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Victrex plc Annual Report 2022
ENABLING
ENVIRONMENTAL &
SOCIETAL BENEFITS
VICTREX PLC
ANNUAL REPORT 2022
BRINGING TRANSFORMATIONAL & SUSTAINABLE SOLUTIONS THAT ADDRESS WORLD MATERIAL CHALLENGESEVERY DAY
Victrex is an innovative world leader inhighe world leader in high
performance polymer solutions,focusedce polymer solutions, focused
onthe strategic maon the strategic markets of Automotive,
Aerospace, Energy & Industrial, Electronics
and Medical. Every day, millions of people
rely on sustainable products and applications
which contain our polymers and materials,
from smartphones, aeroplanes and carstotphones, aeroplanes and cars to
energy production and medical devices.
With over 40years’ experience, we developWith over 40 years’ experience, we develop
world leading solutions in PEEK andPK and PAEK
based polymers, and selected semi-finished
and finished parts which shape future
performance for our customers and
markets, enable environmental and
societal benefits, anddrive vals, and drive value
for our shareholders.
WHO WE ARE: WE BRING
TRANSFORMATIONAL & SUSTAINABLE
SOLUTIONS THAT ADDRESS WORLD
MATERIAL CHALLENGES EVERY DAY
Visit www.victrexplc.com orscan
with your QR codereader to visit
ourGroup website
1
Annual Report 2022 Victrex plc
50.00
STRATEGICREPORT
1 Highlights
2 Victrex at a glance
4 2030 Sustainability Vision
6 Chair’s statement
8 Our investment case
10 Our markets and megatrends
12 Our business model
14 Strategy
16 Overview of strategy
20 Stakeholder engagement
24 Strategy and key performance indicators
26 Financial review
30 Chief Commercial Officer’s report
34 Risk
41 Going concern and viability statement
44 Sustainability report
CORPORATEGOVERNANCE
76 Introduction from the Chair
78 Board of Directors
80 Statement of corporate governance
94 Nominations Committee report
97 Audit Committee report
104 Directors’ remuneration report
128 Directors’ report – other
statutoryinformation
132 Statement of Directors’ responsibilities
in respect of the Annual Report and the
financial statements
133 Independent auditors’ report to the
members of Victrex plc
FINANCIAL STATEMENTS
140 Consolidated income statement
141 Consolidated statement
ofcomprehensiveincome
142 Balance sheets
143 Cash flow statements
144 Consolidated statement
ofchangesinequity
145 Company statement
ofchangesinequity
146 Notes to the financial statements
SHAREHOLDER INFORMATION
185 Five-year financial summary
186 Cautionary note regarding
forward-looking statements
187 Notice of Annual GeneralMeeting
192 Explanatory notes
197 Appendix to Notice of
AnnualGeneralMeeting
199 Financial calendar
200 Advisors
Record revenue & volume; solid underlying PBT growth,
despite cost headwinds & currency
Group sales volume
tonnes
4,727 +8%
Group revenue £m
341.0 +11%
Underlying profit
before tax
1
£m
95.6 +4%
Dividend per share p
(regular & special dividends)
59.56 flat (regular)
21
20
4,373
3,492
21
20
306.3
266.0
Regular dividend
Special dividend
FINANCIAL HIGHLIGHTS
22 4,727 22 341.0
21
20
91.7
75.5
21
20
59.56
46.14
1 Alternative performance measures are defined in note 25.
* Excludes £2.8m of cash ring-fenced in the Group’s Chinese subsidiaries and includes
£10.1min95-daynoticedeposit accounts.
# Sustainable products are defined as those which offer a quantifiable environmental or societal
benefits. These are primarily in Automotive, Aerospace (supporting CO
2
reduction) and Medical
(supporting improved patient outcomes). Some applications are also in Energy & Industrial
(e.g.windand renewable energy applications) and Electronics (supporting energy efficiency,
e.g.home appliances). Volumes from Oil & Gas are excluded, as are Value Added Resellers
volumescurrently, due to the lack of full clarity on exact end-market destinations.
22 95.6
22
Reported earnings
pershare p
87.6 +4%
21
20
84.3
62.6
22
87.6
Reported profit
beforetax £m
87.7 -5%
21
20
92.5
63.5
22
87.7 59.56
HIGHLIGHTS:
Strong core growth; revenue up 11%, volume up 8% & better pricing
u
Double-digit growth in Electronics, Energy & Industrial, Value Added Resellers (‘VAR’)
u
Aerospace improving; Semiconductor challenges impacting Automotive
u
Continued progress in Medical, revenue +14%
u
Improved pricing in H2 (H2 2022: ASP up 4% vs H1 & FY 2022 ASP up 3%)
Solid underlying PBT growth, up 4% & 12% in constant currency,
offset by cost inflation
u
Underlying profit before tax (‘PBT’) up 4% at £95.6m & up 12% in constant currency
u
Reported PBT £87.7m, reflecting year one ERP investment (exceptional items of £7.9m)
u
Gross profit up 6% to £174.5m, despite significantly higher cost of manufacture
u
Gross margin impacted by lag in inflation recovery & currency, despite efficiency gains
u
Continuing action to mitigate inflation
Strong progress in ‘mega-programme’ growth pipeline
Medical:
u
PEEK Knee clinical trial well progressed, 30 implants & 12 patients >12 months
u
New development relationship with top five Knee company Aesculap
u
First implants for In2Bones Trauma plates based on Victrex™ PEEK
Industrial:
u
New business wins in E-mobility
u
1st prototype parts in Aerospace Structures; potential for 10-fold PEEK content increase
u
Continuing support to TechnipFMC for Magma, with new scale-up facility in Brazil
Further progress on ESG: enabling environmental & societal benefits
u
100% renewable electricity at all UK sites
u
Initial Scope 3 assessment completed, with opportunities identified
u
Sustainable products
#
represent 48% of Group revenues
Solid cash generation underpins growth investment & returns
u
FY 2022 available cash
1
of £66.0m*, post-payment of FY 2021 special dividend
u
Commissioning underway for new PEEK facility in China
u
Final dividend of 46.14p/share; total FY 2022 dividends 59.56p/share
STRATEGIC REPORT
Victrex plc Annual Report 2022
2
OUR
STRATEGIC
ROADMAP
CULTURE
Our sustainable products
provideclear environmental
andsocietal benefits
Read more on page 44
Maximise resource efficiency
acrossthe value chain
Read more on page 44
Enhance inclusion and diversity,
supportlocal communities and
inspire STEM based careers
Read more on page 44
VALUES
BEHAVIOURS
STRATEGIC IMPERATIVES
PURPOSE
To bring
transformational and
sustainable solutions that
address world material
challenges every day
Read more on page 12
Passion
Innovation
Performance
Read more on page 72
Drive
Differentiate
Create and deliver
Underpin
Read more
on page 18
Driving results
Working together
Doing the right thing
Continuously improving
Focusing on our customers
Read more on page 90
Safety,
sustainability &
accountability
Innovation
Service for
customers
Delivering
with speed
Victrex at a glance
A SUSTAINABLE BUSINESS
STRATEGIC REPORT
3
Annual Report 2022 Victrex plc
OUR STRATEGY: POLYMER & PARTS
Victrex’s strategy is based on Polymer & Parts. We have a strong core polymer business, based
on PEEK & PAEK polymers, which have formed the basis of Victrex’s business since its foundation
in 1993. Alongside our core polymer business, we seek to grow new revenue streams through
adeveloping portfolio of product forms and parts (our mega-programmes). Across our portfolio,
our sustainable products enable environmental & societal benefits for our customers and the
planet (see page 10). With UK headquarters and technical support facilities across the world,
wehave global reach for our customers.
Victrex solutions are found across a range of applications and end markets.
1,000+
employees
globally
48%
of our
revenues from
sustainable products
#
4,727
tonnes
Record sales volume
and revenue
in FY 2022
c.5%–6%
of sales invested
inR&D
##
Note: Source data available on request.
# Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace
(supporting CO
2
reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and renewable
energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are Value Added Resellers
volumes currently, due to the lack of full clarity on exact end market destinations. Sustainable products currently represent 48% of Group revenues.
## The Group targets 5–6% of Group revenues to be spent on R&D expenditure being a leading indicator of the Group’s ability to innovate into new
applications, supporting future growth.
Aerospace
20,000+
aircraft flying with Victrexsolutions
Energy & Industrial
75m+
VICTREX™ PEEK seal rings in use today
Automotive
500m+
VICTREX™ PEEK applications in cars
Electronics
4bn+
mobile devices using Aptiv™ film
Medical
15m+
implanted medical devices
using VICTREX
TM
PEEK
100m+
machines operate using Victrex solutions
HOW OUR PRODUCTS ENABLE
ENVIRONMENTAL & SOCIETAL BENEFITS
Supporting CO
2
reduction, improving energy efficiency and better patient outcomes
arejustsome of the benefits our products bring, with approximately half of our revenues
nowcoming from sustainable products
#
.
STRATEGIC REPORT
Victrex plc Annual Report 2022
4
* Based on European annual mileage for passenger cars using selected applications including vacuum pumps.
** Based on 10kg of PEEK replacement for metal, IATA carbon reduction & climate change 2018.
*** 25% improved brain function based onpaperby Zhang Q, Yuan Y, Li X, et al, World Neurosurgeon 2018.
**** Data on file, refers to Trauma outcomes in high risk patients using PEEK carbon fibre trauma plates vs metal.
# Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace
(supporting CO
2
reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and
renewable energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are
ValueAdded Resellers volumes currently, due to the lack of full clarity on exact end market destinations. Sustainable products currently represent
48%of Group revenues.
2030 Sustainability Vision
Automotive
80,000 tonnes
80,000 tonne annual CO
2
saving in Europe
for selected applications*
Aerospace
CO
2
saving
Our annual sales to Aerospace support
CO
2
savings 3x Victrex’s annual
Scope 1 & 2 emissions**
Medical
25% improved
brain function
Using PEEK-OPTIMA
TM
Natural in CMF skull plates
vsmetal***
Enhanced
unionrate
Using carbon fibre PEEK trauma plate vs 85% union
rate for steel plates****
Electronics
40% lighter
Supporting improved energy efficiency
inhomeappliance devices
In 2020, we established our Net Zero aspiration for 2030
for our own operations (Scope 1 & 2 emissions).
OUR OPTIONS
TOWARDS NET ZERO
Potential future
emissions
(with no
intervention)
Continuous
Improvement
programmes
Renewable
electricity
Alternative
fuels for
heating
Carbon
offsetting
Residual
emissions
Annual GHG emissions (tonnes of CO
2
e)
Alternative
technologies
OPTIONS TO SUPPORT CARBON REDUCTION
STRATEGIC REPORT
5
Annual Report 2022 Victrex plc
With a Continuous Improvement (‘CI’) team in
place, we continue to assess opportunities across
our resource efficiency area that haven’t already
been implemented. These include in recycling,
energy usage, waste and water. Several
improvement programmes have already delivered
ongoing benefits, with examples including our
water usage per unit of revenue decreasing by
5% in the prior five years and waste per unit of
revenue decreasing by 48% since we first set
reduction goals back in 2013.
1.
Improvement
programmes
Victrex has made strong progress, with an
aspiration of using 100% renewable electricity
from all of our global sites by the end of 2024.
Currently, 100% of electricity for our UK sites is
from renewable sources, with 97% globally. This
is partly in the form of Renewable Certificates,
with our own solar generation, which we have
the opportunity to expand. We note that with
the current significant inflation in energy costs,
and the premium already existing in the market
for renewable procured electricity, the cost to
Victrex of continuing to purchase renewable
energy will only increase on a medium-term
view. Our energy usage is approximately 50/50
between gas and electricity for UK sites, with
annual energy usage (globally) of 171,362MWh
in FY 2022.
2.
Renewable
electricity
A key focus area will be the use ofalternative
process technology or alternative fuels to reduce
GHG emissions. For example, wehave been
lobbying for the opportunity to gain access to
hydrogen through proposed grids within the UK,
including those planned in the North West of
England, close to our main polymer
manufacturing centre, and we are
alsoconsidering greater electrification of our
manufacturing assets. We have increased the
capital required in our capital expenditure plans
to support process change or alternative fuel use
(whilst noting the increased operating expense
of alternative fuels). We are also allocating
asmall but growing proportion of R&D
investment in support of alternative processes.
3.
Alternative
fuels &
technologies
Whilst Victrex will consider the opportunities
from carbon offsetting, we currently view this
asa very small part of our pathway, with the
biggest potential for change coming from
alternative fuels & technologies.
4.
Carbon
offsetting
Sustainability report Pages 44 to 74
Victrex plc Annual Report 2022
6
STRATEGIC REPORT
Chair’s statement
Introduction
It is a great privilege to have been appointed
in February 2022 to succeed Larry Pentz as
your Chair and with a strong purpose and
sustainability at the heart of our business
model – including products which enable
environmental and societal benefits for our
customers, and clear long-term goals to
minimise our use of resources – I look
forward to updating shareholders on our
progress over the coming years.
Our innovative culture and our strategy
ofPolymer & Parts – with a core polymer
business, complemented by our parts
business to either prove new opportunities
or sell into medical applications – puts us
ina good position for the years ahead.
Wehave a strong and diverse portfolio of
growth opportunities; the key will be how
we accelerate delivery, particularly in end
markets such as Medical. Recognising this,
we are investing to increase the proportion
of revenues from high value Medical
applications, supporting earnings stability.
Alongside this, we will continue to develop
our core business to generate revenue growth.
Most of our parts-based ‘mega-programmes’
are at an early stage of commercialisation,
but offer significant potential going forward.
I would like to thank Larry for supporting a
smooth transition. Victrex is a unique and
highly innovative Group, with a global and
talented workforce. Our financial position
remains strong, with high levels of cash
generation and sector leading returns,
allowing us to invest to supportgrowth.
Our purpose is to bring transformational and sustainable solutions
to the performance challenges faced by our customers, and our
products increasingly come with environmental, technical or medical
benefits. I believe this makes Victrex well placed for the future.
Dr Vivienne Cox DBE
Chair
ENABLING ENVIRONMENTAL
& SOCIETAL BENEFITS
A record year for
revenue &volume
+11%
Revenue
Revenue from sustainable
products by 2030
>70%
(from c.50% today)
+8%
Sales volume
Safety is fundamental
Across Victrex, safety is fundamental to
everything we do. I am pleased to report
another year of progress – following a
reduction in recordable injuries during the
prior year – and we continue to be aligned
to US Occupational Safety & Health
Administration (‘OSHA’) based metrics, with
our recordable injury frequency rate (‘RIFR’)
improving to 0.2 (FY 2021: 0.7), better
thanthe OSHA industry average of 1.4.
Ouraspiration is for a zero accidents,
zeroincidents culture, with a number of
employee campaigns supporting this goal.
Sustainability
Most of the products that PEEK polymer goes
into are replacing metal and we work across
end markets and with customers to deliver
performance benefits against incumbent
materials. These include lightweighting,
improved heat resistance or mechanical
strength, faster processing and better
energy efficiency. Our products enable
environmental & societal benefits, with one
example being if all new or replacement
single aisle planes were built using 50%
PEEK composites, 53 million tonnes of CO
2
could be saved over the next 15 years.
In Medical, our products support better
patient outcomes in Spine, Trauma,
Arthroscopy and emerging applications
suchas Cardio (artificial heart) and Knee.
Sustainable products are nearly 50% of
Group revenues, close to our 2025 goal
(withan additional goal of 70% of revenues
from sustainable products by 2030).
In 2020, we set out our sustainability goals
for the 10 years to 2030, including an
aspiration ofNet Zero for our Scope 1 & 2
emissions. Weare working on options to
achieve that aspiration – in our UK
manufacturing sites we use100%
renewable electricity, and are working with
other industries around the option of
hydrogen for our plants. We continue to
examine capital investment opportunities
that will allow us to reduce our emissions
over time.
We have again increased the disclosures in
our Sustainability report (pages 44 to 74),
including our TCFD disclosure, a better
understanding of our Scope 3 emissions and
the ‘full’ carbon footprint of our products.
Pleasingly, we have also gained further
accreditations, with an improved A rating
from MSCI – one of the benchmarks for ESG
ratings – and are included in FTSE Russell’s
Green Revenues Index for sustainable
products. Apple has also included us in
itsClean Energy Supplierprogramme.
Strategy
Our Polymer & Parts strategy differentiates
us from our competitors. Over 80% of
Group revenue comes from the sale of
corepolymer materials, with a differentiated
offering which is built on much more than
having the capability to manufacture.
Withstrong technical service, application
development and regulatory capabilities,
wehave high levels of innovation to support
our customers. Every year, we invest 5–6%
of revenue in Research & Development.
Moving downstream into new finished and
semi-finished products (‘parts’) is allowing
us to move into new end user applications.
We currently have seven mega-programmes,
which support development of new markets
for our polymers, for example our PEEK
Knee opportunity, where we estimate there
STRATEGIC REPORT
7
Annual Report 2022 Victrex plc
is an addressable market of around $1bn,
andwhere we are making good progress
through clinical trials. We also secured a
new collaboration with Aesculap, a top five
Knee company. We are also investing in
China, with a new PEEK manufacturing
facility, supporting geographic growth.
Delivery of our strategy will create value for
our customers and shareholders alike, and,
indoing so, enable environmental & societal
benefits from our sustainable products.
Results
Following the solid recovery post-pandemic
that the Group delivered in FY 2021, I am
pleased to report a record year for revenue
and volume, with Group revenue of £341.0m
up 11% on the prior year (FY 2021: £306.3m)
and Group volume of 4,727 tonnes up 8%
(FY 2021: 4,373 tonnes), underlining the
strong demand for applications using our
high performance materials, across a diverse
set of end markets. Whilst reported profit
before tax (PBT) was down due to exceptional
items relating to our new ERP system,
underlying PBT was up 4% to £95.6m
(FY2021: £91.7m), impacted by the higher
cost of manufacture, as the significant and
unprecedented energy and raw material
inflation impacted our business. Underlying
PBT was up 12% in constant currency,
withunderlying EPS
1
up 14% to 95.0p
(FY2021: 83.4p).
Investment for growth
We continue to invest to underpin our
future growth, whether that is in Research
&Development capability, in downstream
manufacturing facilities, or in partnerships
and alliances to drive forward our growth
opportunities. At the end of FY 2022,
wecommenced commissioning of a new
PEEK manufacturing facility in China, which
will underpin our future growth in that
region and is aligned to the Made in China
2025 initiative by the Chinese government.
The facility is expected to deliver commercial
product towards the end of FY 2023,
eventually having 1,500 tonnes of PEEK
andPAEK nameplate capacity, expanding
our portfolioof grades and complementing
our sales and technical centre presence that
already exists within China. This investment
formed the bulk of our capital expenditure
for the year of £45.5m (FY 2021: £41.9m).
Solid cash generation
Victrex continues to operate a highly
cash-generative business model, which
supports investment for growth and
appropriate returns to shareholders. With
agood trading performance, yet higher
capital expenditure, the Group’s available
closing cash balance reached £66.0m this
year (FY 2021: £99.9m). Operating cash
conversion
1
was 49% (FY2021: 100%).
Dividends
With the recent high levels of capital
expenditure expected to peak during FY
2023, we have been engaging with
shareholders to assess feedback on
incremental shareholder returns, whether
that bethrough special dividends or share
buybacks. We anticipate implementing an
updated capital allocation policy during the
year and our intention will be to continue
growing the regular dividend, whilst
maintaining dividend cover around 2x,
alongside the potential for incremental
shareholder returns.
For FY 2022, with basic earnings per share
up 4%, the Group is proposing to maintain
the final dividend at 46.14p/share (FY 2021:
46.14p/share). Total regular dividends for the
year will be 59.56p/share (FY 2021: 59.56p/
share). Dividend cover is at 1.5x (FY 2021:
1.4x), with underlying dividend cover
1
at
1.6x (FY 2021: 1.4x). No special dividend
was declared for FY 2022.
Governance and the Board
Governance is strong across the Group.
During the year, we formed the Corporate
Responsibility Committee (‘CRC’), chaired
byJane Toogood, who brings a wealth of
experience in sustainability. This Committee
will have oversight of our sustainability goals
and progress towards them. It will also have
a focus on Diversity, Equity & Inclusion
(‘DE&I’). We are targeting 40% of the
leadership group to be female by 2030.
There has been good progress this year to
19% (from 10% last year), but more needs
to be done.
It has been a privilege to Chair the Board
during the year. We have a talented and
diverse team, with 44% of Directors being
female, including our Senior Independent
Director. In July, Ian Melling joined the Board
as our Chief Financial Officer (‘CFO’), to
succeed Richard Armitage. Ian joins from
Smith & Nephew, the medical devices
company, and we are delighted he has
joined the Company.
People, stakeholders,
values&culture
On behalf of the Board I would like to thank
each and every one of Victrex’s employees
for their continued contribution. After a
challenging period with the pandemic, we
saw a full Return to Site during FY 2022,
with all of our global locations now active,
balanced by our flexible working policy.
With a good trading performance again,
ouremployees will share in our All-Employee
Bonus Scheme, an important tool in retention
andrecruitment. Reflecting the current cost
of living challenges, we have also provided
targeted support to our employees.
Victrex also seeks to inspire the next
generation of employees and has
long-standing support for Science,
Technology, Engineering & Maths (‘STEM’)
subjects, including working with schools in
the UK and seeking to build this programme
at global level. The aim is to help those
considering careers built on science and
innovation and we now have 52 STEM
Ambassadors. We also have a long-standing
apprenticeship programme, with 63
apprentices currently supporting us in
avariety ofroles.
All of our stakeholders remain important
tous, from customers, to investors, to
suppliers and, of course, local communities
wherever we operate. Employee volunteering
is embedded in our culture, with 4,784
employee hours supporting local communities
this year (FY 2021: 3,559 hours), putting us
well on track for our target of 10,000 hours
by 2030. Investment in our employees is also
important, with support for external awards
and additional qualifications. A number of
networks in support of our DE&I agenda are
also working well, including a Gender
Engagement Network (‘GEN’) and Strategic
Inclusion Group (‘SIG’), with further detail
on pages 44 to 74 of the
Sustainabilityreport.
Brendan Connolly acts as our Workforce
Engagement Non-executive Director and
hasbeen active in engaging with employees
across our global locations during the year.
A summary of his work is shown on pages
92 and 93. Overall, our values of Passion,
Innovation and Performance and our highly
innovative culture have helped us as an
organisation through recent years, with
resilience and optimism for the years ahead.
Our culture ofinnovation, service for
customers and delivering with speed
underpinned by safety and accountability
iscentral to our ability to commercialise
ourfuture opportunities and sustain
Victrexinto the future.
Outlook
Overall, we have seen a steady start to the
year and are focused on modest revenue
and profit growth. This includes the benefit
from pricing, an improved sales mix and
currency tailwinds. We will also see further
investment in our long-term growth
programmes, as they progress towards
greater commercialisation.
Dr Vivienne Cox DBE
Chair
6 December 2022
1 Alternative performance measures are defined
in note 25.
STRATEGIC REPORT
Victrex plc Annual Report 2022
8
Our investment case
OUR LONG-TERM
GROWTHCREDENTIALS
By enabling environmental & societal benefits for our customers and the planet,
we arealigned to global megatrends, which in turn support our long-term
growth opportunities, underpinned by our strong financial position.
An innovative world leader:
building the PEEK/PAEK market
Read more online www.victrexplc.com
Strong pipeline of medium to
long-termgrowth opportunities
Our markets and megatrends Pages 10 and 11 Our markets and megatrends Pages 10 and 11
Proportion of project-based R&D investment
to support sustainable products
Highly cash-generative
businessmodel
Our business model Pages 12 and 13 Financial review Pages 26 to 29
Sector leading returns
Sustainable product goals
Financial review Pages 26 to 29
No.1
PEEK expert
>70%
Group revenue from sustainable products with
environmental and societal benefits by 2030
(from 48% today)
7
mega-programmes
89%
(proportion of project-based R&D expenditure
tosupport sustainable products as a proportion
oftheGroup’s project-based R&D expenditure
2
)
£66.0m
available cash
1
c.17%
5-year average return on capital
employed(‘ROCE’)
1
1 Alternative performance measures are defined in note 25.
2 From FY2023 we will measure against total R&D expenditure.
STRATEGIC REPORT
9
Annual Report 2022 Victrex plc
1.
Sustainable
products bringing
environmental &
societal benefits
u
Aspiration of Net Zero
Carbon emissions in our own
operations (Scope 1 & 2),
with an additional Scope 3
aspiration anticipated, in line
with our SBTi commitment
u
Sustainable products support
environmental & societal
benefits across our end
markets, including CO
2
reduction in Aerospace
&Automotive, with
c.60%weight saving vs
metalapplications, and
clinical benefit in many
Medicaldevices
2.
High levels
ofinnovation
u
A culture of innovation,
with5–6% of Group
revenueinvested in Research
&Development
u
A strong & growing core
business of existing and
newapplications (polymer
&product forms)
u
A long-term growth pipeline
of seven potentially
game-changing mega-
programmes (parts) including
PEEK Knee and E-mobility,
with new business wins in
E-mobility during FY 2022,
and initial revenues from
prototype Aerospace
Composite parts for the
aircraft of tomorrow
3.
Global capability
u
Over 1,000 employees
globally
u
Manufacturing & technical
centres in UK, US, China
andJapan
u
Partnerships with global
academia, particularly in
theUK
u
Sales & customer service
centres in UK, US, Europe
andAsia
4.
Medical acceleration
opportunity
u
Increase proportion of Medical
as a % of Group revenue
(potential for >1/3 of Group
revenue from Medical)
u
Leverage our IP & clinical
data to further expand
keyMedical partnerships
u
Investment in innovation
andcapability
u
Expand revenue from
PEEKinnew clinical
applications including
Ortho(Knee & Trauma),
Cardio (artificial heart)
andDrug Delivery devices
DELIVERING OUR
GROWTHOPPORTUNITIES
to 10,000
feet below
40,000
feet above the sea…
Developed in the
1970s under ICI, PEEK
& PAEK polymers
offer a unique
combination of
properties, including
lightweighting.
From Victrex’s foundations
in1993 and less than 40
employees and £25m revenue,
we have grown to a 1,000+
employee global business, with
annual revenues now >£300m.
PEEK is found in many mission-
critical applications, replacing
metal and helping to bring
environmental & societal
benefits, including supporting
CO
2
reduction and clinical
benefit. The success of Victrex
today, and into the future, is
applying our sustainable
products to different end
markets and enabling long-term
performance benefits for our
customers and society.
Victrex’s high performance polymers are found
across a number of end markets & applications
STRATEGIC REPORT
Victrex plc Annual Report 2022
10
Medical
15–20
Ageing global population
u
People are living longer and have a strong
desire to maintain their quality oflife and
activity levelsin their later years, requiring
better patient outcomes.
Better patient outcomes
u
Extended life expectancy and long-term
demand for new solutions in core
markets, such as Spine and Arthroscopy.
Increasing alternatives being sought to
metal in markets such as Knee, Trauma
and Dental.
High performance solutions
providing societal benefits
u
Invibio provides solutions for the Medical market
that can be used in a minimally invasive manner,
helping to enhance clinical benefits. With over
15million patients having PEEK medical implants,
our solutions are in early commercialisation for
Dental, Trauma and Knee (clinical trial), with
emerging areas such as Cardio and Drug Delivery.
SIZEABLE AND SUSTAINABLE
GROWTHOPPORTUNITIES
With long-term megatrends in our favour and sustainable products, we have
astrong and diverse mix of growth opportunities across our key markets.
END MARKETS MARKET OPPORTUNITY MEGATRENDS CONSEQUENCES OUR CHALLENGES AND OPPORTUNITIES
Aerospace
39,000
Source: Airbus.
Fly lighter
u
Lighter weight and CO
2
reduction trends
withmore efficient manufacturing using
PEEK, PAEK and composites mean fuel
saving– a strategic imperative for the
Aerospace industry.
u
Opportunities to support reduction of OEM
backlogs through more efficient processing.
Weight, cost reduction
andfuel efficiency
u
Weight, cost reduction and improved
fuel efficiency are primary strategic
drivers for the Aerospace industry.
Lightweight metal replacement
u
VICTREX™ PEEK helps Aerospace lightweighting
viametal replacement and is a key part of driving
improved fuel efficiency and reduced emissions.
u
Our composite materials can also provide more
efficient manufacturing.
Automotive
>100g
CO
2
reduction, durability
andelectrification
u
Fuel efficiency, CO
2
reduction, safety and
reliability improvements resulting from
consumer and regulatory trends. Transition
from internal combustion engines (‘ICE’) to
electric vehicles (‘EVs’) as electrification is
mandated in many regions.
Emissions reduction
designchallenges
u
Energy efficiency, comfort, heat
resistance and durability are primary
strategic imperatives forthe
Automotiveindustry.
Lightweight metal replacement
u
VICTREX™ PEEK enables lightweighting and
reliability via metal replacement in a range of
applications, particularly powertrain.
u
ABS braking systems, gears and transmission systems
are key application areas. New business wins in next
generation EVs support medium-term growth
opportunities, including wire coatings, battery
applications and e-motor.
Electronics
21bn+
Source: Norton.
Thinner, smaller, smarter
u
The need for instant access to
communication and information onthe
move is driving trends for mobile devices.
Energy and thermal
managementbenefits
u
Increased functionality and
miniaturisation create challenges for
mobile device performance as well as
materials that can handle energy and
thermal management.
High durability, thinfilmtechnology
u
Victrex materials, such as PEEK resin, PEEK blends
and our Aptiv™ acoustic film technology create
design opportunities by virtue of their durability in
today’s thinner, smaller, smarter mobile devices.
PEEK also has long-standing application in
Semiconductor processing.
Energy &
Industrial
1%
Source: IEA.
Energy transition
u
Increasing demand for and depletion of
existing resources drive exploration into
uncharted territory, as well as the
energytransition and opportunities
inrenewable energy.
u
More efficient manufacturing processes
create more data and connectivity
requirements in Industrial end markets.
Increased performance
requirements
u
Deeper, hotter, higher pressure and
chemically aggressive wells must
betapped to reach new reserves,
requiring more durable materials.
u
Renewable energy applications
requiremore demanding materials
todeliver performance.
u
Evaluation of higher performance
materials in manufacturing, including
inthe food industry.
Traditional and new energy
u
Oil & Gas operations are enabled using VICTREX™
PEEK based solutions in exploration and production
tooling, pumps and valves. Significant opportunity
for Magma composite pipe (based on VICTREX
TM
PEEK and composite tape) to reduce installation
costs through lightweight pipe solution.
u
Emerging opportunities in wind, carbon capture
&storage (composite pipe) and hydrogen.
u
Tailored solutions for Industrial markets, including
VICTREX™ PEEK FG, a food grade polymer.
INDUSTRIALMEDICAL
new passenger and
freight aircraft by 2040
PEEK/car average (increase from current 10g
over long term (Victrex internal aspiration))
internet of tomorrow devices by 2025
global increase every year in
annual energy needs by 2040
Our markets and megatrends
Vision to treat a patient with Invibio
solutions every 15–20 seconds by 2027
(Victrex internal aspiration)
STRATEGIC REPORT
11
Annual Report 2022 Victrex plc
Medical
15–20
Ageing global population
u
People are living longer and have a strong
desire to maintain their quality oflife and
activity levelsin their later years, requiring
better patient outcomes.
Better patient outcomes
u
Extended life expectancy and long-term
demand for new solutions in core
markets, such as Spine and Arthroscopy.
Increasing alternatives being sought to
metal in markets such as Knee, Trauma
and Dental.
High performance solutions
providing societal benefits
u
Invibio provides solutions for the Medical market
that can be used in a minimally invasive manner,
helping to enhance clinical benefits. With over
15million patients having PEEK medical implants,
our solutions are in early commercialisation for
Dental, Trauma and Knee (clinical trial), with
emerging areas such as Cardio and Drug Delivery.
Visit www.victrexplc.com to seehow we are
shaping future performance in our markets
END MARKETS MARKET OPPORTUNITY MEGATRENDS CONSEQUENCES OUR CHALLENGES AND OPPORTUNITIES
Aerospace
39,000
Source: Airbus.
Fly lighter
u
Lighter weight and CO
2
reduction trends
withmore efficient manufacturing using
PEEK, PAEK and composites mean fuel
saving– a strategic imperative for the
Aerospace industry.
u
Opportunities to support reduction of OEM
backlogs through more efficient processing.
Weight, cost reduction
andfuel efficiency
u
Weight, cost reduction and improved
fuel efficiency are primary strategic
drivers for the Aerospace industry.
Lightweight metal replacement
u
VICTREX™ PEEK helps Aerospace lightweighting
viametal replacement and is a key part of driving
improved fuel efficiency and reduced emissions.
u
Our composite materials can also provide more
efficient manufacturing.
Automotive
>100g
CO
2
reduction, durability
andelectrification
u
Fuel efficiency, CO
2
reduction, safety and
reliability improvements resulting from
consumer and regulatory trends. Transition
from internal combustion engines (‘ICE’) to
electric vehicles (‘EVs’) as electrification is
mandated in many regions.
Emissions reduction
designchallenges
u
Energy efficiency, comfort, heat
resistance and durability are primary
strategic imperatives forthe
Automotiveindustry.
Lightweight metal replacement
u
VICTREX™ PEEK enables lightweighting and
reliability via metal replacement in a range of
applications, particularly powertrain.
u
ABS braking systems, gears and transmission systems
are key application areas. New business wins in next
generation EVs support medium-term growth
opportunities, including wire coatings, battery
applications and e-motor.
Electronics
21bn+
Source: Norton.
Thinner, smaller, smarter
u
The need for instant access to
communication and information onthe
move is driving trends for mobile devices.
Energy and thermal
managementbenefits
u
Increased functionality and
miniaturisation create challenges for
mobile device performance as well as
materials that can handle energy and
thermal management.
High durability, thinfilmtechnology
u
Victrex materials, such as PEEK resin, PEEK blends
and our Aptiv™ acoustic film technology create
design opportunities by virtue of their durability in
today’s thinner, smaller, smarter mobile devices.
PEEK also has long-standing application in
Semiconductor processing.
Energy &
Industrial
1%
Source: IEA.
Energy transition
u
Increasing demand for and depletion of
existing resources drive exploration into
uncharted territory, as well as the
energytransition and opportunities
inrenewable energy.
u
More efficient manufacturing processes
create more data and connectivity
requirements in Industrial end markets.
Increased performance
requirements
u
Deeper, hotter, higher pressure and
chemically aggressive wells must
betapped to reach new reserves,
requiring more durable materials.
u
Renewable energy applications
requiremore demanding materials
todeliver performance.
u
Evaluation of higher performance
materials in manufacturing, including
inthe food industry.
Traditional and new energy
u
Oil & Gas operations are enabled using VICTREX™
PEEK based solutions in exploration and production
tooling, pumps and valves. Significant opportunity
for Magma composite pipe (based on VICTREX
TM
PEEK and composite tape) to reduce installation
costs through lightweight pipe solution.
u
Emerging opportunities in wind, carbon capture
&storage (composite pipe) and hydrogen.
u
Tailored solutions for Industrial markets, including
VICTREX™ PEEK FG, a food grade polymer.
STRATEGIC REPORT
Victrex plc Annual Report 2022
12
Key to strategy
Drive core business
Differentiate through
innovation
Create and deliver
future value
Underpin through
safety, sustainability
and capability
WHO WE ARE
Victrex was formed in 1993
following a management buy-out
from ICI, with our main PEEK &
PAEK polymers having their roots
in the 1970s when the product
was developed. Today. we partner
with customers in 40 countries,
with a culture of innovation being
part of everything we do. Every
day, millions of people rely on
applications which contain our
sustainable products and
materials, from smartphones,
aeroplanes and cars, to energy
production and medical devices.
Our business model
1. A sustainable business model
We enable environmental & societal benefits for our customers and
theplanet. Oursustainable products offer a unique combination
ofproperties, supporting CO
2
reduction in Aerospace & Automotive
through lightweighting and faster processing, and with over 15 million
PEEK implants in medical devices, we also support improved patient
outcomes. With our 2030 ESG goals, including Carbon Net Zero in
Scope 1 & 2, weseek to minimise our use of resources, with the
opportunity to utilise process change or alternative fuels to support
our environmentalgoals.
2. Align to global megatrends
We identify megatrends such as CO
2
reduction or health
benefits, where our polymers can offer a performance
advantage vs metal or incumbent materials. We identify
andunderstand customer needs, targeting industries
andapplications with opportunities for significant growth
andattractive returns.
3. Innovation
Our culture is built on continual innovation, with a focus
solely onPEEK/PAEK and the high performance materials
area,beyondsimply manufacturing polymers. We have a
high level of technical capability, with investment in Research
&Development representingc.5–6% of revenue, and we
work withacademia and partners to bring new and
enhanced products toour customers and our end markets.
WHAT WE DO
HOW WE CREATE VALUE
FROM OUR POLYMER
&PARTS STRATEGY
UN Sustainable Development Goals (‘SDGs’)
A SUSTAINABLE BUSINESS
WITHSUSTAINABLE PRODUCTS
Our Business Model and Sustainability Strategy is aligned to
the UN’s Sustainable Development Goals 2030, including a
Carbon Net Zero goal for Scope 1 & 2 emissions, and an
expected Scope 3 goal to come, ensuring alignment with
the Science Based Targets initiative (‘SBTi’).
Shaping future performance
Our Polymer & Parts strategy sees
usdevelop and manufacture a range
of high performance PAEK & PEEK
polymers which offer sustainable
performance benefits, typically
replacing metal in applications, many
of which are ‘mission-critical’. Our
sustainable products offer benefits
such as lightweighting, recyclability,
durability, chemical resistance, faster
processing and enhanced clinical
outcomes, with a focus on bringing
environmental & societal benefits in
everything we do.
STRATEGIC REPORT
13
Annual Report 2022 Victrex plc
For customers
By partnering with customers in the
development of new applications, we
bring superior products that deliver
long-term performance benefits vs
incumbent materials.
Read more on pages 9 to 11
For employees
Investing in skills, apprenticeships and
training brings significant opportunity
for development as part of our Polymer
& Parts strategy. Performance-based
reward drives a strong retention rate.
Read more on pages 66 to 71
For investors
Continued innovation and delivering
performance benefits for our
customers drive strong returns and
cash generation to invest and support
shareholder returns.
Read more on page 8
For communities
Engagement with our local communities
enables us to partner on a wide range
of social responsibility programmes.
Read more on pages 66 to 71
For society & the planet
Our purpose is to bring
transformational & sustainable
solutions, with products which
can support environmental
or societal benefits.
