightly below the prior year 45.3%. But with some improvements in H2 over H1, driven by MIPS and medical, based on our latest money. Our Indicative Guidance Summary is shown on slide 22. at 44.1%. Currency was an adverse impact of 80 basis points. The mix between the two divisions with a slightly higher share of sustainable solutions business in the third half compared to last year drove an adverse impact of 50 basis points. Within sustainable solutions, price and mix represented an adverse impact of 120 basis points. And that was 50 basis points within medicine. Raw materials gave us a benefit of 60 basis points. resulting in H1 2026 gross margin of 41.7%. Our gross margin excluding the plant in China was 43.9%. Turning briefly to cash flow in slide 10. The detailed cash flow items are shown in the appendix on slide 26. The main headline here is continuing strong cash conversion at 109%. slightly lower year on year, but a key measure of our cash flow efficiency and a positive result. This is one of our key strategic objectives in the organization, which we remain fully focused on. Free cash flow is stable year on year at 22 million pounds. We've maintained our interim dividend of 13.42 pence per share, which will be paid on the 26th of June, representing a cash amount of around 11 million pounds. Remember, we also paid the FY25 final dividend in February, which represented a cash-out flow of approximately 40 million pounds. CapEx was lower in H1 versus last year at 7.4 million pounds, and we are now going to FY26 full-year CapEx being below the 8% to 10% of revenues guidance as we continue to control spend carefully. Net debt at the half is slightly higher at 45.4 million pounds, but at 0.65 times net debt to underlying EBITDA. well within our target range of 0.5 to 1 tax. So I'll finish on slide 11, exceptional items. The main driver here is the impairment of our China manufacturing facility in Hanjin. This was a non-cash impairment of 60.6 million pounds, which together with 2.4 million pounds of exceptional items associated with restructuring and reorganization led to total exceptional items of 63 million pounds in the first half. material increase on the prior year. A more detailed summary of this impairment is covered in our announcement but to summarise the impairment follows the conclusion after a period of continuous running in H1 that part of the process technology in one of the final manufacturing stages at the plant is not capable of delivering the original main capacity of 1500 tons meaning we are not currently able to maximise full capability of this asset. This was the main basis of an impairment indicator, which caused us to assess the value in use of the challenge plan. In assessing that value in use, we have undertaken a discounted cash flow calculation under the principles of IEA 36, impairment of assets. There are two important things to note about this calculation under the guidance of IEA 36. Firstly, the calculation does not assume further enhancement of the assets. and therefore it remains limited to its current capacity. Secondly, the calculation is limited to five years future forecast cash flows and a terminal growth rate over the remaining life of the asset. And therefore, further improvements from year six onwards do not significantly contribute to the value interest calculation. As a result, the calculated value interest is 10.2 million pounds, and the resulting non-cash impairment, as I've already said, is 60.6 million pounds. As we know from the slide here, we do remain committed to a plant turnaround given the opportunities in China that James will comment further on. We are currently assessing the most effective way to improve the rate-linking step for the Panjin plant, including what investments may be required to increase its operating capacity to take advantage of the long-term opportunities that we continue to see. I will also ask that any future investments to realize its full potential would be expected to be delivered within our mid-term guidance for annual capital expenditure of 8% to 10% of revenues. Going to the other two areas where we will see exceptional items coming through this year on the right-hand side of the chart of this slide. Firstly, on portfolio simplification, we are looking to rationalize and simplify some of our portfolio and specific programs and anticipate up to 10 million pounds cost associated with this for the full year. These would be non-cash. Secondly, on restructuring and reorganization, James will cover more on the actions we have been proactively taking so far this year, but we anticipate the headcount reduction and other actions will result in up to 10 million pounds of costs on a full year basis, as previously guided. These will be predominantly cash items. At the half year, we have incurred 2.4 million pounds of exceptional items associated with restructuring. In terms of guidance for the full year, we note in our announcement today, the total exceptional items for the year are anticipated to be in the range of 75 to 85 million pounds. The non-cash China internment accounted for the majority of this charge. Thank you. And I'll now hand back to James.

Thank you, Ian.

