Victrex : Interim Results 2024

13 May 2024

Victrex plc - Interim Results 2024

'H1 in line with guidance; sequential improvement in Q2'

Victrex plc is an innovative world leader in high performance polymers, delivering sustainable products which enable environmental and societal benefit. This announcement covers interim results (unaudited) for the 6 months ended 31 March 2024.

	H1 2024	H1 2023	% change	% change
			(reported)	(constant currency1)
Group sales volume	1,737 tonnes	1,941 tonnes	-11%	N/A
Group revenue	£139.3m	£162.2m	-14%	-10%
Average selling price (ASP)	£80.2/kg	£83.6/kg	-4%	flat
Gross profit	£66.8m	£86.7m	-23%	-23%
Gross margin	48.0%	53.5%	-550bps	N/A
Underlying profit before tax	£28.0m	£42.5m	-34%	-40%
(PBT)1
Reported PBT	£3.3m	£39.1m	-92%	-98%
Underlying EPS1	27.0p	41.9p	-36%	N/A
EPS	3.1p	38.8p	-92%	N/A
Dividend per share	13.42p	13.42p	flat	N/A

Highlights:

• H1 in line with guidance; sequential improvement in Q2
• • H1 24 Group volumes down 11% vs solid H1 23
  • Sequential improvement in Q2 (Group volumes up 31% vs Q1 24 & broadly flat vs Q2 23)
  • H1 24 Group revenue down 14%:
  • • Strong Aerospace & Automotive growth (H1 volumes up 18% and 14% respectively)
    • Q2 improvement in Electronics, Energy & Industrial, VARs (VARs up 44% Q2 vs Q1)
    • Medical revenue down 19% on industry destocking
    • ASP in line with guidance at £80/kg, despite softer Medical
• PBT offset by Medical, higher cost inventory & lower asset utilisation, despite reduced opex
• • Gross margin of 48.0% reflects higher under-absorbed fixed costs as inventory unwinds
  • Strong cost discipline; operating overheads1 down 13% & further opportunities
  • Underlying PBT down 34% at £28.0m, driven by trading and lower asset utilisation
  • Reported PBT £3.3m after £24.7m exceptional items:
  • • Bond 3D non-cash impairment £20.1m & ERP costs
• Focused on improved cashflow in H2, driven by demand recovery, lower capex & inventory unwind
• • H1 2024 net debt £49.8m, including cash of £28.5m (H1 2023: net debt of £5.3m including cash
  • • other financial assets of £38.4m) reflecting draw down of RCF for FY23 final dividend
  • New China facilities operational in H2, concluding major capital investment phase
  • Expecting further inventory reduction in H2 (H1 2024 inventory £126.7m)
  • Improved operating cash conversion1 of 64% (H1 2023: -4%)
  • Interim dividend 13.42p/share
• Mega-programmeramp-up progressing, supporting mid-term growth targets
• • Aerospace Composites: on track for good growth
  • E-mobility:new customer collaborations
  • Knee: regulatory submission in 2024; new customer discussions
  • Magma: technical & commercial collaboration with TechnipFMC & Petrobras
  • Trauma plates: good progress & broader customer base
  • Mid-termgrowth targets of 5-7% revenue CAGR#; upside to 8-10% CAGR as mega- programme contribution increases

1

1 Alternative performance measures are defined in note 14

#revenue CAGR in 5 year period, targets communicated in December 2023

Commenting on the Group's interim results, Jakob Sigurdsson, Chief Executive of Victrex, said:

"Although the first half remained soft for Victrex - in line with our guidance - and the wider Chemical sector, we saw tangible signs of improvement in some end markets during Q2. Q2 Group volumes were broadly flat compared to the prior year and up 31% vs Q1. Profitability and margins were impacted by the high inventory levels and recent industry destocking amongst Medical device customers. Although Medical impacted sales mix, average selling prices were solid and in line with our guidance at £80/kg, despite currency. We also saw a headwind from much lower utilisation in our own assets, as inventory unwinds.

Expecting cashflow improvement

"With capex set to reduce - as our UK and China asset investments conclude - and further inventory unwind, we expect to see good mid-term cashflow improvement, supported by improving trading conditions.