Read more on pages 20 and 21
HOW WE CREATE VALUE
4. Manufacturing differentiation
Our Polymer & Parts strategy and unique
manufacturing process (Type 1 PEEK) differentiates
us from competitors, with >200 patents in place or
pending, and know-how helping us to manufacture
the widest range of PEEK grades, including Type 2
PEEK. Safety is our highest priority, with efficient and
well-invested assets.
We have invested in downstream manufacturing
capability, to make selected ‘parts’ within
Automotive, Aerospace, Energy & Industrial and
Medical, underpinning the opportunity for our
‘mega-programmes’, each of which offers the
potential of >£50m peak revenue opportunity.
5. Capital, cost and cash generation
Our strong financial profile enables us to invest in
capital expenditure or in support of our Polymer &
Parts strategy. Cost efficiency is key, with a focus on
operating efficiency, supporting margin and returns.
With high value products, we seek to retain a strong
financial position, generating cash to support further
investment and shareholder returns.
6. Sales, marketing and
technical service
Our Sales & Technical Service teams ensure we can
support customers with validation and certification in
critical applications. We have strong regulatory &
quality teams, partnering with customers or
processors in development of new applications,
helping to drive adoption of our materials.
OUR PEOPLE
&CAPABILITY
Over 1,000 talented
employees wake up every
day focusing on PEEK and
partnering with
customers to bring
environmental & societal
benefits through our
sustainable products.
OUR SUPPLIERS
& PARTNERS
We are the only PEEK
manufacturer with
upstream integration into
key raw materials,
supporting security
of supply for customers.
SUPPORTED BY
STRATEGIC REPORT
Victrex plc Annual Report 2022
14
Strategy
1. Drive core business
u
PEEK & PAEK polymers
u
Application development
u
No.1 upstream
manufacturing capacity
of7,150 tonnes
(nameplatecapacity)
u
Cost efficiency
u
Sustainability & productivity
3. Create and deliver…
u
Selected product forms
(semi-finished)
u
Downstream manufacturing
u
Pipes, film andcomposites
2. Differentiate
through innovation
u
Core application
development pipeline
u
Invent and develop
newgrades
u
Increasedifferentiation
A SUSTAINABLE BUSINESS
POLYMER
STRATEGIC REPORT
15
Annual Report 2022 Victrex plc
…future value
u
Selected parts
(semi-finished and finished)
u
Downstream manufacturing
u
Deliver mega-programmes
1
u
Polymer to parts
4. Underpin
u
Safety, health and wellbeing
u
Sustainable business with
sustainable products
u
Talent strategy
u
Strong financial position
AUTOMOTIVE
AEROSPACE
ELECTRONICS
MEDICAL
1 Pipeline programmes offering
>£50mannual revenue potential
inpeak sales year.
WITH SUSTAINABLE PRODUCTS
& PARTS
ENERGY & INDUSTRIAL
With our products aligned to long-term megatrends of CO
2
reduction, energy efficiency and improving patient outcomes,
weare enabling environmental & societal benefits for our
customers and the planet, and creating long-term growth
opportunities forour business.
Jakob Sigurdsson
Chief Executive Officer
Victrex plc Annual Report 2022
16
STRATEGIC REPORT
Dear shareholders,
With sustainability at the heart of our
business model and long-standing
credentials through our products which
offer up to 60% lightweighting compared
tometal, faster and more energy efficient
processing, or products which support
enhanced patient outcomes, we are closely
aligned with enabling and supporting the
environmental & societal needs of our
customers into the future. Our recent carbon
footprint assessment – our Lifecycle Analysis
of Victrex
TM
PEEK – also has favourable
indicators against the average for PEEK
manufacturers, supporting our credentials.
Only recently, through our 2030 Sustainability
Vision and goals, have we started to see a
greater recognition and understanding of
the role our products can play in the society
of the future. With new business in electric
vehicles, the potential for over 100g/PEEK
per vehicle compared to 10g average today
is real. In Aerospace, our products are
replacing metal, helping to support fuel
efficiency and CO
2
reduction, with annual
sales to Aerospace helping save three times
the CO
2
produced in our own operations.
Our solutions in Medical are also proven
tobring clinical benefits. Our goal is to
increase the proportion of revenues from
sustainable solutions (products which enable
environmental & societal benefits, including
Medical), to over 50% of revenues by 2025
and 70% by 2030, from under 50% today.
POLYMER & PARTS: THE RIGHT
STRATEGYTO ENABLE ENVIRONMENTAL
&SOCIETAL BENEFITS
Progress in FY 2022
With a record year for revenue and volume,
Victrex is starting to reap the fruits of our
Polymer & Parts strategy and the innovation
over recent years that has yielded a strong and
growing core business, together with further
commercialisation in our mega-programmes.
Whilst we face current challenges of
unprecedented energy and raw material
inflation, the Group remains well positioned
to grow over the medium to longer term,
with a number of key attributes, including
our high levels of innovation, our technical
support to customers, an unrivalled range
ofpolymer grades, and our desire to move
downstream in selected end markets
(Polymer & Parts), to capture greater revenue
and margin streams, as well as further
differentiating our business from competitors.
All of our activities are underpinned by
safety, which is fundamental to Victrex
andour highest priority.
Our strategy: Polymer & Parts
Moving into manufacturing selected ‘parts’
is a way to deliver a proof of concept and
develop markets and applications which
drive greater adoption of PEEK polymer
technology. As we note in our purpose,
sustainability is embedded in our business
model, and is not just how we seek to
reduce our own carbon footprint, it is
focused on how our high performance
polymers can have a positive impact on
thereduction of environmental footprint
inany given industry, and bring patient
benefits as they relate to our medical products.
Overview of strategy
Potential of of over 1/3 of revenues
from Medical in 10 years
>1/ 3
(current Medical revenue <20% of Group revenue)
Align with our purpose: grow revenues
from sustainableproducts
70%
(target of 70% sustainable products revenue by 2030)
Metal replacement remains the majority
ofour addressable market. As the highest
performing polymer available, PEEK offers
opportunities for CO
2
reduction with lighter
parts, biocompatibility, faster manufacturing,
durability, waste reduction, recyclability,
dielectric properties, chemical and wear
resistance or other performance benefits.
In summary, Polymer & Parts is about
catalysing adoption of PAEK/PEEK and
related technology, and capturing increased
value from each application opportunity, for
example not only by supplying polymer, but
by developing selected product forms and
parts which can replace metal and offer
atotal solution to our customers.
Long-term opportunities
Whilst we can celebrate FY 2022 with
recordrevenue and volume, we do need
tofocus onmid-term improvement to our
margin and returns. That is one of the
reasons why we are focusing on how we
can potentially accelerate adoption of our
Medical opportunities, particularly those
in‘parts’ such as Trauma and Knee, the
former of which is gaining good early
commercialisation and the latter making
good progress in clinical trials. Medical could
potentially be over onethird of revenues in
10 years (from <20% today), reflected by
significant addressable markets, with Knee
alone being a potentially $1bn opportunity.
This and our other mega-programmes
(seven in total) offer the opportunity of at
least £50m+ revenue in their peak sales year
and the potential to change the profile of
STRATEGIC REPORT
17
Annual Report 2022 Victrex plc
the Group over the longer term, whilst
growing our core polymer business,
including geographic expansion, with
thenew manufacturing facility in China
duetobe operational inFY2023.
Whilst the delivery of our range of growth
opportunities requires high levels of
innovation, I am pleased that after five years
as Chief Executive, we have not only grown
our revenues and application areas within our
core business, but have started to gain good
early commercialisation for many of our
mega-programmes which are parts-based
applications that Victrex will either manufacture
or partner to deliver. In short, our core
business remains strong, helping bridge
towards greater commercialisation ofour
mega-programmes in parts.
Beyond our Medical programmes, progress
this year also included support for the Magma
opportunity in Energy, where Victrex has
intellectual property for manufacturing
composite pipe and tape, rather than just
supplying polymer. Our main customer in
this area, TechnipFMC, is gearing up a new
facility in Brazil to tap into deep water oil &
gas where PEEK will not only make materials
lighter and with lower carbon footprint, but
willoffer the potential of more efficient
deployment costs. We also secured new
business wins in E-mobility within
Automotive, whilst in Aerospace, Airbus
exhibited its first large scale demonstrator
parts that our materials are embedded in,
offering lightweight and CO
2
reducing
solutions for next generation aircraft.
Differentiation vs competitors
Whilst Victrex’s unique manufacturing
process (Type 1 PEEK) and our backward
integration into key monomers demonstrates
the unique properties of our products, we
continue to strive to further differentiate our
business. We are doing this in several ways.
Firstly, in our core polymer business, technical
service to customers as well as the broadest
range of polymer grades keeps us well
placed across end markets. Secondly, our
emerging parts business offers significant
opportunities to deliver future end market
requirements in specific applications,
typically where no supply chain or capability
exists, but where there is an opportunity
tosolve a problem for our customers.
Moving ‘downstream’ into manufacturing
selected parts increases risk – particularly in
the likes of Medical – but we seek to address
this through enhanced skills and capability,
protecting our intellectual property (‘IP’)
through patents or know-how, or in
regulatory support and our contracting
terms. We are also working with partners
and enhancing quality control, which will
help to de-risk these opportunities. At the
end of FY 2022, nearly 80% ofrevenue was
from polymer, with ‘product forms’ and
‘parts’ making up the remainder, with the
opportunity to grow the latter over the
yearsahead.
We are also differentiated not only in our
polymer manufacturing process, but by
being backward integrated into key
monomers, where we expect to invest in our
UK monomer assets over the medium term,
to enable us to provide security of supply
toour customers. Finally, a new facility in
China, focused on Type 2 PEEK to extend
our range of polymer grades, enables us to
underpin the significant growth available in
that region over the longer term.
Investment to differentiate our strategy
continues, particularly in innovation,
including Research & Development (‘R&D’),
where we are investing approximately 5–6%
of revenues every year – well ahead of
manycompetitors – including the majority
ofproject-based R&D being for
sustainableproducts.
Sustainability
Within our own manufacturing operations,
we have been assessing the options towards
Net Zero (Scope 1 & 2 emissions), which
includes alternative process technology,
fuels or further electrification, with
approximately 50/50 gas and electricity
usage in our UK assets.
During the year we were accredited by
Apple as part of its Clean Energy Supplier
programme, whilst we saw improvement in
our recognition by ESG rating agencies.
MSCI, one of the leading rating agencies,
rated Victrex as A. We also continue to be
accredited by FTSE Russell’s Green Revenues
Index for our sustainable products, whilst
100% of our UK electricity needs are now
from renewable sources.
Delivering for shareholders
Victrex has a history of investing to underpin
future growth and whilst growth investment
remains the priority, our strong financial
position and highly cash-generative business
model offers opportunities for good returns
over the coming years. This includes both
regular dividends and also the opportunity
of additional returns, whether special
dividends or share buybacks – which we are
currently engaging with shareholders on.
Our cash position also supports our ability
toinvest, with £66.0m available cash at
theend of FY 2022, despite a high capital
expenditure year focused on completion
ofour China PEEK facility.
Safety, values & culture
The safety, health and wellbeing of our
employees is fundamental to our success
and remains our highest priority. Having
aligned to the US Occupational Safety &
Health Administration (‘OSHA’) criteria last
year, we were pleased to deliver further
improvement in our safety performance. Our
recordable injury rate of 0.2 (FY 2021: 0.7) is
now at a record low and remains better than
the OSHA industry average of 1.4. Our SHE
strategy is for a zero accidents and zero
incidents culture and it has been very clear
to me that our values of Passion, Innovation
and Performance have helped us as
individuals, as a team and as an organisation.
Our culture is built on innovation and
collaboration. It was therefore good to see
afull Return to Site in FY 2022 across our
global locations – supported by our Global
Flexible Working policy. Our flexibility
enables us to build and further enhance
ourglobal talent base, yielding us a high
performing team that has service for
customers and delivering with speed and
asense of urgency as key pillars in
commercialising our future growth
opportunities. Diversity, Equity & Inclusion
(‘DE&I’) is also a key focus for us, with
long-term goals across this area.
Wherever we operate, the resilience
ofVictrex’s team is a huge asset for our
business and delivering our strategy.
Wealsoensure a strong consideration
forstakeholders, through community
volunteering, with over 4,784 employee
hours committed to local communities
during theyear.
Moving forward with our strategy
Overall, our progress continues in our
Polymer & Parts strategy, not just through
arecord year for our core polymer business,
but with several ‘green shoots’ turning into
commercial revenues for our emerging parts
business. Although a number of areas need
to improve, including margin and operating
efficiency, our 1,000+ employees continue
towake up every day focused on making
adifference to our customers and our
markets through PEEK and PAEK, and
enabling environmental & societal benefits
through our products and strong
sustainability credentials.
The Strategic report on pages 1 to 74 was
approved by the Board and signed on its
behalf by the Chief Executive Officer.
Jakob Sigurdsson
Chief Executive Officer
6 December 2022
STRATEGIC REPORT
Victrex plc Annual Report 2022
18
Overview of strategy continued
Strategic highlights in 2022
u
FY revenue growth of 11% and volume growth +8%
u
48% of Group revenue from sustainable products which
enable environmental & societal benefits
u
Medical revenues up 14%, greater commercialisation of
several areas: Drug Delivery, Cardio
OUR STRATEGIC IMPERATIVES
Strategic highlights in 2022
u
5% of sales invested in R&D including 89% of project-based
R&D supporting sustainable products (to be measured
against total R&D expenditure from FY 2023)
u
Prototype revenue for Aerospace Structural Composites,
supplying Airbus
u
Support for TechnipFMC in scale up of Brazil facility
forcomposite pipe programme
u
Execute on key growth programmes in five
strategicmarkets
u
Drive growth in emerging geographies
u
Continuous improvement, cost efficiency & sustainability
at the core of everything we do
DIFFERENTIATE
THROUGH INNOVATION
u
Market-led innovation
u
Investment in R&D
u
Move further downstream: new applications, new forms,
new materials and new product launches
DRIVE
CORE BUSINESS
1 2
A SUSTAINABLE BUSINESS
WITHSUSTAINABLE PRODUCTS
STRATEGIC REPORT
19
Annual Report 2022 Victrex plc
Strategic highlights in 2022
u
Strong progress in clinical trial for PEEK Knee; 30 patients
implanted, including 12 patients post-12-month stage;
firstTrauma plate implants as part of In2Bones partnership
u
E-mobility: new business wins for next generation electric
vehicle applications
u
Commissioning commenced for new China PEEK
manufacturing facility
Strategic highlights in 2022
u
OSHA recordable injury rate 0.2 (down 71% from
0.7&86% lower than OSHA industry average of 1.4)
u
4,784 employee hours supporting local communities
u
Progress in Sustainability Strategy including 100%
renewable electricity at all UK sites
u
Strong new product pipeline
u
M&A/JVs and partnerships
u
Downstream manufacturing capability
u
Drive adoption: ‘burden of proof’
UNDERPIN
THROUGH SAFETY,
SUSTAINABILITY
ANDCAPABILITY
u
Safety, health and wellbeing
u
Sustainable business with sustainable products;
embedclimate change agenda
u
Talent strategy
CREATE & DELIVER
FUTURE VALUE
3 4
Stakeholder engagement
Victrex plc Annual Report 2022
20
STRATEGIC REPORT
KEY STAKEHOLDERS
ANDHOWWEENGAGE
STAKEHOLDER FOCUS AREAS HOW WE ENGAGE ENGAGEMENT OUTCOMES
Employees
u
Safety focus
u
Innovative culture
u
Sustainability embedded in our businessmodel
u
Highly motivated and talented employees
u
High retention rate and appropriatereward
u
High level of share ownership
u
Diversity, Equity & Inclusion (‘DE&I’) agenda
u
Zero accidents & zero incidents safety campaigns
and employee survey
u
Global staff briefings (quarterly)
and‘Keepintouch’sessions
u
‘Ask Jakob’ and other intranet forums
u
Development and succession planning
u
Performance-based reward
u
STEM activities supporting tomorrow’s talent
u
All-Employee Bonus and Share Ownership Schemes
u
Improving safety performance since FY 2020
u
63 employees on Victrex apprenticeships
u
890 Professional Development Awards & 60 CEO Awards
u
Establishment of DE&I workshops and forums, including Gender
Engagement Network & Strategic Inclusion Group
u
Pay rises and cost of living support (targeted employee grades)
u
Annual roadshow for Workforce Engagement Non-executive Director
delivered to understand ‘employee voice’
Customers
u
Solutions-driven culture
u
Sustainable products supporting CO
2
reduction
u
Quality and regulatory support
u
Technical service offering
u
Collaboration across the supply chain
u
Price increases to reflect cost inflation
u
Build-up of China commercialisationplan
u
New applications across end markets
u
Direct Sales and On Demand teams
u
Build strategic relationships
u
Quality and Regulatory teams
u
Supply and development contracts
u
Through sales teams and at VMT level
asappropriate
u
>85% On Time In Full (‘OTIF’) delivery through FY 2022
u
Further growth in non-Spine Medical and investment to prioritise
Medicalacceleration
u
Cost recovery and price increases ongoing
u
Start of commissioning for China manufacturing facility and
additionalinvestment in capability to support customers
Investors
u
A clear and understandable Polymer &Parts strategy
u
Enhanced ESG agenda and additional
long-termgoals
u
Alignment with shareholder interests
u
Capital allocation policy and understanding
ofdividend/buyback preferences
u
Retain sector leading returns
u
Financial calendar events
u
Proactive investor relations function
u
ESG strategy feedback and enhanced materials
u
Global roadshows
u
AGM, site visits and conferences
u
Enhanced investor website
u
Return to face-to-face investor roadshows, 200+ meetings hosted
(virtualand face to face)
u
Roadshows in UK, US, Canada and Europe
u
Attendance at five major investor conferences
u
Increasing globalisation of investor base; North American shareholding
now >30%
u
Increase in ethical investment funds and greater ESG dialogue
withshareholders
Suppliers
u
Security of supply
u
Renewable electricity sourcing now 100%
forUKsites and 97% globally
u
Global supply chain
u
Fast lead times
u
Compliance and quality
u
Reliability and flexibility
u
Supply chain risk management
u
Regular supplier engagement programme (annually)
u
Handbook of standards and ethical audits
u
Business continuity planning
u
Payment on time, typically c.30 days
u
Increased oversight by Audit Committee for supplier
risk including human rights
u
Dual sourcing increase
u
Improved performance of third-party manufacturers
u
Long-term agreements on raw materials
u
Agreed charter on supplier management framework
u
Robust risk management of critical suppliers
Communities
andenvironment
u
Sustainability agenda
u
Sustainable solutions: environmental benefits
u
Resource efficiency: maximise resources
u
Social responsibility: inspire future talent
u
Increasing engagement with customers and suppliers
to address sustainability in the supply chain
u
Solutions for supporting CO
2
reduction
u
Waste impact and improvement plans
u
STEM Ambassadors, schools and colleges
u
Business in the Community
u
>97% of electricity from renewable sources & 100% for all UK sites
(including our own solar generation)
u
Improved scoring across ESG benchmarks e.g. EcoVadis Gold, MSCI
‘A’rating, FTSERussell Green Revenues Index & Apple Clean Energy
Supplierprogramme
u
Clear and measurable sustainability goals
u
Significant support for global communities including 4,784 employee
hourscommitted
Regulators
andgovernment
u
Safety agenda
u
Employee welfare
u
Product quality
u
Innovation
u
Sustainability agenda
u
Via industry regulators, e.g. HSE
u
Public health organisations
u
Certified bodies and trade organisations
u
Cross-industry collaborations
u
Environment Agency and NGOs
u
Improved SHE performance including reduction in OSHA recordable
injuryrate to 0.2 (industry average 1.4)
u
Differentiated products including new polymer grades
u
3D printing alliances and government funded projects
u
Waste per unit of revenue 48% lower since 2013 and water usage per
unit of revenue 5% lower since 2018
Why we engage
With sustainable products, we enable
environmental & societal benefits for our
stakeholders, as well as offering recyclability
through our polymers, and minimising
resources through own operations (reflected
in our Carbon Net Zero (Scope 1 & 2
emissions) aspiration by 2030). As a
sustainable business with sustainable
products, our purpose is to bring
transformational and sustainable solutions
that address world material challenges every
day. We place and consider the needs of all
our stakeholders – internal and external –
high on our daily agenda, listening to and
understanding the interests and concerns of
all our global stakeholder groups, as wellas
seeking todeliver sustainable value for them.
This is assessed every year by the Board,
whether that be our employees, our customers,
our investors, suppliers, regulators and
government, and our communities. For
investors and shareholders, we have a
proactive annual plan of engagement,
whether that be through our financial
calendar activity, investor roadshows, our
AGM, site visits or investor conferences.
Reflecting our increasingly diverse shareholder
base (with approaching 50% of share
ownership outside the UK, including nearly
one third in North America), we actively
engage with investors in the UK,Europe,
theUS and Canada. We continue to be
collaborative with all stakeholder groups
including customers, investors, employees,
suppliers and regulators, listening to
feedback and being open tochange.
21
Annual Report 2022 Victrex plc
STRATEGIC REPORT
STAKEHOLDER FOCUS AREAS HOW WE ENGAGE ENGAGEMENT OUTCOMES
Employees
u
Safety focus
u
Innovative culture
u
Sustainability embedded in our businessmodel
u
Highly motivated and talented employees
u
High retention rate and appropriatereward
u
High level of share ownership
u
Diversity, Equity & Inclusion (‘DE&I’) agenda
u
Zero accidents & zero incidents safety campaigns
and employee survey
u
Global staff briefings (quarterly)
and‘Keepintouch’sessions
u
‘Ask Jakob’ and other intranet forums
u
Development and succession planning
u
Performance-based reward
u
STEM activities supporting tomorrow’s talent
u
All-Employee Bonus and Share Ownership Schemes
u
Improving safety performance since FY 2020
u
63 employees on Victrex apprenticeships
u
890 Professional Development Awards & 60 CEO Awards
u
Establishment of DE&I workshops and forums, including Gender
Engagement Network & Strategic Inclusion Group
u
Pay rises and cost of living support (targeted employee grades)
u
Annual roadshow for Workforce Engagement Non-executive Director
delivered to understand ‘employee voice’
Customers
u
Solutions-driven culture
u
Sustainable products supporting CO
2
reduction
u
Quality and regulatory support
u
Technical service offering
u
Collaboration across the supply chain
u
Price increases to reflect cost inflation
u
Build-up of China commercialisationplan
u
New applications across end markets
u
Direct Sales and On Demand teams
u
Build strategic relationships
u
Quality and Regulatory teams
u
Supply and development contracts
u
Through sales teams and at VMT level
asappropriate
u
>85% On Time In Full (‘OTIF’) delivery through FY 2022
u
Further growth in non-Spine Medical and investment to prioritise
Medicalacceleration
u
Cost recovery and price increases ongoing
u
Start of commissioning for China manufacturing facility and
additionalinvestment in capability to support customers
Investors
u
A clear and understandable Polymer &Parts strategy
u
Enhanced ESG agenda and additional
long-termgoals
u
Alignment with shareholder interests
u
Capital allocation policy and understanding
ofdividend/buyback preferences
u
Retain sector leading returns
u
Financial calendar events
u
Proactive investor relations function
u
ESG strategy feedback and enhanced materials
u
Global roadshows
u
AGM, site visits and conferences
u
Enhanced investor website
u
Return to face-to-face investor roadshows, 200+ meetings hosted
(virtualand face to face)
u
Roadshows in UK, US, Canada and Europe
u
Attendance at five major investor conferences
u
Increasing globalisation of investor base; North American shareholding
now >30%
u
Increase in ethical investment funds and greater ESG dialogue
withshareholders
Suppliers
u
Security of supply
u
Renewable electricity sourcing now 100%
forUKsites and 97% globally
u
Global supply chain
u
Fast lead times
u
Compliance and quality
u
Reliability and flexibility
u
Supply chain risk management
u
Regular supplier engagement programme (annually)
u
Handbook of standards and ethical audits
u
Business continuity planning
u
Payment on time, typically c.30 days
u
Increased oversight by Audit Committee for supplier
risk including human rights
u
Dual sourcing increase
u
Improved performance of third-party manufacturers
u
Long-term agreements on raw materials
u
Agreed charter on supplier management framework
u
Robust risk management of critical suppliers
Communities
andenvironment
u
Sustainability agenda
u
Sustainable solutions: environmental benefits
u
Resource efficiency: maximise resources
u
Social responsibility: inspire future talent
u
Increasing engagement with customers and suppliers
to address sustainability in the supply chain
u
Solutions for supporting CO
2
reduction
u
Waste impact and improvement plans
u
STEM Ambassadors, schools and colleges
u
Business in the Community
u
>97% of electricity from renewable sources & 100% for all UK sites
(including our own solar generation)
u
Improved scoring across ESG benchmarks e.g. EcoVadis Gold, MSCI
‘A’rating, FTSERussell Green Revenues Index & Apple Clean Energy
Supplierprogramme
u
Clear and measurable sustainability goals
u
Significant support for global communities including 4,784 employee
hourscommitted
Regulators
andgovernment
u
Safety agenda
u
Employee welfare
u
Product quality
u
Innovation
u
Sustainability agenda
u
Via industry regulators, e.g. HSE
u
Public health organisations
u
Certified bodies and trade organisations
u
Cross-industry collaborations
u
Environment Agency and NGOs
u
Improved SHE performance including reduction in OSHA recordable
injuryrate to 0.2 (industry average 1.4)
u
Differentiated products including new polymer grades
u
3D printing alliances and government funded projects
u
Waste per unit of revenue 48% lower since 2013 and water usage per
unit of revenue 5% lower since 2018
Strategy and KPIs
Pages 24 and 25
Key to strategy
Drive core business
Differentiate through
innovation
Create and deliver
future value
Underpin through
safety, sustainability
and capability
Stakeholder engagement continued
STRATEGIC REPORT
Victrex plc Annual Report 2022
22
Statement by the Directors in performance of
their statutory duties in accordance with section
172(1) of the Companies Act 2006
During the year ended 30 September 2022, the Board of Victrex plc
believes, as individuals and collectively, that it has acted in a way it
considers, in good faith, would most likely promote the success of
the Company for the benefit of its members as a whole, by having
regard, among other matters, to the:
u
likely long-term consequences of any decision, including financial
& reputational; further detail is shown on pages 80 to 91;
u
interests of the Company’s employees: how we engage with
employees is part of our Workforce Engagement Non-executive
Director role; further detail is shown on pages 92 and 93;
u
need to foster the Company’s relationships with its customers,
suppliers and others;
u
impact of the Company’s operations on the community and
theenvironment; engagement with local communities and our
focus on the environment are shown in the Sustainability report
starting onpage 44;
u
desirability of the Company maintaining its reputation for high
standards of business conduct; and
u
need to act fairly as between members of the Company.
The Board considers the interests of a range of stakeholders
impacted by our business and recognises that valuable stakeholder
engagement underpins our ability to achieve our purpose and
strategic aims.
Key stakeholder relationships are regularly reviewed, including how
we engage with them and whether any improvements can be made.
Further detail is on page 91 of the Corporate governance report.
The relevance of each stakeholder group will depend on the
particular matter requiring Board decision. All decisions we make
will unfortunately not benefit all stakeholders; by taking a consistent
approach to decision making and being guided by our purpose and
our strategic aims, we hope that our decisions are understandable.
For details on how the Board operates and makes decisions, please
see pages 80 to 89 of the Corporate governance report. The
matters we have discussed and debated during the year are set out
on pages 87 and 88 of the Corporate governance report.
To provide shareholders with a better understanding of how we
engage with stakeholders, we provide selected examples of how the
Directors have had regard to the interests of stakeholders and the
matters set out in section 172 of the Companies Act 2006 in their
decision making.
HOW THE BOARD
CONSIDERS &
ENGAGES WITH
STAKEHOLDERS
Inflation recovery
With the unprecedented increase in energy and raw material
costs during FY 2022 – and further inflationary costs for FY
2023 – the Group faced a difficult challenge in ensuring that
significant cost inflation could be recovered, whilst balancing
the often conflicting interests of key stakeholders.
The Chief Executive Officer and Chief Financial Officer
provided regular updates to the Board on how the Group
wasprogressing with its inflation recovery programme, which
was principally two-fold: 1. through price recovery from
customers; and 2. efficiency within the business.
With inflation not seen at these levels for 40 years,
consideration for all of our stakeholders was key, particularly
given the need to maintain and grow customer relationships
whilst balancing the need to invest within our business and
maintain appropriate pricing, as well as meeting expectations
of investors. There was also the consideration of our own
wage inflation and being able to recover our own costs to
ensure retention and investment in our people. Overall, price
recovery was delivered at a run-rate level in H2 2022, ahead
of annualised recovery in FY 2023.
u
The Board oversaw the need to maintain price discipline
and appropriate pricing that enabled the Group to recover
its costs, and continue investing in people, technical
service, innovation and support for customer programmes.
u
Consideration was required to balance the pass-
through of unprecedented energy and raw material
costs from suppliers, and how these could be passed
on to customers in the most efficient way, whilst
noting often long-standing customer relationships and
no automatic price pass-through mechanisms within
most existing contracts.
u
Supplier management to mitigate impact of inflation
through effective procurement.
u
A range of mechanisms were considered, options
which remain on the table as we face ongoing
inflationary costs through FY 2023, primarily UK
energy costs which impact our main manufacturing
facilities, as well as the knock-on effect to raw
materialcosts.
u
Consideration was also made for contract
renewaltimings, meaning a ‘lag’ was seen in
somecases, between agreement of a price
increaseand implementation.
u
Despite the inflationary costs seen from the Group’s
suppliers, Victrex has continued to support smaller
suppliers by paying within agreed terms, which are
typically 30 days or less and better than the
industryaverage.
Overall, the Group achieved its aim, with careful
consideration of all stakeholders, whilst ensuring price
pass-through could be implemented as quickly and
effectivelyaspossible. With ongoing significant inflationary
effects into FY2023, the Board will also consider learnings
onhow future price recovery could be implemented,
asrequired.
STRATEGIC REPORT
23
Annual Report 2022 Victrex plc
23
Investment to prioritise Medical
With over 15 million patient implants with PEEK since we
commercialised our Medical business, we have a strong track
record of supporting the medical device industry. Our Medical
division has continued to diversify, with growth in non-Spine
applications such as Trauma and Arthroscopy, and emerging
segments such as Cardio and DrugDelivery.
The high value, high gross margin profile of our Medical division
is reflective of the investment we have made over many years in
capability, in data and in know-how for manufacturing. Yet
Medical revenues remain less than 20% of Group revenues,
despite the potential for them to become over one third of
Group revenues on a 10 year view. The Board therefore
considered the opportunity to prioritise investment in Medical,
and in particular the Trauma plate and Knee mega-programmes,
a strategic priority, to help, where possible, drive acceleration of
Medical revenues in what is typically a less cyclical industry,
thereby potentially supporting earnings stability.
u
Board considerations focused on both the investment
required but also the long-term benefits of prioritising
Medical investment over other mega-programmes.
u
Consideration was given to the timing profile of
prioritising Medical investment, noting that adoption in
Medical would remain a slower ramp-up than other
Industrial-based mega-programmes, due to the typically
longer certification and qualification process.
u
Consideration was given to our employees through
targeting talent pools and capability within another
regionof the UK, with the creation of a new Product
Development Centre in Leeds, away from our main
Hillhouse location.
u
With strong progress on the PEEK Knee clinical trial, and
partnerships established in Trauma, the Board considered
the needs of key customers and potential customers,
inbeing able to be in a position to support early
commercialisation and ramp-up, thereby supporting
ourstrategic goal of increasing the proportion of
Grouprevenue coming from Medical.
Sustainability:
alternative fuels & technologies
Helping the world
transition to Net Zero
With positive feedback on our 2030 goals (aligned to the
UN Sustainable Development Goals 2030), the Board has
assessed stakeholder feedback and the actions required
todeliver them. Beyond R&D investment to support our
sustainable solutions (products which support environmental
& societal benefits), we have included sustainability within
our capital expenditure plans.
Victrex has made good progress this year in building
stakeholder networks to consider the best option for our
pathway. Alternative fuels or technologies are likely to have
the biggest impact on reducing our CO
2
emissions from
ourown UK manufacturing facilities over time, but will be
contingent on access to new energy sources or technologies:
u
creation of stakeholder networks with partners, other
organisations and interested parties was a priority and
continues to be so. Over the course of the year, Victrex
has joined the Lancashire Low Carbon Hub, worked
with local MPs and the Chemical Industry Association
and held dialogue with UK government to underline
theneed for access to alternative fuels;
u
hydrogen remains one of the options being considered,
and ongoing engagement with stakeholders in the
North West of England and broader has been a key
plank of progressing our chosen pathway;
u
alternative technology or process change is also a
consideration. Victrex has engaged with academia to
assess the potential of alternative processes which could
minimise or reduce CO
2
emissions, noting that whilst the
Group’s emissions are small in relative terms vs other
Chemical companies, the multiple stages of PEEK
manufacturing bring higher carbon intensity; and
u
our stakeholder engagement with suppliers, customers,
regulators and local communities continues – being
vocal on our need for access to alternative fuels is one
example, with Victrex seeking to be proactive in all of
itsstakeholder engagement.
Victrex plc Annual Report 2022
24
STRATEGIC REPORT
Strategy and key performance indicators
How we performed in FY 2022
u
Further improvement in end markets,
revenue +11% and volume +8%
u
Strong growth in Electronics,
Energy& Industrial and VAR
u
Good progress on cost
inflationrecovery
Focus for FY 2023
u
Good revenue growth in FY 2023
u
Cost and further price recovery
actions in place
u
Improved on time in full (‘OTIF’)
delivery >95%
u
Focus on mid-term margin
improvement
Link to risks
3 7 8
Revenue growth %
11%
Definition
The year on year percentage change in
total revenue for the Group, in live
currency.
Why it’s important
Revenue growth is the measure chosen
to reflect the structural growth
opportunities for PEEK across our
markets, with above-market growth
being the medium-term focus.
Return on sales
1
%
28%
Definition
Profit before tax and exceptionals
asa percentage of total sales.
Why it’s important
Return on sales assesses the overall
profitability of the Group. The
measure reflects our discipline in
seeking growth opportunities which
maintain our sector leading returns.
How we performed in FY 2022
u
Strong investment in R&D at 5%
ofrevenue
u
Growing prototype revenue for
Aerospace Structural Composites,
first parts for Airbus
Focus for FY 2023
u
Grow new product sales above 6%
ofrevenues
u
Deliver Medical acceleration
milestones; new UK centre
ofexcellence
u
Regulatory progress for Porous PEEK
u
Support TechnipFMC on establishing
new Brazil manufacturing facility
Link to risks
6 7
R&D spend £m
£15.7m
Definition
The total Research & Development
spend that the Group has incurred.
Why it’s important
Research & Development spend
at5–6% of sales underpins
ourability to innovate into new
applications, supporting our
futuregrowth.
New products as a
% ofGroup sales %
6%
Definition
Proportion of Group sales generated
from mega-programmes, new
differentiated polymers and other
pipeline products that were not sold
before FY 2014.
Why it’s important
New product sales (Vitality Index)
isa measure of how successful we
are in driving adoption of our new
product pipeline.
5% of Group revenue
DIFFERENTIATE THROUGH INNOVATION
DRIVE CORE BUSINESS
5
20
4
21
4
19
4
18
6
22
16.7
20
15.5
21
18.0
19
17.4
18
15.7
22
28
20
30
21
36
19
39
18
28
22
(10)
20
15
2119
12
11
18 22
(10)
1 Alternative performance measures are defined in note 25.
25
Annual Report 2022 Victrex plc
STRATEGIC REPORT
How we performed in FY 2022
u
Strong progress in clinical trial for
PEEK Knee; 12 patients post-12-month
stage; First PEEK Trauma plate implants
through In2Bones partnership
u
E-mobility: new business wins for next
generation electric vehicle applications
u
PEEK Gears revenue >£4m
u
Commissioning commenced for new
China PEEK manufacturing facility
u
Earnings per share (reported) up 4%
Focus for FY 2023
u
PEEK Knee patient recruitment
completed; establish platform
towards commercialisation
u
Further Aerospace partnerships to
increase commercialisation of
composite parts
u
Establish partnerships for Trauma and
focus on meaningful revenue >£1m
u
China facilities in beneficial production
and launch commercial offering
u
Grow earnings per share
Link to risks
7 8
Pipeline
mega-programmes
7
Definition
Number of pipeline projects offering
>£50m annual revenue potential in
peak sales years as communicated
from FY 2015 onwards.
Why it’s important
Our new product pipeline is key to
differentiating our business, and
supporting new revenue and
marginstreams.
Reported earnings
per share p
87.6p
Definition
Profit after tax divided by the basic
weighted average number of shares.
This includes the impact of
exceptional items.
Why it’s important
Earnings per share measures the
overallprofitability of the Group
anddemonstrates how we convert
our top-line revenue opportunities
into profitable growth for
ourshareholders.
How we performed in FY 2022
u
0.2 OSHA recordable injury frequency
rate (71% reduction vs FY 2021 and
85% lower than OSHA industry average)
u
Over 30% of revenues defined as
‘green’ by FTSE Russell, Gold
Sustainability rating from EcoVadis,
inclusion in Apple Clean Energy
Supplier programme and further
progress on sustainability agenda
u
100% of electricity sourced from
renewables for UK sites, 97% globally
Focus for FY 2023
u
Zero accidents and zero incidents
culture, further SHE improvement
u
Options for pathway to Net Zero
(Scope 1 & 2) assessed and
consideration of Scope 3
emissionsaspiration
u
Establish Lifecycle Analysis for
keyproducts
Link to risks
1 2 4 5 6
OSHA recordable
injuryrate
0.2
Definition
US Occupational Safety and Health
Administration (‘OSHA’) is the industry
standard for recordable injuries. The
injury rate is based on total number of
recordable injuries x 200,000/total
number of hours worked (employee and
contractor). Victrex continues to be better
than the industry standard after adopting
this reporting for FY 2020.
Why it’s important
A safe and sustainable business is the
highest priority for Victrex.
Hours worked in
the community
4,784
Definition
Total number of hours that Victrex
employees have volunteered in
community activities.
Why it’s important
Our social responsibility strategy is
key to giving something back to the
communities where we operate, and
to supporting our talent strategy in
recruiting the employees of tomorrow.
CREATE & DELIVER FUTURE VALUE
UNDERPIN THROUGH SAFETY, SUSTAINABILITY AND CAPABILITY
7
21
7
22
7
20
7
19
6
18
84.3
21
87.6
22
62.6
20
107.2
19
128.8
18
Key to KPIs
Financial KPI
Non-financial
KPI
Remuneration
Principal risks
Pages 34 to 40
Linked to Long Term Incentive
Plan (’LTIP’) objectives
Linked to bonus
objectives
3,559
2,570
21
4,784
222018 19
1,000+
1,600+
0.7
21
0.2
22
1.3
20
1.0
19
1.2
18
Our focus is to catalyse adoption of our high performance
polymers that can haveapositive impactonthe reduction
ofenvironmental footprint, andbring patientbenefit
for our medical products.