So I'm now going to provide an update on my first four months in the business, my initial observations, and what actions we're taking to improve financial performance. So why have I joined Victrex? Simply, the business has strong fundamentals, and with my background, there's a strong opportunity to unlock its potential and drive significant improvements in financial performance. I've worked in engineering and technology businesses for over 35 years, would you believe? and mostly aligned to end markets such as aerospace, automotive, energy, and broad industrial markets. And my PhD, that's in applied material science, and I've got a lot of experience and knowledge of utilizing the properties of polymers to deliver commercial outcomes. In my previous role, I've demonstrated the track record of designing and implementing strategies and plans that deliver long-term sustainable growth. I have a passion for high growth businesses and sectors, particularly where there's an opportunity such as Bixrex, where the fundamentals are good, but execution has been weak. For all our challenges in recent years, we have to recognize and acknowledge the positive position of Bixrex. We are the undoubted leader in peace. We have a very strong brand and value proposition, along with what remains differentiated products. Bixrex addresses a wide range of end markets and geographic territories. and there are clear long-term structural, and in many cases, regulatory growth drivers that support continued demand for heat and the creation of new markets. The business has been well invested over many years in terms of manufacturing capabilities, capacity, equipment, people, and R&D driving a strong science and engineering-led culture. And looking at the regional growth drivers, there are strong opportunities in both Asia Pacific and North America, and those are yet to be absolutely exploited by the business. And finally, I saw the opportunity to drive performance through internal changes to how we approach the market and execute in terms of leadership capability, organization design, operating model, and leveraging IT and automation. As mentioned in the last slide, VicVec has significant untapped potential that has been challenged by international factors in recent years. Many of these were due to things that were within our control. On the positive front, we have strong and differentiated value proposition and are well invested. However, in recent years, the issues have related to weak commercial and operational execution. In general, the approach to market has been correct, but our ability to translate those ideas and plans into tangible commercial outcomes has been deficient. We became an inward-looking organization without sufficient focus on the needs of the customer and the markets we serve. We've also been slow to adapt to changing market conditions in terms of competition and buying behaviors. We've not acknowledged that there is pricing pressure in certain markets and that we need to adapt accordingly and reduce our cost to serve, including our cost of manufacturing. Many of these legacy issues have been caused by our suboptimal and centralized organization structure and operating model. A proportionally large corporate center with decisions being made away from the reach of and the customers in which we operate has resulted in a slow, complex organization that has not kept up with the rapid pace of change we've seen in today's market. This has also caused that cost base to become out of step with the financial reality in terms of revenue and gross profit. So, importantly, what are we doing to resolve these issues? Firstly, we're fixing the foundations by right-sizing the cost base and implementing a new decentralized operating model with regional peer P&L ownership to drive performance and decisions made both to the customer's deterrent. The leadership team is in the process of being refreshed, creating a high-performance team to have a track record focusing on the customer and delivering financial results. As part of this, we'll improve our commercial capability by reviewing the effectiveness of our sales teams and ensuring they have the appropriate tools and incentives to drive performance. We've already appointed a new chief commercial officer who started a couple of weeks ago to provide this change. We're refreshing our strategy to focus on the theme of relentless execution. We'll focus on markets where we have a national defensive moat in terms of being specified in and also geographies that have built-in protection against certain competitors. And as part of our strategic development, we're expanding our approach as a trusted solutions partner to customers. providing a range of additional value-added services to improve long-term customer relationships and drive improved gross margins. A key part of our value proposition is applications development for our customers, and I'll explain a little more about this as we go through the presentation. Equally important is to have world-class operational excellence, driving the customer experience through improved quality, right first time, and reducing the cost of manufacture, which also contributes to improving gross margins. So moving on to the profit improvement. As you may recall, we announced the 10 million pound profit improvement plan back in December with the objective of delivering the full year improvement in FY27. The plan consists of three main items. Reducing overhead costs and restructuring, driving operating efficiency and simplification of airport service. Since joining in January, I've taken rapid action to implement this plan with a 10% reduction of global headcount, driving a direct overhead reduction. The early benefits will be seen towards the end of this financial year. We've primarily focused on central and support functions rather than direct customer facing or operational roles. We've also launched a new organisation structure and operating model, the early stages of which have been implemented. As part of this change, we've moved to a decentralized P&L-based structure and hired some proven high-performance leaders to improve execution. It's early stages in the actions taken around operating efficiency, so the operating model work we're doing will drive improvement. Plus, we've put together a transformation team to focus on operational transformation, delivering improved end-to-end processes across our manufacturing facilities. And in recent years, we've invested in our IT systems, and now is the opportunity to leverage this investment, including initial investigations of where automation and AI can be deployed. We're actively reviewing our product, project, and operation portfolio to ensure we are focused on those that drive tangible commercial outcomes. Examples include a review of our megaprocess. And for the take priority, mega programs will no longer form part of our investment communications as they'll become business as usual and they'll be assessed on a business-based basis like all other projects. That being said, technical milestones continue to