Mega-programme highlights: investment
prioritised & streamlined portfolio
With several programmes on their journey
towards £10m revenue per annum
(Aerospace, E-mobility, Magma and
Trauma), we have chosen to prioritise
investment in five key programmes to
enhance strategic progress. This also ensures
that we measure appropriate investment,
resource and capability in orderto improve
our returns.
PEEK Gears continues to see good growth
and opportunities across ICE and EV
platforms, but as the focus is now on
progressing adoption, it will no longer
be defined as a mega-programme as we
prioritise investment in E-mobility and
elsewhere. PEEK Gears delivered growth
to £6m revenue this year (vs over £4m
in FY 2022). Having successfully seeded
the market, it also reflects that the route
to market is via both parts manufacture
and polymer resin-based sales, where a
third-party manufacturer would build the
final component, based on Victrex design,
development and know-how. As a result
there has been no significant change in the
overall portfolio value, with several mega-
programmes offering revenue potential
of significantly more than £50m per year
(e.g. Knee).
Key highlights in our mega-programme
portfolio include:
Our E-mobility mega-programme platform
isbased on specific electric vehicle
applications and drove the most growth
ofallmega-programmes during the year,
with business wins specifically focused on
wire coating and other applications. This
programme delivered revenue of £6m this
year, with better than expected progress as
our materials supported major car brands.
This mega-programme includes Victrex XPI™
grade, which enables coatings of tightly
wound electric wires for existing and
primarilynext generation high voltage
vehicles (800volt batteries and applications),
where higher performance is required.
Compared to previous enamel coatings,
Victrex XPI™ is extruded onto the copper
andrequires 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). We are
collaborating with multiple customers, and
signed a strategic collaboration agreement
with Well Ascent, a major wire coating
manufacturer, supplying into European, Asian
and US car manufacturers, including existing
Chinese models. Continued growth in
E-mobility is expected during FY 2024,
withthe potential for £10m revenue within
two years.
In our Magma composite pipe programme
for the energy industry, we saw close
collaboration with TechnipFMC and a team
from the end customer in Brazil, including
detailed technical and commercial meetings
hosted at our UK facilities. The primary focus
is supporting TechnipFMC to accelerate the
significant opportunities for thermoplastic
composite pipe in deepwater oil & gas fields
in Brazil, with lightweighting, durability, a
reduced carbon footprint during 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
constructing a new pipe extrusion facility in
Brazil, incorporating Victrex’s pipe extrusion
know-how. We continue to await outcomes
on existing bids by TechnipFMC, utilising
this technology, which offers the potential
for a step-up in volume from 2025. This
programme offers good mid-term potential
towards £10m annual revenues, with the
next key milestone being bid outcomes.
In Trauma, we saw a significant step-up
in demand post-FDA approval and launch,
with revenues building towards £1m this
year, and further expected growth in the
coming years. This was primarily driven
by our partnership with In2Bones (part of
CONMED) and other customers for PEEK
composite Trauma plates, supporting
fracture fixation, including in foot and ankle
plates. Over 3,000 Victrex manufactured
trauma plates were supplied for implants.
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, which
will toll manufacture in China, supporting a
growing customer base in the US, Asia and
globally. This programme has the potential
for double-digit revenues within the next
two to three years.
In our Aerospace Composites programme,
which combines the programmes for smaller
composite parts, larger structural parts
and interior applications, we are advancing
qualifications with OEMs, including Airbus and
Boeing, and tier companies as thermoplastic
composites based on PEEK are validated
and qualified. Major structural parts include
for wings, engine housing and fuselage.
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.
We have also broadened the number of
customers we are working with as part of
this programme, beyond the Airbus Clean
Sky 2 programme, reflecting the significant
opportunity for light weight and easily
processed PEEK composite materials. In both
structural and smaller composite-based parts,
our AE™250 composite tape is integral to
these opportunities. Smaller
composite parts
currently being used on aircraft
include for use
in seat pans and door brackets. Revenue for
these programmes inFY 2023 was nearly
£3m, with the potential opportunity to
increase to £10m inthe next two to three
years, with good long-termprospects.
In our PEEK Knee programme, we saw
particularly strong progress. We are working
with Maxx Orthopaedics, our partner in
the clinical trial across Belgium, India and
Italy, as well as Aesculap (part of B Braun),
a top 5 global knee company. We also have
interest in the progress of PEEK Knee from
other top 10 organisations. 46 patients
to date have been implanted with a PEEK
Knee, including ten patients who passed
the two-year stage with no intervention,
which is particularly encouraging. Both of
these companies, supported by our Medical
business, are focusing on the route to
early commercialisation. Our offering has
also expanded beyond a cemented PEEK
Knee implant, to include cementless and
tibia options, which enables us to offer a
broader suite of customer solutions. The
next milestone is targeted as commencing
a US clinical trial during FY 2024. Early
assessment suggests the opportunity of
first sales within two to three years, subject
to the appropriate regulatory pathway.
PEEK Knee remains the largest of our
mega-programme opportunities by annual
revenuepotential.
Innovation investment
Our new innovation investment during
FY2023 was primarily supporting our
Medical Acceleration programme. This
includes an investment in our New Product
Development (‘NPD’) Centre in Leeds, UK,
to support new roles and capability. R&D
investment was higher this year at £18.6m
(FY 2022: £15.7m), representing 6% of
revenues on afull year basis, with the higher
percentage reflecting incremental investment
and lower revenues. Our total R&D
investment in dedicated sustainable products
or programmes as a proportion of total R&D
investment increased to 40% (FY2022: 35%),
which reflects our broad portfolio of
sustainable programmes. This metric has
been updated from prior disclosures, which
measured project-based (non-labour) R&D
spend in sustainable programmes (92% for
FY 2023 vs 89% for FY 2022), rather than
total R&D spend. A level of 40% of total R&D
investment in dedicated sustainable products
or programmes underlines our focus in this area.
Financial review
Gross profit down 7%
Gross profit was down 7% at £162.6m
(FY2022: £174.5m), primarily driven by
lower sales. Energy costs eased, yet raw
materials remained relatively high. We also
incurred some under-absorbed fixed costs
(totalling approximately £3m) as a result
of lower production volumes compared
to FY2022 (production volumes 9%
lower). ForFY 2024, we anticipate some
modest benefit from lower input costs,
offset by start-up and under-utilised asset
costs in China (including costs moving
from overheads to COGs) and lower asset
utilisation (UK and China), as we start
to gradually unwind inventory from its
high level.
STRATEGIC REPORT
25
Annual Report 2023 Victrex plc