Jakob Sigurdsson
Chief Executive Officer
Victrex plc Annual Report 2022
26
Introduction from the CFO
It is a privilege to serve as Chief Financial
Officer and the attractions of Victrex prior
tomy appointment are as clear now as they
werethen. We have a purpose to bring
transformational & sustainable solutions and
enable environmental & societal benefits for
our customers; an innovative and can-do culture;
and a strong financial profile which supports
both investment and shareholder returns.
In my six months with the Group, I have been
hugely impressed by the talent and capability
of our people. The challenge for Victrex is
toconvert delivery of what are undoubtedly
significant growth opportunities, both
inourcore business and our seven
‘mega-programmes’, and grasp our current
challenge of margin and return on capital
improvement. These will be my priorities for
FY 2023 and beyond, and with my recent
background at Smith & Nephew, we also
have a real opportunity to support the
Medical area of our business with prioritised
investment over the coming years. Our goal
isfor Medical revenues to be a greater
proportion of Group revenues over the
next10 years, potentially up to one third.
Finally, whilst we retain a strong financial
position and healthy cash generation, we
areengaging with shareholders to assess
opinions on our capital allocation policy,
inparticular the relative benefits of share
buybacks and special dividends. Although
growth investment will remain the priority, at
a time where our capital expenditure is set to
ease after the current capacity investments,
we will focus on the opportunities to create
further shareholdervalue.
Operating review
Strong growth in Group revenue, up 11%;
a range of sustainable products
Group revenue was up 11% at £341.0m
(FY2021: £306.3m), which was driven by
astrong performance in most of our
Industrial end markets and further
improvement in Medical.
In constant currency
1
Group revenue was
10% up on the prior year.
Our measure of sustainable products, primarily
for end markets which enable environmental
benefit (CO
2
reduction), energy efficiency and
improving patient outcomes, was stable at 48%
of Group revenues (FY 2021: 49%) despite
adrop in Automotive revenues. Sustainable
products are defined as those which offer a
quantifiable environmental or societal benefits.
These are primarily in Automotive, Aerospace
(supporting CO
2
reduction) and Medical, with
some applications in Energy and Industrial and
Electronics (e.g. wind energy applications, or
those which support energy efficiency), with
Oil & Gas excluded, as is VAR currently.
FY sales volume up 8%
Group sales volume of 4,727 tonnes was 8%
up on the prior year (FY 2021: 4,373 tonnes),
driven by a strong performance across
anumber of end markets, principally
Electronics, Energy & Industrial and VAR,
offset by ongoing weakness in Automotive.
Q4 revenue & volume
Q4 revenue of £87.6m (Q4 2021: £74.4m)
was 18% ahead of the prior year, whilst Q4
sales volume of 1,140 tonnes saw 5% growth
on the prior year (Q4 2021: 1,085 tonnes).
The stronger revenue performance in the
quarter reflects the benefit of price increases
and an improved sales mix, offset by some
normalisation in VAR volumes.
Strong growth in Industrial & further
progress in Medical
Our Industrial division reported revenues of
£282.7m, 11% up on the prior year (FY 2021:
£255.2m) and 11% up in constant currency,
with growth being driven by Electronics,
Energy & Industrial and VAR. Within Transport,
Automotive sales volume was down 2%,
asa result of the current challenges in
Semiconductor impacting the Automotive
industry, although we note industry forecasts
suggesting car production rates will improve
into 2023. In Aerospace, we saw good
revenue growth – volumes were up 2% –
thanks to an improved sales mix and greater
commercialisation of our composite business,
including for next generation aircraft. We also
note recent build rate increases by both of the
key Aerospace manufacturers, which should
support continued improvement into FY 2023.
Medical revenues were £58.3m, up 14%
onthe prior year (FY 2021: £51.1m) and 9%
ahead in constant currency
1
. We saw strong
growth (revenues +40%) in Asia, despite
lockdowns during the second half in China.
Within Spine, which saw 2% growth in
revenue, we are also moving closer to US
FDAsubmission for Porous PEEK spinal cage,
supported by our investment in Bond 3D.
RECORD REVENUE & VOLUME –
SIGNIFICANT LONG-TERM
GROWTHOPPORTUNITIES
After a strong top-line performance in 2022, we are
mindful of the uncertain macro-economic outlook,
but are focused on revenue & profit growth overall.
Ian Melling
Chief Financial Officer
Financial review
Cash
£66.0m
(available cash)
-34% vs FY 2021
Group revenue
£341.0m
+11% vs FY 2021
STRATEGIC REPORT
1 Alternative performance measures are defined in note 25.
STRATEGIC REPORT
27
Annual Report 2022 Victrex plc
OurPEEK-OPTIMA™ HA Enhanced product
continues to see steady commercial traction,
with an increased range of applications
beyond Spine. Our non-Spine business also
continues to see good growth, particularly in
Trauma, Cardio and Drug Delivery. Non-Spine
now represents 50% of Medical revenues
(FY2021: 45%).
ASP improvement in H2 2022, reflecting
price increases and currency
Our average selling price (‘ASP’) of £72.1/kg
was up 3% compared to FY 2021 (FY 2021:
£70.0/kg), with H2 2022 ASP of £73.4/kg
being 4% ahead of the first half of 2022
(H12022: £70.7/kg), as we saw the benefit
ofprice increases to customers kicking in.
Wealso saw some benefit from currency at
the revenue level in the second half, as Sterling
weakened. Sales mix in FY 2022 was similar
tothe prior year, with the Industrial-based end
markets of Electronics, Energy & Industrial
andVAR driving much of the growth.
In line with previous guidance, we expect to
see the annualised benefit of price increases
during FY 2023, with additional inflation
recovery actions in progress, to reflect the
unprecedented further increases in energy and
raw material inflation, leading to a significantly
higher cost of manufacture. Price pass-through
reflected the additional costs borne by Victrex
alongside our investment in technical service
and innovation, whilst balancing long-term
customer relationships, particularly customers
who we have and continue to build a pipeline
of opportunities with. As a material solutions
business, the necessity of passing through
non-structural costs led us to broaden the
mechanisms for passing through cost inflation,
which includes surcharge pricing. Whilst a
typical timing lag occurs between price
increases being agreed and contract renewals,
we will continue to strengthen our options for
passing through cost inflation.
Cost inflation for FY 2023, based on current
energy and raw material prices, could be at a
similar year on year level as FY 2022, at around
£20m, although we welcome the benefit of
the UK government’s energy price cap for
business, which will provide some protection
during the first half.
Core business application pipeline
Our core business application pipeline is
agood indicator of the health of our core
business as we work with Original Equipment
Manufacturers (‘OEMs’) and Tier 1 suppliers
todevelop new applications for PEEK. Our
Mature Annualised Revenue (which could
occur only if all targets convert) within the
core application pipeline is £294m (FY 2021:
£325m), which reflects conversion of previous
pipeline targets, as well as some refinement of
the growth opportunities we are progressing.
Good progress in mega-programme
milestones
FY 2022 saw us deliver a number of key
milestones in our portfolio of mega-
programmes (seven mega-programmes in
total) as we progress towards greater
commercialisation. Whilst individual timelines
remain subject to change, the long-term
prospects in each programme continue to be
attractive and with the technical proposition
proven in each programme, our focus is on
commercial adoption. Highlights include
good progress in PEEK Gears, prototype
revenue for our Aerospace Composites
programme and ongoing revenues in support
of qualification pipes for TechnipFMC
(Magma).
FY 2022 also saw particularly good progress
in Medical – where the PEEK Knee clinical trial
saw strong progress, and we saw a 510(k)
regulatory approval for PEEK composite
Trauma plates in the US and patient
implants. In Aerospace, we saw the first large
scale PEEK demonstrator parts delivered as
part of our Airbus development programme,
and in Automotive, we secured new business
wins in E-mobility.
Our PEEK Knee programme has now seen
30 patients having implants, including 12
who have successfully passed the primary
end point of 12-month clinical stage, with
no remedial intervention required. Together
with our development partner Maxx
Orthopaedics, we are preparing for an
additional trial site in the US. We will also
beworking with Aesculap (a top five Knee
company) in a development programme
tosupport the route to commercialisation.
Knee remains potentially the most significant
of our mega-programmes, with an addressable
market of approximately $1bn, utilising PEEK
over Cobalt Chrome.
Our Trauma pipeline continues to build,
following the agreement with US based
In2Bones for composite plates and a 510(k)
regulatory approval within the US. We also
secured our first Asia customer product
launch and are finalising development
collaborations to support launches in China.
The first patient implants through our In2Bones
partnership for PEEK based trauma plates
have now been completed.
In our Aerospace Loaded Brackets
programme, additional orders for composite
parts, reflecting megatrends aligned
tolightweighting, CO
2
reduction and
fasterprocessing, offer a good mid-term
opportunity, supported by ongoing
recoveryin this end market.
We are also working on new partner
collaborations via our US composite
partsfacility, with Aerospace OEMs and
Tier1 companies.
In our
‘Aerospace Structures’ programme,
which links to our development alliance with
Airbus as part of their Clean Sky II programme,
we are now delivering prototype revenue via
the world’s first large scale PEEK test parts.
Development and commercialisation of
thermoplastic composites in Aerospace
continues to offer a sizeable opportunity,
across larger primary and secondary
Aerospace structures, such as wings and
fuselage parts. Aerospace Structures builds
on Victrex’s Aerospace Loaded Brackets
programme, with our AE
TM
250 composites
grade being integral to both of these
opportunities. A number of significant
demonstrator parts were exhibited during
the year at the JEC Composites show in
Paris, including large engine housing
applications and wing ribs, all based on
Victrex
TM
PEEK and our AE
TM
250 composite
tape. These opportunities could materially
increase PEEK content in next generation
aircraft – potentially 10-fold – which are
planned for later this decade.
Within PEEK Gears, which now have several
initial contracts ‘on the road’ following a first
supply agreement in 2018, we improved on
last year’s milestone of delivering meaningful
revenue of >£1m. This year overall PEEK Gear
revenue, which includes both parts
manufactured by Victrex and polymer resin
based PEEK Gear sales, totalled over £4m. A
number of PEEK Gear programmes involve
manufacturing by our partners, but with the
know-how and intellectual property (‘IP’) led
by Victrex. PEEK Gears continue to have
application uses across both traditional
internal combustion engines (‘ICEs’) and
electric vehicles (‘EVs’).
FY 2022 saw us secure new business
winsfor our next generation E-mobility
programme and better than expected
progress. This mega-programme focuses
onapplications across electric vehicles, in
particular for high voltage next generation
programmes (800 volt batteries and
applications). Business wins include an
Aptiv™ film based opportunity. PEEK will
beused in specific applications where
durability, heat resistance and lightweighting
are all key. We have also increased our
development programmes as we move
closer to greater commercialisation.
Ourassessment of the potential PEEK
content per vehicle is more than 100g
(fromapproximately 10g today), as we
focuson the high performance needs
ofnext generation electric vehicles.
As part of our Magma composite pipe
programme for the energy industry,
TechnipFMC is seeking to accelerate the
significant opportunities for thermoplastic
composite pipe in deepwater fields in Brazil.
Victrex continues to work in close collaboration
with TechnipFMC as a strategic supply
partner, with multi-year supply agreements
in place and industry qualifications based on
Victrex™ PEEK and our composite tape
(Victrex supplies both the polymer resin and
composite tape and holds the intellectual
STRATEGIC REPORT
Victrex plc Annual Report 2022
28
Operating review continued
Good progress in mega-programme
milestones continued
property for extrusion of the PEEK pipe).
TechnipFMC is currently focusing on
manufacturing scale up in Brazil, with a new
pipe extrusion facility in Brazil under
construction, to support bid programmes
which have now been submitted and are
awaiting outcomes. FY 2023 will see support
for TechnipFMC’s preparations and we
expect to see continued development
revenues during the year as qualification
pipes progress – extruded by Victrex –
through the supply chain.
Innovation investment
Our culture of innovation and to support
application development means we continue
to invest behind our growth programmes.
R&D investment represented 5% of revenues
1
and, at £15.7m, was slightly above the prior
year (FY 2021: £15.5m). Of R&D investment
focused on individual projects, approximately
89% of this is now aligned to programmes
supporting sustainable products. Going
forward, we expect to focus primarily on our
total investment in sustainable products or
programmes as a proportion of total R&D
investment (rather than project-based
investment). For FY 2023, we will see a
modest investment in a New Product
Development (‘NPD’) Centre in Leeds, UK,
tosupport new roles and capability as part
ofour Medical Acceleration programme.
Gross profit 6% ahead despite
higher cost of manufacture
Our Polymer & Parts strategy seeks to
delivercontinued growth in our core polymer
business, as well as drive an increasing
contribution from our mega-programmes
(parts). We have the opportunity to gain
additional revenue and profit streams over
the medium to long term from selling a
semi-finished or finished component or part,
despite the higher unit cost of manufacture
and slightly lower gross margin percentage
inselected parts compared to polymer.
Gross profit was 6% ahead at £174.5m
(FY2021: £165.3m), offset by the higher
overall cost of manufacture driven by higher
energy and raw material costs.
We made good progress during the year
onoperating efficiency and asset utilisation,
with production volume being much closer
tosales volume (compared to FY 2021 where
sales volume saw a significant draw-down of
inventory). Underabsorbed fixed costs continue
to reduce, with lower utilisation now being
primarily in our newer downstream
manufacturing assets (parts, rather than
ourmain polymer plants).
Remain focused on gross
marginimprovement
Full year Group gross margin of 51.2% was
lower than the prior year (FY 2021: 54.0%),
with good progress in operating efficiency
being offset by the unprecedented energy
costinflation, which spiked in the second half.
Progress in our gross margin above a mid 50%
level was therefore impacted by the lag
inrecovery of cost inflation through price
increases, as well asother efficiency
programmes. Currency alsoimpacted
grossmargin.
For the medium term, we remain focused
onimproving our gross margin, with further
opportunities to enhance operating efficiency
(primarily driven by asset utilisation). Key
drivers of margin improvement include the
full benefit of our price recovery programme,
continued asset utilisation improvement –
including commercialisation of our China
facilities, which will be an incremental impact
on margin in FY 2023 as we move through
commissioning – and sales mix. We are also
mindful of the potential costs associated
withdelivering our sustainability goals.
Werecently saw phase 1 of our UK
debottlenecking programme completed,
which should support enhanced operating
efficiency over the medium term.
Gains & losses on foreign
currencynet hedging
Fair value gains and losses on foreign currency
contracts, where net hedging is applied on
cash flow hedges, are required to be
separately disclosed on the face of the Income
Statement. In FY 2022, a loss of £2.8m
(FY2021: gain of £4.9m) has been
recognised accordingly, largely from
contracts where the deal rate obtained
(placed up to 12 months in advance in
accordance with the Group’s hedging policy)
was unfavourable to the average exchange
rate prevailing at the date of the related
hedged transactions, following the
devaluation of Sterling during H2 2022.
Currency headwind
FY 2022 saw a currency headwind of
approximately £7m at PBT level, reflecting the
strengthening of Sterling in the prior year
when hedging was put in place. At this early
stage, currency for FY 2023 is tracking as a
modest tailwind of £4m–£6m at PBT level,
driven by weaker Sterling against the US
Dollar and Euro, although we note ongoing
volatility in currency markets.
Our hedging policy seeks to substantially
protect our cash flows from currency volatility
on a rolling 12-month basis. The policy
requires that at least 80% of our US Dollar
and Euro cash flow exposure is hedged for the
first six months, then at least 75% for the
second six months of any 12-month period.
The implementation of the policy is overseen
by an Executive Currency Committee which
approves all transactions and monitors the
policy’s effectiveness. With our hedging
programme for FY 2023 largely covered, at
more than 80%, average contracted rates for
FY 2023 are 1.30 against the US Dollar and
1.16 against the Euro. Current rates imply a
further modest tailwind in FY 2024.
Cost focus for operating
overheads
Operating overheads
1
, which excludes
exceptional items of £7.9m, increased to
£78.1m (FY 2021: £72.7m) primarily driven
byhigher innovation investment and costs
associated with our pre-start up phase of our
China manufacturing investments, offset by
aslightly lower bonus pool compared to the
prior year. Excluding exceptional items and
bonus, overheads increased by 12%.
Our Group All-Employee Bonus Scheme is
based on a budget-based target, with a cap
in place. Last year, we also introduced ESG
goals into executive remuneration targets.
For FY 2023, with wage inflation and some
targeted innovation spend, we envisage at
least a high single-digit percentage increase
inoperating overheads, with innovation
investment including our NPD facility in Leeds
for Medical. We will also have incremental
costs for our new China manufacturing
investments through the commissioning phase.
From FY2023, the Group’s All-Employee
Bonus &Share Schemes will start to – in the
case oflong-term share programmes – reflect
incentive targets put in place from FY 2020,
with subsequent good growth post the
pandemic. Market-based share schemes
issued prior to the pandemic have largely
failed tovest.
Underlying PBT up 4% and up
12% in constant currency, offset
by lag in cost inflation recovery
Reported PBT reduced by 5% reflecting
exceptional items of £7.9m (FY 2021: credit of
£0.8m), representing the cost of implementing
a new ERP software system. In previous years
these costs would have been capitalised but
are now expensed in line with IFRIC guidance.
The implementation will be completed in
2024, with an anticipated total expensed cost
of approximately £15m–£20m. This will offer
us greater digitalisation across functions,
supporting process efficiency and ongoing
relationships with customers and suppliers.
Underlying PBT of £95.6m was up 4% on the
prior year (FY 2021: £91.7m), offset by currency
and the timing lag from inflation recovery.
Underlying PBT in constant currency was
up12%.
Financial review continued
STRATEGIC REPORT
29
Annual Report 2022 Victrex plc
Earnings per share up 4%
Basic earnings per share (‘EPS’) of 87.6p was
4% up on the prior year (FY 2021: 84.3p per
share), reflecting the impact of exceptional
items on reported PBT. Underlying EPS was
up 14% at 95.0p (FY 2021: 83.4p).
Taxation
Victrex continues to benefit from the reduced
tax rate on profits taxed under the UK
government’s Patent Box scheme, which
incentivises innovation and consequently
highly skilled Research & Development jobs
within the UK. For FY 2022, the effective tax
rate was 13.9%, lower than the prior year
(FY2021: 21.3%), which is primarily a result
of the remeasurement of UK deferred tax
balances from 19% to 25% in FY 2021,
reflecting the increase in the substantively
enacted UK Corporation Tax rate applicable
from 1 April 2023. Taxation paid was £10.6m
(FY2021: £8.6m). Whilst the UK corporation
tax rate is currently 19%, because of the
availability of the reduced rate on profits
taxed under Patent Box, our mid-term
guidance at this stage remains for an
effective tax rate of approximately 12–15%,
subject to global taxation developments,
which continue to be monitored.
Strong balance sheet
With our strong balance sheet, we
underpinour ability to invest and support
security of supply for customers. Net assets
at 30 September 2022 totalled £490.6m
(FY2021: £511.7m).
Inventory increased onraw
material build and costinflation
With the significant sales inventory unwind
during FY 2021, this year has focused on
ensuring raw material inventories reached
safety stock levels, to support security of
supply for customers. Total closing inventory
was £86.8m (FY 2021: £70.3m), including the
impact of higher energy and raw material
costs. In FY 2023 reflecting further recovery of
raw material and finished goods stocks, as
well as inventory build to support us through
shutdowns associated with the UK
debottlenecking programme, we anticipate a
total inventory position well in excess of
£100m. These items, in addition to the higher
unit cost of manufacture, are expected to be
the key drivers of inventory movement.
Pensions
Our UK defined benefit (‘DB’) pension scheme
closed to future accrual in 2016. The investment
strategy, like many companies, has been to
hedge interest and inflation risk using Liability
Driven Instruments (‘LDIs’). As gilt yields have
risen, the pension scheme has faced cash calls
from the LDI manager which have been met
using existing resources within the scheme.
Thescheme retains sufficient liquid investments
to be able to respond to further LDI cash
requirements should they be required, with
management continuing to work closely with
the trustee. The use of LDIs as a hedge to
interest rate risk has worked effectively through
to 30 September 2022, with the gross assets
and liabilities of the scheme reducing by
approximately £30m each with the UK net
asset increasing by £0.7m to £14.9m. The
medium-term target of reaching a buyout
position remains, and we expect to continue
making an annual voluntary contribution,
where required, of £1m to the scheme to
support this goal.
Investment in capacity
andgrowth
Growth investment remains the priority, with
cash capital investment of £45.5m (FY 2021:
£41.9m), of which a significant proportion was
to support our China manufacturing
investments, which will provide additional
capability to support customers in China. For
our UK assets, we also commenced a multi-year
investment to support efficiency improvement
and gain incremental capacity. We anticipate
this will be approximately £15m in total, with
year 1 now completed. Year 2 has now
commenced and we anticipate a further £10m
spread over the next three financial years
included within the annual capital budget.
Following these investments, and subject to
no material large scale capacity investment for
several years, our annual capital expenditure
guidance is based on approximately 8–10%
ofsales. This also reflects some in-built
investment to support process change aligned
to our ESG goals (for example being able to
access alternative fuels and adjustments
needed to our manufacturing process).
Capital expenditure for FY 2023 is expected
to be similar to FY 2022, at approximately
£45m–£50m.
Healthy cash generation
The Group’s business model and focus
onthe high performance materials area
continues to support good cash generation.
Cash generated from operations was £90.7m
(FY 2021: £135.5m), giving an operating
cash conversion
1
of 49% (FY 2021: 100%).
Inventory has increased compared to the
prior year period, reflecting recovery of
inventory from much lower levels in the
pandemic, as previously communicated.
Inaddition, trade and other receivables
havealso increased due to a stronger
salesperformance in FY 2022.
Cash and other financial assets at
30September 2022 was £68.8m (FY 2021:
£112.4m). This includes £2.8m ring-fenced
in our China subsidiaries (FY 2021: £12.5m)
and other financial assets of £10.1m,
representing cash which was held on 95-day
deposit (FY 2021: £37.5m). In February 2022
we paid the 2021 full year final dividend of
46.14p/share and a 50p/share special dividend
at a cash cost of £83.5m combined. For
ourChina manufacturing facilities, we also
have a RMB400m borrowing facility (£45m
equivalent) in China in support of our
investments there, of which RMB123m
(£15.7m at closing rates) was drawn down at
30 September 2022 (30 September 2021: n/a).
Dividends
Reflecting the Group’s strong trading
performance in FY 2022, whilst balancing the
uncertain macro-economic outlook over the
coming months, the Board is proposing a final
dividend of 46.14p/share (FY 2021: 46.14p/
share), giving total dividends for the year of
59.56p/share. The closing available cash
balance of £66.0m was below the threshold
to pay a special dividend.
Capital allocation update:
specialdividends & buybacks
Whilst growth investment remains the priority,
we are engaging with shareholders as part of
this results cycle, to gauge opinion on the
opportunity for return options including share
buybacks and special dividends within our
capital allocation policy. With capital
expenditure set to reduce after FY 2023,
subject to no additional opportunities
tosupport growth, the medium-term
opportunity for incremental returns to
shareholders remains attractive.
Outlook
Several end markets are yet to fully recover
from the effects of the pandemic and we
continue to see good growth opportunities
across the Group. However, we are mindful
of the uncertain macro-economic outlook
for 2023 and some signs that VAR volumes
are edging down slightly to more normalised
levels. This means the opportunity to
improve on last year’s record Group volume
is likely to be challenging. We also face
further and significant year on year energy
and raw material inflation this year, although
additional pricing actions are in progress,
with a timing lag.
Overall, we have seen a steady start to the
year and are focused on modest revenue and
profit growth. This includes the benefit from
pricing, an improved sales mix and currency
tailwinds. We will also see further investment
in our long-term growth programmes, as they
progress towards greater commercialisation.
Ian Melling
Chief Financial Officer
6 December 2022
1 Alternative performance measures are defined in note 25.
Our divisional performance was strong, with
attractive long-term growth opportunities.
Martin Court
Chief Commercial Officer
INDUSTRIAL
Divisional performance is reported through
Industrial and Medical, although we
continue to provide an end market-based
summary of our performance and growth
opportunities. Within Industrial, we have
theend markets of Energy & Industrial,
Value Added Resellers (‘VAR’), Transport
(Automotive & Aerospace) and Electronics.
The Chief Commercial Officer oversees the
Industrial business, including the Industrial-
based mega-programmes. A summary of
allthe mega-programmes, and the strong
progress made during the year, is covered
earlier in this report.
The Industrial division saw record revenue of
£282.7m (FY 2021: £255.2m), up 11% on the
prior year, with double-digit growth across
Electronics, Energy & Industrial and VAR.
Revenue in constant currency was up11%.
Despite improved asset utilisation and
operating efficiency, a softer sales mix, the
impact of foreign currency exchange and
unprecedented energy and raw material
inflation meant that gross margin was down
280bps to 44.1% (FY 2021: 46.9%).
Energy & Industrial
This segment is driven by volumes for oil &
gasand new energy applications, including
renewables, and a wide range of applications
across General Industrial. Energy & Industrial
saw sales volume of 830 tonnes, which was
up 9% on the prior year (FY 2021: 760
tonnes), with Energy up 19% overall, driven
byglobal activity levels and higher capital
investment for exploration and processing.
Victrex™ PEEK has a long-standing track
record of durability and performance benefit
in many demanding applications, where the
reliability of PEEK can mean less intervention
or downtime, thereby supporting efficiency
ofoperation. More recently, the introduction
of cryogenic grades of PEEK – being able to
withstand extreme temperatures – has helped
to further broaden the portfolio, with new
application opportunities in Liquefied Natural
Chief Commercial Officer’s report
Industrial gross profit
£124.8m
+4% vs FY 2021
+10%* vs FY 2021
* Constant currency.
Industrial revenue
£282.7m
+11% vs FY 2021
+11%* vs FY 2021
Gas (‘LNG’) and some assessment of
applications in hydrogen.
General Industrial focuses on applications
across fluid handling, food contact materials
and manufacturing robotics. PEEK’s unique
combination of properties has enabled us
tocapitalise on the application growth in
thisend market and metal replacement
opportunity, helping drive volume growth of
4% for the Industrial proportion of Energy &
Industrial, compared to the prior year. Several
applications in this area are also part of our
sustainable products.
Value Added Resellers (‘VAR’)
VAR shows a similar alignment to our
Industrial end markets, with the exception
of Aerospace, where sales volumes are
largely direct to OEMs or tier suppliers. VAR
is often a good barometer of the general
health of the supply chain, with VAR
customers processing high volumes of
PEEKinto stock shapes, or compounds.
In FY 2021, VAR saw a strong recovery,
assupply chains restocked following the
impact of the COVID-19 pandemic. Despite
a challenging comparative, VAR saw 12%
growth in volume as several end markets
continued to improve. Sales volume was
2,122 tonnes (FY 2021: 1,900 tonnes), with
the tailwind of good growth in end markets
including Electronics and Energy & Industrial
supporting VAR volume.
Transport (Automotive
&Aerospace)
Victrex continues to have a strong
alignmentto the CO
2
reduction megatrend,
with our materials offering lightweighting,
durability, comfort, dielectric properties and
heat resistance. As well as long-standing core
business within Automotive & Aerospace
across a range of application areas, we
alsomade good progress in our Transport
related mega-programmes of PEEKGears,
E-mobility, Aerospace Loaded Brackets
andAerospace Structures.
Victrex plc Annual Report 2022
30
STRATEGIC REPORT
Automotive continued to suffer from the
well-publicised shortage of Semiconductor
chips, with volume being down 2%
compared to the prior year. Latest market
indicators suggest some improvement into
2023, including IHS which forecasts 3%
growth in car production to 85 million cars.
Whilst Aerospace volume was only up 2%,
we saw much stronger revenue growth of
21%, driven by an improved sales mix as
Aptiv
TM
film made further progress. Long-term
trends remain supportive, with OEM
forecast build rates and the trend towards
faster processing and lightweight materials
supporting increased content of PEEK
(Airbus forecasts 39,000 new or
replacement planes by 2040). Build rates
have recently increased on models including
the Airbus A320neo and Boeing 737 Max,
both of which have Victrex™ PEEK content.
We also note the recent indications of
COMAC’s C919 production plan in China,
where we have qualifications.
Overall Transport sales volume fell by 1%
to913 tonnes (FY 2021: 926 tonnes), with
Aerospace up 2% and Automotive down 2%.
Automotive
In Automotive, core applications include
braking systems, bushings & bearings and
transmission equipment, with increasing
opportunities in electric vehicles, supporting
a growing E-mobility business.
Pleasingly, in PEEK Gears, we saw further
progress in FY 2022. Victrex
TM
HPG PEEK
canoffer a 50% performance and noise
vibration and harshness (‘NVH’) benefit
compared to metal gears, as well as
contributing to the trend for minimising
CO
2
emissions through weight & inertia
reduction, and quicker manufacturing
compared to metal. A typical PEEK Gear
offers the potential of approximately
20grams per application.
Within the growing E-mobility sector, we
saw new business wins during the year,
including those which utilise our Aptiv
TM
film. Applications include wire coatings and
e-motor applications, where PEEK’s inert
nature, high strength, durability and ability
to process faster offer key performance
benefits. Our focus remains on the next
generation of high voltage (800 volt)
vehicles, where the stringent performance
requirements make the choice of material
even more critical.
Aerospace
Aerospace volumes were up 2% reflecting
some recovery in the first half, with a softer
second half as the supply chain was
restocked. Revenue was ahead, driven
bysales mix and a greater share from
composite materials and applications using
Aptiv
TM
film. The opportunity in FY 2023
looks supportive based on industry
indicators, as recent build rate increases on
key models containing Victrex
TM
PEEK start
to kick in and the industry continues to
recover from the effects of the pandemic.
With the lightweighting and CO
2
reduction
trend, long-term opportunities remain
strong. Our Loaded Brackets and Aerospace
Structures mega-programmes both grew
revenues over the period, with Loaded
Brackets exceeding £2m revenue for the
fullyear as the use of composites and
differentiated products remain in demand.
We have also benefited from some retrofit
opportunities for composite parts, using our
AE
TM
250 low-melt PEEK grade, which
supports faster and simpler processing.
The ability to support CO
2
reduction
through PEEK materials which are typically
60% lighter than metals also remains strong,
with our assessment that over 53 million
tonnes of CO
2
could be saved over the
next15 years if all new single aisle planes
were produced with over 50% PEEK
composite content.
Electronics
With a buoyant global Semiconductor sector,
demand for materials used in Semiconductor
manufacturing was strong. Volumes grew
10% at 662 tonnes (FY 2021: 602 tonnes).
Victrex has a broad range of PEEK applications
in this end market, including Semiconductor,
the internet of 5G applications, cloud
computing and core applications like CMP
rings and other extended application areas.
Our Aptiv™ film business and small space
acoustic applications showed good growth
this year and we continue to see a positive
outlook for this end market into FY 2023,
albeit with absolute growth rates expected
to be lower.
Home appliances has been an area of
growth in recent years and our impeller
application business in high end brands
arealso performing well across a number
ofproduct areas, including vacuum cleaners
and hairdryers. These applications, with
lighter materials and enhanced durability,
also offer the opportunity for improved
energy efficiency.
Regional trends & Ukraine/
Russia exposure
With the lifting of many COVID-19 restrictions
much later in the US, we saw further strength
in this region coming through in the second
half. Conversely, the impact of some further
lockdowns in China meant Asia-Pacific
growth was lower. More recently, Europe
saw more volatility in the second half, though
the strength of VAR in Europe drove good
growth for the year as a whole.
Overall by region, Europe was up 5%,
at2,554 tonnes (FY 2021: 2,432 tonnes),
reflecting further improvement in VAR,
withNorth America up 18% at 952 tonnes
(FY 2021: 807 tonnes), principally driven by
VAR and Energy & Industrial. Asia-Pacific was
up 8% at 1,221 tonnes (FY 2021: 1,134 tonnes),
driven by continued growth in Electronics
and VAR.
Prior to the Ukraine conflict, Victrex had no
active sales to Ukraine, with Russia and Belarus
sales negligible. Victrex has no employees,
assets or supply chain within these countries
and no direct raw material purchases.
STRATEGIC REPORT
31
Annual Report 2022 Victrex plc
A PEEK Gear component
STRATEGIC REPORT
Victrex plc Annual Report 2022
32
Our Medical business continues to diversify, with continued
good growth in non-Spine and geographically.
Martin Court
Chief Commercial Officer
MEDICAL
Regional trends & Ukraine/
Russia exposure continued
Revenue in Medical was up 14% at £58.3m
(FY 2021: £51.1m) as elective surgeries
returned in greater numbers.
In constant currency, Medical revenue was
up 9%. Gross profit was £49.7m (FY 2021:
£45.6m) and gross margin was down slightly
at 85.2% (FY 2021: 89.2%) primarily reflecting
a slightly adverse sales mix as we saw faster
growth in Non-Spine. Overall Medical
volume (implantable and non-implantable)
was up 8%, driven by implantable, with
non-implantable slightly ahead, despite
thetougher year on year comparison for
business gained in COVID-19 related
applications. Geographically, Asia-Pacific
revenues were up 40% year on year, with
Medical revenues in the US up 6% and
Europe up 11%.
The Chief Commercial Officer oversees the
Medical business, including the Medical-based
mega-programmes. A summary of all the
Chief Commercial Officer’s report continued
Medical gross profit
£49.7m
+9% vs FY 2021
+10%* vs FY 2021
* Constant currency.
Medical revenue
£58.3m
+14% vs FY 2021
+9%* vs FY 2021
mega-programmes, and the strong progress
made during the year, is covered earlier in
this report.
Medical strategy
Our Medical aspirations are for our solutions
to treat a patient every 15–20 seconds by
2027 (from approximately 25–30 seconds
now) and the Group is seeking to prioritise
investment in Medical, with the aim of
driving an increased proportion of revenue
from this division over the next 10 years,
potentially up to one third of Group revenues.
During the year we commenced investment
in a New Product Development Centre of
Excellence in Leeds, UK, part of our focus on
how we can drive adoption more
meaningfully in this area. This is located
close to academia who we already have
strong links with, together with new
partners. We already have Medical
manufacturing capability and innovation for
our parts businesses – Trauma and Knee –
and this new Centre will work to scale up
STRATEGIC REPORT
We are seeking to grow the proportion
of revenues from Medical
STRATEGIC REPORT
33
Annual Report 2022 Victrex plc
our opportunities. Additionally, the benefit
of our solutions lies in the data and we are
seeking to utilise this in an improved way
with global medical device manufacturers.
This will be one of the key overhead
investment items in FY 2023, as we build
additional capability and skills in this area,
with approximately 25 new roles. Whilst
wehave made good progress in being able
to address what medical device customers
require, we will need to continue developing
new products to enable a full suite of
solutions. Anexample is in Knee where
thePEEK Knee is progressing through a
clinical trial, yet opportunities within a
cementless knee replacement arebecoming
more in focus.
Spine and non-Spine
Whilst Spine remains 50% of divisional
revenue and saw 2% revenue growth,
theimportance of next generation Spine
products will be key in maintaining PEEK’s
position in this segment, including the
opportunity for Porous PEEK, where a spinal
cage can support bone-in growth as well
asbone-on growth. Whilst we continue to
innovate and develop new products for
Spine, usage of 3D printed titanium cages
continues to rise, especially in the US.
Volume-based procurement in China
couldalso impact revenues in Spine,
whichvalidates our goal of further
growingour non-Spine business.
We also continue to focus on non-Spine
areas such as Cranio Maxillo Facial (‘CMF’),
Arthroscopy & Sports Medicine and Drug
Delivery devices, as well as emerging or
incremental opportunities in Cardio, where
PEEK is now used in applications within
anartificial heart. Non-Spine overall now
represents 50% of divisional revenues.
Spineis our historic end market which,
whilst it has become more mature in
recentyears, is one we continue to diversify
through focusing on emerging geographies
and new innovative products. Our premium
and differentiated PEEK-OPTIMA
TM
HA
Enhanced product (‘POHAE’) – to drive next
generation Spine procedures – is one part
ofour strategy to grow our Medical
business, with annualised revenues being
above £1m and good opportunities globally,
and in Asia particularly.
Mega-programmes
As noted elsewhere in this report, our PEEK
Knee programme saw significant progress,
with a total of 30 implants as part of the
clinical trial. 12 patients have successfully
passed the 12-month follow upphase
withno remedial requirements. Aspart
ofthe clinical trial with our partner Maxx
Orthopaedics, trial sites are now operating
in Belgium, India and Italy, with aUS trial
site also anticipated in FY 2023.
In Trauma, beyond our trauma
mega-programme, our data shows good
indicators on the union rate for PEEK based
plates compared to metal plates (data on
file, based on Trauma plates in high risk
patients). Our solutions for CMF continue to
see strong growth, particularly in Asia, with
a well-regarded study showing better brain
function using PEEK in CMF plates compared
to metal (25% improved brain function
based on paper by Zhang Q, Yuan Y, Li X,
etal, World Neurosurgeon 2018).
Martin Court
Chief Commercial Officer
6 December 2022
Our PEEK Knee manufacturing involves significant know-how
RISK MANAGEMENT
Risk management is embedded in Victrex’s culture,
ensuringthatweassessrisks as part of delivering our strategy.
1.
RISK AGENDA
Why do we undertake riskmanagement?
Risk objectives
The Board is responsible for determining the Company’s risk
appetite in delivering Victrex’s strategy as set out on pages 14 and
15. Victrex undertakes risk management with the objective of
facilitating better decision making, resilience and sustainability in
order to continually improve the performance of our business.
This is particularly important as the business continues to move
downstream into semi-finished and finished products, further expands
geographically and supports market adoption and building demand
for the mega-programmes, alongside growing ourcore business.
We believe that Victrex is well placed to meet the demands of
theincreasingly prominent ESG agenda but must also consider
therisks and costs associated with stricter emissions targets,
lifecycleand otherrequirements.
Risk strategy
The Board is responsible for ensuring the effective operation of
theGroup’s risk management framework and for ensuring risk
management activities are embedded in Victrex’s processes.
TheBoard is also responsible for ensuring that appropriate and
proportionate resources are allocated to risk management activities.
2.
RISK ASSESSMENT
How do we assess andrecordrisks?
When assessing risk, management considers in detail:
u
external factors, including legal, regulatory and environmental,
social and governance (‘ESG’) factors arising from the
environment in which we operate; and
u
internal factors arising from the nature of our business, internal
controls and processes.