progress, for example, in the MAGNA program and we'll report on them when there's a tangible real development to talk about. We're also reviewing our product portfolio to ensure we're focused on products that support profitable growth. and a review of that underperforming assets on a global . Stop any activities that are not aligned to our interest strategy. So, moving on to our updated strategic framework. has always had various elements of its life, demonstrating a premium offering to the market driven by long-term structural and regulatory growth drivers. And these four components you can see on the screen are essentially the value proposition of HREC. And we'll build on this more during the capital market stage in September. Essentially, the four components of the value proposition are the what we do, which is largely unchanged, although more emphasis is required in certain areas. What we're now focused on transforming is the how, driving relentless execution as part of our full values. As already mentioned, we're improving our commercial capabilities and structures to focus on order intake and financial performance. The changes we'll make to operations will drive excellence, improve the customer experience, drive down the cost of manufacture and improve growth margins. The most important part of the change to how we approach the market is a simplified business model. Removal of non-value added activities and aligning the organisation and incentives to financial performance is key to our future success. This will ensure we're an agile, responsive organization aligned to the needs of our customers on a regional basis. And finally, I'd like to briefly mention who our customers are. We focus on three main areas. Firstly, customers or markets that are driven by the need to substitute metals or other materials and are driven by structural or regulatory changes. We work closely with manufacturing partners who are focused on driving manufacturing efficiency and we use our trusted solutions partner status to help. And the third group are value-added resellers who use our peak materials to develop stock shapes or compounds for their customers. And I really want to reiterate that although VARs are lower ASP, we value our long-standing relationships with them, and we partner with them on material development. The cost to serve VAR customers is relatively low, and as such, they're of real value to the performance of HREX. In summary, our core value proposition, delivering a premium offering, will drive real value and unlock the strong potential of HPEX. A key part of the value proposition on the previous slide is how we use applications engineering to drive customer value. And I wanted to provide a couple of examples here because this provides strong differentiation and high barriers to entry and ensures a long-term partnership with our key customers. So the first example is in the field of aerospace composites. We have a partnership with Dehaere to develop thermoplastic composite parts that are structural in nature. In this case, a wing lift using patented Bittrex lower mounting LM tape, unidirectional tape. This helps Dehaere design a structural part with the optimum properties to deal with a wide range of load cases seen in flight, while significantly reducing weight and therefore fuel usage and emissions. They are considerably shorter manufacturing time Another example of the work we did with AvioMed is develop their ventricular assist device, which assists patients with severe heart failure to improve blood circulation. We used our peak optimum material to ensure this minimally invasive device is biocompatible and durable in this critical application. Cardio and active infancy devices are areas where we continue to see significant opportunities for our medical business. So application development is a key part of that strategic approach and will be further involved as part of our organizational changes to ensure we have the additional capacity of skills in this critical enabler for sales. Before we wrap up, I wanted to include a slide around our performance and plans for China and the broader Asia-Pacific region, particularly in the context of the impairment of our China manufacturing plant discussed earlier, which is solely related to operational issues and not market demand. Over the past 10 years, we've grown our greater child sales, China sales strongly, with over 17% compound annual growth rate and strong positions in various end markets, including aerospace, automotive and medical, which is now, medical is now a strong part of our China sales, representing around a quarter. And we are committed to drive further growth and presence in what is the fastest growing region for our products and services. We already have in-country sales technical and manufacturing capabilities. And it's a really good example of how we intend to operate going forward on a regional decentralized basis. And this region will be a key focus for our newly appointed commercial team. So, in summary, the week's first quarter led to a less than satisfactory H1 result. However, Q2 was strong, and this momentum has continued to date into Q3. Of course, we've been mindful of global macroeconomic and geopolitical uncertainty and its corresponding impact, especially on energy costs, shipping, and then market demand. And as a result of these external factors and being mindful of uncertainty from them, the board now expects underlying PBT for FY26 to be between 42 and 44 million pounds. This is a transitional year. As I joined the business at the start of Q2, and we're taking urgent action to address some of the issues that I acknowledged earlier. We're focusing on ensuring tight top control and delivering for our customers while simultaneously delivering the profit improvement plan and strategy review. Earlier in the presentation, I described some elements of the strategic review taking place. I'm delighted to announce that we'll deliver a capital market stage in September this year where we'll focus on the top control. Firstly, an update on the profit improvement plan, including more details around overhead reduction, plans for operating efficiency, and the portfolio simplification. We'll provide some details on market dynamics, competitive positioning, and focus areas that will drive tangible financial performance. We'll describe the new organization design and operating model, and you'll get the opportunity to hear from the refresh leadership team, and details of how they intend to drive softer growth over the medium term. And finally, we'll provide the roadmap to our medium term ambitions and how we'll drive significant improvements in profitability, including detail of the proposed parts and clearly identifiable KPIs to show progress. That brings me to the end of the formal presentation. I'd now like to open the floor for any questions. We'll start in the room and then we'll move to the call after that. I don't know which hand went up first. Henry, you're right at the front. Thank you. Sorry, we've got a microphone, so if you can't phone me.