Progress in mega-programme portfolio; reiterate mid-term growth targets

"Our mega-programmes continue to deliver key technical or commercial milestones. Aerospace Composites, beyond the mid-term opportunity from new plane models and larger PEEK parts, is seeing opportunities from retrofit projects, or running changes on existing models.

"Within Medical, our PEEK composite Trauma plates are on track to grow plate deliveries, and our potentially game-changing PEEK Knee programme is now targeting a regulatory submission during 2024. This reflects strong progress in the clinical trial and opportunities with other top 5 Knee companies. The strength of our innovation pipeline, and a macro-recovery, validates our mid-term growth targets of 5-7% revenue CAGR and an upside to 8-10% once mega-programmes increase their contribution.

Outlook - focused on H2 improvement; not expecting FY PBT progress

"Recent improvement in some end-markets underpins our focus on volume, revenue and profit growth during the second half, compared to H1 and also versus H2 2023. A continuation of current monthly run-rates - based on the H1 exit rate and Medical improvement - would support a slightly better PBT performance in H2 2024, compared to H2 2023. Further improvement, beyond these levels, relies on a faster rebound from recent Medical headwinds.

"On a full year basis, current run-rates support low-to-mid single digit volume growth. However, as previously communicated, we are not expecting PBT progress for the year as a whole. This reflects a lower first half, Medical destocking and the effect of reduced asset utilisation in our income statement. With our two-year inventory unwind, lower asset utilisation will continue into FY 2025, although the impact is likely to be slightly less than FY 2024. Pleasingly, cost discipline has remained strong and controllable expenses are sharply lower.

"If recent end-market improvement continues, growth prospects moving into FY 2025 look encouraging. We have confidence in our mid-to-long-term opportunities, with a diversified core business, increasing commercialisation in our mega-programmes, well invested assets, enhanced capability in our global team and the opportunity for cashflow improvement."

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About Victrex:

Victrex is an innovative world leader in high performance polymer solutions, focused on the strategic markets of automotive, aerospace, energy & industrial, electronics and medical. Every day, millions of people use products and applications which contain our sustainable materials - from smartphones, aeroplanes and cars to energy production and medical devices. With over 40 years' experience, we develop world leading solutions in PEEK and PAEK based polymers, semi-finished and finished parts which shape future performance for our customers and our markets, enable environmental and societal benefits, and drive value for our shareholders. Find out more at www.victrexplc.com

A presentation for investors and analysts will be held at 9.00am (UK time) this morning via a dial-in facility, which can be accessed by registering on the following link:

Victrex Interim Results Meeting May 2024 Registration Page! (registrations.events)

The presentation will be available to download from 8.30am (GMT) today on Victrex's website at www.victrexplc.comunder the Investors/Reports & Presentations section.

Victrex plc:
Andrew Hanson, Director of Investor Relations, Corporate Communications & ESG	[phone]
Ian Melling, Chief Financial Officer	[phone]
Jakob Sigurdsson, Chief Executive	[phone]

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Interim results statement for the 6 months ended 31 March 2024

'H1 in line with guidance; sequential improvement in Q2'

Operating review

H1 volume and revenue down as expected; strong sequential improvement in Q2

First half Group sales volume of 1,737 tonnes was 11% down on the solid performance in the prior year (H1 2023: 1,941 tonnes). Reflecting the demand environment seen across the Chemical sector, the Group delivered first half year revenue of £139.3m, which was down 14% (H1 2023: £162.2m), with a less favourable sales mix (due to a softer performance in Medical) and a currency headwind at the revenue level. In constant currency1 Group revenue was 10% down on the prior year.

Q2 volumes of 986 tonnes were 31% ahead of Q1, whilst being broadly flat on the solid Q2 of last year (Q2 2023: 992 tonnes). Q2 revenue was down 6% at £78.2m (Q2 2023: £83.3m), driven by lower Medical sales.

Divisional performance

Although we saw softness across several end-markets in our Sustainable Solutions (formerly Industrial) area, improvement was seen during Q2 in some end markets. H1 softness reflected Electronics, Energy & Industrial and our Value Added Resellers (VAR) area, with our Transport segment performing well. This was led by Aerospace, with volumes up 18% as build rates further increase and we see application growth. Automotive returned to growth, driven by core applications and some restocking leading the performance improvement. Automotive volumes were up 14% in the first half, though we note industry indicators pointing to car build being at similar levels in FY 2024 vs FY 2023. Overall revenue in Sustainable Solutions was down 13%at £112.9m (H1 2023: £129.7m).