Analysis and recording of risks
Our business areas and functional teams are responsible for the
dayto day management and reporting of risks. They identify risks
including new and emerging issues, escalating where required and
ensuring risks are managed appropriately. The causes and potential
consequences of each risk are recorded in risk registers. Each risk is
evaluated based on its likelihood of occurrence and severity of
impact on strategy, profit, regulatory compliance, reputation and/or
people. Risks are evaluated at both a gross and net level. This
approach allows the consistent identification and evaluation of risks
and identifies the current mitigations and any further activities
required to bring the risk to a tolerable level.
We operate a three lines of defence risk assurance model:
1st line of defence: The day to day operational risk management,
including the systems and processes established to ensure internal
controls are in place and effective.
2nd line of defence: Monitoring and Compliance activities which
advise and oversee first-line controls and risk management
processes, primarily through Group functions that are at least one
step removed from first-line management.
3rd line of defence: Independent business assurance provided by
both third parties and the Group Internal Audit team over the first
and second lines of defence.
3.
RISK RESPONSE
The risk registers and profiles are regularly reviewed, to keep them
up to date and relevant to our strategy.
For each risk, we decide whether to eliminate the exposure, mitigate
it through further controls, transfer it (e.g. through insurance) or
tolerate any residual risk.
We continually challenge the efficiency and effectiveness of existing
internal controls and seek to continually improve our risk
management framework. The risk profile ensures that risk reduction
activity is captured and managed, with oversight provided by the
Risk and Compliance team.
Risk
2. RISK ASSESSMENT 3. RISK RESPONSE 4. RISK GOVERNANCE
1. RISK AGENDA
STRATEGIC REPORT
Victrex plc Annual Report 2022
34
When a significant new risk arises where a response is required
inatimely manner such as COVID-19, raw material challenges or
inflation, a dedicated working group is established to ensure that
appropriately robust oversight and management are applied and
mitigations implemented.
We use insurance as a mitigation tool in our response to several risks
and potential financial impacts that can result. We regularly review
and update the types and limits of our insurance coverage, ensuring
that they are aligned to external obligations, insurance product
developments and changes to our corporate risk profile. The insurance
programme and levels of cover are reviewed annually by the Board.
4.
RISK GOVERNANCE
How do we evaluate and provide assurance
over our management of risks?
The following processes are in place to provide effective
riskgovernance:
u
the Board is responsible for approving the risk management
policy and determining the nature and extent of the risks it is
willing to take in achieving its strategic objectives. The Board
considers the continued effectiveness of risk management
processes, controls and culture, changes to principal risks and
their management, and the quality of our public reporting
process. Twice yearly, the Board carries out a comprehensive
review of the principal risks;
u
the Audit Committee responsibilities include reviewing the
Company’s risk management systems to provide assurance of
operational effectiveness, compliance with laws, regulations
andcontracts;
u
the Risk & Compliance function supports the Audit Committee in
its review of the effectiveness of the system of internal control,
as do the external auditors on matters identified during the
course of their statutory audit work;
u
the Group’s Internal Audit function provides independent and
objective 3rd line assurance to the Victrex plc Audit Committee
on the adequacy and effectiveness of our risk management
andkey internal control processes within the business.
Acomprehensive ‘audit universe’ document defines the range of
potential audit activities and the internal audit plan provides the
schedule of audit work that covers specific risks, core processes
(cyclical), key programmes and geographic regions. Both are
approved by the Audit Committee, at least annually;
u
the Executive Risk Management Committee, chaired by the Chief
Financial Officer, reviews the corporate risk register at leasthalf
yearly to ensure it remains appropriate and effective. During the
year feedback from these reviews is provided directly to the
Audit Committee and the Board by the Director of Risk
&Compliance. The Executive Risk Management Committee
comprises: the Executive Directors (CEO, CFO and CCO),
ChiefOperating Officer, Group HR Director, General Counsel
&Company Secretary and Director of Risk & Compliance. Risk
management subcommittees and Warranty Committees provide
further governance for specific business areas or programmes
where they are deemed necessary; for example, Transport
(Automotive and Aerospace) and Medical are covered due to
current business activity. These meetings and key risks are
briefed into both the bi-monthly Risk and Compliance meeting
and the Executive Risk Management Committee (at least half
yearly) via their respective Chairs, who are all Executive Risk
Management Committee members;
u
the Victrex bi-monthly Risk and Compliance review meeting
provides oversight for the risks, controls and assurance activity
across the business including Legal, Regulatory, SHE, Quality,
Security and Internal Audit. The group comprises the CEO, CFO,
CCO, COO alongside a number of other senior leaders;
u
as appropriate, significant incidents, issues and new risks and are
reported into the Board via the relevant Executive Director; and
u
risk management is also an integral aspect of Group function
governance, including through the Safety, Health and
Environment Steering and Quality Steering Committees, both
meeting quarterly, and the ESG Steering Group, which meets
twice a year.
Emerging risks
The Board has identified and assessed emerging risks as part of
theestablished risk management and strategic planning processes.
The key emerging risk areas identified were:
u
raw materials – including potential longer-term issues with their
continued availability, for example through climate-related
impacts – has been evaluated as an area to be closely monitored;
u
new legal and regulatory aspects – resulting from the changing
business footprint, complexity and evolving regulatory
environment; and
u
future of end markets – redirecting focus and resources to
sustainable end markets and products with environmental
&societal benefits in line with global megatrends.
These emerging risks have been recorded and will be continually
monitored through the ongoing Corporate Risk Management
process so that their potential impact can be further understood
and mitigated. They will also be considered as an integral part
ofthestrategic planning process.
Climate-related risks and opportunities
We support the recommendations of the Task Force on
Climate-related Financial Disclosures (‘TCFD’) and have made
significant progress over the last year assessing and defining our
climate-related risks and opportunities (see pages 52 to 57). Dueto
the longer-term nature of climate-related risks it has not been
considered to be a principal risk in its own right at this time. There
are, however, clear links to existing principal risks such as Supply
Chain and Strategy Execution. As such, climate-related risks and
opportunities have been a key feature of the FY 2022 strategic
planning process and will continue to be reviewed and developed
bythe Corporate Responsibility Committee (formed in FY 2022).
COVID-19 Pandemic risk
The COVID-19 risk has reduced further over the last year with the
continued progress of vaccination programmes and general relaxation
of local restrictions in most of our operating geographies, with the
exception of China which retains significant local and national
controls. As such it is no longer deemed to be a principal risk.
COVID-19 control procedures and physical controls, where required,
remain in place. In geographies where these controls are no longer
needed, or where restrictions have been relaxed significantly, our
procedures remain on ‘standby’ should they be required once more
for this or other potential pandemics. Although the risk is deemed
to be low at this time, the potential remains for seasonal spikes and
new variants that could escalate the risk once more. As a result, the
situation continues to be closely monitored.
Overall, we are not expecting to see any significant damage
toourgrowth prospects as the impact of the pandemic has
nowdiminished.
STRATEGIC REPORT
35
Annual Report 2022 Victrex plc
MANAGING OUR RISKS
The Group’s strategic objectives can only
be achieved if certain risks are taken and
managed effectively. We have listed
below the most significant risks that may
affect our business, although there are
other risks that may occur and impact
theGroup’s performance.
Drive
Differentiate
Create
&deliver
Key to strategy
SAFETY, HEALTH ANDENVIRONMENT
Primary link to strategy Link to climate change
Risk area and description
Delivery of our strategy is dependent on us conducting our business
safely. Given the nature of our various manufacturing facilities, a
significant operational disruption could adversely affect the safety of
people on or close to our sites. Disruption could also impact our ability
tomake and supply products.
The environment in which Victrex operates is subject to numerous
legislative and regulatory requirements. A failure to comply could
adversely impact the local environment, our employees, our
manufacturing capability, or the attractiveness of our business or
products to various stakeholders.
In addition, climate change poses a number of risks to the business.
Minimising our environmental impact and ensuring future business
sustainability as we transition to a low-carbon economy are
fundamentalobjectives.
Mitigation
Safety, Health and Environment (‘SHE’) remains our number one priority.
We have policies and procedures to manage our operations; protect the
safety and health of our employees, contractors and visitors; and manage
our environmental responsibility by reducing emissions to continually
improve our resource efficiency.
To further strengthen our SHE culture we have implemented several new
programmes including the launch of our ‘Golden Rules’ initiative and the
Leadership Engagement ‘toolkit’, which have both improved our
awareness of, and conversations around, our SHE related behaviours.
Significant focus has been placed on process safety hazards and control
procedures in FY 2022. We have partnered with external leaders to
provide additional independent assessment and assurance of relevant
plants andprocesses.
Any events that do occur are investigated to determine root causes and
remedial actions are put in place to prevent re-occurrence. SHE software
across all global assets has been upgraded and improved over the last
year to further support this.
Additional detail of the SHE performance and progress made in the year
is contained in the Sustainability report on page 65.
Change
No change
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
1
Risk heatmap
1. SAFETY, HEALTH & ENVIRONMENT
2. RECRUITMENT AND RETENTION OF THE RIGHT PEOPLE
3. SUPPLY CHAIN
4. NETWORK AND IT SYSTEMS & SECURITY
5. PRODUCT LIABILITY
6. LEGAL AND REGULATORY COMPLIANCE, ETHICS
ANDCONTRACTS
7. STRATEGY EXECUTION
8. GEO-POLITICAL AND MACRO-ECONOMIC ENVIRONMENT (NEW)
Impact
Likelihood
4
1
3
5
6
8
2 7
Low
Low
High
High
Risk continued
Underpin
Note: Following the latest Board Risk Management Review, Business
Growthand COVID-19 Pandemic have been removed as principal risks. The
COVID-19 Pandemic risk has been retained in the corporate risk register and
will continue to be monitored and reviewed through the risk management
process. The Business Growth risk has been realigned, now sitting under the
Strategy Execution risk. In addition, the Geo-political and macro-economic
environment has now been established as a new principal risk.
STRATEGIC REPORT
Victrex plc Annual Report 2022
36
RECRUITMENT AND RETENTION
OFTHERIGHTPEOPLE
SUPPLY CHAIN
Primary link to strategy Link to climate change Primary link to strategy Link to climate change
Risk area and description
Our success depends on our ability to recruit and retain the right people.
Victrex relies on the skills, knowledge, experience and competence of our
people in order to drive business growth and successfully execute our
downstream strategy.
Due to the nature of our business, there is an inherent requirement for
highly skilled employees (for example in areas of polymer chemistry, R&D
and process engineering) and the specific end market related
competencies needed (for example in Medical and Aerospace parts
manufacturing).Volatility in the recruitment market continues to pose a
challenge. Our ability to recruit and retain talent is affected by numerous
factors including: pay and benefits, culture, sustainability credentials, the
nature of the working environment, regional employment levels and
changing workforce behaviours.
In the post-COVID-19 recruitment market, there is a far greater
expectation for flexible working arrangements and less dependency on
location-based roles.
Risk area and description
Failure to maintain a secure supply of high quality products to our
customers globally could lead to loss of earnings and damage to
reputation. This could be caused by, for example, incapacity of our
production facilities, quality failure or restricted access to raw material
supplies or transport links potentially leading to insufficient levels of
inventory and/or manufacturing capacity.
Whilst the COVID-19 risk has reduced significantly at a Group level,
China’s zero-tolerance approach and the resulting control measures,
including lockdowns and restrictions, still have the potential to impact
ouractivities in the region.
In addition, climate change poses several specific supply related risks
toVictrex and our suppliers, including: potential asset or production
disruptions due to rising sea levels and increasingly harsh weather
eventsor cost impacts due to changes in carbon taxation and increased
energy costs.
Mitigation
Enhancing workforce planning has been a key area of development.
Digitalisation of recruitment and applying a future-skills perspective has
been progressed via related tools, processes and the graduate
programme, which has recently been established.
Our headcount and recruitment approval process has been streamlined
toenable faster pace of change and more flexibility.
We have also targeted priority learning and development programmes
across all levels – investing in people as an attraction and retention tool.
We have succession plans in place for key roles and develop our future
leaders so that we are able to promote internally as a retention lever,
aswell as bringing in new talent from the outside where required.
We have enhanced our Diversity and Inclusion, and flexible working
policies over the last year. We have set targets and comprehensive action
plans to ensure we continually increase the diversity of our workforce.
Weregard this as a commitment to make full use of the talents and
resources available.
As our employees have returned to our sites following COVID-19, we have
made full use of our flexible working policies to provide the best working
environment for our existing employees and expand our reach when
recruiting externally.
Mitigation
Our policy is to keep capacity ahead of demand by continually investing
inour supply chain so that our customers can be confident that we can
meet their requirements today and in the future.
Increases in demand are anticipated by and consistent supply is
maintained through a robust integrated business planning (‘IBP’) process
for which we have been awarded Class A Standard.
Strategic supplier sourcing, development and performance management
are our key mitigations for the quality and security of supply of key raw
materials. We have continued to focus on the breadth and resilience of
our supplier base in response to the current and future uncertainties,
particularly those associated with energy availability and energy related
cost impacts including supplier assessments and regular audits. We also
consider alignment with our Modern Slavery policy and human rights
policies within our supplier review process.
In our own operations, we have reviewed the possible contingencies for
energy interruptions affecting our manufacturing sites, including the use
of alternative fuel sources.
Change
No change
Change
No change
Viability statement links
Risk considered
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
32
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Annual Report 2022 Victrex plc
Drive Differentiate Underpin
Key to strategy
Create
&deliver
Risk continued
NETWORK AND IT SYSTEMS & SECURITY PRODUCT LIABILITY
Primary link to strategy Link to climate change Primary link to strategy Link to climate change
Risk area and description
Targeted cyber attack could result in the theft, manipulation or
destruction of confidential and sensitive information and severely disrupt
business operations.
Significant failure or interruption to our IT systems or services could lead
to business process disruption.
The increase in homeworking could lead to an increased risk of breach
orloss of key services.
Risk area and description
Selling into highly demanding end-use applications and regulated markets
such as Medical and Aerospace means a failure to supply in accordance
with the agreed specification has the potential to lead to consumer harm
or a potential product liability claim. This could result in fines or damages
being payable and could in turn lead to a loss of business and
reputational damage.
Mitigation
Victrex operates a Global Information Security Management System,
aligned to ISO 27001 and NIST, to provide a multi-layered approach
tosecurity and control.
We have continued to make enhancements to the control framework and
layers of defence, including: using best of breed Extended Detection and
Response (‘XDR’) and Security Incident and Event Management (‘SIEM’)
technologies, along with next generation firewalls and Network Access
Control (‘NAC’).
Core networks have been improved to introduce a global Software
Defined (‘SD’) LAN and WAN.
Independent external experts are regularly engaged to conduct
assessments, including penetration testing, cyber health and awareness
along with ongoing certification to Cyber Essentials Plus. We also have a
Global Incident Response plan, supported by third-party experts, for crisis
response within both IT and OT networks.
Our recently expanded internal Security Operations Centre and team
provide round the clock detection and response capabilities.
We continuously review the latest threats and trends in cyber and IT
security to ensure our protection is current and effective. To support this
we have implemented additional mandatory training which is applicable
to all users. These measures have been further enhanced to improve
protection during a period of extensive homeworking.
Mitigation
Robust regulatory standards and accredited quality management systems
are in place relevant to our markets, including Medical Devices,
Automotive and Aerospace.
As the business continues to move downstream into semi-finished and
finished products we are dealing with increasingly onerous and complex
liabilities. As a result, we have established Warranty Committees which
provide additional governance over our key programme activity in the
Automotive and Aerospace sectors.
We continue to utilise external experts to support with complex contract
matters, where required.
We use supply contract terms and conditions to limit exposure, which
includes agreed specifications and manufacturing to defined standards
and processes. In addition, the Group maintains appropriate levels of
product liability insurance.
A robust Management of Change process is used to ensure that supply
and quality are consistent and any change in use is appropriatelyvalidated.
In the past year we have strengthened several product regulatory control
procedures and the governance arrangements by further expanding the
Regulatory and Product Stewardship team including establishing
specialists in key markets such as China.
Change
No change
Change
No change
Viability statement links
Risk considered
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
54
STRATEGIC REPORT
Victrex plc Annual Report 2022
38
LEGAL AND REGULATORY COMPLIANCE,
ETHICS AND CONTRACTS
STRATEGY EXECUTION
Primary link to strategy Link to climate change Primary link to strategy Link to climate change
Risk area and description
We are required to adhere to all applicable laws, regulations and ethical
standards including those covering:
u
anti-bribery and corruption;
u
exports and sanctions;
u
competition;
u
data protection; and
u
human rights, modern slavery and labour.
Any failure to comply with contractual commitments and ethical and
regulatory compliance standards has the potential to result in loss of
earnings, civil or criminal legal exposure, or reputational damage, and
could affect our ability to achieve the business strategy.
Our future opportunities in a number of markets, and activity in new
geographies, for example into China, will bring new regulatory challenges
and contractual requirements to meet.
Risk area and description
Our future business growth is dependent on the effective implementation
of our strategy.
This risk considers the potential failure to execute the strategy effectively
and generate value. Key elements include: maintaining the health of our
core business, generating innovation-based growth, including the
increasing importance of parts in addition to polymer, and protecting
andmanaging intellectual property.
Successfully managing the climate-related risks (and opportunities)
summarised in the TCFD section (pages 52 and 57, including the end
market risks associated with internal combustion engine transportation
and Oil & Gas, remain fundamental to the successful execution of the
business strategy.
Mitigation
Compliance policies, procedures and training are in place for key
regulatory compliance risks.
Our Code of Conduct is in place, which is regularly reviewed, and
mandatory training is provided. Over the last year these areas have been
reviewed and refreshed. Compliance is monitored and reported to the
Executive Risk Management Committee.
We continue to use internal and external subject matter experts to
support risk identification, set standards and policies and provide advice
and training. Over the last year an external party has been engaged to
review and advise on our risk and legal framework across the business.
Commercial contracts and our pricing strategy are reviewed by our
Legaland Product Management teams.
As our business activities expand, for instance into China, appropriate
policies and procedures are being put in place to manage the associated
regulatory requirements.
We have a dedicated Regulatory team in place which has been further
strengthened over the last year, including additional resource in China.
Mitigation
The Group has a well-established and clear business strategy which is
subject to a robust annual review process to ensure its continued
effectiveness. The Board monitors progress in implementing the strategy
at each Board meeting.
Our UK manufacturing improvement plans have continued and will be
delivered over the coming years which will strengthen the security of
supply to our customers.
We continue to offer a strong value proposition as a solutions company
– unique chemistry, specification of products with end users, quality and
technical service, the performance and sustainability benefits of our
products and the ability to develop new applications.
We monitor technological changes to materials and potential challenges
for PEEK and PAEK polymers by developing new grades with differing
properties, as well as creating new markets for PEEK/PAEK polymers.
A Project Management team is in place to manage each innovation
programme as a clearly defined project. Governance is achieved through
a Portfolio Steering Committee which tracks milestone achievement.
As our intellectual property (‘IP’) is critical to the delivery of our strategy,
robust protective controls are in place, which are supported by our
dedicated IP team. Specific emphasis has been placed on our approach to
IP management in China over the year, as we continue to develop our
activity in the region.
Change
No change
Change
No change
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
6 7
STRATEGIC REPORT
39
Annual Report 2022 Victrex plc
GEO-POLITICAL AND MACRO-ECONOMIC
ENVIRONMENT (NEW)
Primary link to strategy Link to climate change
Risk area and description
We serve over 40 countries globally, operating in numerous geographies
across a range of markets which can be affected by political and/or
economic changes or uncertainties.
Risks related to the geo-political and macro-economic conditions have
increased over the year primarily as a result of the ongoing war in Ukraine
and both China’s economic outlook and its ‘zero-tolerance’ approach
toCOVID-19.
International tensions with China may create additional challenges in
doing business there.
Uncertainty in global economic outlook including inflation, potential
changes in carbon taxation, energy prices and impacts on aspects such
asinterest rates and exchange rates have the potential to affect our
profitability including end customer demand, cost pressures, competitive
dynamics and other factors.
This external environment has the potential to impact a number of other
principal risks and the delivery of our strategic objectives.
Mitigation
A key mitigation is close monitoring of the geo-political and macro-economic
conditions and reacting accordingly through the business strategy process.
Our range of markets and geographic spread help to mitigate political and
economic change.
Threats from low cost (regional) competitors are being addressed through
our strategy in China. Development of PEEK production capability in China
has continued and remains on track for commissioning in FY 2023.
Uncertainty in supply chains is being addressed by accelerating supply
resilience activity around dual/multiple sourcing of key raw materials.
Maintaining UK production of key raw materials ensures we are not solely
reliant on international routes.
Reducing the impact of potential regional changes to carbon-based
taxation is being mitigated through the business carbon reduction plan,
which includes transitioning to greener energy and targeting
manufacturing processes to reduce absolute energy usage.
We use foreign exchange hedging to delay the impact of changes
inexchange rates.
We consider longer-term options to address geo-political and
macro-economic factors as part of the strategic review process.
Change
This risk is a new principal risk separating the external factors from the
previous Business Growth risk. The risk has increased in the year due
tofactors noted above.
Viability statement links
Risk considered
Risk focused on in sensitivity analysis
8
Drive Differentiate Underpin
Key to strategy
Create
&deliver
Risk continued
STRATEGIC REPORT
Victrex plc Annual Report 2022
40
Going concern and viability statement
Going concern
The Directors have performed a robust going concern assessment
including a detailed review of the business’ 24-month rolling
forecast and consideration of the principal risks faced by the Group
and the Company, as detailed on pages 34 to 40. This assessment
has paid particular attention to the impact of the ongoing global
economic challenges on the aforementioned forecasts.
The Company maintains a strong balance sheet providing assurance
to key stakeholders, including customers, suppliers and employees.
The combined cash and other financial assets balance at 30 September
2022 was £68.8m, having reduced from £112.4m at 30 September
2021 following payment of the regular and special dividends of
£83.5m in February 2022. Of the £68.8m, £2.8m is held in the
Group’s subsidiaries in China for the sole purpose of funding the
construction of our new manufacturing facilities. Of the remaining
£66.0m, approximately 80% is held in the UK where the Company
incurs the majority of its expenditure and 85% is held in instant
access accounts. The Group has drawn debt of £15.7m in its Chinese
subsidiaries (with a total facility of c.£45m available until December
2026) and has unutilised UK banking facilities of £40m through to
October 2024, of which £20m is committed and immediately
available and £20m is available subject to lender approval.
The 24-month rolling forecast is derived from the Company’s
Integrated Business Planning (‘IBP’) process which runs monthly.
Each area of the business provides revised forecasts which consider
a number of external data sources, triangulating with customer
conversations, trends in market and country indices as well as
forward-looking industry forecasts. For example, forecast aircraft
build rates from the two major manufacturers for Aerospace, World
Semiconductor Trade Statistics Semiconductor market forecasts for
Electronics through to2024 and Needham and IQVIA forecasts for
Medical procedures.
The assessment of going concern included conducting scenario analysis
on the aforementioned forecast which, given current economic
forecasts, focused on the Group’s ability to sustain a period of
falling demand, whether caused by a pandemic, geo-political
event(s) or other global economic challenges. In assessing the
severity of the scenario analysis, the scale of the impact experienced
during previous economic downturns has been used, including the
differing impacts on Industrial versus Medical segments.
Using the IBP data and reference points from previous downturns
management has created two scenarios to model the effect of
reductions to revenue at regional/market level and aggregated levels
on the Company’s profits and cash generation through to January
2024. The impact of climate change and the Group’s Net Zero 2030
goal for its own operations (Scope 1 & 2 emissions) has been
considered as part of this assessment. Any impact on revenue over
the shorter going concern period, either positive or negative, is likely
to be insignificant, with the greater risk being that of higher carbon
taxes. The current elevated price of gas and electricity included in
the 24-month forecast, reflecting current supply side uncertainty,
and the government focus on limiting the impact of the current
economic slowdown means that additional carbon taxes over the
going concern period are considered unlikely, and therefore no
additional costs have been included in either the base forecast or
the scenarios noted below.
Scenario 1 – the global economy contracts with sales volumes
reducing by 30% from the level seen over the past 12 months,
toapproximately 280 tonnes per month, from January 2023 for
aperiod of six months (to mirror the length of the most recent
downturn in 2020) before a partial recovery to c.330 tonnes per
month for the remainder of the going concern period. Medical
revenue remains unchanged from the past 12 months’ run rate,
withthe economic situation historically having minimal impact
onthis segment.
Scenario 2 – in line with scenario 1, c.280 tonnes per month
fromJanuary 2023; but, the economic contraction lasts for a full
12months, i.e. throughout the going concern period. This would
give an annual volume of c.3,300 tonnes, a level not seen since
2013. Prior to COVID-19, the last recession was the financial crisis
in2008 and 2009 which lasted approximately 12 months. In this
scenario Medical revenue is reduced by 10% during the second six
months to reflect a limited impact from a longer lasting slowdown.
The Group considers scenario 2 to be a severe but plausible scenario.
Before any mitigating actions the sensitised cash flows show the
Company has significantly reduced cash headroom. Under scenario 2
there is minimal cash generation through the going concern period
and there is potential that the committed facility would be required
to manage intra-month cash flows. However, the Company has a
number of mitigating actions which are readily available in order
togenerate significant headroom. These include:
u
use of committed facility – £20m could be drawn at short notice.
Conversations with our banking partner indicate that the £20m
accordion could also be readily accessed. The covenants of the
facility have been successfully tested under each of the scenarios;
u
deferral of capital expenditure – the base case capital investment
over the next 12 months is approximately £50m as major projects
are completed in China and the UK. This could be reduced
significantly by limiting expenditure to essential projects, deferring
all other projects later into 2024, with the exception of completing
the manufacturing facilities in China which will continue as planned;
u
reduction in discretionary overheads – costs would be limited to
prioritise and support customer related activity; and
u
deferral/cancellation of dividends – the dividend payable in June
2023 could be deferred or cancelled. The Company’s intention is
to continue payment of dividends where cash reserves facilitate
but it remains a key lever in downside scenario mitigation.
Reverse stress testing was performed to identify the level that sales
would need to drop by in order for the Group to run out of cash by
the end of the going concern assessment period. Sales volumes
would need to consistently drop materially below the low point in
scenario 2 which is not considered plausible.
As a result of this detailed assessment and with reference to
theCompany’s strong balance sheet, existing committed facilities
and the cash preserving levers at the Company’s disposal, but
alsoacknowledging the current economic uncertainty as a number
ofglobal economies close to/in recession and the war in Ukraine
continues, the Board has concluded that the Company has sufficient
liquidity to meet its obligations when they fall due for a period of
atleast 12 months after the date of this report. For this reason, they
continue to adopt the going concern basis for preparing the
financial statements.
STRATEGIC REPORT
41
Annual Report 2022 Victrex plc
Going concern and viability statement continued
Viability statement
1. Assessment of prospects
The Directors have assessed the Group’s longer-term prospects,
primarily with reference to the results of the Board-approved
five-year strategic plan. This is driven by the Group’s business model
(detailed on pages 12 to 13) and strategy (detailed on pages 14 to
19), which are fundamental to understanding the future direction of
the business, while factoring in the Group’s principal risks (detailed
on pages 34 to 40) and the potential opportunities and risks of
climate change (detailed on pages 52 to 57). The Directors continue
to consider the ongoing challenges to the global economy and the
uncertainty this creates, particularly in the early years of the strategic
plan. The Directors have also considered the Group’s ability to
generate cash and maintain a strong financial position throughout
the economic cycle, including the level of available cash at
30September 2022.
The strategic planning process is undertaken annually, and includes
analyses of profit performance (including our core business and new
product pipeline and ‘mega-programmes’), cash flow, investment
programmes (including manufacturing capacity increases and our
acquisition pipeline) and returns to shareholders. Completion of
thestrategic plan is a Group wide process engaging employees
throughout the business, including all senior management in their
respective areas. The strategy was reviewed and approved by the
Board in May 2022 (covering the five years to September 2027).
Thestrategy is built market by market, geography by geography
recognising the differing dynamics in each whilst also considering
the longer-term impact of the Company achieving Net Zero Carbon
for its own operations (Scope 1 & 2 emissions) combined with the
wider global ambition to reduce carbon usage over varying time
periods. The Company also operates a shorter-term rolling
24-month forecast, predicated on the IBP process, which forms the
basis for the 2023 budget and key operational decisions over this
shorter time frame. The first two years of the strategy align to the
rolling forecast.
The Board considers five years to be an appropriate time horizon for
our strategic plan, being the period over which the Group actively
focuses on its development pipeline and resulting capital investment
programme. As part of our longer-term considerations, to support
capacity planning, climate change modelling and assessment of
projects which will take longer to reach meaningful revenue, the
Group does prepare forecasts for a period of more than five years;
however, a period greater than five years is considered too long for
the strategic plan given the inherent uncertainties involved.
2. Viability period
The Directors have assessed the viability of the Group over the
five-year period to September 2027, being the period covered by
theGroup’s Board-approved strategic plan.
3. Assessment of viability
To make their assessment of viability, the Directors have tested a
number of additional scenarios on the base case position of the
five-year strategic plan. These scenarios encompass key trading
assumptions combined with the potential impact of crystallisation
ofone or more of the principal risks over the five-year period.
Whilsteach of the principal risks has a potential impact, the scenario
analysis has been focused on those considered to have the most
significant financial impact, primarily to the revenue growth of the
Group. The risks have been assessed for their potential impact on
the Group’s business model, future trading and funding structure.
The continuing progress in the mega-programmes is forecast to
have a material impact on the Group’s revenue over the strategic
period. The business case behind each of these programmes
remains robust, and in most cases is enhanced by the global
ambition to reduce carbon emissions and increased desire for wider
societal benefits from the Medical industry. Limited delays to the
mega-programmes did arise during the pandemic but progress on
milestones has accelerated in the past 12 months, as evidenced by
the Knee clinical trial programme and acquisition of Magma by
TechnipFMC. Timing of milestone achievement and the resulting
impact on revenue growth remains the key variable across the
mega-programme portfolio which the Directors have incorporated
into scenario 3 described below.
The impact on the strategy of both the Company achieving Net Zero
Carbon by 2030 for its own operations (Scope 1 & 2 emissions) and
the wider economy achieving Net Zero Carbon over a long period
has been more fully assessed during 2022. The physical risks and
transitional opportunities and risks have been considered in detail as
described in the Sustainability report on pages 1 to 74. The physical
risks presented by climate change are not expected to have a
material impact on the Company’s ability to manufacture product
over the strategy period and therefore no sensitivity has been
performed. At the revenue level the transitional opportunities are
considered to outweigh the risks over both the short and longer
time horizons, supporting continued revenue growth albeit the
impact of this is only likely to be material outside of the five-year
strategy window. The primary transitional risk relates to carbon
pricing and the likely levers used by regulators and governments to
drive down use of carbon – taxation and levies. TheGroup’s
manufacturing and supply chain does use significant gas, electricity
and water whilst also generating hazardous waste. Work is ongoing
to reduce the use of carbon in the manufacturing process, both
through using green sources but also redesigning the chemical
process to reduce the overall energy requirement and waste
generation. Acknowledging the risk to the decarbonisation ofthe
manufacturing process, primarily in respect of timing, an increased
cost of operation from taxation and levies has been assumed in
scenario 4, with annual manufacturing costs increasing by £20mpa,
increasing annually by inflation, from 2024.
STRATEGIC REPORT
Victrex plc Annual Report 2022
42
STRATEGIC REPORT
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Annual Report 2022 Victrex plc
The scenarios tested were carefully considered by the Directors,
factoring in the potential impact, the probability of occurrence
andthe effectiveness of the mitigating actions. In addition, whilst
considered implausible, a combined scenario (scenario 6) was also
tested, which contained an aggregation of all scenarios considered.
Further, to the risk mitigation plans, the Group’s two distinct
segments, both with diverse geographic markets, assist in reducing
the risk of regional economic challenges and sector specific issues.
This diversity has been evidenced through the pandemic where the
impact of and recovery from the economic slowdown differed
between business units, with Medical Implantable particularly
severely impacted with the cancellation of elective surgery and a
prolonged period where hospitals have been focused on non-elective
patients, contrasting to, for example, Electronics within the
Industrial segment, which has seen a sharp recovery as consumer
spending habits have changed in its favour. Geographically the
impact was much lower and shorter in length across Asia where
demand quickly returned to pre-pandemic levels, compared to a
later, deeper and longer impact in US markets which only returned
to pre-pandemic levels in the second half of 2021. These differing
geographical patterns have continued in 2022 with the US the
fastest growing region, whilst Asia has been impacted by the return
of strict COVID-19 management policies and associated lockdowns.
The strategy of partnering closely with customers to develop the
right applications and our existing and growing list of specified
products are also important mitigants.
The mitigation assessment also considered the Group’s ability
tomanage its cost base and raise new finance and the possibility
ofdelaying capital programmes and/or restricting shareholder
returns over the viability period if required.
The results of this stress testing showed that the Group would be
able to remain solvent and maintain liquidity over the assessment
period. The Group is profitable under all scenarios, including
scenario 6. The lowest cash balance was in scenario 6, in which the
cash balance remains positive albeit at a level where working capital
will have to be carefully controlled or the RCF (available until 2024
with covenant compliance tested under scenario 6) will be required
to manage intra-month flows through FY 2024 whilst maintaining
the regular dividend. Due to the severity and implausibility of
scenario 6 and an outcome that may require limited use of the RCF
this is considered akin to a reverse stress test.
4. Viability statement
Based on the results of this detailed analysis, the Directors have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the five-year
period to September 2027. This is predicated on the assumption
thatan unforeseen event outside of the Group’s control (for example,
an event of nature or terror) does not inhibit the Group’s ability
tomanufacture for a sustained period.
The downside scenarios applied to the strategic plan are as follows:
Scenario modelled Link to principal risk
1. General competitive pressure in the marketplace resulting in a decrease of Industrial and
Medical revenue for both core and mega-programmes. Annual volume reduction between
10% and 25% in each year of the strategy.
Geo-political and
macro-economicenvironment
Strategy execution
2. A natural or other event impairing key manufacturing assets resulting in supply disruption
for c.2 years, with associated reputational damage. Annual volume reduction of 25% for
two years followed by 10%.
Supply chain
3. Mega-programmes not achieving all milestones set or investment/adoption is delayed, for
example by economic conditions, therefore delaying the time to meaningful revenue (>£1m).
An average of two years’ delay to revenue growth versus the base case.
Geo-political and
macro-economicenvironment
Strategy execution
4. Increase to direct cost base potentially arising from:
a. additional regulatory compliance, environmental or otherwise;
b. increase in duty and tariffs;
c. product liability issues;
d. increased cost of manufacturing in a lower carbon way;
e. the transitional risks of moving to a lower carbon economy – increases in tax/levies
on utility and/or water usage, and waste generation; or
f. increase in raw material and/or other input prices.
Operating costs increased by £20mpa, increasing annually by inflation, over the base case
in each year of the strategy.
Legal and regulatory compliance,
ethics and contracts
Safety, health and environment
Product liability
5. A sudden period of economic contraction (in line with scenario 2 for going concern)
resulting in lower sales in 2023 before returning to strategy growth rates thereafter.
Annual volume reduction between 8% and 23% in each year of the strategy.
Geo-political and
macro-economicenvironment
Strategy execution
6. All of the above*, with an associated reduction in the overhead cost base and capital
expenditure. Annual volume reduction between 20% and 40% in each year of the
strategy (averaging 30% over the five years).
* Where two or more scenarios impact the same revenue stream in the same period the lower outcome is taken.
Victrex plc Annual Report 2022
44
SUSTAINABILITY
REPORT
45 Enabling environmental & societal benefits
47 Victrex’s options to net zero (scope 1 & 2 emissions)
48 Our Sustainability Vision and goals
50 Our achievements & accreditations in FY 2022
51 How we are making progress in our sustainability goals
52 Task force on climate-related financial disclosures
58 Sustainable solutions: Improving the quality of life in patients
through cutting edge medical devices
60 Resource efficiency
65 Safety, health & environment
66 Social responsibility
72 Our Code of Conduct – doing the right thing
Victrex already has a key role in enabling
environmental & societal benefits for our
customers and the planet, through products
which support thelightweighting trend and
consequently CO
2
reduction in Aerospace
andAutomotive, and the need for clinical
benefits in the medical industry (see page 58).
Across other industries, including Electronics
with more energy efficient applications,
andother industrial endmarkets, our
applications also offer clear performance
andsustainabilitybenefits.
In our own operations, Victrex has a Carbon Net Zero goal
by2030(Scope 1 & 2 emissions), with an aspiration to reduce
ourenvironmental footprint by saving water, energy and waste,
andwecontinue to make good progress, with options
beingassessed.
We have been steadily gaining accreditation for our sustainability
strategy, and how our products can bring environmental & societal
benefits. The likes of EcoVadis and FTSE Russell already recognise
usfor this, with all our revenues from Transport (Automotive &
Aerospace) included in FTSE Russell’s assessment of products defined
as part of its Green Revenues Index, equating to approximately 30%
of our revenues on its definition. We look forward to continuing
toplay our part over the years ahead.
STRATEGIC REPORT
STRATEGIC REPORT
45
Annual Report 2022 Victrex plc
ENABLING ENVIRONMENTAL
& SOCIETAL BENEFITS
How our products support CO
2
reduction in society
Within our own assessment of how our products – our sustainable
solutions – bring environmental and societal benefits, our target is
to exceed 50% of revenues by 2025 and 70% of revenues by 2030
(from <50% today). This includes products for the Medical Devices
industry, where clinical benefits in terms of enhanced union rates for
the likes of Trauma plates, improved brain function using PEEK based
Cranio Maxillo Facial (‘CMF’) skull plates, or patient satisfaction from
alternatives to metal are supporting surgeons globally. Today, over
15 million PEEK implants are in patients’ bodies, mostly in Spine, but
increasingly in applications for Arthroscopy, Dental, Cardio and
Trauma. FY 2022 saw great progress in the clinical trial for a PEEK
Knee, with 30 patients now having a PEEK Knee implanted, and 12
patients beyond 12 months, with no clinical intervention, supporting
the potential for commercialisation and a product which could offer
clear societal benefits compared to existing metal-based solutions.
As examples of how our products bring environmental
andsocietalbenefits:
u
applications in Aerospace and Automotive using PEEK polymer
typically offer 60–70% weight reduction compared to metal
equivalents**. We also have applications tailored for the next
generation of electric vehicles (‘EVs’), with new business wins
through FY 2022 and a potential of over 100g of PEEK per
vehicle, compared to approximately 10g today;
u
our typical sales to Aerospace alone help support annual CO
2
savings
3x our own annual CO
2
footprint (based on Scope 1 &2 emissions)*;
u
even just a 10kg reduction in weight using PEEK polymer can
help to save 4 tonnes of CO
2
per year, per plane*;
u
based on the Aerospace industry’s forecast of plane build over
the next 15 years, if all single aisle planes were built from over
50% PEEK composites, a 53 million tonne CO
2
saving could be
realised (over a 15-year period and based on an average weight
saving of 60%)**;
u
in Electronics, a typical 40% weight saving in home
appliance
applications supports the opportunity of improved
energyefficiency**; and
u
finally, in the Medical Devices industry, higher union rates using
PEEK composite-based Trauma plates have been achieved,
compared to metal-based solutions**.