Thanks, yeah, Henry. Just first on the China operation, what was, what did you find the nameplate capacity to be, if it wasn't the 1500 was the first question. And then the other ones just around the growth opportunities, you know, you highlight the US and Asia, sort of why not Europe or other sort of regions in particular.

Okay. On the first question, there's a nameplate of 1500 tons. We've been operating at trying to get to sort of increase capacity in the first half of the year. We are committed to still delivering to our 100 tons target for this year. So that's still progressing. So what we found is there's a rate limiting step towards the end of the process, which is like limiting the output from the overall plant. So we are still able to ramp over the next couple of years beyond the 100 tons using the existing that we have, but there are improvements that need to be made to get us up towards the main page capacity. So that will take a couple of years to get to that point. In terms of market opportunity, I think if you just look at general market indicators around industrial sectors, the European region is not exactly firing on all cylinders. Obviously, our Asia Pacific opportunities are with Japan, Korea, Greater China. Lots of industry there focused on the markets that we serve. And the U.S. in particular is a strong market for up in medical, in aerospace, defense, oil and gas, and other applications. And I think from my perspective, there's lots of opportunity, particularly in the U.S., that we haven't really exploited. We've done well in greater China, but in the broader Asia region, there's more we can do as well.

Thank you. Okay, Vanessa, Jeffery, from Jeffery. So I think in China, the 1500 challenge is supposed to give you 40% of total China peak capacity. And now you probably have like 3% to 5%. So when you're talking about that strong demand in China, and especially that, you know, not peak, but I guess low-grade peak, what's your confidence in your ability to kind of deliver on that demand? What can you deliver from the UK? Okay.

Well, we have sufficient capacity within our UK manufacturing plant to deliver the meat dose that short to medium term while we're waiting for this plant to come to the street. So I have no concerns around being able to deliver against demand from the UK.

And then just on inflation and your ability to recover that by pricing. Because even the price pressure is being in your market, and it's like you took price down in a couple of them in June, Feb. Is it easy to go back and now say, you know, we need to price increase?