After a record year in FY 2023, Medical revenues were impacted by industry destocking during the first half. Most of the major medical device customers have reported high inventory levels since the start of FY 2024, despite growth in clinical procedures. Medical revenues of £26.4m were 19% down on the strong performance in the prior year (H1 2023: £32.5m), though Q2 revenues saw an improvement of 16% compared to Q1. Across our core business of Spine, Arthroscopy and Cranio Maxillo-Facial (CMF), we continue to see good growth opportunities once destocking headwinds clear, with support from increasing penetration in Cardio, Orthopaedics and Drug Delivery. Non-Spine remains the most significant growth area, as PEEK's inert nature and strong biocompatibility drives increased application usage. Despite destocking in other application areas, we saw 5% revenue growth in CMF, which reflects the patient-specific nature of this application. First half year revenues in Medical were 45% Spine and 55% Non-Spine (H1 2023: 48% Spine and 52% Non-Spine).

ASP in line with guidance; sales mix reflects Medical softness

Average selling prices (ASPs) were in line with our guidance at £80.2/kg, down 4% on the prior year due to the impact of currency. Like for like pricing was robust across our end markets, despite a less favourable sales mix as Medical was softer in the first half. ASP in constant currency was flat.

For FY 2024, we continue to guide for average selling prices around £80/kg, with the sales mix between Sustainable Solutions and Medical being the key factor.

Core business application pipeline

One of Victrex's key strengths is in application development, working with customers and partners to broaden the use of PEEK. This is typically driven by its lightweighting, durability, chemical and heat resistance, or other properties.

Our core business pipeline saw Mature Annualised Revenues (MAR) at £363m (FY 2023: £300m), with the increase driven by application opportunities in Aerospace and Medical. This number assumes all targets are converted.

New top-line growth opportunities

New or developing opportunities include PEEK being used for PFAS replacement applications - including cookware - and for applications underpinned by our new China manufacturing facility, which is dedicated to expanding our portfolio of grades within China.

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Mega-programme revenues tracking slightly ahead

Going forward, our priority is to measure our newly introduced goal of mega-programme portfolio revenues. In FY 2023, mega-programme revenues totalled £11m, with a goal of increasing this in FY 2024, supporting a step change towards our target of £25m-£35m revenues by the end of FY 2025.

Further progress in mega-programmes milestones

As previously communicated, the Grouphas chosen to prioritise investment in five key programmes to enhance strategic progress. This also ensures that we measure appropriate investment, resource and capability in order to improve our returns.

Each mega-programmes offers revenue potential of at least (and in some cases significantly more than) £50m per year.

Key milestones in our mega-programme portfolio include:

Our E-mobility mega-programme platform is based on specific electric vehicle applications and drove the most growth of all mega-programmes last year, with business wins specifically focused on wire coating and other applications. This programme delivered revenue of £6m in FY 2023. Despite a return to growth in Automotive during the first half, we are mindful of some headwinds in the EV area, particularly in China.

Revenues are tracking similar to the prior year. Victrex XPI™ grade, which enables coatings of tightly wound electric wires for existing and primarily next generation high-voltage vehicles (800volt batteries and applications), is the focus for this mega-programme, where higher performance is required. Compared to previous enamel coatings, VICTREX XPI™ is extruded onto the copper and requires less energy in the process, supporting sustainability goals. With penetration in battery applications and elsewhere in electric vehicles, we assess the future potential PEEK content per electric vehicle as over 200g (average content in existing internal combustion engine car approximately 10g today). Milestones in the first half include a broader range of customer collaborations, supplying into European, Asian and US car manufacturers, including existing Chinese models.

In our Magma composite pipe programme for the energy industry, close collaboration with TechnipFMC and Petrobras continues, with milestones including final testing and technical and commercial preparation at our UK facilities. TechnipFMC is seeking to accelerate the significant opportunities for thermoplastic composite pipe in deepwater oil & gas fields in Brazil, with light- weighting, durability, a reduced carbon footprint for installation and ease of manufacturing being key parts of the proposition. Multiple field opportunities are being targeted in Brazil, requiring alternative solutions to existing performance issues with metal-based pipes. PEEK based Hybrid Flexible Pipe(HFP) is seen by TechnipFMC as the most cost effective riser solution, with TechnipFMC continuing to invest in manufacturing facilities, targeting scale up from 2026 onwards. Annual revenues in the Magma programme remain around the £1m level currently, reflecting the qualification phase.