* IATA carbon reduction and climate change 2018.
** Data on file.
Introduction from the
Chief Executive Officer –
Jakob Sigurdsson
A key focus area during 2022 has been
assessing the most appropriate route for
delivery of our 2030 goals. This includes
theassessment of alternative fuels and
technologies, including potential full
electrification (compared to roughly
50/50gas & electricity usage) and access
tohydrogen as a fuel source, given that
theuse of alternative fuels or process
technology change will be contingent on
how we could get to Net Zero (Scope 1 & 2
emissions) in our own operations. Through
the coming years, we expect to be in a
better position to have firmed up the options
on how we deliver our goals. The formation
of our Corporate Responsibility Committee
(‘CRC’) this year will also oversee our goals
and long-term aspirations.
Our 2030 Sustainability Vision continues
tobe focused on three main areas:
u
Sustainable solutions: how our sustainable
products enable environmental & societal
benefits, for example in supporting the
reduction of CO
2
in Aerospace and
Automotive markets, including in electric
vehicle applications, as well as offering
recyclability potential and energy efficiency
in Electronics. This area also includes
Medical, where over 15 million implanted
devices are using PEEK-OPTIMA™ as a
replacement for metal, offering clinical
benefit in Spine, Trauma and Arthroscopy,
with growing commercialisation or
development in Cardio (Artificial Heart),
Drug Delivery and Knee;
u
Resource efficiency: energy usage will
continue, in the short term, to be driven
by production volumes, as will water.
However, pleasingly, we note that our
carbon intensity decreased by 4% this year.
Waste to landfill increased this year due
to higher production and waste stored
up during the COVID-19 pandemic.
Wehave increased how we measure
energy, waste and water usage within
our business and expect to add some
further quantification over the years
ahead. Finally, we made great progress
this year in completing a full Lifecycle
Analysis of our key products, so we
cantrack PEEK’s carbon footprint from
‘cradle to gate’, noting that the multiple
production processes typically mean
PEEK has a higher carbon intensity
perkgthan other polymers, even if
theperformance properties are higher.
This means we will, from FY 2023, be
reporting on all relevant Scope 3 emissions
(indirect emissions from formulation of
and transport of goods that are supplied
to us, prior to manufacture). Whilst peer
data is difficult to fully track, our own
internal assessment, and the fact we are
using 100% renewable electricity in our
own UK operations, suggests Victrex™
PEEK has a favourable sustainability
profile against competitor products.
Victrex™ PEEK is also more favourable
than the industry average for PEEK
manufacturing’s global warming
potential, based on GaBi materials
data;and
u
Social responsibility: Victrex has a long
track record of supporting local
communities where we operate. Safety
and wellbeing goals will seek to achieve
aculture with zero accidents and zero
incidents, together with enhanced
Diversity, Equity & Inclusion (‘DE&I’)
goals. Indeed, our progress here has been
good, with a target of 40% of females in
leadership roles by 2030. In FY 2022 we
saw an improvement up to 19%, from
10% in the prior year. Much of our
Sustainability report continued
As a purpose led organisation, our global employees have
a real motivation to enable environmental & societal
benefits for our customers and the planet – through our
sustainable products supporting CO
2
reduction, energy
efficiency, or clinical benefit in Medical – as well as how
we can minimise our own use of resources.
Jakob Sigurdsson
Chief Executive Officer
community activity is focused on the next
generation, including continued support
of Science, Technology, Engineering and
Mathematics (‘STEM’) learning in UK
schools, with a plan to globalise this
programme, including in China. Through
supporting STEM activities in schools,
aswell as supporting 63 apprentices
thisyear – 17% of whom are female –
wecommitted 4,784 hours to local
communities in FY 2022, with a
cumulative target of 10,000 hours by
2030. Overall, our 2030 goals build on
our previous targets set back in 2013,
several of which we have now completed.
Further detail on our accreditations is shown
on page 50, and although we do not
specifically seek recognition for our
sustainability performance, we saw
additional progress with an A rating from
MSCI; continuation within the FTSE Russell
Green Revenues Index, reflecting our sales
into Transport markets, where our
lightweight materials support the trend of
CO
2
reduction; and Apple recognising our
Sustainability Vision and commitments in its
Clean Energy Supplier programme. Finally,
100% of our UK electricity is now from
renewable sources.
At a personal level, I remain hugely
passionate about sustainability and what our
products can do to help the environment
and society. In a world where CO
2
reduction,
electrification and lightweighting are in
focus, or in Medical, where performance
benefits to patients matter, Victrex can play
a key part in supporting our customers,
differentiating our business and ultimately
bringing tangible benefits to society
andtheenvironment.
I look forward to further progress being
delivered in the years ahead.
Jakob Sigurdsson
Chief Executive Officer
6 December 2022
Victrex plc Annual Report 2022
46
STRATEGIC REPORT
VICTREX’S OPTIONS TO NET ZERO
(SCOPE 1 & 2 EMISSIONS)
STRATEGIC REPORT
47
Annual Report 2022 Victrex plc
Carbon abatement
opportunities
Our Net Zero aspiration for Scope 1 & 2 emissions is centred
onreducing climate impacts from our own operations.
A 2030 vision
Our Net Zero goal by 2030 (for Scope 1 &
2 emissions) was set in 2020 and is
significant and ambitious. It intentionally
focuses and invests to help reduce our
carbon footprint (based on 2019
manufacturing footprint).
Fulfilling our goals
Any minority, remaining balance will
befrom validated, ethical sources.
100% global renewable
electricityby2024 (where
the market exists)
Ethical carbon offsetting
Continuously improve
emission & waste reductions
Multi-fuel & green backed
combustion processes
STRATEGIC REPORT
Victrex plc Annual Report 2022
48
Sustainability report continued
OUR SUSTAINABILITY
VISION AND GOALS
SUSTAINABLE
SOLUTIONS AND
RESOURCE EFFICIENCY
Our sustainable products support
CO
2
reduction, as well as offering
recyclability, whilst we focus on
minimising resources (energy,
waste and water)
Our 2030 Sustainability Vision was set out in 2020, covering a 10-year period with specific
goals and milestones, which we intend to add to as appropriate. Our goals are also aligned
with the UN’s Sustainable Development Goals (‘SDGs’), and these are shown below.
SDGs Sustainability pillars
SOCIAL
RESPONSIBILITY
Further inspire our employees and
communities to positively impact
sustainability development
STRATEGIC REPORT
49
Annual Report 2022 Victrex plc
OUR KEY IMPERATIVES:
u
Goal of Carbon Net Zero (Scope 1 & 2 emissions)
u
Increase revenues from our sustainable products
whichbring environmental and societal benefits
u
Minimise resources (energy, waste and water)
usedinour own operations
u
Enhance our Diversity, Equity & Inclusion (‘DE&I’) agenda
2030 goals Milestone targets
u
Goal of Net Zero Carbon emissions
for Scope 1 & 2
by 2030 in our own operations
1
u
Increase recycling rates of PEEK/PAEK
inthe supply chain
u
Increase revenue from our sustainable
products with positive environmental and
societal benefits (currently 48%)
u
Sustained reduction in resources carbon
intensity, waste and water usage by2030
u
Deliver zero accidents and zero
incidents culture
u
Grow global STEM programme
u
Increase community activity across
ourglobal locations
u
Focus on supporting gender Diversity,
Equity & Inclusion
u
Victrex using 100% renewable
electricity by 2024
2
u
Increase % revenue from recycled
products or materials in the supply chain
(by 2025)
u
Exceed 70% of Group revenue from
sustainable products with environmental
and societal benefits by 2030 (and exceed
50% by 2025)
u
Commitment to a science-based
emissions target
3
u
Improved safety metrics,
based onOSHA standard
u
STEM Ambassadors in every region
u
Commit >500 employee hours to global
community activity annually
u
Embed inclusion and diversity across
global employee base
1 Scope 1 & 2 emissions and science-based target. Goal based on 2019 manufacturing footprint.
2 For all countries where the market exists.
3 Includes quantifying all relevant Scope 3 emissions in our supply chain and establishing a reduction target, based on 2019 manufacturing footprint.
Read more on pages 44 to 74
Sustainability report continued
OUR ACHIEVEMENTS AND
ACCREDITATIONS IN FY 2022
STRATEGIC REPORT
Victrex plc Annual Report 2022
50
Science Based Targets initiative (‘SBTi’) – Victrex committed
to SBTi during FY 2022 as part of its 2030 Carbon Net Zero
goal, with full submission due to be completed in FY 2023,
covering all Scopes in line with 1.5°C emissions scenarios
ofSBTi.
EcoVadis – EcoVadis is one of the leading organisations
assessing the sustainability strategies of global companies. In
FY 2022, Victrex was again awarded a Gold rating, meaning
we are in the top 6% of companies assessed, out of more
than 4,000 companies.
SEDEX Member – Committed to an ethical and sustainable
supply chain.
CDP – Victrex has seen further improvement from the Carbon
Disclosure Project (‘CDP’), with a ranking of B- in 2021, and
evidence of sustained improvement since our original D score
in 2013.
Community focus – Victrex has long-standing partnerships
with the Science Industry Partnership, supporting the engineers
and scientists of tomorrow; STEM learning, as part of our global
STEM programme, supporting careers in Science, Technology,
Engineering & Maths; and Business in the Community, where we
support a range of local activities in the UK, with over 4,784
employee hours committed to volunteering in FY 2022 alone.
FTSE Russell – Part of FTSE Russell Green Revenues Index –
over 30% of Victrex revenues defined as coming from
sustainable solutions.
MSCI – MSCI is one of the leading organisations ranking
listed companies for their sustainability performance.
Wesawan improvement to A rating (from BB) in 2022.
Apple Clean Energy Supplier
programme – We have been
accredited by Apple on its Clean Energy
Supplier programme, with 100%
renewable electricity supply in the UK
and a goal to have 100% globally
by2024.
Financial Times Climate Leaders – Victrex was named by
theFinancial Times as one of Europe’s climate leaders,
oneofonly 400 European companies selected from
around4,000 companies.
HOW WE ARE MAKING PROGRESS
INOURSUSTAINABILITY GOALS
In 2013, Victrex started on its sustainability journey, with a 10-year
plan through to 2023 (timed to mark the 30th anniversary of Victrex’s
formation), during which time we have delivered on several key
milestones, including improved water usage and waste reduction.
The Board is pleased with progress so far, but would like to see
continued focus on challenging long-term sustainability goals.
Our 2030 goals are now our primary focus, aligned to the UN
Sustainable Development Goals 2030. Thisyear, we have added
further measures over the medium and long term, as well as
committing to SBTias part of our science-based target.
As part of our sustainability strategy, we are also investing a
largeproportion of our Research & Development expenditure
insustainable products. Annually, approximately 89% of our
project-based R&D investment is aligned to sustainable products or
programmes. These include all of our Aerospace mega-programmes,
our programmes supporting high performance materials in E-mobility
and Automotive Gears, and all of our Medical mega-programmes
which underpin clinical benefits, for example in addressing improved
patient outcomes in Trauma, Dental and Knee. We also have selected
applications in Energy & Industrial and Electronics which are
sustainable, e.g. wind energy.
Area of focus Progress 2013–2022 2030 goals Milestone targets
2022 progress or new
milestone target
Sustainable
solutions
u
>2 million tonnes
ofCO
2
saved in
Aerospaceapplications
u
Proportion of revenue
from sustainable
products
#
now 48%,
reflecting growth
inTransport and Medical
applications since 2013
u
Societal benefits
through improved
patient outcomes in
Medical: >15 million
patients implanted
using PEEK-OPTIMA™
u
Increase recycling
rates in the
supplychain
u
Increase revenue
fromour sustainable
products with positive
environmental and
societal benefits
(currently c.50%)
u
Increase % revenue from
recycled products or materials
by 2025
u
Exceed 70% of Group revenue
from sustainable products by
2030 (andexceed 50% of
Grouprevenue by 2025)
u
Project completed and
partnership proposed
with VAR customer
toenable a recycling
route for PEEK in the
supply chain
u
R&D investment in
sustainable products
equates to 89% of
project-based R&D
investment (measured
as a % of total R&D
investment from
FY2023)
Resource efficiency
u
>97% renewable
electricity globally and
100% in theUK
u
Sustained reduction in
water and waste per
tonne (reduction in
waste per £m revenue
by 48% since 2013)
u
Goal of Net Zero
Carbon emissions
by2030 in our own
operations (Scope 1
&2 emissions &
science-based target)
u
Sustained reduction
in resources (carbon,
waste and water) per
unit/tonne by 2030
u
100% renewable backed
electricity by 2024 (globally
where the market exists)
u
Commitment to SBTi by end of
2021 and submission in 2023
u
Completion of Lifecycle
Analysis & Scope 3
emissions inventory
u
Achieved 100% of UK
renewable electricity
for UK sites
Social responsibility
u
Improved OSHA
standard in FY 2022 of
0.2 (FY2021: 0.7 &
industry standard of 1.4)
u
Over 10,000 employee
hours spent supporting
community activity
since2013
u
45 global STEM
Ambassadors in place
u
Deliver zero
accidentsand zero
incidents culture
u
Increase community
activity across our
global locations
u
Grow global
STEMprogramme
u
Focus on supporting
Diversity, Equity &
Inclusion (‘DE&I’)
agenda
u
Continually improving safety
metrics based on OSHA standard
u
>2,500 contacts with young
people by Victrex employees by
2030 and STEM Ambassadors in
everyregion
u
Cumulative employee hours
supporting local communities
>10,000 hours (2020–2030)
u
Embed Diversity, Equity
&Inclusion across the
employee base: 40% of females
in leadership group (top two
grades) by 2030 (FY 2021
baseline: 10%)
u
Further improvement in
SHE performance with
an RIFR of 0.2 (85%
lower than industry
standard of 1.4)
u
4,784 employee hours
supporting local
communities during
FY2022
u
Further progress on
Diversity, Equity &
Inclusion goals: FY 2022:
19% of females in
leadership group
(upfrom10% in FY 2021)
# Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace
(supporting CO
2
reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and
renewable energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are Value
Added Resellers volumes currently, due to the lack of full clarity on exact end market destinations. This definition followed review by an external assurance
organisation and the Board, with ongoing review by the Corporate Responsibility Committee (‘CRC’).
STRATEGIC REPORT
51
Annual Report 2022 Victrex plc
Read more
onpage 58
Read more
onpages 60
to64
Read more
onpages 66
to 71
STRATEGIC REPORT
Victrex plc Annual Report 2022
52
Victrex Management Team (‘VMT’)
Sustainability workstreams
The Board reviewed and approved the Group’s 2030 ESG goals and has
oversight of how these will be embedded and reported, whilst ensuring
sustainability remains at the core of our purpose, values and strategy
Formed in FY 2022, the CRC oversees the Group’s conduct with regard to its
corporate societal obligations and commitments. This includes overseeing
and reviewing the development and execution of the 2030 sustainability
strategy and commitments including progress towards targets
Victrex Board
Corporate Responsibility Committee (‘CRC’)
The VMT embeds sustainability strategy target reviews into the regular
performance reviews they undertake with their respective teams
Head of Sustainability & ESG
1. Sustainable solutions 2. Resource efficiency
3. Social responsibility 4. Safety, health & wellbeing
TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES
Overview
Victrex welcomes the introduction of the Task Force on Climate-related
Financial Disclosures (‘TCFD’) and recognises the impetus this will
provide for companies and stakeholders to understand relevant
climate-related opportunities and risks and to also ensure appropriate
risk mitigation processes are in place. The Annual Report 2022
represents Victrex’s first year of full TCFDdisclosures.
Victrex recognises the impact it has on the environment, both in a positive
way and negative impacts from our use of resources. On the positive side
sustainability is embedded in Victrex’s purpose – bringing transformational
& sustainable solutions which address the world’s material challenges,
every day – our mega-programmes and other targeted growth areas are
closely aligned to products supporting CO
2
reduction, for example in
Aerospace, Automotive and Energy & Industrial end markets. This is
underpinned by targeting our investment in Research & Development/
innovation which is increasingly focused on sustainable products.
Our goal of being Carbon Net Zero by 2030 (Scope 1 & 2 emissions) also
recognises the environmental impact of our manufacturing processes
which create emissions, utilise water and generate waste. Our CO
2
metrics are included on pages 61 to 63 with our path to lower emissions
included on page 5. We continue to research and invest in new
technology aimed at minimising use of resources and significantly
reducing our own operational carbon footprint.
As part of our commitment to sustainability, we seek to exceed 50% of
Group revenue from products with positive environmental and societal
benefits by 2025 and exceed 70% by 2030. We recognise the
challenging nature of these targets, but this reflects our commitment
tosupporting a lower carbon economy and providing greater societal
benefits to an increasing proportion of the population. In delivering our
targets we are working closely with customers, forming partnerships
with companies that share our ambition and goals.
Our sustainability strategy has gained a number of accreditations, as set
out on page 50. Our sustainability strategy is also aligned directly to the
UN Sustainable Development Goals 2030 and as part of our Carbon Net
Zero goal (for our Scope 1 & 2 emissions), we have committed to SBTi,
the Science Based Targets initiative.
TCFD has provided a useful framework for the Company to assess its
climate change approach against and supported a full breadth of
consideration which has been supplemented by external support with
the appropriate expertise to challenge and provide guidance in evolving
the strategy and approach to climate change. We recognise that
developments and focus on climate change have progressed significantly
in the past two years, with the 2021 United Nations Conference on
Climate Change (‘COP26’) emphasising the need for governments and
businesses to play key roles in moving from ambition to action if climate
change is to be controlled, and will continue to do so. Management
receives regular input from multiple stakeholders, as we keep our
approach under review, supported by the Corporate Responsibility
Committee. Engagement in our climate change strategy has been
particularly strong amongst our employees, with not only commitment
to supporting current workstreams but increasing levels of idea
generation coming from all areas of the business, including energy saving
measures, recycling and a #Playyourpart campaign.
Statement on TCFD
We set out below our climate-related financial disclosures. These
comply with LR 9.8.6R by incorporating climate-related financial
disclosures consistent with the TCFD recommendations, specifically
under the four TCFD pillars and eleven recommendations. Whilst
consistent with the recommendations the Company recognises that
the level of granularity provided will increase over time as the
Company matures and embeds its climate change processes and
approach and sets more interim targets to track progress against its
Net Zero 2030 target. Significant progress has been made in the past
year, including the establishment of a specific Board Committee, the
Corporate Responsibility Committee, obtaining physical risk
assessments and performing scenario analysis.
The below table is presented to demonstrate compliance and signpost
where the specific disclosures are included in the Annual Report and
Accounts where it is not within this section. It also sets out the future
actions the Company is taking which will support more detailed
disclosure in future years.
In making the above statement of compliance the Board has
considered materiality and whether the incorporated disclosures
provide sufficient detail to enable stakeholders to assess the Group’s
exposure to and approach to addressing climate-related issues. This
includes an assessment of the level of exposure the Group has to
climate-related risks and opportunities taking into account our
products and manufacturing processes. Specifically on the financial
disclosures incorporated in the financial statements (see note 1 for
details) a materiality level consistent with that used for other financial
statement disclosures, and with the level used by the external
auditors, has been used, which for the current year is £4.7m.
The Board has considered the TCFD additional guidance (2021 TCFD
Annex) in preparing the disclosures, including the sector specific
guidance with the Company, as a chemical manufacturer, coming
under the Materials and Buildings sector. The Company has included
the sector specific disclosures, principally the potential impacts of
stricter constraints on emissions and the related impact on costs as
well as the opportunities for its products to reduce carbon emissions,
with a specific metric (and target) included to measure this. The
emphasis of the additional guidance is to provide more granular
andexplicit disclosures which as stated above is aligned with the
Company’s objectives for future years. Evidence of this progress
willbe seen in the Annual Report 2023.
The Board is supported by the Audit Committee in assessing the level
of consistency of disclosure with the requirements of TCFD. Further
details on the role of the Audit Committee are included on page 97.
Sustainability report continued
TCFD: oversight & governance of our
climate-related risks & opportunities
Recommendation Response Future actions
Further details
(where relevant)
Governance
a. Describe the Board’s
oversight of climate-
related risks and
opportunities
The Victrex Board is responsible for reviewing and guiding
strategy, with sustainability embedded into our purpose and our
Polymer & Parts strategy. Board oversight is led by the Corporate
Responsibility Committee (‘CRC’), which was established during
FY 2022, meets quarterly and is chaired by a Non-executive
Director. The CRC reviews progress against 2030 goals and action
plans to deliver these. It also assesses ongoing environmental
performance against key performance indicators. The CRC has
overseen the process for identifying and assessing risks and
opportunities associated with climate change. The Chair of the
CRC provides the Board with an update at each Board meeting.
The Board and the Corporate
Responsibility Committee will
continue to challenge how the
proposed 2030 goals and plans
areembedded, whilst ensuring
sustainability remains at the core
ofour purpose, values and strategy.
The key performance
indicators and
milestone targets are
shown on page 51.
Further information
on the roles and
responsibilities of the
Board and CRC are
included on page 85.
The Board members’
experience of climate
change is included in
their biographies
starting on pages 78
and 79.
b. Describe management’s
role in assessing and
managing climate-
related risks
andopportunities
The VMT (chaired by the CEO) is responsible for reviewing and
guiding major plans of action to achieve the sustainability
strategy, including required capital investment and investment
inR&D supporting sustainable products. The VMT embeds
sustainability strategy target reviews into the regular performance
reviews they undertake with their respective teams.
The VMT will review and propose
necessary actions in support of our
2030 goals, for example options
towards our Carbon Net Zero (Scope
1 & 2 emissions) goal, which include
alternative fuels and processes.
Strategy
a. Describe the
climate-related risks
and opportunities
theorganisation has
identified over the
short, medium
andlongterm
Climate change related risks and opportunities have been
identified including those involving our products and solutions
benefiting society (for example in quantified weight saving and
CO
2
reduction in Aerospace & Automotive), the cost of carbon
intensity through taxation from our operations and the potential
increase in the cost of energy. Victrex has used the TCFD
framework of six risks and five opportunities along with the
related examples to support the identification process, of which
four are considered to have a high impact and likelihood.
Climate-related risks and opportunities
are reviewed on a regular basis by the
CRC. Further
locations, those which
are smaller and
have a much lower
impact on current and medium-term
revenue growth, will be assessed for
physical risks before the end of 2024
with updates made
to existing
assessments and mitigation
plans as
information and climate change
modelling become more sophisticated.
Risks and
opportunities, both
physical and
transitional, are
presented on pages
55 and 56.
b. Describe the impact of
climate-related risks
and opportunities on
the organisation’s
businesses, strategy and
financial planning
The potential climate-related benefits that our products offer
present a strong business opportunity, which is considered to
outweigh the climate-related risks from markets which will be
adversely impacted by climate change. The benefits that our
products bring are detailed in Enabling Environmental and Societal
Benefits on page 45. Climate-related risks, both physical and
transitional, are primarily assessed in the context of our own
manufacturing operations.
The impact assessment of the
identified risks and opportunities
will be refreshed as part of the
annual strategy review during 2023
with the aim of maturing our
models for quantifying the impact.
The impact of risks
and opportunities is
presented on pages
55 and 56.
Examples of the
benefits our
products bring to
mitigating climate
risk perspective are
detailed on page45.
c. Describe the resilience
of the organisation’s
strategy, taking into
consideration different
climate-related
scenarios, including a
2°C or lower scenario
The Group believes that its Polymer & Parts strategy is resilient
ina2°C or lower scenario, primarily through:
u
the Group’s existing products, along with its mega-programmes
in Transport, support applications aimed at reducing carbon
dioxide emissions and therefore assist current and future
customers meeting their own requirements to reduce
emissions in a 2ºC or lower scenario; and
u
the strategy of the Group includes a clear goal to decarbonise
the manufacturing process as part of achieving Net Zero. This
will mitigate the impact of the Group’s manufacturing processes
on climate change and mitigate against the likely tightening of
regulatory/government restrictions and taxes to drive down the
use of carbon emitting processes.
Challenge the manufacturing
process and chemistry to lower the
overall energy usage, water usage
and waste generation. Complete
the assessment of the most climate
sensitive and cost effective source
of green energy to meet the future
manufacturing requirements,
replacing gas and non-green
electricity currently used.
See pages 4 and 5.
Risk management
a. Describe the
organisation’s processes
for identifying and
assessing climate-
related risks
During the last year we have conducted an initial climate-related risk
assessment using external specialist support. This included a risk
assessment workshop comprising senior management from across
the business to review climate-related risk over the short, medium and
long-term horizons. This exercise considered both the climate-related
physical and transition risks under three climate scenarios and the
actions that could be taken to mitigate them. A summary of the most
significant climate-related risks is included on pages 55 and 56.
Climate risk will continue to be part of our overall Corporate Risk
Management process. Each risk is thoroughly evaluated based on the
likelihood of occurrence and severity of impact.
Continue to monitor and review
climate-related risks through the
Corporate Risk Management
process. In addition, the CRC will
provide oversight tothe newly
established climate-related risks
including action plans and
progressmade.
The risk management
process is described
on pages 34 and 35.
Summary of key focus areas
STRATEGIC REPORT
53
Annual Report 2022 Victrex plc
STRATEGIC REPORT
Victrex plc Annual Report 2022
54
Sustainability report continued
Summary of key focus areas continued
Recommendation Response Future actions
Further details
(where relevant)
Risk management continued
b. Describe the
organisation’s processes
for managing
climate-related risks
The CRC oversees sustainability workstreams, which includes
climate-related risks. Climate-related risks are integrated into and
managed alongside our corporate risk processes and principal risk
profile. Each risk has a designated risk owner who is responsible
for reviewing and monitoring the risk and providing the necessary
oversight for the implementation and maintenance
ofappropriatemitigations.
Further develop the response plans
for each significant climate-related
risk and its interaction with the
options to Net Zero by 2030 (Scope
1 & 2 emissions) and monitor
progress through the CRC.
The building blocks
to Net Zero (Scope 1
& 2 emissions) are
included on page 5.
c. Describe how processes
for identifying,
assessing and managing
climate-related risks are
integrated into the
organisation’s overall
riskmanagement
Our Corporate Risk Framework (page 34) provides details of
theprocesses used to assess and manage all risk types, including
climate-related risks. We have a well-established risk impact rating
methodology which we have used, along with support from
external advisors, to complete initial qualitative assessments
ofourtransitional and physical climate-related risks.
Fully establish assurance of
keycontrols and actions
relatedtothe newly defined
climate-related risks.
See pages 55 and 56
for the strategic
response and
resilience against
thespecifically
identified risks.
Metrics & targets
a. Disclose the metrics used
by the organisation to
assess climate-related
risks and opportunities in
line with itsstrategy and
risk management process
The climate-related metrics are proposed by management and
agreed by the CRC. This includes the development of milestone
targets on the path to Net Zero (Scope 1 & 2 emissions) by 2030.
Further refinement of metrics
including setting of interim
milestone targets to monitor
progress towards 2030 goals,
including in respect of Scope 1
&2emissions.
Victrex metrics and
targets are set out
on page 51.
b. Disclose Scope 1, Scope
2 and, if appropriate,
Scope 3 greenhouse
gas (‘GHG’) emissions
and the relatedrisks
We calculate and track Scope 1, 2 & 3 (all Scope 3 categories
where relevant – see page 63) GHG emissions, including our
absolute carbon emissions, and measures ofcarbon intensity
according to the GHG Protocol CorporateStandard.
Finalisation of our Scope 3 goal is
planned for FY 2023, for which we
have committed to SBTi.
Emissions disclosed
on pages 61 to 63.
c. Describe the targets used
bythe organisation to
manage climate-related
risksand opportunities
andperformance
againsttargets
We have established longer-term goals with associated near-term
milestone targets related to climate change, which includes our
aspiration of Carbon Net Zero for our own operations by 2030.
Interim goals include our target of increasing our sustainable
products to over 50% of revenues by 2025 (from less than
50%today).
As set out in the Directors’ remuneration report in the Annual
Report forthe year ended 30 September 2021, a proportion of
executive remuneration will be assessed against a range of
challenging carbon reduction targets.
We are committed to the SBTi to
start the process of science-based
targets in line with the global
accord to minimise global
warmingto 1.5°C.
Climate-related
metrics and targets
are set out on
page51.
Executive targets
detailed are set
outon page 120
and 127.
Climate-related risks and opportunities
As noted above the Group has been through a detailed process to identify climate-related risks and opportunities. As required by TCFDthis
hasincluded the two major climate-related risk categories and their six subcategories along with the five major categories ofopportunity.
Analysis has been undertaken against each of the subcategories to identify the key risk/opportunity relevant to the Group, the financial impact
of that, the likelihood of them arising both across a range of timelines and transition climate scenarios. The time horizons and climate scenarios
used for the transitional risk assessment are detailed below with those used for physical risks included on page 57. Different climate scenarios
and time horizons have been used to best represent the different drivers behind transitional and physical risks and opportunities.
Time horizons: They have also been assessed through multiple transition climate scenarios:
The analysis is split into transitional and physical risks and opportunities and detailed on pages 55 and 56.
Short
term
Longer
term
Medium
term
Considered
up to 3 years
Between
3 and 10 years
More than
10 years
1
Accelerated Net
Zero 2050 scenario
(aligned to 1.5°C)
3
Current policies
scenario
(aligned to 3°C)
2
Mid case
scenario
(aligned to 2°C)
Global Net Zero target achieved
by 2050 in line with the aim of
the Paris Agreement. This
would require swift and decisive
action with regard to both
governments and businesses.
Achieve global Net Zero by
2080, requiring a progressive
ramp in policy interventions
compared with today.
Global Net Zero not
achieved by 2100, reflecting
lack of co-ordinated global
commitments with limited
policy interventions.
STRATEGIC REPORT
55
Annual Report 2022 Victrex plc
Transition-related risks and opportunities
The Group undertook a detailed exercise to identify transition risks and opportunities for consideration. Those considered to have the
largest impact are included in the table below. For some risks and opportunities the time frame of impact spans multiple time horizons;
where this is the case two time frames are shown to illustrate this with the impact expected to increase as the time horizon increases.
Climate-related
risk/opportunity Impact
Temperature
scenario
Time frame
ofimpact
Strategic response
andresilience
Policy
Risk: The Group’s energy
usage is disclosed on pages
61to 63. Increasing the pricing
of carbon emissions is a key
lever forgovernments and
regulators to reduce use
ofhydrocarbon-based
energysources.
Link to principal risks:
Strategy execution
Current sources of energy, gas and
electricity could increase in cost
significantly as the government
drives a move away from
hydrocarbons to green energy
sources, with alternative sources of
green energy more expensive. An
illustrative impact for financial
modelling purposes has been made
as outlined below.
Accelerated/
Mid/Current
Medium
Medium – Long
Reducing the impact of carbon-based
taxes is being mitigated by both the
switch to greener energy and the
chemistry of the manufacturing
process to reduce absolute energy
usage. The Group’s strategy for
reducing carbon emissions is outlined
on page 5. The approval of new capital
projects includes consideration of the
source of energy and an assessment of
green energy options.
Policy, market andtechnology
Risk: A proportion of the
Group’s sales go into
industries expected to decline
due to climate change (driven
by both government policy
and consumer behaviours),
including Oil & Gas and
internal combustion engine
based transportation.
Link to principal risks:
Strategy execution/
Geo-political and macro-
economic environment
Declining sales and profits as
demand falls for Company’s
products. Approximately 18%
ofsales currently go into Oil
&Gasand ICE related
Automotiveapplications.
Accelerated/
Mid/Current
Medium – Long
Long
Whilst Oil & Gas and ICE based
transportation will reduce significantly
over time, this is likely tovary by
geography and take many decades.
PEEK has a continuing role to play in
making both industries reduce their
carbon footprint in the
interveningperiod.
Opportunity: PEEK’s
properties play favourably in
a low carbon world (see
pages 10 and 11) providing
opportunities to grow sales
significantly as the world
decarbonises and
governments introduce
policies and regulations.
Delivery of the Group’s growth
programmes, which underpin
carbon reduction, including
lightweighting of aircraft,
electrification of vehicles and
increased use of Semiconductors,
will lead to significant revenue and
profit growth and cash generation.
Accelerated/
Mid/Current
Medium
Medium – Long
The Company continues toinvest
heavily in its mega-programmes
supporting lower carbon transportation,
but also has applications in green
energy and electronics which support
improved energy efficiency. Within
Automotive, for example, the decrease
in the ICE business is expected to be
slower than the increase in the EV
business and will therefore provide an
increased net benefit over the
medium-term horizon. Success in this
area is aligned to our target of growing
revenue from sustainable products.
Reputation
Risk: Key stakeholders,
including investors and
employees, become
disenfranchised with the
Group’s failure to deliver its
Net Zero target.
Link to principal risks:
Recruitment and retention
ofthe right people
Reduced interest from investors will
adversely impact the Company’s
share price and make raising capital
more difficult.
Not being able to retain and attract
talent will adversely impact the
Group’s ability to deliver
thestrategy.
Accelerated/
Mid/Current
Short – Medium The Company has established a Net
Zero by 2030 target, identified key
milestones and engaged key
stakeholders, including investors and
employees, in the delivery of the
strategy. Demonstrating progress
against these milestones will retain
the interest of key stakeholders.
Opportunity: Achieving Net
Zero by 2030 presents an
attractive proposition for key
stakeholders, including
customers, investors and
employees, with increasing
interest in being associated
with ambitious companies
delivering their commitments
on climatechange.
Increasing interest from ESG funds
may boost the Company’s share
price and could provide greater
access to capital, with financial
institutions also providing more
attractive access to capital for
companies with green credentials.
Attracting and retaining talent will
support delivery of the Company’s
strategic growth ambitions.
Accelerated/
Mid/Current
Short – Medium Victrex has grown its position
amongst a number of dedicated ESG
funds globally. It has also broadened
its position in a number of external
networks or industry forums as a
leading advocate of decarbonising.
The Group has sought external
accreditation for its approach to
climate change providing key
stakeholders with assurance of its
commitments to Net Zero by 2030.
STRATEGIC REPORT
Victrex plc Annual Report 2022
56
Sustainability report continued
Transition-related risks and opportunities continued
The overall financial impact of the above risks and opportunities has been assessed. From a revenue perspective it has been concluded that
climate change presents a net opportunity for the Company, with PEEK and its current and future applications playing strongly across a
number of end markets where reductions in carbon emissions are a key driver for innovation. For financial planning and scenario modelling
a cautious revenue neutral position has been assumed.
The primary adverse financial impact will come from carbon pricing, should the Company fail to identify a cost effective green energy
solution to replace gas as its primary source. The Board remains confident that this will be the case but the cost of implementing and
running greener energy, based on current usage, can only be an estimate at this stage. The target is to mitigate any increase through
improvements in the manufacturing process which facilitate operating at lower temperatures and producing less waste; however, this
remains at early stages with cost increases likely to arise before the mitigation benefit. As a result the Group has assumed a financial
downside from carbon pricing (covering both the potentially higher cost of green energy, or the cost of carbon taxes if this fails). An
assumed addition cost of £20mpa (from 2024), increasing annually with inflation, has been included in financial planning, including the
models used for impairment testing and the viability assessment, to address this risk. Further details on how this has impacted the
preparation of the financial statements is included in the basis of preparation on page 146.
Physical risks
The Group has assessed the climate-related physical risks, both acute and chronic. The primary physical risk is that of increased severity
andfrequency of extreme weather events:
Climate-related risk Impact Risk Potential financial impact
Physical: acute and chronic
Increased frequency and severity
ofextreme weatherevents
u
Disruption to production
processes and/or loss
ofinventory
u
Loss of assets
u
Harm to employees
u
Loss of reputation for ability
tosupply on time in full
u
Employee welfare could be
impacted by extreme weather
ranging from impact of
flooding through to heatwaves
and droughts making working
conditions harmful
u
Increases in the frequency and
severity of flooding events could
result in damage to production
assets or loss of inventory
u
Loss of production resulting in
loss of revenue (short term and/
or long term) due to being
unable to supply with
customers seeking more
reliable alternatives
u
Cost of repairing/replacing
assets not covered by insurance
u
Increased cost of unavailability
of insurance
The timelines associated with the physical risk are covered in the scenario analysis below.
The Group’s primary operational manufacturing assets are located in the UK, with commissioning ongoing in China on additional capacity.
The Group has a network of regional warehouses, all of which are leased which affords the flexibility of being able to readily relocate these
within a short time frame where elevated risks exist or emerge over time.
The Company’s ability to supply its customers has been and remains a key business priority. A key mitigation of this risk is the level of
inventory, with targeted levels of three to four months’ cover at each warehouse. This level is kept under review depending on the risks to
global supply chains and the phasing of extended plant maintenance shutdowns at any point in time as well as the volatility in demand
profiles. The risk to supply from climate change is incorporated into this consideration, but at current target levels of inventory, a temporary
loss of production due to extreme weather events could be absorbed without losing the ability to supply customers.
The likelihood of extreme weather events impacting key locations is considered opposite in our scenario modelling.
STRATEGIC REPORT
57
Annual Report 2022 Victrex plc
2022 climate scenario analysis modelling
Climate scenario analysis (‘CSA’) has been performed to assist in understanding the potential impact of climate change on the future of our
business which in turn will support the evolution of our strategy. The CSA was carried out using a standard methodology in line with TCFD guidance.
Climate change and its impact on weather patterns may result in physical risks to the Group’s assets and employees along with those of its
supply chain and customers. The Group has engaged with third-party advisors to assess the exposure to the physical risk noted above. In
total nine hazard types have been assessed, including flood, wind, precipitation and drought, up to 2100 in 10-year increments.
The climate-related data used to underpin this assessment was the Shared Socio-environment Pathways (‘SSPs’). SSPs are a function of
greenhouse gas emissions, socioeconomic metrics and expected implementation of adaptation and mitigation measures. These correspond
roughly to the Representative Concentration Pathways (‘RCPs’) of previous versions of the Intergovernmental Panel on Climate Change
(‘IPCC’) report. Three IPCC climate change scenarios have been used, with a baseline of 2020:
Near term: 2021–2040 Mid term: 2041–2060 Long term: 2081–2100
Scenario Best estimate Very likely range Best estimate Very likely range Best estimate Very likely range
SSP 1-2.6 (RCP 2.6) 1.5°C 1.2 to 1.8°C 1.7°C 1.3 to 2.2°C 1.8°C 1.3 to 2.4°C
SSP 2-4.5 (RCP 4.5) 1.5°C 1.2 to 1.8°C 2.0°C 1.6 to 2.5°C 2.7°C 2.1 to 3.5°C
SSP 5-8.5 (RCP 8.5) 1.6°C 1.3 to 1.9°C 2.4°C 1.9 to 3.0°C 4.4°C 3.3 to 5.7°C
For information relating to the forward-looking climate data, our third-party advisors used Jupiter Intelligence ClimateScore.