So broadly speaking, most of our customers, we are contractually fixed to a price for a period of time. So we're not sort of trading on a day-to-day basis like more commoditized chemicals. So typically we'll be on a 12-month contract where we've got that fixed in. That being said, you know, for larger things that are outside our control, we have put customers on notice that we may need to put surcharging through depending on what happens with the Middle East conflict. We are focusing on markets where we are specified in. and we have high barriers to entry. At the more standardized end of our market, we've got more price pressures. So, for example, with bars, where we're providing, you know, volumes of standard products, that's where we have more price pressure. In the specialized applications, that's where we've got more pricing power. So, we are strategically focusing on those while continuing to support those standardized ends of the market where the volume is, because we need that . So, there's a bit of a mix there. Do you have anything to add to that, Ian? I think it's a good summary. I think the point that we put customers on notice that we may need to use surcharges as we did previously is important. I think the only other thing to note is we do try and line up our raw material spend, so we're not as vulnerable to, you know, moving prices day-to-day in the chemicals market as other companies as well. We do try to contract our raw material spend over a similar window to how we contract with our customers as well.

Thank you.

We have had also quite increases already in certain territories and certain markets.

Thank you. And just a quick follow-up on that. I mean, you said that you took price down in energy and industrial but not automotive, was there? I mean, it just seems to me like a market where it would have been obvious to take price down.

Yeah, I think with energy and industrial, there are specific opportunities that involve significant volumes of people where, you know, historically we've watched chunks of business based on price and therefore there's the opportunity to go back and find those windows and chunks of business back. With automotive it tends to be slightly more fragmented in terms of customers and all the size so there isn't the same kind of opportunity to play this part necessarily. Thank you. to the previous one don't you can give us a feel for the margin development and sustainable solutions excluding the dark distance give this actually swing back to in terms of race and margin uh definitely i think evonik uh recently announced strong peak demand in the first calendar for this other day attributed that to stocking expected to reverse in second half I don't know what you're seeing on that.

And then thirdly, can you give us any medical, you know, especially the non-spine transplant business?

You know, Max Orthopedics hasn't said anything, I think, in terms of the launch timeline for the knee, but it's supposed to be on the market immediately, I think, so. I'll answer the second question, first of all, and then the rest is to Agonix. First of all, we've also seen some demand in our Q2 or Q1 calendar. Clearly, how much of that is buying ahead or anticipated shortages due to the Middle East conflict is questionable. We've spoken to our customers around that and the general feedback that is not what they're seeing. However, we are mindful of that, which is another reason for us being prudent in our guidance for the full year in terms of where we're positioning those numbers. Do you want to ask the medical one? Yeah, sure. So in terms of medical, I think What we're seeing is, you know, the medical businesses, it's hard to judge on one half year, right? I think we get, you know, orders from customers. Customers don't typically order every month. Some customers order from, you know, once a quarter, potentially. And we've just seen some order phasing. out to the second half of the year, specifically on the MEE. So, the MEE has been submitted for approval in India, and we haven't had, or MAC specifically haven't had that approval in India yet. So, we wait on that, and we'll be ready to go once that approval comes through from the regulatory authorities in India. Going back to the first point, the margin development involved, we don't come in for margins specifically at an industry level. I wouldn't want to go there in terms of what it did. What I would say is, it's similar to VSS overall in terms of what we've seen would be the benefit of the raw materials that have come through across the VSS side of the two bars is significant drivers of volumes through the plant, which helps as well. But yeah, overall, nothing. Nothing dramatic to see other than the, you know, the price and a bit of material benefit coming through on that. What I would say, important to note, the VARs don't have a lot of cost further down the P&L. So, VARs is a lower cost to serve market. So, it might be at the lower end of our gross margin percentages. It is still a positive number. It is still contributing gross profit, and there's a lot less SG&A associated with the VARs than it is market.

Excellent. Thank you.

Thanks very much, Kevin, obviously from Deutsche Neumis. Two of our good things. So one, obviously, a lot of the changes there around operational efficiency. Clearly, I guess, kind of reading in portfolio, you found areas where products have kind of lost the competitive advantage or perhaps even the strong. Is the application development you talked about this morning key to, you know, making districts more important to its customers, you know, in those areas that perhaps are weaker as opposed to just sort of exiting them from the portfolio in time?