In Trauma, demand continues to increase following FDA approval and launch. Beyond CONMED (In2Bones), our main existing customer, we have also added new customers in Asia. Revenues are tracking for growth this year. Victrex's PEEK composite Trauma plates support fracture fixation, including in foot and ankle plates. Over 5,000 Victrex manufactured trauma plates have now been supplied for implants, including 2,000 so far in FY 2024. Studies show an enhanced union rate using PEEK composites rather than titanium based plates. Victrex manufactures the PEEK composite based trauma plates in-house, or via our partner, Paragon Medical, who will toll manufacture in China, supporting a growing customer base in the US, Asia and globally.

Aerospace Composites combines the programmes for smaller composite parts, larger structural parts and interior applications. Final qualifications with OEMs, including Airbus and Boeing, and tier companies,areadvancingfast as thermoplastic composites basedon PEEK are validated. An increasing opportunity is in retrofit or 'running changes' as existing models take advantage of selected thermoplastic composite parts, for example in engine housings, interior structures or other applications. Major structural parts includefor wings, engine housing andfuselage. The potential PEEK content per plane is at least 10-times current levels, with large scale demonstrator parts being exhibited and advancing through qualification programmes. In both structural and smaller composite

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based parts, our AETM250 polymer and composite tape, based on LMPAEKTM is integral to these opportunities. Revenue for this programmes in FY 2023 was nearly £3m, and we are anticipating solid growth in FY 2024.

In our PEEK Knee programme, following further strong progress in the clinical trial, the focus is now on submitting for regulatory approval during 2024 (India), a key step prior to commercialisation. Maxx Orthopaedics is our partner in the clinical trial across Belgium,India and Italy. We arealsocollaborating with Aesculap (part of B Braun), a top 5 global knee company. Interest has been growing in the progress of PEEK Knee from other top 5 players, with potential new collaborations. 54 patients to date have been implanted with a PEEK Knee, with no remedial intervention required. Of these, twelve patients have also passed the two year stage with no intervention, which is very encouraging. Beyond regulatory submission, the next milestone is targeted as commencing a US clinical trial during FY 2024. PEEK Knee would be an alternative to existing surgeries, which primarily use metal (cobalt chrome), with a proportion of customers impacted by metal intolerance or discomfort. PEEK Knee continues to be the largest of our mega-programme opportunities by annual revenue potential, with first commercial revenues potentially from 2025. Our ability to leverage clinical data with a broader range of customers also supports the opportunity.

Innovation investment

Our Medical Acceleration programme is the key focus for current innovation investment. Last year we opened our New Product Development (NPD) Centre in Leeds, UK, to support new roles and capability with customers. We are continuing to invest in this area during FY 2024. Our goal is to increase the proportion of revenue from Medical to around one-third by 2032, driven by core growth and the game changing potential from Trauma and PEEK Knee.

Group R&D investment is tracking at 5-6% of revenues, following FY 2023 being 6% of revenues on a full year basis.

Financial review

Gross profit down 23%

Gross profit was down 23% at £66.8m (H1 2023: £86.7m), primarily driven by lower sales. Following the easing of energy costs in FY 2023, we also saw some benefit from lower raw material costs. However, with much lower production rates in our manufacturing assets, we incurred higher under-absorbed fixed costs, which are expected to be in excess of £12m higher than FY 2023. This is as a result of materially lower production volumes as we unwind inventory closer to target levels, with these effects continuing into FY 2025.

Additionally, on a full year basis, we will also see some incremental start-up costs in China (including costs moving from overheads to COGs). This includes depreciation.

Gross margin below expectations on sales mix and lower asset utilisation

Half year Group gross margin of 48.0%was 550 basis points (bps) lower than last year (H1 2023: 53.5%),slightly lower than our expectations as a softer Medical performance impacted sales mix and with lower asset utilisation.

We remain focused on a mid-to-high fifty percent gross margin level over the medium term, whilst noting that sales mix, asset utilisation and the expected increase in parts contribution to revenue will play a key role over the coming years. For FY 2024, we anticipate Group gross margin will be lower than our guidance, with gross margin in the second half likely to be similar to the first half, reflecting sales mix and lower asset utilisation. Any improvement in gross margin during H2 2024 would require a better performance in Medical.