The climate data and scenarios were used to perform an initial assessment on the Group’s primary operational manufacturing sites, defined
as those critical to the sustainability of our current revenue streams and those which will deliver the majority of growth over our strategic
planning horizon, five years. Three sites met the criteria for inclusion in the initial assessment, all based in the United Kingdom.
For each of the three sites and for each of the nine hazard types, the following outputs from the modelling were considered:
u
hazard level evolution – expressed qualitatively from ‘low’ to ‘very high’ hazard levels based on physical parameters for each hazard
according to our external advisors;
u
hazard value relative increase/decrease – relative change in percentage compared to the baseline 2020 value; and
u
hazard value – absolute hazard value, expressed in the metric relevant to the hazard, designed to provide context to the relative
increase/decrease (above), but not sufficiently detailed on which to base mitigation, i.e. design of protective structures.
With reference to the SSP5-8.5 scenario (the most severe) the majority of the nine hazard types remained ‘low’ across each of the three
sites. For those hazards which were considered ‘high’ or ‘very high’, being wind, drought and precipitation, in the majority of cases the level
was consistent with the base year and the maximum increase in the hazard level to 2050 was 10% versus the base year. By 2100 the
maximum increase was 25% relative to the base year which related to precipitation but that was not sufficient to increase the flood risk
hazard level from that in the base year.
The conclusion from the analysis of these three sites is that there is no material financial impact from the physical risks arising from climate
change through the mid-term time horizon (2041–2060) nor well into the long-term time horizon (2081–2100) (under any of the temperature
scenarios), neither directly in the working conditions for our employees nor the operational cost of the business nor the cost of insuring the
Group’s key assets. The analysis highlights a number of factors for the Company to consider in expanding, replacing and protecting its
assets and providing a safe working environment for its employees at these sites. The incorporation of these into the future plans of the
business will be monitored by the CRC.
Further work is scheduled to widen the scope of this analysis to other manufacturing sites and also through the supply chain to our strategic
suppliers, focusing on those suppliers in markets with limited participants.
Financial statement impact
The impact on the financial statements for the year ended 30 September 2022 of the aforementioned risks and opportunities from climate
change has been detailed in the notes to the financial statements (see note 1 for further details).
SUSTAINABLE SOLUTIONS:
IMPROVING THE QUALITY OF LIFE IN PATIENTS
THROUGH CUTTING EDGE MEDICAL DEVICES
Societal benefits
Victrex’s sustainability (ESG) strategy, which
includes a Carbon Net Zero goal by 2030
(Scope 1 & 2 emissions), encapsulates a
series of bold targets to increase the
proportion ofsustainable products (to 70%
of revenues by 2030) – which in turn
supports CO
2
reduction, energy efficiency,
or clinical benefits in Medical – as well as
minimising the use of our own resources
such as energy, water and waste. Inmaking
strides towards meeting our purpose to
bring transformational and sustainable
products to market which address the
world’s material challenges, Victrex is
conceiving, developing and delivering
solutions that provide societal benefits,
typically replacing metal-based solutions.
Inthe medical field, Victrex Polymer & Parts
are estimated, to date, since the early
2000s, to have improved clinical outcomes
for morethan 15 million patients, and with
our Medical business, Invibio, accounting for
less than 20% of Victrex revenues in FY
2022, we have a bold ambition for Medical
to become a larger proportion of sales over
the next 10 years, potentially up to one third
of the Group.
Victrex has a rich history in enabling
customers to develop a wide range of
sustainable medical solutions that are
delivering life-changing outcomes to millions
of patients worldwide. Specifically, PEEK’s
unique set of characteristics offers
performance advantages in even the most
hostile environments within the human
body, from serious bone fracture sites to
strong stomach acids.
Expanding the range
ofapplications bringing
societalbenefit
Whilst solutions for the Spinal applications
have been the bedrock of our offering, we’re
further expanding the range of applications
within the human body where PEEK can
deliver clinical benefit, with around 50% of
divisional revenues now in non-Spine, from
Drug Delivery and Cardio (including
applications for artificial hearts) to Trauma
and the emerging and sizeable opportunity
in Knee. Indeed, the addressable opportunity
for a PEEK Knee is around $1bn, with a
clinical trial over halfway through patient
recruitment and making strong progress,
with over 30 patients currently implanted
and no clinical intervention.
Faster healing in patients
Faster healing
1
in patients is one of the
cornerstones of Victrex’s successes in the
medical field, with PEEK-OPTIMA™
polymers from Invibio demonstrating a
range of life-changing benefits when
implanted into the human body. PEEK-
OPTIMA™ Natural polymer was the first
medical-grade PEEK used in spinal fusion
surgeries, and today PEEK is the most widely
used biomaterial for interbody fusion. When
PEEK is put under stress or strain in the
body, it behaves similarly to natural human
bone
2
, which can stimulate bone healing,
and help to minimise stress shielding. When
the chemical makeup of PEEK is enriched
with additives, such as Hydroxyapatite as in
PEEK-OPTIMA™ HA Enhanced polymer,
further benefits are seen, such as the
formation of new bone after surgery, and
improving the quality of bone bridging
3,4
.
Similarly, carbon fibre PEEK composites offer
exciting potential to patients undergoing
surgery for orthopaedic trauma, by offering
fixation solutions that promote faster
healing compared to other materials
1
.
CranioMaxillo Facial (‘CMF’) is one area
PEEK has been increasingly used, and indeed
a recent brain study showed 25% better
brain function by using a PEEK implant
compared to titanium
5
.
From disposable
toreusabledevices
As the pharmaceutical industry responds
tothe global agenda for sustainability,
pharmaceutical companies are seeking
innovative ways to move from disposable
devices to drug delivery platforms that are
reusable. The next generation of reusable
devices require larger volumes and more
complex drugs, which bring a range of
engineering challenges. Victrex’s family of
implantable and non-implantable PEEK
polymers (for example, our materials were
used in ventilators during the COVID-19
pandemic) help customers to address this
byenabling less waste inthemanufacturing
process through theconsolidation of
components, and byextending the
lifecycleof their deliveryproducts.
From development to
commercialisation
Ten years ago, most of our medical
applications were in Spine but the emerging
and growing non-Spine business offers a
real opportunity to bring societal benefits
inother applications. Thanks to often
painstaking development work, certification
and following regulatory pathways, we see
real demand for sustainable and clinically
beneficial solutions for the wider
medicalindustry, which offer significant
opportunities over the next decade, in
theUS, Europe and increasingly Asia.
Sustainability report continued
References:
1 Jo Wilson, PhD, Matthew Cantwell; Polyether Ether Ketone (PEEK) Carbon Fiber Composites May Improve Healing of Fractures Stabilized with
Intramedullary Nails. (Basic Science Focus Forum, paper #4, 2014) 155. (NB: Jo Wilson and Matthew Cantwell are Victrex employees.)
2 Data on file at Invibio. Mechanical Benchmark of Carbon Fiber PEEK-OPTIMA™ Ultra-Reinforced vs Ti 6AI-4V Plates Undergoing Static and Dynamic Testing
per ASTM F382-99 (2008).
3 Study evaluated the bone on growth of PEEK-OPTIMA™ Natural and PEEK-OPTIMA™ HA Enhanced in a bone defect model in sheep. Data on file at Invibio.
This has not been correlated with human clinical data.
4 Study evaluated the in vivo response to PEEK-OPTIMA™ Natural, PEEK-OPTIMA™ HA Enhanced and allograft in a cervical spine fusion model in sheep.
Dataon file at Invibio. This data has not been correlated with human clinical experience.
5 Zhang Q, Yuan Y, Li X, et al. A Large Multicenter Retrospective Research on Embedded Cranioplasty and Covered Cranioplasty. World Neurosurg.
2018;112:e645-e651.
Victrex plc Annual Report 2022
58
STRATEGIC REPORT
STRATEGIC REPORT
59
Annual Report 2022 Victrex plc
Resource efficiency
Beyond our products playing a role in a better
society, or having recyclability potential in
applications, we also have clear goals to
improve our resource efficiency, including
reductions in energy, waste and water
usage. Energy usage will continue, in the
short term, to be driven by production
volumes, as will water with this year being
higher due to the year on year comparisons
with normalised levels of production compared
to FY 2021 when significant inventory, built up
for Brexit, was unwound as well as the
lower production through thepandemic.
However, we note that our carbon intensity
(Scope 1 & 2 emissions/tonnes of PEEK
manufactured) decreased by 4% this year.
Thanks to improvement programmes, water
usage per unit revenue has also reduced by
5% over the past five years. We have
increased how we measure energy, waste and
water usage within our business and expect
to add some further quantification over the
years ahead. We remain focused on controlling
these impacts and, as we grow, are committed
to continual improvement. Our priorities remain
the efficient use of energy and water and waste
minimisation and we are proactively focusing
on improvement in these areas.
Pleasingly, we will be reporting on all our
relevant Scope 3 emissions (indirect emissions
from formulation of and transport of goods
that are supplied to us, prior to manufacture)
from FY 2022. Whilst peer data is difficult
tofully track, our own internal assessment
suggests VICTREX
TM
PEEK, with its own
upstream integrated monomers and the fact
we are using 97% global renewable electricity
in our own operations, has a favourable
sustainability profile against competitor
products, most of which operate on
non-renewable electricity in other jurisdictions.
Our new PEEK facility in China is also now
included in our Scope 1 & 2 data.
Commissioning will take place through FY
2023, ahead of commercial operations and
‘normalised’ production. We will be spending
most of FY2023 commissioning this project
which will add further to our GHG emissions
data once fully operational.
Improvement programmes
With a Continuous Improvement (‘CI’) team
in place, we continue to assess opportunities
across our resource efficiency area that haven’t
already been implemented. These include in
recycling, energy usage, waste and water.
Several improvement programmes have
already delivered ongoing benefits, saving
over 200 tonnes of CO
2
during FY 2022 by:
u
increasing polymer powder batch size;
u
increasing production line speed; and
u
removing the caustic wash cycle.
We have also commenced a major project
atour UK Hillhouse site to improve energy
metering enabling us to have more granular
energy use data.
Principal environmental impacts
The Group’s main environmental impacts
are set out in the charts on page 61 and are
different from the Group’s overall greenhouse
gas (‘GHG’) emissions (on pages 62 and 63).
These show energy use, water use and
waste from our main UK production sites.
These production sites have the biggest
potential environmental impact (consuming
98% of energy for the Group).
We report data per unit of revenue to best
align our indicators with our Polymer & Parts
strategy as we move downstream into more
specialised manufacturing with a varied
product mix, along with absolute data to
demonstrate our total impact. Over recent
years, targeted improvement programmes
have resulted in lower energy and water
efficiencies per unit of plant output.
Environmental indicators have benefited
from lower sales volumes.
Our GHG report (updated in line with the
UK government’s new policy on Streamlined
Energy and Carbon Reporting (‘SECR’)) includes
our corporate CO
2
emissions by emission
type (Scope 1 emissions generated by the
direct combustion of gas; Scope 2 emissions
from purchased electricity and steam; total
energy used; and Scope 3 emissions indirect
from other sources). Absolute emissions
data is reported along with Scope 1 & 2
emissions per unit revenue.
Assessment & measurement
Victrex has increased its participation in a
range of external ESG benchmarks, beyond
our own disclosures in this Annual Report.
Aselection of these are shown on page 50.
For example, we have a long-standing
participation in the Carbon Disclosure Project
(‘CDP’), which benchmarks global companies
and has recognised our efforts in this area.
MSCI, one of the leading ESG rating agencies,
FTSE Russell and EcoVadis are other
organisations that assess our performance.
Compliance
Victrex continually seeks to be compliant in
our environmental and operating performance.
Working with global regulatory authorities,
we make sure that the best available
techniques to protect the environment are
adopted. Our UK chemical production
plants are regulated under Environmental
Permitting Regulations and, as such, are
subject to regulatory review by the UK
Environment Agency. We carry out extensive
routine monitoring in line with our
environmental permits, to proactively ensure
our plants are well controlled with zero
notifiable permit breaches during the year.
UK Emissions Trading Scheme
(‘UK ETS’)
Whilst in absolute terms for the chemical
industry, Victrex’s emissions are low, the
21-stage process of manufacturing PEEK
polymers compared to other polymers
(typically with less than 10 stages) means
Victrex holds a Greenhouse Gas Permit under
the UK ETS scheme, covering the combustion
of fuels at its UK Hillhouse polymer
production site. Verification of emissions
covering August 2021 (entry to the scheme)
to December 2021 was undertaken via a
registered third party and a submission made
to the Competent Authority (UK Environment
Agency) in April 2022. Victrex plans to make
an application to join the Hospital and Small
Emitter scheme in 2023 to reduce its exposure
to fluctuations in carbon pricing by being
granted several free allowances, backdated
to cover 2021 and 2022 emissions.
During the year we successfully retained
ourISO 14001:2015 certification for the
environmental management system on
allour UK polymer manufacturing plants,
melt filtration, compounding, film, tape,
pipe, dispersion and innovation plants,
validating our high level of commitment
toenvironmental improvement. Victrex
hasan effective system for reporting and
investigating incidents and near misses. In
the period there was one reportable incident.
PEEK recycling
When recycled appropriately, PEEK is a
valuable resource whose waste may be reused
without compromising on its performance.
Victrex has completed a project to identify
how we can recycle PEEK (PEEK from end of
life applications) even more efficiently and
provide a recycling service to our customers.
We have developed the potential of partnering
with an existing Value Added Reseller (‘VAR’)
customer to recycle and retrieve PEEK waste
aspart of its ongoing commitment to
sustainability and circular economy.
RESOURCE EFFICIENCY
Sustainability report continued
Victrex plc Annual Report 2022
60
STRATEGIC REPORT
Waste
Victrex works closely with licensed waste
service providers to ensure that waste is
recovered, recycled or disposed of with
minimal environmental impact.
Our manufacturing assets used to produce
PEEK provide us and our customers with
security of supply; however, using our
own ingredients and raw materials means
that we do produce some hazardous
waste due to the nature of our processes.
This is primarily in our monomer
production assets within the UK
(Rotherham and Seal Sands). We are
currently assessing options that could
reduce this type of waste within our
process and have committed a small
proportion of our Research & Development
expense accordingly.
During FY 2022, waste disposed to landfill
increased due to higher production and
from the disposal of waste stored up
during the COVID-19 pandemic. We
completed a full waste mapping exercise
and are working with our waste suppliers
to identify areas of improvement. This also
includes options which could reduce our
waste to landfill to zero. We also note
thatfrom our original target of 50% of
hazardous waste to be reduced by 2023
(a2013 target), wesaw a48% reduction
inwaste per £mrevenue.
Energy use
Our energy use is reported mainly from
our UK manufacturing sites, in line with
our 2030 goals being based on our 2019
manufacturing footprint.
Energy data is based on meter readings
and/or invoices.
With higher production volumes vs FY 2021
(FY 2021 saw the unwinding of sales
inventory), absolute energy increased.
Primary energy per unit revenue has
increased as production volumes this year
are higher year on year, with revenue
being impacted by a currency headwind,
and the lag in recovering the higher cost
of manufacture through customer price
increases, which we expect to become
annualised in FY 2023.
Water
Our main manufacturing assets within the
UK and US are all located within areas of
low or very low water stress*. For FY 2022,
we started participation in the CDP water
disclosure programme and note that our
water usage per unit revenue has decreased
by approximately 5% over the last fiveyears,
principally because of operational
improvements to our processes and a
focuson water and resource efficiency.
Water usage per unit revenue increased
by20% with water usage higher due to
increased production volumes (FY 2021
saw much lower production volumes as
weunwound inventory built up for Brexit).
* UK Environment Agency Flood Risk
Assessment; Rhode Island Statewide
Planningand Grantsburg site 2021
InsuranceRisk Assessment.
Primary energy
Thousands GJ
2020
7942019
8472018
2022
684
Primary energy per unit revenue
Thousands GJ/£m
2020
2.72019
2.62018
2022
2.2
805 2.4
2021
657
2021
2.5
Water usage
Thousands m
3
2020
2019
2018
2022
Water usage per unit revenue
Thousands m
3
/£m
2020
2019
2018
2022
2021 2021
499
605
1.7
1.9
396 1.5
467
607 1.8
1.5
STRATEGIC REPORT
61
Annual Report 2022 Victrex plc
Hazardous waste produced
Tonnes
2020
2019
2018
2022
Hazardous waste produced per unit
revenue Tonnes/£m
2020
2019
2018
2022
2021 2021
Hazardous waste disposed to
landfill (after treatment) Tonnes
2020
2019
2018
2022
Hazardous waste disposed to
landfill (after treatment) per unit
revenue Tonnes/£m
2020
2019
2018
2022
2021 2021
30,311
33,910
103
104
11,914
1
39
0.003
15 0.043
27,430
27,678
103
81
12 0.05
15 0.05
0.027
Sustainability report continued
Greenhouse gas (‘GHG’) emissions
Our GHG report has been completed
following the guidance within the UK
government regulations on Streamlined
Energy and Carbon Reporting (‘SECR’)
introduced in 2019.
Emissions have been calculated based
onthe GHG Protocol Corporate Standard
with all emissions reported being within
FY 2022. We include emissions from our
owned and leased assets that we are
responsible for in the UK and overseas,
which includes our manufacturing plants,
technical centres and offices. No material
Scope 1 or Scope 2 emissions are omitted,
and national and regional emission
conversion factors have been used.
In FY 2022 we established a clearer view
of our Scope 3 emissions by conducting a
thorough analysis of the following indirect
value chain emissions identified as relevant
to Victrex globally:
1. purchased goods and services;
2. capital goods;
3. fuel and energy-related activities;
4. upstream transportation and distribution;
5. waste generated in operations;
6. business travel;
7. employee commuting; and
8. investments.
Our GHG emissions are primarily from gas
combustion and electricity use on our
chemical production plants in the UK, with
an approximately 50/50 split. Victrex has
made strong progress, with a stated aim
of using 100% renewable electricity across
all our global sites by the end of 2024.
Currently, 100% of electricity purchased
for our UK sites is from renewable sources,
with 97% globally. This is in the form of
Renewable Certificates or a limited
amount of our own renewable (solar)
generation, which we have the
opportunity to expand. We note that with
the current significant inflation in energy
costs, and the premium already existing in
the market for renewable procured
electricity, the cost to Victrex of continuing
to purchase renewable energy will only
increase on a medium-term view.
Emissions from our downstream
manufacturing facilities in the US and the
UK continue to be included but are
relatively immaterial. Additionally,
emissions from our overseas technical
facilities and offices are small compared
toproduction activities.
Pleasingly, our Intensity Measurement,
based on Scope 1 & 2 emissions/tonnes of
PEEK manufactured, decreased by 4% vs
FY 2021, continuing a general trend seen
since FY 2018. Direct emissions (Scope 1)
increased due to higher production
volumes whilst indirect emissions from
electricity used (Scope 2) increased,
although we note a general reduction
trend over the past five years.
Victrex GHG emissions based on Victrex financial year 2021/22
Tonnes of CO
2
e equivalent 2022 from PEEK manufacture and downstream products.
SCOPE 2
Indirect emissions resulting from
electricity and steam purchased
(location-based method) Tonnes CO
2
e
2020
12,722
2019
2018
2022
9,212
8,293
25,232 10,673
INTENSITY MEASUREMENT
SCOPE 1 & 2
Tonnes CO
2
e/tonnes of
PEEKmanufactured
2020
8.32
2019
2018
2022
9.87
8.13
91,215 7.79
SCOPE 1
Direct emissions resulting from
combustion of fuels Tonnes CO
2
e
2020
25,499
2019
2018
2022
18,241
20,161
SCOPE 3**
Other indirect emissions across eight
categories as listed above Tonnes CO
2
e
2020
2019
2018
2022
Scope 1
Scope 3
Scope 2
2021
23,820
2021
11,065
2021
79,747**
2021
8.86
RESOURCE EFFICIENCY CONTINUED
Scope 1: 20%
Scope 2: 8%
Scope 3: 72%
** Scope 3 emissions for FY 2019 were the baseline for our full Scope 3 assessment covering the eight relevant categories to Victrex. FY 2022 Scope 3
emissions have been calculated on the same basis. The other years have been reported on as part of prior year disclosures based on a more limited
number of Scope 3 categories, and are not shown here to minimise an inaccurate comparison. Future Scope 3 disclosures will now cover the full eight
categories relevant to Victrex.
Previously disclosed (limited categories)
Previously disclosed (limited categories)
Previously disclosed (limited categories)
STRATEGIC REPORT
Victrex plc Annual Report 2022
62
Global GHG emissions andenergy use data
2021 2022
Scope 1/tCO
2
e
Global 20,161 25,232
UK 19,953 24,978
Global (excluding UK) 208 254
Scope 2 (location based)/tCO
2
e
Global 8,293 10,673
UK 7,511 8,490
Global (excluding UK) 782 2,183
Scope 2 (market based)/tCO
2
e
Global 1,980 3,012
UK 1,088 830
Global (excluding UK) 892 2,182
Gross Scope 1 & Scope 2 (location based)/tCO
2
e
Global 28,454 35,905
UK 27,46 4 33,468
Global (excluding UK) 990 2,437
Energy consumption/MWh
Global 140,843 171,362
UK 138,676 166,171
Global (excluding UK) 2,167 5,191
Intensity ratio/tCO
2
e
Gross Scope 1 & Scope 2/Tonnes of
PEEKmanufactured
Global 8.13 7.79
Methodology
Based on GHG Protocol Corporate Standard
NOx (oxides of nitrogen reporting)
Pleasingly, our operations emit well below our environmental permits
threshold levels of 100 tonnes per annum.
During the past 12 months, 11 tonnes of NOx (expressed as NO
2
)
were generated from our principal manufacturing sites directly in the
manufacture of PEEK. This was calculated using monitoring data and
assumptions around plant availability and actual operational periods.
Scope 3 emissions assessment
Total carbon footprint:
28kg
CO
2
per kg of PEEK manufactured
Scope 1, 2 & 3 (8kg CO
2
per kg of PEEK
based on Scope 1 & 2 only)
Scope 3 emissions are the result of activities from
assets not owned or controlled by the reporting
organisation, but that the organisation indirectly
impacts in its value chain. Scope 3 emissions
include all sources not within an organisation’s
Scope 1 & 2 boundary.
This year we completed a Scope 3 assessment
across all eight relevant categories, using pre-
and post-COVID-19 FY 2019 and FY 2022 data.
This was across the eight topics identified as
relevant to Victrex globally, by setting up
individual workstreams for each one, gathering
the data then calculating the carbon footprint for
each topic to identify the total Scope 3 emissions.
The assessment identified a Scope 3 figure of
79,747tCO
2
e and gives a total pre-COVID-19
FY2019 carbon footprint figure, Scope 1, 2 & 3,
of 114,632 tCO
2
e. When combining this with the
FY2019 volume (production volume) this equates
to a figure of 26kg CO
2
e/kg. It should be noted
that in FY 2019 we produced more than sales
volume due to building inventory ahead of Brexit.
Our FY 2022 Scope 3 figure was 91,215tCO
2
e
and gives a total post-COVID-19 FY 2022 carbon
footprint figure, Scope 1, 2 & 3, of 127,120tCO
2
e.
When combining this with the FY2022 volume
this equates to a figure of 28kg
CO
2
e/kg. In FY 2022, production volume was
similar to sales volume, reflecting the
normalisation of production.
Overall, our Scope 3 analysis has provided us
with the following opportunities:
u
work with key suppliers to identify carbon
reduction opportunities;
u
switch to biofuels as a source of energy for
the combustion-based activity;
u
switch to renewable electricity; and
u
encourage employee commuting using
electric cars with zero GHG emissions.
Lifecycle Analysis
Lifecycle Analysis (‘LCA’) is the process of measuring the
environmental impact of a product or service throughout
itslifecycle – from cradle to gate – and this year we have
completed LCAs on key products which represent nearly two
thirds of revenues (63%). We plan to conduct LCAs onasmall
proportion of additional key products over the nextthree years,
ensuring ourwider portfolio is covered.
The process involves measuring the impacts of each part of
theprocess such as energy used in production or additional
processing, and in inbound logistics. This helps us compare
between products, materials and methods used, providing
useful information by which to make decisions that could help
the environment and provides an understanding of our total
carbon footprint for us and the carbon footprint of our
products for our customers.
Our LCA – which followed and was compliant with ISO14040/44
– has identified that the total global warming potential for
PEEK is 13kg CO
2
e/kg of PEEK. This is based on KPMG’s
assessment which includes production, raw materials and parts,
and inbound logistics, and uses 100% Victrex made BDF
(though we do purchase a minority of non-Victrex-made BDF).
Our own internal assessment, particularly when considering the
lower renewable energy mix in countries producing PEEK for
competitors and despite the increased number of steps in our
process, 21 vs 10 typically, suggests thisis much more favourable
than our competitors, and the average for PEEK manufacturing,
though PEEK reporting by competitors is combined within their
broader portfolio reporting. PEEK’s global warming potential
(‘GWP’) is also nearly three times lower than titanium*.
Overall, the LCA enables us to consider future opportunities
forfurther environmental improvement, including:
u
installation of further isolation meters to accurately
recordusage data;
u
developing a standard approach and repository for the
collation of LCA data; and
u
working with suppliers as part of the indirect impacts we
have on the environment.
* Norgate, Jahanshahi and Rankin – Journal of Cleaner Production 2007.
Category 1: 80% – Purchased goods
and services.
Other categories: 20% – capital goods,
fuel & energy (not in Scope 1 & 2), upstream
transportation, waste generation, business
travel, employee commuting and investments.
SCOPE 3 EMISSIONS BASED
ON FY 2022:
Other
categories
Category 1
STRATEGIC REPORT
63
Annual Report 2022 Victrex plc
Sustainability report continuedSustainability report continued
Options to enable
Carbon Net Zero
A key focus area will be the use of
alternative fuels and alternative process
technology to minimise our GHG
emissions. For example, we have been
lobbying local MPs in the UK, engaged
with the UK Business Minister and been
active in local enterprise partnerships
for the opportunity to gain access to
hydrogen through proposed grids
within the UK, including those planned
in the North West of England, close to
our main polymer manufacturing
centre.
We have also increased the capital
required in our capital expenditure plans
to support alternative fuel use or process
technology (whilst noting the increased
operating expense of alternative fuels).
We are also allocating a small but
growing proportion of R&D investment
in support of alternative processes,
including work with universities.
Several key projects have been proposed
that could be of interest including:
u
electrification of production equipment;
u
alternative fuel to generate steam
for process heating; and
u
bio-methane and renewable
self-generation options.
We have also been investigating the
use of alternative fuels:
u
hydrogen –
u
Green Hydrogen via PEM
(Electrolysis) and renewables;
u
Blue Hydrogen via Steam
Reforming and Carbon Capture; and
u
hydrogen (20%)/methane blend
schemes being piloted;
u
biofuels –
u
Green HVO (drop-in bio-diesel
replacement);
u
Biomass (sustainable wood
chip);and
u
AD Biogas Sources (Anaerobic
Digestion); and
u
carbon capture – a range of projects
that we are currently engaged with.
Carbon offsetting
Whilst Victrex will consider the opportunities
from carbon offsetting, we currently view this
as a very small part of achieving our goals.
REACH
Following the UK’s withdrawal from the EU
and the subsequent transition period, the
EU REACH (Registration, Evaluation,
Authorisation and Restriction of Chemicals
regulations) Regulation has been brought
into UK law under the European Union
(Withdrawal) Act 2018. REACH, and related
legislation, has been replicated in the UK
with the necessary changes to make it
operable in a domestic context. The key
principles of the EU REACH Regulation have
been retained. The new domestic regime is
known as UK REACH.
UK REACH, implemented 1 January 2021,
isa regulatory requirement for the chemical
industry and Victrex has well-established
processes in place to comply with it. We
regularly monitor and review to ensure that
raw materials involved in our manufacturing
process are compliant and that REACH will
not adversely impact on security of supply,
which is important both for Victrex and for
our customers who are focusing on
long-term demand.
Supply chain and
energy sourcing
With increased globalisation and concerns
from customers around energy sourcing,
Victrex continually seeks to ensure it has
robust security of supply for customers.
The majority of BDF – one of the key
monomers used to manufacture PEEK – is
manufactured in our own operations within
the UK. The remainder is sourced from Asia
through several contractual sources. With
the conflict in Ukraine, we engaged with a
range of stakeholders to reassure them that
no raw materials were sourced from
Ukraine, or Russia. Indeed, sales to those
countries totalled <0.1% prior to the
Ukraine conflict starting.
Currently, our raw material sourcing other
than BDF is primarily from Europe, with Asia
and the US also hosting our strategic suppliers.
For energy supply, most of our production is in
the UK, so we procure energy on UK based
contracts, whilst noting the unprecedented
increase in UK energy costs (primarily gas and
electricity used in our heating processes), as
the UK has to compete for global gas supplies
at high prices. Energy and raw material
hedging is one aspect of our planning, though
with the conflict in Ukraine moving energy
costs to unprecedented levels, the focus
remains on recovering input cost inflation
through efficiency and primarily price increases
tocustomers.
RESOURCE EFFICIENCY CONTINUED
Victrex plc Annual Report 2022
64
STRATEGIC REPORT
Recordable injury frequency rate FY 2020 FY 2021 FY 2022
Total number of recordable injuries 12 6 4
Total hours (employee and contractor) 1,854,529 1,690,374 3,854,016
Frequency rate 1.3 0.7 0.2
OSHA benchmark 1.7 1.9 1.4
Frequency rate = total number of recordable injuries x 200,000/total number of hours
worked (employee and contractor).
Lost time injury frequency rate FY 2020 FY 2021 FY 2022
Total number of lost time injuries 7 4 2
Frequency rate 0.8 0.5 0.1
Total hours (employee and contractor) 1,854,529 1,690,374 3,854,016
OSHA benchmark 0.6 0.6 0.8
Frequency rate = total number of lost time injuries x 200,000/total number of hours worked
(employee and contractor).
SAFETY, HEALTH & ENVIRONMENT
Occupational safety, health
andenvironment (‘SHE’)
The occupational safety and health of all our
employees, along with contractors and
visitors to our sites, remains the highest
priority for Victrex and is fundamental to
everything we do.
This year we have continued to protect our
people from the COVID-19 pandemic by
acting swiftly based upon our previous
experience whilst always following local and
national guidance and ensuring that robust
controls are in place within each Victrex
location. We saw a Return to Site in our
global locations, with the UK, the US &
Europe working at sites for our office-based
employees, supported by our Flexible
Working Policy. With further lockdowns
during the year in China and restrictions still
in place in Japan and Korea, progress to a
full Return to Site has been slower. We also
encouraged take-up of vaccines at local level
across our geographic locations, with a
continuation of COVID-19 related information
via our Global COVID-19 Committee and
internal communication channels.
FY 2022 saw the continuation of our zero
incidents and zero accidents SHE culture
improvement programme and we have:
u
completed the first phase of our process
safety management improvement
programme and conducted external
assurance across all our high hazard sites;
u
launched employee toolkits to reinforce
our SHE golden rules; and
u
continued to embed the SHE
accountability framework and improved
employee awareness of mental health
and wellbeing issues by completing
prevention and intervention workshops.
Results from our annual SHE survey in July
2022 showed an improvement in our culture
engagement score. The survey revealed that
94% of respondents (FY 2021: 82%) believe
achieving zero incidents and zero accidents
is possible if we all do the right thing and
understand what they need to do to keep
both themselves and their colleagues safe
from harm.
SHE KPIs
Our FY 2022 performance continued to
show a reduction in both our recordable
injury frequency rate (‘RIFR’) and our lost
time frequency rate (‘LTFR’). We remain well
below the OSHA industry standard RIFR rate
(1.4) and LTFR rate (0.8).
Our recordable injury frequency rate has
reduced by 71% from 0.7 to 0.2 and our
lost time frequency rate has reduced by
80% from 0.5 to 0.1.
The success of our zero incidents, zero
accidents ambition relies on us all behaving
inthe right way and doing the right things
regardless of our role. This enables us to
continue to grow a productive, successful and
environmentally responsible business where
we are all able to go home without harm.
Our goal is to be an organisation where
whoever we are and whatever we are doing,
the three questions at the forefront of our
mind are always:
Am I taking care? Is it safe? Am I doing the
right thing? Because for every one of us
Safety Starts with Me.
China
Our new China manufacturing subsidiary in
Panjin (‘PVYX’) has recorded over 1.7 million
hours since the project commenced, with
norecordable injuries in FY 2022. Data
onperformance during construction is
shown below:
PVYX employees FY 2022
Hours worked 181,680
Recordable injuries 0
Total RIFR 0
Reportable environmental 0
High potential incidents 2
PVYX project contractors FY 2022
Hours worked 726,416
Recordable injuries 0
Total RIFR 0
Reportable environmental 0
High potential incidents n/a
STRATEGIC REPORT
65
Annual Report 2022 Victrex plc
SOCIAL RESPONSIBILITY
IN 2022
Make 586
Develop, market and sell 230
Support 188
TOTAL:
1,004
IN 2021
Make 541
Develop, market and sell 224
Support 130
TOTAL:
895
IN 1993
60
IN 2022
1,093
Permanent employees (as at year end) Average number of people employed during
theyear, by category
Our social responsibility area focuses on inspiring our employees
and communities to positively impact our chosen UN Sustainable
Development Goals:
u
Good Health and Wellbeing;
u
Quality Education/STEM; and
u
Diversity, Equity and Inclusion.
Gender pay
For Victrex, diversity, equity and inclusion are
all central to our 2030 sustainability strategy,
with targets specifically focused on measuring
the effectiveness of interventions to support
female progression within our organisation.
In2022 we established a new Corporate
Responsibility Committee chaired by a
Non-executive Director, Jane Toogood, to
increase the focus and rigour on our efforts
to drive change in the DE&I agenda.
We are striving to build a more diverse
workforce in which we empower employees
to bring their whole self to work, unlocking
potential to draw on a wealth of skills,
experiences and talent to improve our
collaboration in teams, driving continuous
innovation and successfully delivering our
strategy and Company priorities.
Gender diversity and pay
We continue to report and publish our
statutory gender pay and bonus gap each
year, in line with the guidance introduced in
the gender pay regulations in 2017. In
addition, we look for trends and indicators
of our successful implementation of targeted
initiatives or identify new opportunities to
support bridging the gap over time.
Gender pay explained:
‘Having a gender pay gap isn’t the same as
having an equal pay issue. Gender pay gap
is the description given to the difference in
average pay of all men and all women
across an organisation regardless of role or
level. Reporting a mean positive pay gap
means male employees, on average, are
paid more than female employees.
Reporting a mean negative pay gap means
female employees are paid more than male
employees, on average. While this is not
acceptable it is not illegal.
However, in contrast, equal pay is different
as it is a direct comparison between
individuals and considers whether someone
is paid equivalently to others doing the same
or equivalent job, regardless of gender.
Unequal pay is unlawful.’
For gender pay gap reporting purposes, we
took our ‘snapshot’ of Victrex Manufacturing
Limited (as an entity employing >250 people)
at 5 April 2022 and have outlined the
headline statistics and analysis below. We
have then set out a summary of the key
improvement actions we have been taking
and the positive trends emerging since we
started our reporting in 2017.
Snapshot headlines
u
There were 633 relevant people
employed on full pay.
u
79% were male and 21% female.
u
The percentage of female employees
overall has increased from 17% in
2017 to 21% in 2022.
u
The percentage of female employees
in the upper middle quartile increased
from 6.15% in 2017 to 15.06% in 2022.
u
The percentage of female employees in
the upper quartile has increased from
17.83% in 2017 to 21.82% in 2022.
u
The median gender pay gap has
reduced from 13.49% in 2017
to6.52% in 2022.
u
88.05% of males were paid a bonus,
compared with 80.00% of females.
u
The proportion of male vs female
employees in each of our pay bands
wassplit as follows:
u
Lower quartile – 64.46% male
vs35.54% female.
u
Lower middle quartile – 89.16% male
vs 10.84% female.
u
Upper middle quartile – 84.94% male
vs 15.06% female.
u
Upper quartile – 78.18% male
vs21.82% female.
Analysis and insights
Mean & median hourly rate
The primary factor influencing the negative
pay gap is the ratio of females overall in
positions which have higher remuneration
opportunity such as management and
professional roles. The more senior jobs in
hierarchy terms attract a higher level of
variable (at risk) pay and Long Term Incentive
Plans which have a tendency to fluctuate
based on performance, which has a direct
impact year on year on the pay gap.
Sustainability report continued
Victrex plc Annual Report 2022
66
STRATEGIC REPORT
There are other influencing factors that link
to the general representation of women in
roles where the earnings potential is higher,
for example the shift roles where a
differential allowance is paid. Shift
premiums are paid where roles require
employees to work shifts and unsocial
hours, which at Victrex is predominantly
those directly involved in the manufacturing
operation, of which the majority are male.
To put this into context 37% of our
employees were paid a shift premium and
98% of those who received the shift
premium were male. We continue to strive
for more female representation in all roles
and levels across the Company.
Quartiles
We have seen incremental progress in the
three higher quartile bands although we
acknowledge that we need to continue to
make targeted efforts to accelerate this in
the coming years through our initiatives to
achieve our DE&I target by 2030, which will
have a natural impact on the earnings
potential of female employees.
In addition we are working to understand
the representation of the lower quartile
(35.5% female) as the proportion of females
to males does not follow the overall male to
female ratio in the Company at 78.6%/21.4%.
We should expect to see a broadly similar
distribution throughout the quartiles. With
these insights we are building plans of
action to address the imbalance.
Bonuses
Notable items impacting the bonus
calculations this year:
u
in the snapshot year of April 2022 (based
on FY 2021 and including the bonus
payout) the Company successfully
achieved maximum bonus target; this is
an all-employee bonus plan with tiered
levels aligned to organisational levels
within our global compensation
structure. Therefore the bonus gap is
impacted where more males occupy
senior level positions where variable pay
such as bonus opportunity is higher;
u
the taxable gain on the sale of share
options and LTIP proceeds have impacted
the mean bonus calculation again in
2022 to senior members who have
exercised a considerable number
resulting in a notable increase in their
earnings to be classified as bonus for
thepurpose of the bonus gap; and
u
in order to attract key talent into our
organisation, more now than ever in the
currently challenging market, we operate
discretionary ‘sign-on’ bonuses – these
are lump sum payments made to newly
hired employees, usually in niche or
critical skills roles. Notably in 2021, a
sign-on bonus was given to a female to
attract into a senior position and had a
positive impact on the bonus gap in a
year when the Company bonus did not
pay out, creating a negative bonus gap.