Or are there other things you can do, you know, to bring these things back to life, I guess, before they get into a growth phase again?

So just be good to sort of understand how you think the sort of steps are there in the weaker areas. it's just in terms of capital allocation and dividend policy have unchanged at this point you know you're not flagging greater investment in the business at this point in time I just wondered sort of why is there the sort of need to be so generous I guess in terms of dividends at this point and could we see an opportunity where you know having fixed the business you find growth opportunities like organic or M&A that you think would be interesting

Okay, I'll answer the second one first. I've forgotten the first question already. In terms of, you weren't expected to comment on the details of our capital allocation policy at this time. It remains under review. We held the capital markets there in September and I think it's important to align the capital allocation needs to the strategic direction of the business. So we'll comment further on that tentatively later in the year. The first question around application engineering and application development, you know, that is absolutely the key, because this is where we are now working in partnership with our customers, so it becomes a long-term relationship. There's mutual benefit to both organizations, because generally speaking, if you're moving, for example, from metal to teak, most engineers that are designing with metal don't understand fully how to design with teak. So specifications of the material, the properties, the design of the product, the regulatory approval, the testing and all of those things, that's where we help our customers to get that sort of long-term sticky relationship. And also, of course, once you've specified in, the cost of change is high because you need to re-qualify a new material against all of the requirements for those industries. So if we're focusing on industries that are driven by strong regulations or qualification requirements, then those are the markets that we're focusing on. equally looking at geographies where, for example, some of our Chinese competitors will find it more difficult to operate, should we say. So focusing on those, and I mentioned the U.S. earlier, is an opportunity to do. Great. Thank you. And just to move on, are there sort of quick wins you see for Victor? You know, rather than seeing this as a slow burn, two, three years, et cetera. Okay. Historically, the mega programs have all been long-term projects, and they've all continually moved to the right for lots of different reasons. I'm sure you know the history. We're having a more balanced portfolio of short, near-term opportunities with some of those still longer-term opportunities that we have. I think that's important. Those long-term opportunities are still there. It's a really good opportunity to drive debt changing in volumes and financial performance. But I've got to be balanced with some things in the here and now. I'm focusing on the next 6, 12, 18 months. some quick ones that will then fill in gaps while we're writing these larger things.

Great.

Thank you. Hi, Jason from JPMorgan. First question on guidance, you know, you did first half 19 implied for H2 is 24. You know, nobody likes H2 rating with the guidance pieces. So can you maybe clarify what are the drivers of that H2 performance improvement. The second question, and apologies if this is a harder question, but, you know, cost savings that we tried started like two years ago already. And it seems like nothing has necessarily shown up in P&L. My question is more like you're talking about investment in application development at the same time cutting costs. got structural challenges so do we need a proper reset for the next two three years in terms of cost space so that you can reinvest to grow out of this situation or you know is the cost savings something that can actually drive the sustainable uh improvement uh i'll answer the second one uh so the second one um that targeted savings for next year is net of the investments we need to make in the areas to drive performance. We are also doing a lot of work on refreshing our operating models and optimizing all of our processes, including using automation where possible to take out overheads. So as we start to do that and simplify all of our processes, because our process is a complex right now, overly complex for a business of that size and scale, and we really have to simplify that. That will identify further opportunities over the next year, 18 months, We'll have to take additional costs out as we go forward as well. So this will not only take costs out, it will drive the performance of the business at the same time. So I can really see some upside in doing that over the next 12, 18 months. I'll let you answer the first one. Yeah, I think it's part of it's the same answer, Justin, right? We're making these cost savings now and we're going to see the benefit of them as we come towards the end of this year. So I would expect to see two to three million pounds of that That delta between H1 and H2 at least coming from the cost savings starting to kick in the fourth quarter. And on top of that, you've got the momentum. So Q2 clearly much stronger than H1. So Q2 is much stronger than Q1. That momentum from Q2, which we see continuing into Q3, will absolutely drive increased profits over the first half. And then we have a little bit of phasing in terms of manufacture costs as well, where we've know banks and savings into inventory that will come through in the second half as well so with all those things i don't think you need a significant step up in performance from what we're seeing coming out due to to be able to deliver the guidance that we put out there and just last question on pricing strategy you mentioned you know you typically have annual contracts i don't think many technical companies have annual contracts in states just even how volatile the market environment is. Most of them have monthly price changes. So, is that part of your review and why not? You know, if you can see so much volatility in the market and sometimes, you know, just proactivity is probably not bad in this environment, I suppose. Well, we are really proactive. We're certainly not sitting on our hands when it comes to pricing. We are out there talking to customers. We have pushed in pricing where we can. That being said, it is for the competitive marketplace and we need to acknowledge the fact that we are under competitive price pressure in certain parts of our portfolio of products. But we are proactively doing that. But I think everyone needs to remember that we are already the premium price fund. Okay. So we have a differentiated product. We have premium pricing. So the ability to keep increasing it beyond a premium on a premium starts to get a bit more difficult. So that needs to be recognized. And also we're not a commodity chemical, I know you know that, but we really, we can't, we're not reacting to what's going on on a day-to-day or week-to-week basis. You know, we have long term customer relationships and we value those customer relationships. You know, we want to retain those customers and grow those customers as opposed to sort of month-to-month fluctuations. We're not selling broad range of, wide range of different polymers, specifying, specializing and those types of relationships are important to us. So, there's a balance to be struck, but equally, we're not just going to sit around and wait for costs to come through to us. We're already taking those proactive steps. We haven't backed those into any of our sort of like second half numbers yet.