Gains & losses on foreign currency net hedging

Fair value gains and losses on foreign currency contracts in H1 2024 were a gain of £2.5m (H1 2023: loss of £6.2m), largely from contracts wherethe deal rate obtained in advance was favourableto the averageexchange rate prevailing at the date of the related hedged transactions.

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Currency hedging supports a small tailwind in H1 2024

FY 2024 sees a currency headwind at spot rates. Unhedged currencies - predominantly in Asia - are set to increase in importance as we see growth in China and other parts of Asia over the coming years. Recent devaluation in these currencies has contributed to the spot rate headwind in FY 2024. However, after the effect of hedging we expect to see a small tailwind.

Our hedging policy is kept under review, for duration of hedging, level of cover and specific currencies. It requires that at least 80% of our US Dollar and Euro forecast cash flow exposure is hedged for the first six months, then at least 75% for the second six months of any twelve-month period.

Operating overheads1 down 13%; tight cost control and additional cost out opportunities Operating overheads, which exclude exceptional items of £24.7m,reduced by 13% to £38.4m(H1 2023: £44.1m) driven primarily by deferral of certain recruitment, a lower level of travel, reductions in discretionary spend and the effect of lower performance based reward. This is despite wage inflation, with our employee salaries increasing by an average of 4.5%.

Going forward, our intention is to ensure investment remains targeted and to deliver an appropriate return. Operating overheads are therefore expected to show only limited increases, excluding the effect of wage inflation and bonus accrual.

Interest on China loan

With the Group drawing on its Revolving Credit Facility (RCF) during the first half - primarily to support payment of the FY 2023 final dividend - a lower cash balance, and interest payments due to be expensed (rather than capitalised) in H2 2024 from our China loan, net interest expense is expected to be £2m-£3m for the year.

Underlying PBT down on Medical & under-recovery of fixed costs

Underlying PBT of £28.0m was down 34%, compared to the solid performance in the prior year (H1 2023: £42.5m). This was driven by a much higher impact from under recovery of fixed costs (approximately £6m higher in H1 2024 vs H1 2023), as our assets saw much lower production levels, driven by softer demand and inventory unwind (inventory built to support our UK Asset Improvement programme, which is now principally complete). With an expectation of production levels in FY 2024 being 800-1000 tonnes lower than the prior year, this has an impact on our fixed cost recovery.

Reported PBT & exceptional items

Reported PBT reduced by 92% to £3.3m (H1 2023: £39.1m). This reflects exceptional items of £24.7m (H1 2023: £3.4m), representing a non-cash impairment on our Bond 3D investments (supporting 3D printing capabilities in Spine (Medical)) and the cost of implementing a new ERP software system (targeted for go live in Q1 FY 2025).

In relation to Bond and despite continued progress to plan and regulatory approval (for Porous PEEK), the new financial investment required to complete the development through to cash breakeven has not been raised. Victrex has provided a bridging facility to Bond of up to €2.5m to provide more time to complete the fundraising. The market for raising new capital remains subdued, with a limited number of interested parties resulting in indicative valuations which are well below the level of Victrex's investment. Although technical progress has been made, with new information on the carrying value of the assets, these have been written down to what the Directors consider the best estimate for fair value at this time.

The impairment on our Bond 3D investments, totalling £20.1m, comprises writing off the Associate Investment and the carrying value of the convertible loan notes in full.

Total exceptional items on a full year basis are expected to be in the region of £30m.

Earnings per share down 92%

Basic earnings per share (EPS) of 3.1p was 92% down on the prior year (H1 2023: 38.8p per share), reflecting the decline in reported PBT driven mostly by exceptional items. Underlying EPS was down 36% at 27.0p (H1 2023: 41.9p).