As a consequence in 2022 we have
reverted back to a bonus gap in favour of
males following the successful maximum
bonus metric being triggered.
Actions
We continue to sponsor our Diversity, Equity
& Inclusion agenda (‘DE&I’), with support
from our Head of Learning and Inclusion.
We have globally inclusive pay and bonus
plans, and continue to focus our efforts to
maintain a competitive total reward
offering. We continue to have equitable
policies and processes, regardless of gender.
We recognise that there are specific roles
where we have not attracted as balanced
aproportion of females as we would have
wanted and we continue to work with
contacts in the local area to encourage
females to join the Company and consider
careers in such hard to attract roles. We are
actively promoting and supporting a hybrid
and remote working approach to reach
talented individuals; this is helping us attract
a more diverse candidate pool for jobs. In
addition, the apprenticeship programmes
will provide the talent pipeline for the future
and we measure the proportion of females
within these groups.
In the past year, we have also:
u
set a target to have at least 40% female
representation in our senior management
roles by 2030. In April 2022 we reported
17% against this target;
u
rolled out #iamremarkable training to
allgender engagement networks,
whichfocuses on supporting
underrepresented people with
celebrating their remarkable attributes;
u
introduced an applicant tracking system
that has enabled us to do more
detailedanalysis of who is applying for
jobs at Victrex and in turn enabling us
tobe more targeted about diverse
recruitment campaigns;
u
supported International Women’s Day
with ‘break the bias’ videos, stories from
women about women’s experiences in
the workplace and women’s health;
u
launched our new careers site showcasing
successful women in early careers at Victrex;
u
created a UK gender engagement
network ‘Thursdate’ where female and
male colleagues share personal and work
experiences offering internal support to
women in the workplace; and
u
embedded the global flexible
workingpolicy with more women
takingup flexible working opportunities
than before.
Trends
We continue to see positive trends in female
progression through both formal
programmes such as apprenticeships,
increase in females in STEM roles (currently
20% in 2022), internal promotions and
attracting new talent.
The positive impact of these and other
changes can be seen in the statutory
reported data since 2017.
Summary
We are committed to taking sustainable,
positive and proactive actions to close the
gender pay gap through focused
interventions. We are actively reviewing,
defining and developing initiatives to
accelerate our progress toward our targets
to becoming a more gender balanced
organisation by 2030.
Over time, we are confident that the actions
and initiatives we put in place, alongside our
other inclusive policies, will have an impact
on the balance of male vs female employees
at all levels in the organisation and support
our 2030 sustainability goals.
STRATEGIC REPORT
67
Annual Report 2022 Victrex plc
Sustainability report continued
Diversity, Equity & Inclusion
The progress towards our target of achieving
40% of females in our leadership group by
2030 (increasing from 10% in FY 2021 to
19% in FY 2022) has been achieved through
promotions and targeted talent development,
with coaching and mentoring being at the
core of the support.
Through the focused direction of our
Strategic Inclusion Group (‘SIG’), our
diversity agenda continues to develop with
more employees being actively engaged. We
carried out our first diversity data collection
exercise globally this year, giving us insight
into the diversity of our employee base. This
has enabled more targeted support
throughout FY 2022.
Our Global Flexible Working policy
continues to embed with more employees
requesting variations to their working
patterns. The female take-up of flexible
working hours is higher than male, with
75% of those taking up formal flexible
working hours being female. This year’s
requests, however, had 45% of requests
coming from males and 55% from females
so we are seeing a greater take up. When
itcomes to purchasing additional holidays
this year 51% of the requests have come
from males.
The introduction of an applicant tracking
system for recruitment has given us more
detailed analysis of who is applying for jobs
at Victrex. This, and the work we are doing
with recruitment agencies, is ensuring that
we are beginning to target more closely a
diverse applicant base.
We continue to give full and fair
consideration in our recruitment and
selection process to any applicant with a
disability. For disabled persons employed by
Victrex, be that upon commencement or
who become disabled during their
employment, Victrex is committed to
ensuring equality of opportunity for training,
career development and promotion
opportunities. We are registered with the UK
government’s ‘Disability Confident’ scheme
and demonstrate this commitment globally.
We have rebranded from Inclusion and
Diversity to Diversity, Equity & Inclusion to
reflect more accurately the focus of our
work and giving everyone fair and equitable
treatment, access and opportunity, across all
aspects of their working life at Victrex.
Pleasingly our Employee Experience Survey
identified a 9% increase to 77% of
employees believing that Victrex appreciates
individual differences.
Progress in FY 2022
u
Facilitated the internal delivery of the
#iamremarkable campaign, focused on
empowering women and other
under-represented groups to celebrate
their achievements in the workplace.
Over 170 employees engaged and
participated in the training.
u
Continued to engage our employees
globally through our Gender
Engagement Networks (‘GEN’), with over
120 employees now actively participating
in the network as well as supporting the
delivery of several workshops internally
focusing across a range of Inclusion and
Diversity topics: trans, unconscious bias
and building your personal brand.
u
Piloted a workshop on creating an
inclusive workplace which is now being
rolled out to managers.
u
Created a library of resources to help
support our Diversity, Equity & Inclusion
by educating employees on topics such as
neurodiversity, gender, menopause and
allyship. This included an internal
campaign throughout July to highlight
‘PRIDE’ and the LGBTQ+ communities.
u
Continued to support our mentoring
programmes with the focus on
under-represented groups; in addition,
wehave launched a pilot for our reverse
mentoring programme.
u
Promoted several global awareness
daysacross the business: Movember;
International Women’s Day; International
Men’s Day; and PRIDE – including a trans
education session held by one of
ouremployees.
In addition to our internal activities, we have
continued to focus on developing a diverse
future workforce through activities within
our local communities:
u
as part of International Women’s Day, we
delivered a workshop aimed at breaking
down gender stereotypes within STEM
careers. This reached over 160 young
female students. In addition, we
delivered virtual and face-to-face
workshops for over 60 women of
different ethnic minorities, to promote
STEM careers and dispel the myths
around women in STEM; and
u
participated in the UK social mobility
initiative ‘Kickstart’ bringing young
people aged between 16–25 who are
defined as NEET (Not in Education,
Employment or Training).
Employee breakdown
At the end of FY 2022, 56% of our Board
were male and 44% were female. 40% of
our senior managers were female*. In the
grouping of senior managers and their
direct reports, 66% were male and 34%
were female. Of the rest of our employees
78% were male and 22% were female.
As of 30 September 2022:
Male Female
Grand
total
Board of Directors 5 4 9
Senior managers* 3 2 5
Senior manager and
direct reports** 29 15 44
Rest of employees 811 235 1,046
Grand total
Permanent employees
(incl. Executive
Directors) 843 250 1,093
* VMT members excluding the Board Directors.
VMT members are listed on pages 88 and 89.
** VMT and direct reports.
Recognition
We continue to be proud of our recognition
programmes, celebrating the achievements
of our employees through ‘instant’ and
‘functional’ awards, our Above & Beyond
Awards, our annual CEO Awards which
recognise the global talent across Victrex
and our Professional Development Awards
celebrating those of our employees
completing further education to gain
aqualification.
In FY 2022, there were 325 Above & Beyond
Awards, 83 Functional Excellence Awards,
65 CEO Awards and 89 Professional
Development Awards.
Victrex plc
Annual Report 2022
68
STRATEGIC REPORT
SOCIAL RESPONSIBILITY CONTINUED
Involvement and culture
We continue to offer a range of communication
channels, both formal and informal,
allowing us to ensure that our employees
remain informed of business updates and
two-way discussions take place:
u
we have seen a return to face to face in
addition to our virtual quarterly staff
briefings this year, following the worst
impact of the COVID-19 pandemic.
These sessions allow our employees to
‘stay in touch’ with our leadership team
and hear about business updates;
u
Brendan Connolly, our Workforce
Engagement Non-executive Director,
hasbeen meeting with our employees
globally to listen to employee voice,
explore views and drive employee
engagement. We have had excellent
feedback from our employees on the
interactions with Brendan. His third
annual report can be found on pages
92and 93;
u
following our 2022 Employee Experience
Survey we have been focused on reviewing
the results and creating and delivering
action plans to drive improvements. 83%
of our employees believe that they work
together well as a team, which is an
improvement of 28% from our 2020
survey. We have also seen an increase
from our 2020 survey to 52% (+5%) of
employees believing that we will act on
making improvements. Our Victrex
Engagement Steering Team (‘VEST’)
continues to drive progress andaction; and
u
our quarterly regional Employee Forums
continue to give our employees an
opportunity to feed back on broader
employee experience and provide an
employee view to planned business
initiatives and projects.
Next year will see a continuation of our
engagement activity, to continue to ensure
employee voice is embedded within our
culture, built on innovation and delivering
with speed and service.
Development
Victrex continues to focus on digitising
learning, making it easier to access for all
employees. We have seen an increase in
engagement through online e-learning
platforms as well as an increase in the
overall upskilling and training across the
business. The post-COVID-19 world has
seena resurgence of more face-to-face
seminar-based learning. This includes an
increase in safety training within our
Integrated Supply Chain team – Victrex
supported over 50 employees in completing
their IOSH accredited qualifications
throughout FY2022.
We continue to support apprenticeship
development for new and existing
employees with a total of 63 apprentices
being supported in FY 2022. We have also
developed and launched our new graduate
development programme which sees a
structured approach to bringing in
graduates to the organisation.
In FY 2022 we had 49 (40M:9F) employees
on apprenticeship programmes including
5(3M:2F) employees completing their
qualifications. Employees across Victrex
havecompleted 19,274 hours of learning
inFY 2022.
STRATEGIC REPORT
69
Annual Report 2022 Victrex plc
Participation in employee
share schemes
2022 2021 2020 2019 2018
77% 89% 90% 93% 95%
Note: Excludes employees with a tenure less than
a year.
77%
8%
Voluntary employee turnover
2022 2021 2020 2019 2018
8% 7% 4% 5% 5%
Wellbeing
The safety, health & wellbeing of our
employees continues to be our highest
priority and fundamental to everything we
do at Victrex. In FY 2022, with the continued
embedding of our flexible working policy we
have seen many of our ‘non-manufacturing’
employees undertaking hybrid working.
Wecontinued to monitor and adapt to the
impact of COVID-19, with sensible controls
and processes to ensure continuity of daily
operations at each location.
Our Employee Experience Survey in 2022
reported that employees continue to feel
that Victrex is genuinely interested in their
wellbeing (an increase of 11% to 76%) and
that they can talk openly with their line
manager about health and wellbeing issues.
The survey also indicated that due to the
initiatives we have introduced, our managers
are more confident to recognise the signs of
mental health awareness in their teams and
know what to do if a team member is facing
mental wellbeing challenges.
In April we held our annual Global SHE
Week, which took place in line with the ILO
‘World Day for Safety and Health at Work
2022’. Our employees were involved in the
content and activities taking place during the
week, centred around being given time to
focus on healthy body, healthy mind and
healthy eating. We held virtual workshops on
Mental Wellness Training & Awareness for
people managers, and Stress Management
and Mental Health for all employees. Across
our global sites we held in-person activities
including engagement sessions with
manufacturing teams, financial wellbeing,
exercise classes, relaxation sessions, as well as
providing healthy food during the week.
We continue to build digital resources and
toolkits accessible year-round for all our
employees which included articles which
focused on a variety of topics including
grief, mental health, digital wellbeing,
surviving long-term illnesses and women’s
health, some of which were shared personal
stories from our employees, which led to
valued conversations and collaboration
across all our sites. We continued to support
Movember and in November 2021, several
employees took part in a challenging
long-distance endurance challenge to raise
money and awareness and raised over £9,390.
In addition, we continue to provide
occupational health, private medical and
employee assistance programme services to
all our employees. We are committed to
improving employee wellbeing and
engagement with a healthier and more
inclusive culture and aim to continue
Sustainability report continued
building on the foundations from this year
to ensure improvement in the safety, health
and wellbeing of all our employees.
Community volunteering
Inspiring the next generation of talent
continues to be a key focus for Victrex.
Throughout FY 2022 we continued to support
the communities where we operate. This
includes consulting and discussing withthese
communities on the long-term benefits from
partnering with Victrex and where our support
can be most valued. Wecontinue to develop
our global network of Social Responsibility
Ambassadors aimed atincreasing community
volunteering (andconsultation) across each
region, aswellasengaging our global
workforce inour community agenda.
u
Our team of STEM Ambassadors
continues to increase year on year with
52 (+18%) employees now engaged in
the STEM Ambassador programme.
u
During FY 2022 our educational activities
impacted over 3,200 young people
across 102 activities with a total of
1,500+ hours focused on inspiring the
next generation in STEM.
u
Our employees have volunteered a
record-breaking 4,784 hours in the
communities where they live and work
this year. Since 2020, our employees
have dedicated a cumulative total of
10,913 hours to community activity,
meaning we have already achieved our
2030 milestone target of 10,000 hours.
Throughout FY 2022 we have continued to
support community initiatives including:
u
UK government led National
Apprenticeship Week 2022 – Victrex ran
three ‘Careers Workshops’ during the
week for schools in the UK;
u
UK Enterprise Advisor Programme
focused on engaging with local schools
to help develop their career programme
offerings as part of our Cornerstone
Employer membership. We have five
Enterprise Advisors (+67% from FY 2021);
u
continued membership with Business
inthe Community (‘BITC’) focused on
improving our efforts as a responsible
business, including ‘Pride of Place’,
aunique public, private and voluntary
sector partnership that has come
together to promote economic
development and tackle deprivation;
u
new and continued relationships, to
develop our STEM outreach offering,
with organisations such as STEM
Learning, Speakers for Schools, Careers
& Enterprise Company, SIP, Career Ready
and Catalyst Science Discovery Centre;
u
collaboration with Speakers for Schools,
SIP, Career Ready and STEM Learning to
support a range of UK-wide networking
groups aimed at inspiring local
businesses to play an active role in
supporting career outreach programmes,
including additional sessions with local
schools, colleges and universities to
provide ongoing support and solutions
to career outreach programmes;
u
Victrex is a member of Science Industry
Partnership (‘SIP’), a UK alliance of
organisations designed to generate
innovation and growth within the
science industries. We have two
employees who sit on the SIP Task Force
which is focused on increasing outreach
to young people to improve the talent
pipeline for science industries; and
u
supporting employees taking part in a
range of online and in-person initiatives
to help grow the STEM workforce of the
future – opportunities have included ‘I’m
a Scientist, Get Me out of Here!’, various
careers events, a range of online virtual
panels and Q&A sessions and more.
STRATEGIC REPORT
Victrex plc Annual Report 2022
70
SOCIAL RESPONSIBILITY CONTINUED
As a business we continue to focus on:
1.
the safety, health and wellbeing of our employees
being our highest priority;
2.
promoting our values of Passion, Innovation and
Performance and a culture of innovation, service
for customers and delivering with speed;
3.
ensuring an inclusive and diverse workforce
with appropriate policies;
4.
being socially responsible to the communities where
we operate and being aligned to the UN Sustainable
Development Goals, including increasing our
sustainable products;
5.
providing appropriate remuneration for work carried
out and equal opportunities for development and
career advancement; and
6.
being intolerant of any unacceptable working
practices such as any form of discrimination,
bullying or harassment.
Community volunteering
inaction
Our global, employee-led, charity and
community teams have continued to
support the local communities where we
work throughout FY 2022. Our key focus
has been social mobility, global foodbank
donations and a wide range of other
community-led initiatives aimed at
givingback.
Victrex has supported a range of charitable
donations totalling £81,811 (FY 2021:
£88,178). Match funding was also provided
to the Red Cross in Ukraine, following
donations totalling £15,000 by our
globalemployees.
Responsible taxation policy
The Group is committed to managing its tax
affairs in a responsible and transparent
manner, as outlined in our Tax Strategy
(www.victrexplc.com), with the Group
acknowledging its corporate responsibility
inthis area. Taxation paid during FY 2022
was £10.6m (FY 2021: £8.6m), in relation to
profit-based taxes, with an effective tax rate
of 13.9%. The Group’s mid-term guidance
for the effective tax rate is 12%–15%
compared to the current (19%) UK
corporation tax rate and the OECD global
minimum rate of 15%. The discount to the
UK rate is due to the specific UK
government reliefs, including Research &
Development expenditure credit, Patent Box
and accelerated capital allowances, available
to UK companies which invest heavily in
Research & Development, create highly
skilled innovation jobs and develop unique
value-generating intellectual property (‘IP’).
Victrex’s strategy of investing in, and
patenting the output of, innovative and
sustainable products and processes allows
the Group to benefit from these reliefs.
It is noted that the total tax contribution for
the Group is significantly higher than solely
the profit-related taxes, when including
other taxes borne by the Group, including
employee-based taxes, customs duties
andelements of VAT, in addition to
taxescollected on behalf of government,
including VAT and taxes borne by the
Group’s employees.
Jakob Sigurdsson
Chief Executive Officer
6 December 2022
STRATEGIC REPORT
71
Annual Report 2022 Victrex plc
OUR CODE OF CONDUCT –
DOING THE RIGHT THING
Victrex
Strategy&Objectives
Behaviours, Culture & Values
CODE OF CONDUCT
CONDUCT
PEOPLE
SUSTAINABILITY
Our values of Passion, Innovation
and Performance underpin the way
we do business and treat one
another. Our Code of Conduct sets
the foundations of how we act
personally, with others and in our
communities. Our continued success
as a business rests on maintaining
these principles and ensuring we
strive to always do the right thing.
Our Code of Conduct is supported by
policies on each of the Conduct, People
andSustainability pillars shown in the
tablebelow.
Doing the right thing
inourCONDUCT
Doing the right thing
forourPEOPLE
Doing the right thing
forSUSTAINABILITY
u
We are open and honest
u
We comply with all applicable laws
and regulations
u
We do not engage in anti-competitive
activity, bribery orcorruption
u
We protect our Company
information and confidential
information shared with us
u
We protect the personal data we
hold about our employees and
third parties
u
We follow good standards of
corporate governance and do not
abuse market regulations
u
We treat people with fairness and
respect, and hold ourselves and
each other to account
u
We do not discriminate
u
We provide a safe and healthy
workplace and ensure our activities
do not harm our employees, the
public or the environment
u
We deliver sustainable
polymersolutions
u
We work to minimise the
environmental impact of our
business operations
u
We contribute to the wellbeing
ofour local communities
u
We seek to inspire the
nextgeneration
Sustainability report continued
All our employees, officers and Board
members are responsible for following our
Code of Conduct and its supporting policies.
All employees are required to complete Code
of Conduct e-learning on commencement of
employment. There is annual recertification
of the Code of Conduct through mandatory
awareness learning for employees, with
additional training on specific supporting
policies for targeted employees, and this
programme continues to develop. In
September 2022 the completion rate was
95% on a rolling annual basis. The Code of
Conduct is available in five languages,
viewable on www.victrexplc.com.
We encourage employees and our
stakeholders to speak up if they have
concerns that our Code of Conduct or its
supporting policies are not being followed
and our Global Whistleblowing Policy gives
help on how to do this.
Sustainability at the heart
Whilst our products enable environmental
and societal benefits, we also recognise that
some of our operations can impact on the
safety and wellbeing of our people and
those in the communities around us. This is
reflected in our principal risks on pages 36
to 40. Our Safety, Health and Environment
(‘SHE’) Policy promotes our continuous
improvement in this area.
Our employees
Our employees are a valued asset to us, and
we continue to seek to retain and develop
our teams as well as recruiting talent when
opportunities arise, and this too is reflected
as a principal risk on page 37. Ensuring we
recognise the positive contribution of a
diverse workforce and hold ourselves to
account for delivering it is paramount. Our
policies and procedures are reviewed from
time to time to ensure they remain fit for
purpose and continue to enhance our
employee experience, whilst also serving to
support recruitment processes to ensure we
attract the highest quality talent possible.
Our employees can easily access
employment policies and key work-related
information through one click into our HR
intranet site. Our Group Diversity, Inclusion
& Equal Opportunities Policy was updated
in2020 to strengthen focus on inclusion as
well as diversity. We rolled out our Global
Flexible Working Policy in FY 2021, with
good initial take up rates.
Victrex plc Annual Report 2022
72
STRATEGIC REPORT
Our gender pay gap report was published this
year, details of which can be found on pages
66 and 67 and on www.victrexplc.com.
Incases where the National Minimum Wage
or National Living Wage applies within the UK,
the Company complies in fullwith its
obligations and meets both conditions.
Respect for human rights
We recognise the importance of treating
thepeople around us, and those we may
impact, with respect but also acknowledge
there are practices globally that seek to
threaten human rights. Victrex does not
tolerate these practices.
In relation to our supply chain activities,
wehave focused policies on Modern Slavery,
Conflict Minerals and Anti-bribery & Corruption.
Before any vendor can become an approved
supplier to Victrex, they must pass through
our due diligence process which involves:
u
site-specific audits where appropriate;
u
detailed responses to a robust on-
boarding process that examines all
relevant areas of the business operation,
with special focus on issues pertinent
tolegislation and CSR factors; and
u
acknowledgement and acceptance of
theVictrex Supplier Standards Handbook.
The process is cyclical, to ensure the
appropriate focus is maintained on those
vendors deemed as strategically important
or as high risk to Victrex.
Our Modern Slavery statement is available
on www.victrexplc.com reaffirming our
policy commitment and our ongoing actions
in this area.
We continue to operate a Global Data
Protection Policy (and a suite of supporting
procedures and arrangements) to ensure
compliance with applicable data protection
legislation in the regions in which we do
business. This policy continues to be available
on the Company’s intranet on a dedicated
Group Policies page. Employees who handle
personal data continue to be required to
complete mandatory annual training,
including through e-learning. Revisions to
the policy are considered as appropriate as
data protection legislation in the countries in
which we conduct business evolves (for
example China). Enhancements continue to
be implemented with respect to information
security, including with the supply chain,
and these support the continuing protection
of personal data. As of September 2022
95% of required trainees had completed
their annual data protection training which
is completed on a rolling annual basis.
Compliance including
anti-bribery and corruption
In conducting business on behalf of Victrex,
our employees and representatives must
follow our Code of Conduct. This is a
commitment to being open and honest and
following all relevant laws and regulations.
This commitment is supported by underlying
policies and processes including with respect
to Fraud, Anti-bribery & Corruption, Financial
Crime, Gifts & Hospitality, Share Dealing
(Market Abuse), Data Protection, Competition
Law and Export Controls & Sanction
Compliance, and is reflected in our principal
risks on page 39. Our focus on Doing the
Right Thing extends beyond the letter of the
law to ensure we act ethically and openly,
treating others fairly and how we would want
to be treated. The desired outcome of our
Code of Conduct, including the policies and
procedures which underpin it (including the
Anti-bribery & Corruption Policy), is to ensure
we act responsibly in all our dealings and
foster a sustainable business.
The Company is committed to a
zero-tolerance position about bribery, made
explicit through its Anti-bribery & Corruption
Policy and supporting policies/guidance on gifts
and hospitality, sponsorship and donations,
and interactions with politically exposed
persons and healthcare professionals. We
maintain a manual for the management of
Anti-Bribery and Corruption risk, reviewed
annually. The purpose of the manual is to
provide a process for assessing risk and to
ensure compliance with the Victrex Code
ofConduct, the Anti-bribery & Corruption
Policy, applicable laws and regulations in the
countries in which Victrex conducts business
and the preservation and promotion of the
Victrex brand and corporate reputation. The
manual considers the business activities that
could make Victrex vulnerable to bribery, risk
factors, key recommended controls, a three
lines of defence controls assessment and an
action plan for implementation of further
enhancements to existing measures. The
policies and procedures are published on
theCompany’s intranet on a dedicated
Group Policies page. The risk of bribery
andcorruption is considered a key aspect
ofthe ethics and regulatory compliance
principal risk on page 39 and several
mitigations are in place which are reviewed
regularly. In addition to ensuring compliance
with export controls and sanctions, the
Company conducts enhanced due diligence
on individuals or organisations where there
is a perceived or actual increased risk of
bribery (for example, where the Company is
engaging with a politically exposed person),
or where the Company is conducting due
diligence for a potential joint venture or
acquisition. Our Code of Conduct training
includes a section on anti-bribery and
corruption matters. We keep our training
materials under regular review and specific
e-learning modules for anti-bribery and
corruption, gifts and hospitality and conflict
of interest, supplement face-to-face or
virtual training as required. We continue
toensure appropriate anti-bribery and
corruption clauses are included in relevant
contracts. The Company maintains a register
of employee interests (where there are
actual or possible conflicts of interest) and
arecord of gifts and hospitality given and
received above certain thresholds in the
form of a Giving & Receiving Register.
Areview of the Company’s anti-bribery
andcorruption arrangements is featured
ontheBoard’s programme of business
andtheinternal audit review programme
includes a review of the adequacy of
theCompany’s procedures in relation
toanti-bribery controls and procedures.
Further information on our approach to
anti-bribery and corruption matters is
contained on page 81.
STRATEGIC REPORT
73
Annual Report 2022 Victrex plc
Non-financial information statement
This section of the Strategic report constitutes Victrex plc’s non-financial information statement, produced to comply with the Companies
Act 2006. The below table, and information it refers to, is intended to help stakeholders understand our position on key non-financial
matters, and where the relevant information is located in this report.
Reporting
requirement
Material policies and standards
that govern our approach
Key risks relating to these
matters (pages 36 to 40) Read more
Sustainability &
environmental
u
Safety, Health & Environment (‘SHE’) Policy
u
Environmental Policy (ISO system)
u
Code of Conduct*
u
Safety, Health
andEnvironment
u
Legal and regulatory
compliance, Ethics
&Contracts
u
Sustainability report –
Sustainable solutions and
resource efficiency, pages 58
to 65 and our TCFD report on
pages 52 to 57
Employees
u
Group Diversity, Inclusion & Equal
Opportunities Policy
u
Disciplinary Policy & Procedure
u
Grievance Policy & Procedure
u
Global Flexible Working Policy
u
Employee Handbook
u
Global Whistleblowing Policy
u
Share Dealing Code
u
Code of Conduct
u
Prevention of Bullying & Harassment Policy
u
Recruitment and retention
of the right people
u
Legal and regulatory
compliance, Ethics
&Contracts
u
Sustainability report –
OurCode of Conduct, pages
72 and 73
u
Sustainability report – Social
responsibility, pages 66 to 71
u
Gender pay report, pages 66
and 67
Respect for
humanrights
u
Modern Slavery & Human Trafficking Policy
u
Modern slavery statement*
u
Conflict minerals statement*
u
Global Data Protection Policy
u
Code of Conduct*
u
Legal and regulatory
compliance, Ethics
&Contracts
u
Sustainability report –
OurCode of Conduct, pages
72 and 73
u
Modern slavery, human
trafficking and conflict
minerals statements – see
www.victrexplc.com
Social matters
u
Sustainability Policy
u
Code of Conduct*
u
Recruitment and retention
of the right people
u
Sustainability report – Social
responsibility, pages 66 to 71
Anti-corruption
andanti-bribery
u
Anti-bribery & Corruption Policy
u
Fraud Policy
u
Conflict of Interests Policy
u
Gifts & Hospitality Policy
u
Sponsorship & Donations Policy
u
Financial Crime Policy
u
Policy on Interaction with
HealthcareProfessionals
u
Procedure on Interaction with Politically
Exposed People
u
Export Controls & Sanctions Policy
u
Competition & Anti-trust Policy
u
Code of Conduct*
u
Legal and regulatory
compliance, Ethics
&Contracts
u
Sustainability report –
OurCode of Conduct, pages
72 and 73
Description of the
business model
u
All principal risks
u
Business model, pages 12
and13
Non-financial key
performance
indicators
u
All principal risks
u
Non-financial key performance
indicators, pages 24 and 25
* These policies are published on www.victrexplc.com, along with being available to employees via the Group intranet. All other policies listed are available to
employees via the Group intranet.
STRATEGIC REPORT
Victrex plc Annual Report 2022
74
Sustainability report continued
CORPORATE
GOVERNANCE
76 Introduction from the Chair
78 Board of Directors
80 Statement of corporate governance
94 Nominations Committee report
97 Audit Committee report
104 Directors’ remuneration report
128 Directors’ report – other statutoryinformation
132 Statement of Directors’ responsibilities in respect
ofthe Annual Report and financial statements
133 Independent auditors’ report to the members
ofVictrex plc
75
Annual Report 2022 Victrex plc
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
76
Dear shareholders,
I was delighted to be appointed Chair
on 11February 2022 and I would like to
thank Larry Pentz for enabling a smooth
transition. It is a privilege to Chair this
unique Company.
Victrex’s innovative culture, our purpose
to bring transformational and sustainable
solutions that address world material
challenges every day and our clear strategy
of ‘Polymer & Parts’, put us in a good
position for the years ahead.
The Group delivered record revenue
and volume in FY 2022 and, despite the
unprecedented energy & raw material
inflation, we saw solid profit growth as well
as healthy cash generation. An overview of
our results can be found on pages 26 to 29.
The Board and its Committees met regularly
during the year and it was pleasing to
be able to hold all our scheduled Board
and Committee meetings, as well as our
2022 AGM, in person after navigating the
challenges posed by COVID-19 during the
prior two years. An outline of key topics
covered by the Board in the year is set out
on pages 87 and 88.
INTRODUCTION FROM THE CHAIR
Introduction from the Chair
Stakeholder interests are at the centre of
our decision making as we strive to meet
our purpose and strategic aims. Our section
172 statement is set out on pages 20 to
23. Details of the Group’s stakeholders
and engagement channels can be found
on page 91. The annual report from our
Non-executive Director for Workforce
Engagement, Brendan Connolly, can be
found on pages 92 and 93. Together with my
non-executive colleagues and our CEO, site
visits were conducted at our manufacturing
sites in Rotherham and Seal Sands. The
Board conducted a ‘virtual’ visit to some of
our locations in the Asia-Pacific region in
October 2021 due to limitations on travel due
to COVID-19. Both such visits, together with
other engagement activities during the year,
provided valuable opportunities for Board
members to engage with our employees.
The Board routinely monitors culture and
ensures that it is aligned to the Group’s
purpose, values and strategy. The Board
received insights from the Employee
Experience Survey which was conducted
during the year. More information on the
survey can be located on page 69.
We have strived to put sustainability at
the heart of our business model, with
many of our products used in applications
which enable environmental and societal
benefits. For example, in Aerospace and
Automotive, our products are lighter than
the alternatives, reducing fuel use and CO
2
emissions; they are also recyclable, and have
attractive technical properties.
Within the medical device industry, our
materials support patient outcomes in
spine, trauma, arthroscopy, drug delivery,
and in newer application areas under
development or in early commercialisation
such as cardio (artificial heart) and knee. We
have a goal to increase Group revenue from
products with quantifiable environmental
or societal benefits (including Medical) from
approximately 50% today to 70% by 2030.
With established sustainability goals for
the 10 years to 2030, including our Net
Zero goal on Scope 1 & 2 emissions,
and alignment to the UN Sustainable
Development Goals, we continue to make
steady progress. We now have a better
assessment of the options available to us
for Net Zero, including potential greater
electrification or access to hydrogen for our
UK manufacturing sites. We have further
increased disclosures in our Sustainability
report, which includes our TCFD disclosure,
a better understanding of Scope 3 emissions
and the ‘full’ Scope 1 and 2 carbon footprint
of our products through Lifecycle Analysis.
We continue to receive positive accreditation
for our sustainability & ESG goals, including
an improved A rating from MSCI – one
of the benchmarks for ESG ratings – and
inclusion in FTSE Russell’s Green Revenues
Index for sustainable products. Further
detail is shown on pages 50 and 51. During
the year we established our Corporate
Responsibility Committee to enhance
oversight of our progress towards our
sustainability goals.
I was delighted to be appointed Chair of this unique
Company. Our innovative culture, our purpose to bring
transformational and sustainable solutions that address
world material challenges every day and our clear
strategy of ‘Polymer & Parts’, put us in a good position
for the years ahead.
Dr Vivienne Cox DBE
Chair
CORPORATE GOVERNANCE
77
Annual Report 2022 Victrex plc
Our Nominations Committee led the search
for a new Chief Financial Officer following
the decision by Richard Armitage to step
down from the Board to pursue another
opportunity. Following a rigorous process,
we were delighted to welcome Ian Melling
as Chief Financial Officer, joining the Board
on 4 July 2022. Further details about the
search and appointment process can be
found in the Nominations Committee report
on pages 94 to 96. Ian’s biographical details
are set out on page 79.
Given the changes in Board composition
this year, we decided that an externally led
effectiveness exercise would be of most
benefit in 2023. Accordingly, effectiveness
has been reviewed during the year through
an internal process using confidential
questionnaires developed by each Committee
Chair, the Company Secretary and me. I am
pleased to confirm that the review found
that the Board and its Committees continue
to perform effectively. Further details can be
found on pages 89 and 90.
As at year end we have 44% female
representation on our Board. Below
the Board, we have two women on our
Victrex Management Team (‘VMT’) which,
excluding the Executive Directors, means
there is 40% female representation at senior
management level. As at 30 September
2022, 15 of the 44 people who comprise
senior management (‘VMT’) and their
direct reports were women (34% female
representation at this level). A description
of the VMT, its members and the key below
Board meetings which support the Chief
Executive Officer is set out on pages 88
and 89. During the year the Board reviewed
and approved an updated Board Inclusion
& Diversity Policy – further details can be
found on page 96. This is an area that the
Board will continue to provide support to
and challenge.
We look forward to welcoming shareholders
at our Annual General Meeting (‘AGM’)
in February 2023. Please see page 128 for
more information. Whether or not you
propose to attend the AGM in person,
you are encouraged to vote on each of the
resolutions set out in the Notice of Annual
General Meeting by appointing a proxy
to act on your behalf. You are strongly
encouraged to appoint the Chair of the
meeting as your proxy. This will ensure that
your vote will be counted if you (or any
other proxy you may otherwise choose to
appoint) are not able to attend the AGM
for any reason. If you appoint the Chair of
the meeting as proxy, the Chair will vote
in accordance with your instructions. If
the Chair is given discretion as to how to
vote, she will vote in favour of each of the
resolutions in the Notice of Annual General
Meeting. All proposed resolutions in the
Notice of Annual General Meeting will be
put to the vote on a poll.
If you have any questions for the Board on
the business of the AGM, please send them
in advance of the AGM to ir@victrex.com.
We will aim to respond to all questions as
quickly as possible. A summary and key
themes of the questions and answers will be
posted on our website, www.victrexplc.com,
on the morning of the AGM.
Dr Vivienne Cox DBE
Chair
6 December 2022
FY 2022 highlights
u Further focus on our ESG agenda
and establishing our Corporate
Responsibility Committee
u Full Return to Site as part of living
with COVID-19 including site visits
by Board members
u Prioritisation of the health, safety
and wellbeing of ourpeople
u Continued focus on developing
our core business and meeting
our mega-programme milestones,
including accelerating investment
to support Medical opportunities
u Smooth transition and effective
inductions for new Chair and
IanMelling, our new Chief
Financial Officer
u Reviewing the results of the FY 2022
Employee Experience Survey
FY 2023 focus areas
u Navigating the Group through
a potentially uncertain
macro-economic outlook
u Further focus on acceleration
ofMedical opportunities
u Further developing the opportunity
from our China investments
u Continuing focus on our
ESGagenda
1. DR VIVIENNE COX DBE
N
Chair
Qualifications: MA (Hons) Nationality: British
Appointed to the Board: December 2021, Chair February 2022
Independent: Yes
Skills and experience: Vivienne has a wealth of experience in executive and
non-executive roles over more than 40 years, with a particular focus on sustainability,
innovation and alternative energy. Vivienne was appointed Commander of the
Order of the British Empire (‘CBE’) in 2016 for services to the economy and
sustainability and was made a Dame Commander of the Order of the British Empire
(‘DBE’) in the 2022 New Year Honours List for services to sustainability, diversity
and inclusion in business. Vivienne holds an MA (Honours) in chemistry from
Oxford University, an MBA from INSEAD and honorary doctorates from the
University of Hull and the University of Hertfordshire.
Previous roles: Vivienne’s previous non-executive roles include serving on
theboards of Eurotunnel plc, BG Group plc and Rio Tinto plc, as senior
independent director of Pearson plc, as chair of Vallourec SA and as the lead
non-executive director for the UK Department for International Development.
Shealso chaired Climate Change Capital, a private asset management and advisory
group developing solutions for climate change and resource depletion. Until
recently she was a non-executive director of GSK as well as GSK’s workforce
engagement director.
Other significant appointments: Vivienne is currently a non-executive director
of Haleon plc and Stena AB in Sweden, a non-executive director of Venterra Group
plc (a non-listed company), chair of the Rosalind Franklin Institute and deputy chair
of the Saïd Business School in Oxford.
All Directors listed below were Directors throughout FY 2022 with the exception of Dr Vivienne Cox who was appointed as a Director with effect from 1 December 2021
andIan Melling who was appointed as a Director with effect from 4 July 2022.
2. DR ROS RIVAZ
A N R C
Senior Independent Director
Qualifications: BSc (Hons) Honorary DSC Nationality: British
Appointed to the Board: May 2020
Independent: Yes
Skills and experience: Ros holds a Bachelor of Science (Honours) degree in
chemistry and an honorary doctorate from Southampton University, and has deep
international experience in the areas of supply chain management, logistics,
manufacturing, IT, procurement and systems in the engineering, manufacturing
and chemicals industries.
Previous roles: Ros’ executive career spans nearly 30 years. She held senior
executive roles at Exxon Chemical Corporation, Tate & Lyle, ICI, Diageo and Premier
Foods. Ros served as global chief operating officer for Smith & Nephew from 2011
to 2014. She was non-executive director at ConvaTec plc, RPC Group plc, Boparan
Holdings Limited, Rexam plc and CEVA Logistics AG.
Other significant appointments: Ros is currently senior independent director,
employee engagement director and chair of the remuneration committee of
Computacenter plc. She is lead independent director of Aperam SA. She is chair of
the Nuclear Decommissioning Authority and non-executive director at the Ministry
of Defence Equipment and Support board.
Specific contribution to the Company’s long-term success: Ros’ strong
track record as both a non-executive and executive across a range of listed
companies, particularly in the medical industry, is instrumental in driving
growth and supporting the Chair in her role as Senior Independent Director.
3. JANE TOOGOOD
A N R C
Non-executive Director
Qualifications: MA (Hons) Nationality: British
Appointed to the Board: September 2015
Independent: Yes
Skills and experience: Jane has a wealth of experience across a number of
business management, senior commercial and business development roles within
the global chemicals industry. Jane holds an MA in natural sciences (chemistry)
from the University of Oxford and a Fellow of the Royal Society of Chemistry.