Thank you. Hi, Sam from C4. A few questions for Lucy. Firstly, things have been very busy in the 13 months. Just on the organizational structure for decentralizing those . Can you give us a sense of the incentives you put in there and any sense of how it's been received, appreciated during that day? And then Stephanie, our strategic hire that you mentioned, the chief commercial officer, how many more people do you need to get into things to get the team to where you want to be to drive the future potential?

Thank you. Okay, well, I'm not going to get into the specific incentive schemes that we're putting for our organisations, but for clearly having clearly measurable P&L accountability and driving performance against that. and they cascaded those through the organisation by reason by areas really really important so visibility of performance that's the first step in that in terms of building out teams we have a new chief commercial officer we have a new managing director for our medical business with a great background who'll be joining us in summer and that's one of the reasons we're doing the capital market in September we're going to make sure that our leadership team in place they have their feet under the table and then they're able to come and talk to you in September with some credibility after spending a good few months in the business One on the sort of picking up on the sales question. You're kind of flagging a lot less on the big net programs and a lot more on regional development.

But you also said no net increased sales cost, basically. But it's a super technical process that takes years to get through.

So can you kind of talk me through a bit how that fits together? Okay, so we have regional sales teams that are accountable for that region. They'll address a wide range of end markets. The only exception to that is medical, because that's very specialized. We expect medical sales people to be discreet in that. But broadly speaking, across technical solutions, they address all different markets. We do have market specialists, for example, for aerospace, where you need to have a good understanding of the aerospace requirements. So that's being put together that we already have existing DLCs in those regions, but they are kind of in a matrix organization mode. So it'd be very discreet to focus on that. The new chief commercial officer is coming in and looking at the moment on managing the balance between short to medium term pipeline and those longer term opportunities. So the longer term opportunities will still be . what we do with mega programs we'll talk about capital markets in terms of changing some of the approaches to those but we've got to get a more balanced view of short-term opportunities now it is generally quite a long sales cycle business you know we're talking sort of 18 months two years from initial conversations to getting a customer specified in and using our products and you know delivering products and so that's important but in recent last couple of years there has been some good improvement on pipeline that is now coming through in some of our activities we're seeing but the more applications engineers we have that go out in partnership with our sales people talking to customers about their issues and solving their problems that's where we're going to really apply the values so we do have good applications engineering capabilities at the moment we're doing a lot of work for example in modeling and simulation for our customers to optimize their part design using things like finite element analysis and computational fluid dynamics and good stuff like that So we're already doing some of that stuff, but I want to do more of that. Essentially, that's what's going to drive these values. We're going to focus in on those. And then finally, I'm going to come right back to the first question I'll try. Are you basically saying that you're going to take remedial action to get back to 1,500 tonnes, or is that still an open question? It's still an open question. We're looking at options at the moment of what we can do. We can ramp up from where we are now using the existing plant, optimizing the existing plant. we'll identify that is a rate limiting step and we do need to do more with the plant to get up towards that capacity depth. Now we're looking at various options around that but if it does require additional investment as we've already said it's within that eight to ten percent of capex range so it's not incremental capex beyond what we've already done. Thank you very much. Can we move to the call? Can we move to questions from the pool?