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Taxation

Net taxation paid was £3.4m (H1 2023: tax received of £3.9m). The effective tax rate of 24.5% (H1 2023: 14.9%) was materially higher due to the impairment of the investment in associate (Bond 3D), which is not tax deductible (increased the rate by 5.2%), the increase in UK corporation tax rate and a lower proportion of profits being eligible for the patent box rate. The reduced tax rate on profits taxed under the UK Government's Patent Box scheme remains availableto Victrex, however the proportion of profits which benefit from the lower patent box rate reduces at lower profit levels and vice versa. Patent Box incentivises innovation and consequently highly skilled Research & Development jobs within the UK. Our mid -term guidance for an effective tax rate continues to be at approximately 13%-17%, reflecting the increase in the UK Corporation tax rate from 19% to 25% from 1 April 2023 whilst noting that with profits impacted by softer trading, combined with exceptional costs, the effective rate may exceed the top end of the range in the short term. We continue to monitor global taxation developments.

Robust balance sheet

With a range of global customers across our end-markets, customers recognise and value our strong balance sheet, and our ability to invest and support security of supply. Net assets at 31 March 2024 totalled £460.8m (H1 2023: £488.6m).

Inventory unwinding but held back by softer demand

Rebuilding raw material inventories to safety stock levels, to support security of supply for customers, was a priority following the pandemic. Several raw materials had run below safety stock levels, impacting supply chains. Additionally, we alsobuilt inventory to reflect planned engineering as part of our UK Asset Improvement programme. This UK Asset Improvement programme,which is principally complete, will take our UK nameplate capacity to approximately 8,000 tonnes, supporting collaboration with customers on long-term programmes, for example Aerospace Composites and Magma.

Whilst inventory has started to unwind, with the weaker trading environment persisting during the first half, total closing inventory was £126.7m (FY 2023: £134.5m), moving towards our target of approximately £100m by the end of FY 2025. This number reflects the increased range of polymer grades and product forms and parts to serve a broader range of customers, versus historic inventory levels.

Ready for commercial ramp-up in China

Following the successful production of first PEEK at our new China facility, we will start to ramp up commercial production in H2 2024. Initial sales in H2 2024 are expected to be modest. The China facility will enable us to broaden our portfolioof PEEK grades, including a new Elementary type 2 PEEK grade, as well as target a number of key end-markets, particularly Automotive, Electronics and VAR. Close collaboration with customers continues, in support of their own growth plans in China.

Capital expenditure reducing

After a period of investment, cash capital expenditure during the first half was £21.8m (H1 2023: £22.2m), of which a significant proportion was to support completion of our China manufacturing investments and our UK Asset Improvement programme. A large proportion of the China investment was funded through utilisation of the Group's China banking facilities, with interest being capitalised in H1 2024, and expensed in H2 2024 as the facility becomes commercially operational. Net interest expense for the year is therefore expected to be £2m-£3m.

Other investments included our UK Asset Improvement programme (we anticipate this will be approximately £15m in total) with spend now principally complete. Consequently, second half capital expenditure is expected to be lower than the first half, meaning overall capital expenditure for FY 2024 will be approximately £30m- £35m.

After conclusion of these investments, we see a limited need for sizeable polymer capacity for many years. Over the coming years, investment will include increased ESG related capital spend in our manufacturing facilities, to support decarbonisation. Current ESG related capital expenditure remains relatively small and is primarily for our Continuous Improvement (CI) activities. Our increased capacity is expected to enhance asset efficiency.

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Cashflow

Our cash generated from operations was significantly ahead of the prior year, at £34.1m (H1 2023: £17.1m),

reflecting a better working capital position. This resulted in operating cash conversion1 of 64% (H1 2023: -4%). We also expect to see an improvement on operating cash conversion in H2 2024. Our business model remains highly cash generative.

Net debt at 31 March 2024 was £49.8m (H1 2023: £5.3m), including cash of £28.5m (H1 2023: £38.4m, including other financial assets). With utilisation of the Group's RCF and China bank facilities - put in place for the investment in new China manufacturing assets - borrowings (current and non-current) at 31 March 2024 were £68.7m (H1 2023: £32.9m). The increase in net debt reflects weaker trading and ongoing capital expenditure, whilst maintaining the level of the regular dividend.

In February 2024 we paid the 2023 full year final dividend of 46.14p/share at a cash cost of £40.1m. With our renewal of the Group's UK banking facilities last year, we have increased the level of facilities to £60m (£40m committed and £20m accordion). The facility expires in October 2026.

Dividends

The Group has maintained the interim dividend at 13.42p/share (H1 2023: 13.42p), which reflects some recent signs of end-market improvement. We intend to grow the regular dividend in line with earnings growth once dividend cover returns closer to 2.0x (FY 2023 dividend cover 1.3x).