If you are dialed into the call and would like to ask a question, please signal back us in Star 1. Your first question comes from the line of Christian Bell from UBS. Your line is open.

Hi, yes, good morning. I just have a couple of questions, please, and apologies if you've already sort of gone over this. I had to dip out and sort of miss some of the Q&A, but my first question just relates to similar sales I think you mentioned the step-up that came through in March, which has continued into April. So just wondering how the order book looks for May and June, and how do the months of May and June sort of compare year on year in 2025? And then my second question relates to, so we've seen a sustained trend of volume growth that's come alongside worker pricing, SHRM has partly reflected a focus on driving capacity utilisation in the past. But in sit against your portfolio review and programme rationalisation, should we expect to shift away from that dynamic and should we actually now be expecting lower growth coming, particularly through channels such as VARs? And in which case, how should we think about total capacity utilisation Could your review include rationalising some of their existing capacity? Those are my two questions. Thank you.

Yeah, the first one was about demand in Q3. I'll answer that one. OK. Starting with the demand in Q3, yeah. I mean, April was a strong month for us. May has started very well with good orderly cover. June at this stage we won't comment on too much we'll see what happens in June but certainly April and May are good months and provide some confidence for a good start into the second half of the year. Yeah I think it's important to say you mentioned a step up in March but we had a strong Q2 from the start of Q2 I think it's fair to say there was definitely some I think from December into January but then from then on the rest of Q2 through February March was strong it wasn't an specifically noticeable step up following events in March? No. No, not so much. It continues throughout Q2 and into Q3. And then the asset utilization point and the focus on for us. Do you want me to make a start? Yeah, you can go now. So I don't think where you're going to see Christianos moving away from, you know, I don't think this is about moving away from the focus on the bars. The bars are important for asset utilization. asset utilization is important for us. The VARs are also a really important route to market in terms of getting heat used in specific applications. It tends to be via stock shapes, which can be machining, which can be a route into other modes of manufacture like injection molding down the line. So I think the VARs are an important route to market for us. I wouldn't say we've been focused on driving the VARs over other things over the last year or so. That might be what we've seen happen in the numbers, but I don't think that's been our focus. But I don't, likewise, I don't see us pivoting away from those sectors. No, no, it needs to be a balanced portfolio. I think the bars are important, like we say, for volume and air traffic utilization and also an entry point into the market piece. But incremental to that, we'll be looking at these other areas where we can use application development to get that specified in position and higher margins. So it would be a blend of the two, Chris.

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

It's more of a, you know, we have over 450 different grades of products each page in various different forms that we have. It's more looking at that range of products that we have you know the lower end of that in terms of the very low volume or maybe the low volume and declining sales area we have to look at whether that's contributing to our overall financial performance. So it's a bit of a look at the portfolio you know and if you do the sort of Pareto analysis on these things most of your product comes from a small number of products So just making sure that we're still confident. Now, some of those products may well be low volume, but very high size points. For example, some of the medical applications, of course, they are still attractive to us, but some of them may not. So it's looking at a broader range of issues than just buying in market or customer. It's more looking at sort of the overall product portfolio, the working capital required for that, the operation setup required for that, and seeing if it's optimal for the business.

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

I think you'll have to wait for the capital market to say for that one.

Okay, thank you. Thanks for answering my question.

No problem. There are no questions on the conference line, so I'd like to have that. No. No. Okay, great. Thank you very much for coming and thank you for attending the call. We'll wrap up there. Thank you very much. Thank you.