Capital allocation policy

Growth investment remains the focus for the Group. Share buybacks remain an option for future shareholder returns, alongside special dividends, within our capital allocation policy.

However, with the trading environment during the first half and slower inventory unwind impacting cashflow, cash resources are not at a level to support a share buyback programme. The prospects are positive for improving cashflows, and returning to a net cash position, as capital expenditure reduces and inventory levels come down.

Investment in capability: recognition of Victrex in Sunday Times Best Places to Work 2024 Thanks to a period of investment, the Group's capabilities to support our growth programmes ha ve been further enhanced. This includes a broader range of skills as we drive our Polymer & Parts strategy, with recruitment from medical device companies, the aerospace supply chain and other areas. As a reflection of our motivated and engagedworkforce,Victrex is pleasedto have been recognisedin The Sunday Times Best Places to Work 2024 list, following on from our recent Employee Experience survey.

Jakob Sigurdsson

Chief Executive, 13 May 2024

1 Alternative performance measures are defined in note 14

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DIVISIONAL REVIEW
Sustainable Solutions (formerly Industrial)
	6	6
	Months	Months
	Ended	Ended		%
	31 Mar	31 Mar	%	Change
	2024	2023	Change	(constant
	£m	£m	(reported)	currency)
Revenue	112.9	129.7	-13%	-9%
Gross profit	44.7	61.4	-27%	-26%

Victrex's divisional performance is reported through Victrex Sustainable Solutions (formerly Industrial) and Medical. The Group provides an end-market based summary of our performance and growth opportunities. Within Sustainable Solutions end-markets, we have Electronics, Energy & Industrial, Transport (Automotive & Aerospace) and Value Added Resellers (VAR).

1. summary of all the mega-programmes and the strong progress made during the year, is covered earlier in this report.

Soft end-markets driving revenue down 13%

Revenue in Sustainable Solutions was £112.9m, down 13% compared to the solid performance in the prior year, before several end-markets deteriorated (H1 2023: £129.7m). Revenue in constant currency was down 9%. Although pricing was robust, the impact of reducedasset utilisation dragged gross margin down by 770bps to 39.6% (H1 2023: 47.3%).

Electronics

Following a challenging year in 2023 for the Global Semiconductor market and Consumer Electronics (which together makeup approximately two-thirds of our exposurein this end-market), volumes remained soft during the first half, with some sequential improvement during Q2 (vs Q1). Total Electronics volumes were down 35% at 190 tonnes (H1 2023: 291 tonnes). More encouraging data points continue to emerge however. The latest industry forecasts continue to suggest an improvement in 2024 for Semiconductor, with IDC also forecasting Semiconductor demand to increase by 8.4% CAGR over the next five years (IDC February 2024).

Victrex's long standing core applications include CMP rings (for Semiconductor), as well as newer applications utilising PEEK, including for Semiconductor, 5G, cloud computing and other extended application areas. Our AptivTM film business and small space acoustic applications continue to have good differentiation, with significant know-how in manufacturing this important product form.

For the medium term, VictrexTM PEEK's lighter materials and enhanced durability have strong credentials to continue supporting improved energy efficiency in a range of Electronics applications.

Energy & Industrial (E&I)

VictrexTM PEEK has a long-standing track record of durability and performance benefit in many demanding Oil

• Gas applications, where lightweighting, durability and performance arekey. Metal replacement is a key trend. Sales volume of 280 tonnes, was down 15% on the prior year (H1 2023: 328 tonnes), reflecting the weaker performance across this area. Industrial (which makes up more than half of this segment) is driven by global activity levels and capital goods equipment. Recent market indicators (PMIs) offer some encouragement for the second half, with PMIs in the US returning above 50 at the end of the first half.

Within the new energy space, PEEK has the opportunity for supporting applications in Hydrogen and Renewables (Wind energy), where PEEK's inert nature and durability could have a strong play. Wind energy applications are already commercialised.

Transport (Automotive & Aerospace)

Victrex continues to have a strong alignment to the CO2 reduction megatrend, with our materials offering lightweighting, durability, comfort, dielectric properties and heat resistance. As well as long standing core business within Automotive & Aerospaceacross a rangeof application areas, we have alsomade goodprogress in our Transport related mega-programmes of E-mobility and Aerospace Composites.

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