Previous roles: Jane held senior roles at Borealis, ICI and Uniqema. She was
non-executive director of NHS Harrogate and District Foundation Trust.
Other significant appointments: Jane is the chief executive of Catalyst
Technologies at Johnson Matthey Plc and during the year was appointed as the UK
government’s first Hydrogen Champion.
Specific contribution to the Company’s long-term success: Jane brings
strategic and industry expertise and insights drawing on her extensive
international experience across multiple sectors. Jane is a current senior
executive leading growth and transformation in a portfolio of businesses to
meet future market demands including decarbonisation, the energy transition
and deployment of hydrogen and circularity.
Specific contribution to the Company’s long-term success: Vivienne’s
extensive board, corporate governance and sector experience, as well as her
leadership in and passion for sustainability and diversity matters, enables
strong leadership of the Board.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
78
Board of Directors
4 5
6 7 8 9
1 2 3
4. JANET ASHDOWN
A N R C
Non-executive Director
Qualifications: BSc (Hons) Nationality: British
Appointed to the Board: February 2018
Independent: Yes
Skills and experience: Janet has over 30 years’ experience in the international
energy sector working across the value chain from customer facing through to
manufacturing in increasingly senior roles with an additional 10+ years as a
non-executive director.
Previous roles: Janet had a distinguished career working for BP plc for 30 years
where her last role was head of the UK Fuels Business Unit. She was CEO of
Harvest Energy, an international private equity backed business, from 2010 to
2012. She was previously non-executive director at SIG plc, Coventry Building
Society and Marshalls plc.
Other significant appointments: Janet is a non-executive director, chair of the
remuneration committee and chair of the corporate sustainability committee of RHI
Magnesita NV, senior independent director and chair of the environment safety
and security committee and sustainability & governance committee of the Nuclear
Decommissioning Authority and non-executive director of Stolt-Nielsen Norway AS.
Specific contribution to the Company’s long-term success: Janet has extensive
international executive and non-executive experience. She has experience of
chairing remuneration committees across different sectors for over six years and
hasnow been chairing sustainability committees for three to four years.
7. JAKOB SIGURDSSON
Executive Director – Chief Executive Officer
Qualifications: BSc MBA Nationality: Icelandic
Appointed to the Board: October 2017
Independent: No
Skills and experience: Jakob holds a BSc in chemistry from the University of Iceland
and an MBA from Northwestern University in the US. His executive responsibilities
have spanned marketing, supply chain, business development, strategy and M&A,
with particular emphasis on growth in new or developing markets.
Previous roles: Jakob has more than 20 years’ experience in large multinational
companies, both listed and private, including nine years with Rohm & Haas (now
part of Dow Chemical) in the US. He was chief executive at Alfesca, Promens and ViS.
Other significant appointments: Non-executive director of Coats Group plc.
Specific contribution to the Company’s long-term success: Jakob brings his
diverse and international background in chemicals coupled with wider business,
executive and non-executive experience to inspire and lead the Group.
6. BRENDAN CONNOLLY
A N R
Non-executive Director
Qualifications: BSc Nationality: British
Appointed to the Board: February 2018
Independent: Yes
Skills and expertise: Brendan has over 35 years’ experience in the international
oil and gas industry serving in a number of senior executive roles.
Previous roles: Until 2013, Brendan was a senior executive at Intertek Group plc
and had previously been CEO of Moody International (acquired by Intertek in 2011).
Prior to Moody, Brendan was managing director of Atos Origin UK and spent more
than 25 years of his career with Schlumberger in senior international roles over
three continents.
Other significant appointments: Brendan is senior independent director and
chair of the remuneration committee of Synthomer plc, a non-executive director
ofPepco Group N.V. and also an independent director on the board of Applus
Services, S.A. as well as a member of its environment, social and governance
committee and the appointments and compensations committee. Brendan is also
onone private equity board.
Specific contribution to the Company’s long-term success: With extensive
executive and non-executive experience, Brendan brings operational,
commercial and strategic expertise and insights; his role as the designated
Non-executive Director for Workforce Engagement enhances the Board’s
understanding of the views of employees and the culture of the Company.
9. IAN MELLING
Executive Director – Chief Financial Officer
Qualifications: MChem FCA Nationality: British
Appointed to the Board: July 2022
Independent: No
Skills and experience: Ian is a Chartered Accountant and holds a first class master’s
degree in chemistry from Oxford University in the UK.
Previous roles: Most recently Ian held the role of senior vice-president, corporate
finance and R&D for Smith & Nephew plc, the medical technology company, having
served as interim chief financial officer during 2020. Ian has worked in a number of
senior finance roles in the UK and internationally for Smith & Nephew, including
those with divisional and functional responsibility, having joined the Group in 2006.
He was senior vice-president, group finance for five years until October 2021.
Ianstarted his career and qualified as a Chartered Accountant at Deloitte LLP.
Other significant appointments: Ian is a member of the UK Endorsement
BoardPreparer Advisory Group.
Specific contribution to the Company’s long-term success:
Iancontributes his significant financial experience as well as his background in
the medical device sector which is relevant to the Company’s growth plans.
CORPORATE GOVERNANCE
79
Annual Report 2022 Victrex plc
Key to Committees
Audit
A
Nominations
N
Corporate Responsibility
C
Remuneration
R
Committee Chair
8. DR MARTIN COURT
Executive Director – Chief Commercial Officer
Qualifications: BSc (Eng) PhD Nationality: British
Appointed to the Board: April 2015
Independent: No
Skills and experience: Martin is an INSEAD alumnus and holds a doctorate in the field
of surface chemistry and fracture mechanics and a BSc (Eng) in mineral technology from
the Imperial College of Science and Technology. He has broad international experience
in strategy, innovation-driven growth and organisational change in high performance
materials and chemical industries, having held both senior commercial and technical
leadership roles.
Previous roles: Martin joined Victrex in 2013 as Managing Director of Invibio
fromCytec Industries where he served as VP in process separation and VP R&D,
previously having held senior leadership roles in UCB S.A. and ICI.
Other significant appointments: Martin is a non-executive director at
JamesCropper plc.
Specific contribution to the Company’s long-term success: Martin’s
significant diverse international experience and focus on value creation and
achieving business growth through innovation and geographic expansion
enable him to drive Victrex’s commercial and innovation strategies, ensuring
anappropriate balance between disruptive and non-disruptive change.
JANE BRISLEY
Company Secretary
Specific contribution to the Company’s long-term success:
Davidcontributes his expertise in finance and his understanding of the
investment community and regulators as both a Board member and Chair of
the Audit Committee, as well as his industry knowledge to enhance the risk
lens for Board decision making.
5. DAVID THOMAS
A N R C
Non-executive Director
Qualifications: MA FCA Nationality: British
Appointed to the Board: May 2018
Independent: Yes
Skills and experience: David has deep experience in a broad range of finance
activities within listed companies as both a senior executive and anaudit professional.
Previous roles: David was CFO at Invensys plc from 2011 until his retirement
in2014, having held senior roles across the business since 2002. Prior to joining
Invensys, he was a senior partner at Ernst & Young specialising in long-term industrial
contracting businesses and was a member of the Auditing Standards Board.
Other significant appointments: David is senior independent director and chair
ofthe audit committee at Dialight plc.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
80
Statement of corporate governance
This section contains details of how we have applied the principles of the 2018 UK Corporate Governance Code (the ‘Code’). The Code can
be found on www.frc.org.uk. For the year ended 30 September 2022, we are pleased to report that we have applied the principles and
complied with the provisions of the Code except as described below.
u
Regarding Provision 21 of the Code, we have not conducted an externally facilitated Board effectiveness review during the year. Please
see pages 89, 90 and 96 for an explanation for this, as well as details of the annual internally managed review. The Board expects
toundertake an externally facilitated review during 2023.
u
Regarding pension provision for Executive Directors and Provision 38 of the Code, during the year Jakob Sigurdsson and Martin Court
were eligible to receive Company pension benefits of 12% of salary up to a pre-set earnings cap and then 25% of salary above this
earnings cap. With effect from 1 October 2022 their pension provision has been changed so it is aligned with the typical Company rate
of pension provided to the wider workforce of 14% of salary – please see page 117.
1. Board leadership and Company purpose
A. Role of the Board
The Board performs its role to promote the long-term sustainable success of the Company and is
considered to be effective in its approach. An explanation of how the Board operates can be found
on pages 85 to 88. The action plan following the 2022 internal Board and Committee effectiveness
evaluation is contained on page 89.
For a description of the business
model and a description
of strategy, please see
pages 12 to 15.
B. Purpose, values, strategy and culture
The Board endorses the Company’s purpose which informs our strategy, our values and our culture
and inspires our people. The Board reviews workforce culture and employee engagement through
a range of touchpoints throughout the year. We have developed a dashboard of cultural indicators
which is reviewed formally twice each year, with any actions to address any areas of concern being
monitored more frequently. In addition, the Audit Committee has reviewed the results of internal
audits which provide insights into the culture of the Group and individual areas of the business.
Following a detailed review of culture which included consideration of the Group’s values, the
behavioural framework and employee insights from our Non-executive Director with designated
responsibility for workforce engagement, in conjunction with the annual review of purpose and
strategy undertaken, the Board confirmed the alignment between purpose, strategy, values and
desired culture.
For more information on our
purpose, strategy, values and
culture, please see page 2.
C. Resources andcontrols
The Board ensures that the necessary resources are in place for the Company to meet its objectives
and measures performance against them. The Board has a framework of controls which enables
risk to be assessed and managed. The Group has established an Executive Risk Management
Committee which manages risks and establishes and monitors controls in place.
For more information about
the risks faced by the Company
and the associated governance
framework, see pages 34 to 40.
See the Audit Committee report
on pages 101 and 103 for
information about controls.
D. Engagement with shareholders and stakeholders
Victrex has multiple stakeholders who are all important to our business. We are aware that our
actions and decisions impact our stakeholders and the communities in which we operate. We
recognise that valuable stakeholder engagement underpins our ability to achieve our purpose
and strategic aims. The Board regularly reviews and considers our key stakeholder relationships,
including how we engage with them and whether any enhancements can be made. The Board
maintains regular direct and indirect engagement with shareholders and other key stakeholders.
Where engagement is not direct, it takes place via feedback from individual Directors and members
of management.
The relevance of each stakeholder group will depend on the particular matter requiring Board
decision; we also have regard to any other key factors including the interests or requirements of
applicable regulators. All decisions we make will unfortunately not benefit all stakeholders; by
taking a consistent approach to decision making and being guided by our purpose and our strategic
aims, we hope that our decisions are understandable.
The matters we have discussed and debated during the year are set out on pages 87 and 88.
For more information about
shareholder engagement, please
see pages 90 and 91 of this section
and page 106 of the Remuneration
Committee report.
For more information about
engagement with other stakeholders
including the annual report from
our Non-executive Director with
designated responsibility for
Workforce Engagement, please see
pages 92 and 93. Our section 172
statement is contained on pages 20
to 23 of the Strategic report.
CORPORATE GOVERNANCE
81
Annual Report 2022 Victrex plc
1. Board leadership and Company purpose continued
E. Workforce policies and practices
Our Code of Conduct sets out the standards of behaviour we expect from everyone at Victrex and
those who work with us. We encourage people to raise any matters of concern through our Global
Whistleblowing Policy, where genuine concerns may be reported and investigated without reprisals
for whistleblowers.
The Group operates an independently provided confidential reporting telephone helpline for
employees to raise any matters of concern. Alternatively, such matters could be raised with the line
manager, the HR business partner or, as detailed in the Global Whistleblowing Policy, the Director
of Risk & Compliance, the Group HR Director or the Chair of the Audit Committee. Employees can
remain anonymous if they wish. All concerns are investigated fully, regardless of how they are raised.
During the year, the Board was kept fully apprised of the number of cases. The Board is also
informed about how cases were being investigated and remedial actions taken. A number of
employees have been selected and received specialist training in order to conduct investigations
ofcases of whistleblowing.
The Group operates an Anti-bribery & Corruption Policy to prevent bribery being committed on
its behalf. All employees must follow it and there are processes in place to monitor compliance.
As part of the programme, employees are required to comply with the Group’s Gifts & Hospitality
Policy. This permits employees to give and accept proportionate and reasonable hospitality for
legitimate business purposes only. Our suppliers must comply with our Supplier Code of Conduct
which explains we will not tolerate corruption, bribery or anti-competitive actions and expect
suppliers to comply with applicable laws.
A copy of the Group’s Anti-bribery & Corruption Policy is available on request.
For more information about this
and our approach to ethics and
compliance, please see pages
72 and 73.
Conflicts of interest
The Board has a formal system in place to declare an actual or potential conflict of interest.
Astatement of Directors’ interests in Company shares is set out on page 122.
Please see page 129 for
furtherinformation.
2. Division of responsibilities
F. Role of the Chair
Our Senior Independent Director, Dr Ros Rivaz, led the annual performance review of our Chair,
Vivienne Cox. The outcome of that process found Vivienne to be an effective Chair.
For more information, see
page 96 of the Nominations
Committee report.
G. Composition andresponsibilities
As at 30 September 2022, there are nine members of our Board: the Chair, five independent
Non-executive Directors (one of whom is Senior Independent Director) and three Executive
Directors. During the year, Vivienne Cox was appointed Chair, succeeding Larry Pentz who had
served for more than the recommended nine years. Our Chair was independent on appointment.
All Non-executive Directors have less than nine years’ service.
Details of the distinct roles and responsibilities of the Chair, the Senior Independent Director and
the Chief Executive Officer are summarised on page 85, with full details set out on our website.
Information about our individual
Directors is set out on pages 78 and
79. Details about our Board and its
Committees are set out onpage 85.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
82
Statement of corporate governance continued
2. Division of responsibilities continued
H. Role of the Non-executive Director
The role of the Non-executive Director is to provide constructive challenge and strategic guidance,
offer specialist advice and hold management to account. The results of our Board and Committee
evaluation supported this. At the end of most Board meetings, the Chair holds a meeting without
the Executive Directors present to provide feedback on papers presented, and consider and discuss
any matters that have arisen during the meeting. The Chairs of the Audit and Remuneration
Committees also hold regular meetings without the Executive Directors and management present.
The Chief Executive Officer holds meetings with the Chair and the Non-executive Directors to ensure
they remain up to date on business matters in months when there are no scheduled Board meetings.
Independence of Non-executive Directors is reviewed against the circumstances which are likely to
impair, or could appear to impair, a Non-executive Director’s independence as set out in the Code.
Following assessment, all of the Company’s Non-executive Directors are considered independent.
The Chair was considered independent on appointment. A chart showing the independence of the
Non-executive Directors is contained on page 86.
It is vital that Directors have sufficient time to devote to and fulfil their duties. Non-executive Directors
are expected to devote the time needed to fulfil the role and manage their diaries accordingly although
the Company’s historical practice has been to specify an expected time commitment range in their
letter of appointment. The Board is satisfied that none of its Directors are overcommitted and unable
to fulfil their duties to Victrex. Each individual’s circumstances are different, as is their ability to take
on the responsibilities of a Non-executive Director role. If a Director was unable to attend meetings on
aregular basis, or was not preparing for or contributing appropriately to Board discussions, the Chair
would be responsible for discussing the matter with them and agreeing a course of action. The
Nominations Committee also reviewed the time required from each Non-executive Director and any
other significant commitments of the Chair. The 2022 review found the Non-executive Directors’ time
commitments to be sufficient to discharge their responsibilities effectively.
Prior to the Board approving a Board member taking on any new external appointment or significant
commitment, he or she is required to confirm sufficient time remains available to discharge his or her
responsibilities to Victrex.
During the year, the Board approved additional external appointments for Martin Court and Ian
Melling to support their professional development. Following an assessment that each Director
could continue to devote the required time commitment to Victrex and that there were no actual
or potential conflicts of interest, the Board approved the appointment of Martin Court as a
non-executive director of James Cropper plc and the appointment of Ian Melling as a member
ofthe UK Endorsement Board Preparer Advisory Group.
A summary of the roles and
responsibilities of the Chair and the
Non-executive Directors (including
that of the Senior Independent
Director) is contained on page 85.
Other significant appointments
of each individual Director are
included in the Board biographies
on pages 78 and 79.
For more information on meeting
attendance in FY 2022, please
see page 86.
I. Effective and efficient Board function
The General Counsel & Company Secretary supports the Board to ensure that it has the policies,
processes, information, time and resources it needs in order to function effectively and efficiently.
All Directors have access to the advice of the General Counsel & Company Secretary, as well as
independent advice at the Company’s expense.
Appropriate levels of insurance cover are obtained for all Directors and Officers of the Company. Further
information on Directors’ indemnities and insurance cover is given in the Directors’ report on page 129.
3. Composition, succession and evaluation
J. Board succession planning
The Nominations Committee leads the process for Board appointments, and ensures plans are in
place for orderly succession to both the Board and senior management positions. It also oversees
the development of a diverse pipeline for succession. The Committee also recommends candidates
for appointment. It operates a formal, rigorous and transparent procedure which focuses on
finding the right candidate having regard to the strategic aims of the Company, desired skills and
experience, with due regard for promoting diversity. Details of how this was applied to the search
for a new Chief Financial Officer, facilitated by an external search consultancy and resulting in the
appointment of Ian Melling, are provided on page 95. There are written succession plans in place
for the Executive Directors, Non-executive Directors and senior management which are reviewed by
the Committee. The Board maintains a Diversity & Inclusion Policy. Each Director seeks re-election
on an annual basis and all Directors will seek re-election (or election in the case of Ian Melling) at
the forthcoming Annual General Meeting.
The Nominations Committee report
on pages 94 to 96 describes its
work including an explanation of its
use of external search consultancies
and its succession plans. The Board’s
Diversity & Inclusion Policy is set out
on page 96 and on our website.
Details of the specific reasons why the
contribution of each individual Director
is and continues to be important to
the Company’s long-term sustainable
success are set out in the Director
biographies on pages 78 and 79, as
well as in the notes accompanying the
resolutions to re-elect (or elect as the
case may be) each Director.
CORPORATE GOVERNANCE
83
Annual Report 2022 Victrex plc
3. Composition, succession and evaluation continued
K. Skills, experience, knowledge and refreshment
Using a Board skills matrix, the Nominations Committee ensures that the combination of skills,
experience and knowledge on the Board and its Committees is relevant to assisting the Company
in delivering its purpose and strategic aims, as well as sufficient to discharge their governance and
oversight responsibilities. During the year the Board skills matrix has been reviewed and updated.
For more details on the skills and
experience of the Board, see the
individual Director biographies on
pages 78 and 79, and page 95 of the
Nominations Committee report.
L. Board evaluation
In FY 2022 an internally facilitated Board and Committee evaluation took place. Using the findings,
an action plan was devised for focus during FY 2023. Details of how the Board has actioned areas
identified by the internal Board evaluation conducted in 2021 are set out on page 89. The Board
intends to source an externally facilitated effectiveness evaluation in 2023.
For more information on the Board
and Committee evaluation, please
see pages 89, 90 and 96.
Induction and Board development
The Group has in place an induction programme for newly appointed Directors which is
capable of being personalised according to that individual’s proposed role, skills and experience.
Comprehensive induction programmes were undertaken by Vivienne Cox and IanMelling to
support their smooth transition into role.
Board Directors regularly receive updates to improve their knowledge and understanding about the
business and are encouraged to identify any knowledge or skills gaps they would like to address.
During the year, the Board has received legal and governance briefings from the General Counsel
& Company Secretary, Addleshaw Goddard (compliance and governance update), Korn Ferry
(remuneration), PwC (corporate reporting update) and KPMG (climate risk and TCFD).
Given travel restrictions due to COVID-19 the Board conducted a ‘virtual’ visit to some locations
in the Asia-Pacific region in October 2021 which included some site tours and employee
presentations, as well as customer meetings. In March 2022, the Chair, Non-executive Directors
and Chief Executive Officer conducted visits to the Group’s Rotherham and Seal Sands
manufacturing sites.
See page 95 for a description ofthe
induction programme.
4. Audit, risk and internal control
M. Independence and effectiveness of internal and external audit
The Audit Committee meets composition requirements set out in the Code as it comprises five
Non-executive Directors, the Chair is not a member, at least one member has recent and relevant
financial experience and the Committee as a whole has competence relevant to the sector in
which the Company operates. The Audit Committee assesses and assures the Board of the
independence and effectiveness of the Group’s internal audit function and the external auditors,
PwC. The Audit Committee operates a policy for non-audit services which PwC are permitted
to conduct.
An explanation of how the Audit
Committee has assessed the
effectiveness of the external audit
process can be found on page
102. Further information on the
work of the Audit Committee,
internal audit and the external
auditors, PwC, is set out on pages
97 to 103.
N. Fair, balanced andunderstandable assessment
The Audit Committee reviews financial and narrative statements set out in the Group’s annual
and half-year results and reports its findings and makes recommendations to the Board. The
entire Board considers the recommendations of the Audit Committee, representations made by
management and the views of internal audit and the external auditors. This process is applied
so that the Board can satisfy itself on the integrity of financial and narrative statements and to
determine whether, when taken together, they represent a fair, balanced and understandable
assessment of the Company’s position and performance, business model and strategy.
See pages 100 to 103 for a
description of the significant issues
that the Audit Committee considered
in relation to the financial statements
and how these were addressed,
having regard to the matters
communicated to it by the external
audit team.
Please see page 132 for the
statement that the Directors
consider that the Annual Report and
Accounts, taken as a whole, is fair,
balanced and understandable and
provides information necessary for
shareholders to assess the Company’s
financial position and performance.
The going concern statement is set
out on page 41.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
84
4. Audit, risk and internal control continued
O. Risk management and internal controls
The Audit Committee monitors the internal control framework and receives regular reports on its
effectiveness, reporting its findings to the Board. At least twice in each year, the Board reviews
the principal and emerging risks which apply to the Group to ensure that they remain up to date.
The Board also reviews the controls and mitigations in place (including financial, operational and
compliance controls) to manage those risks to ensure that they are aligned to the risk appetite
determined appropriate by the Board to achieve the long-term strategic aims of the Group.
For further information, see the
risk descriptions on pages 36 to 40,
and the Audit Committee report
on page 101.
5. Remuneration
P. Remuneration policy and practices
The Remuneration Committee is responsible for determining remuneration policies and practices
which support the strategy and promote the long-term sustainable success of the Company.
When setting executive pay, the Committee takes into account workforce remuneration and
related policies as well as the alignment of incentives and rewards with culture. The Remuneration
Committee meets composition requirements set out in the Code as it comprises five Non-executive
Directors, the Chair is not a member and the Committee Chair has served on a remuneration
committee for longer than 12 months. The remuneration of Non-executive Directors is determined
by the Board, reflecting the time commitment and responsibilities of the individual roles.
The Company’s remuneration advisor is Korn Ferry. Details of the engagement are contained
onpage 115.
The work of the Remuneration
Committee is summarised on
page 104.
Please see pages 107 to 114 for
details of remuneration policy.
Q. Executive remuneration
The executive remuneration policy is due for renewal at the 2023 AGM. During the year, the
Remuneration Committee reviewed the policy and determined it was fit for purpose. Therefore, the
proposed policy only includes minor amends to align with market and corporate governance best
practice. No Director is involved in deciding their own remuneration outcome.
Future policy table and notes,
performance scenario charts and
remuneration obligations in service
contracts are set out on pages
107 and 114.
Please see the Directors’
remuneration report for policy
implementation (pages 106 and
116 to 120), remuneration paid to
service advisors (page 115), single
total figure tables (page 116), Chief
Executive Officer total remuneration
(page 124), CEO pay ratio (page 126),
alignment of Directors’ remuneration
(including pension contributions)
with the workforce’s (pages 106
and 107) and relative importance of
spend on pay (page 125). Please see
the Remuneration Committee report
for Directors’ shareholdings (page
122) and variable pay awarded in the
year (pages 117 to 120).
R. Judgement anddiscretion
The Remuneration Committee determines remuneration outcomes for Directors and senior
management and in doing so exercises independent judgement and discretion when authorising
remuneration outcomes, taking account of Company and individual performance, as well as wider
circumstances. Details of the Committee’s discretionary powers, specifically relating to malus
and clawback, bonuses and LTIPs can be found in the remuneration policy from page 108. The
Committee did not use discretion in relation to adjusting incentive outcomes for FY 2022.
For more information on
remuneration outcomes, please
see the Directors’ remuneration
report from page 104.
Statement of corporate governance continued
CORPORATE GOVERNANCE
85
Annual Report 2022 Victrex plc
Leadership – Our governance framework as at 30 September 2022
Key responsibilities:
u
Day to day running of the Group
u
Recommending to the Board and implementing agreed strategy
u
Executing Board decisions
Matters not reserved for Board decision are delegated to the CEO
Key responsibilities:
u
Acting as secretary to the Board and its Committees
u
Keeping the Board up to date on all legislative, regulatory and
governance matters
u
Reviewing the efficacy of and compliance with Board procedures
u
Facilitating information flows between management and the Board
Key responsibilities:
u
Performing designated executive responsibilities
u
Discharging duties in respect of the Group as a whole
Key responsibilities:
u
Providing entrepreneurial leadership
u
Setting the Company’s purpose and strategic aims
u
Being collectively responsible and accountable to shareholders for the
long-term sustainable success of the Group and for the responsible
operation of the Group in delivering its strategic objectives
u
Ensuring the interests of all stakeholders are taken into account
u
Ensuring that the necessary financial and human resources are in
place for the Company to meet its objectives
u
Ensuring a sound system of risk management and internal controls
which enables risk to be assessed and managed is in place
u
Reviewing management performance and the operating and
financial performance of the Group
u
Setting the Company’s culture, values and behaviours
u
Ensuring good corporate governance
How the Company generates value for shareholders and other stakeholders
and contributes to wider society is set out on pages 6 to 17
Key responsibilities:
u
Leading the Board
u
Creating the right Board dynamic
u
Ensuring Board effectiveness, including contribution and challenge
from all Directors
u
Ensuring effective engagement with shareholders
Key responsibilities:
u
Acting as a sounding board to the Chair
u
Serving as an intermediary for other Directors when necessary
u
Being available to meet with shareholders should they have any concerns,
where contact through the normal channels may be inappropriate
u
Leading the review of the Chair’s performance
u
Deputising for the Chair if the Chair is unable to fulfil her duties
Key responsibilities:
u
Exercising independent and objective judgement in decision making
u
Scrutinising and constructively challenging senior management
Chief Executive: Jakob Sigurdsson
General Counsel & Company Secretary: Jane Brisley
Executive Directors: Jakob Sigurdsson,
Ian Melling, Martin Court
Chair: Vivienne Cox
Senior Independent Director: Ros Rivaz
Independent Non-executive Directors: Janet Ashdown,
Brendan Connolly, Ros Rivaz, David Thomas, Jane Toogood
Board: One Chair (independent on appointment), five independent Non-executive Directors, three Executive Directors
Role:
u
Assisting the Board in its oversight of financial reporting, internal
controls and risk management
u
Managing the relationship with the Group’s external auditors
See the Audit Committee report from page 97 for more information
Role:
u
Setting remuneration policy for Executive Directors, senior
management and the Chair
u
Determining the application of remuneration policy
See the Directors’ remuneration report from page 104 for more information
Role:
u
Overseeing the Company’s conduct with regards to its corporate
societal obligations and commitments
u
Overseeing and reviewing the development and execution of the Company’s
sustainability strategy and commitments including progress towards targets
This Committee was established during FY 2022
Role:
u
Reviewing Board structure, size, composition and succession planning
u
Overseeing senior management succession
See the Nominations Committee report from page 94 for more information
Role:
u
Ensuring timely and accurate disclosure of information to comply with
applicable laws and regulations where it is impractical for the Board (or
any other Board Committee with delegated responsibility)
u
Making disclosures on behalf of the Board
u
Taking advice from the Company’s broker, external auditors and legal
advisors, on the form and content of any disclosure under consideration
Chair: Vivienne Cox, David Thomas, Jakob Sigurdsson or Ian Melling
(in that order)
Quorum: Two of Vivienne Cox, David Thomas, Jakob Sigurdsson and
Ian Melling
Audit Committee members:
Fiveindependent Non-executive Directors
Remuneration Committee members: fiveindependent
Non-executive Directors
Corporate Responsibility Committee members: a minimum
ofthree Non-executive Directors
Nominations Committee members:
Company Chair and five independent Non-executive Directors
Disclosure Committee members: WholeBoard
Audit Committee report pages 97 to 103
Directors’ remunerationreport pages 104 to 127
Nominations Committee report pages 94 to 96
Board Committees
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
86
Statement of corporate governance continued
Attendance at meetings
The Directors’ attendance record at the Annual General Meeting (‘AGM’) and scheduled Board and Committee meetings for the year
ended 30 September 2022 is set out below. Attendance is shown as the number of scheduled meetings attended out of the number that
each Director was eligible to attend. Only in exceptional circumstances would a Director not attend a Board or Committee meeting.
AGM Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
Corporate
Responsibility
Committee
Number of meetings 1 7 3 5 4 1
Chair
V Cox
1
5/6 2/3* 3/4* 3/4 1/1*
L C Pentz
2
3/3 1/1* 2/2* 1/1 —
Executive Directors
J O Sigurdsson 7/7 3/3* 5/5* 4/4* 1/1*
R J Armitage
3
5/5 2/2* — — —
M L Court
4
6/7 3/3* — — —
I C Melling
5
— 1/1 1/1* — — 1/1*
Non-executive Directors
J E Ashdown
6
— 7/7 3/3 5/5 3/4 1/1
B W D Connolly
7
6/7 3/3 4/5 3/4 1/1*
D Thomas 7/7 3/3 5/5 4/4 1/1
J E Toogood 7/7 3/3 5/5 4/4 1/1
R Rivaz
8
7/7 3/3 5/5 3/4 1/1
Notes
* Although not a Committee member, attended the Committee meetings by invitation.
1 Vivienne Cox was appointed to the Board on 1 December 2021, becoming Chair Designate on 1 January 2022 and Chair at the close of the 2022
AGM on 11 February 2022. Vivienne could not attend one Board meeting and one Nominations Committee meeting due to illness and Ros Rivaz,
theSenior Independent Director, acted as Chair for those meetings. Vivienne provided comments to Dr Rivaz in advance of those meetings.
2 Larry Pentz stood down from the Board at the conclusion of the 2022 AGM on 11 February 2022.
3 Richard Armitage stood down from the Board on 27 May 2022.
4 Martin Court was unable to attend one Board meeting due to an important family commitment.
5 Ian Melling joined Victrex on 29 June 2022 and was appointed to the Board on 4 July 2022.
6 Janet Ashdown was unable to attend the 2022 AGM due to sickness and arranged for the Senior Independent Director to be available to address any
questions on the Remuneration Committee report. Janet was unable to attend one ad hoc meeting of the Nominations Committee (called at short
notice) and provided feedback in advance.
7 Brendan Connolly was unable to attend one Board meeting and one Remuneration Committee meeting due to sickness, and one meeting of the
Nominations Committee (called at short notice) and provided feedback in advance.
8 Ros Rivaz was unable to attend one meeting of the Nominations Committee (called at short notice) and provided feedback in advance.
A summary of Board activity in FY 2022 and strategic outcomes is on pages 87 and 88. In undertaking these activities, the Board considers
its legal duties and the interests of principal impacted stakeholders. The section 172 statement is located on pages 20 to 23.
Diversity
Our Board believes that diversity is
important for Board effectiveness. The
merits of gender diversity at Board level
are recognised and female representation
on the Board as at the date of this Annual
Report is 44%. The Board also recognises
the importance of gender diversity amongst
the workforce and is committed to ensuring
an appropriate level of gender diversity,
in particular at senior management level.
We have 40% female representation at
senior management level (two of the
five members of the VMT excluding the
Executive Directors are female) and 34% of
senior management and their direct reports
(15 of 44) are female. The VMT is described
on pages 88 and 89. The current ethnic
composition of our Board is 100% White,
with a breakdown of nationalities provided
above. The Board recognises the value
of diversity in its widest sense, including
ethnicity, and will continue to focus on
broadening the diversity of the Board and
senior management. During the year the
Board Diversity & Inclusion Policy has been
updated. Further details, including the Board
Diversity & Inclusion Policy, can be found in
the Nominations Committee report on page
96. Details of the Group’s Diversity, Inclusion
& Equal Opportunities Policy can be found
on page 72.
Female Chair 1
Female Senior Independent Director
1
Male Executive Directors 3
Male Non-executive Directors 2
Other female
Non-executive Directors
2
Roles and gender
Icelandic 1
British 8
Nationality
As at the date of this Annual Report
Chair and Non-executive
Director tenure
3–6 years
7–9 years
Up to 3 years
50%
17%
33%
Independence
Independent
NEDs
5
Chair 1
CORPORATE GOVERNANCE
87
Annual Report 2022 Victrex plc
SUMMARY OF BOARD ACTIVITY IN FY 2022 STRATEGIC OUTCOMES
Strategy
u
Held the annual strategy review at which the Group’s strategy was reviewed in detail
u
Reviewed and approved the Group’s purpose and strategy
u
Reviewed performance against strategy
u
Reviewed the Group’s innovation portfolio
u
Reviewed business development activities
u
Conducted deep dives into strategic business unit and key functional strategy
u
Met with a number of key customers as part of the virtual Board visit to Asia-Pacific
in October 2021. In addition, the Board received a face-to-face presentation from
TechnipFMC, to further develop the relationship as they progress their industrialisation
andscale up in Brazil
u
Strategy updated to reflect
five-year financial plan and enhanced
sustainability agenda
u
Supporting further pace in the
progression of the Medical strategy
u
Further development of key customer
relationships and understanding of
customer priorities
Financial, operations and risk
u
Reviewed operational performance
u
Approved the budget and monitored financial performance
u
Reviewed and approved the half and full-year results and associated announcements
u
Reviewed and approved the going concern and viability statement
u
Reviewed and approved the Group’s 2022/23 UK tax strategy
u
Reviewed and approved the Group’s treasury policies
u
Reviewed and debated the risk profile of the Group, and in particular the principal risks
andour risk appetite
u
Reviewed and approved additional capex investments
u
Approved a significant IT project (a new ERP system)
u
Reviewed the effectiveness of the risk management and internal control systems including
bribery prevention arrangements and Group whistleblowing policies and processes
u
Reviewed annual insurance arrangements and received a briefing from the Group’s
insurance brokers
u
Reviewed and approved changes to the Group’s corporate structure and director
andofficerappointments to subsidiary boards
u
Received briefing on cyber security matters
u
Ongoing monitoring of operational
andfinancial performance
u
Approved changes to the principal risks
– see pages 34 to 40
u
Approval of the interim and final dividend
u
Capex and IT investments to support
ourstrategy
u
Enhanced awareness of IT security controls
and cyber security
Shareholder relations
u
Received regular updates and discussed feedback from roadshows, presentations and
meetings between the Chief Executive Officer, the Chief Financial Officer and/or the
Director of Investor Relations, Corporate Communications & ESG and other engagement
with large investors, prospective investors and analysts
u
Enhanced engagement and clear
understanding of investor views
Leadership and employees
u
Reviewed health and safety activities, considered health and safety incidents impacting
employees and contractors and maintained focus on on the progress of embedding an
enhanced health and safety culture
u
Approved the appointment of Ian Melling to the Board with effect from 4 July 2022
u
Reviewed and discussed Executive Director and senior management succession plans and
monitored progress on key aspects of talent and development plans, identifying general
management and functional leadership potential, and developing our employee value
proposition and aspiration for a diverse workforce
u
Considered outcomes of the 2022 Employee Experience Survey
u
Reviewed and approved changes to the Board Diversity & Inclusion Policy
u
Considered reports on workforce engagement from Brendan Connolly as the Non-executive
Director with designated responsibility for Workforce Engagement
u
Reviewed dashboard of workforce composition and conditions
u
Monitored culture using a combination of formal and informal methods including a
dashboard of cultural indicators
u
Reviewed whistleblowing arrangements
u
Conducted annual review of stakeholder engagement arrangements
u
Continued prioritisation of health
andsafety matters
u
Refreshed Board Diversity &
InclusionPolicy
u
Monitoring alignment of culture with
ourpurpose, values and strategy
u
Enhanced insight into employee
engagement, views of our employees
and related actions
u
Increased Nominations and
Remuneration Committee activity due
toBoard changes
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
88
Statement of corporate governance continued
SUMMARY OF BOARD ACTIVITY IN FY 2022 STRATEGIC OUTCOMES
Governance
u
Reviewed the governance framework and the Terms of Reference for each Board
Committee and received post-meeting reports from the Chairs of each Committee
summarising discussions, decisions and actions
u
Approved the creation of the Corporate Responsibility Committee
u
Reviewed six-monthly updates on changes and developments in corporate governance
and best practice
u
Received updates in relation to climate change and TCFD
u
Implemented actions from the FY 2021 evaluation of Board performance
u
Agreed the approach to the FY 2022 internal evaluation of Board performance
u
Determined independence of the Non-executive Directors
u
Reviewed the performance of the external auditors and recommendation
for re-appointment
u
Reviewed the Modern Slavery Policy and approved the 2022/23 modern slavery and
human trafficking statement
u
Considered and approved updates to the Board Diversity & Inclusion Policy
u
FY 2023 action plan agreed
following2022 Board and
Committeeinternal evaluation
u
Corporate Responsibility Committee
established to support enhanced
focuson ESG
u
Approval of modern slavery and
human trafficking statement
u
Refreshed Board Diversity & Inclusion
Policy in place
Below Board support for the
Chief Executive Officer to
discharge his responsibilities
The Victrex Management Team (‘VMT’)
Representing all business functions,
individual members of the VMT advise
the Chief Executive Officer and the other
Executive Directors of the interests of all
the Group’s principal stakeholders and
how they are likely to be impacted by how
Victrex operates. They do this during VMT
meetings which are chaired by the Chief
Executive Officer and typically held at least
once a month or when they participate in
other management meetings or Committees
which have been established to assist the
Chief Executive Officer in the operational
management of the business – more
information is set out below. The VMT works
to nurture the culture, maximise employee
engagement, support the business units
in delivering profitable growth, ensure
consistent and appropriate communications
both internally and externally, and drive
faster execution of business and functional
activities and plans which rely on cross-
functional dependencies. More details
on the members of the VMT and their
individual roles and responsibilities are set
out on page 89.
A number of meetings are in operation to
support the Chief Executive Officer to run
the business of the Group on a day to day
basis. Key meetings are described below.
Victrex Performance Day: Each month,
the Chief Financial Officer chairs the
Performance Day which reviews operational
business performance covering supply,
demand, financial and business unit
performance. This meeting is attended
by the Chief Executive Officer, the Chief
Commercial Officer and the Chief Operating
Officer with VMT members and other senior
leaders attending relevant sessions based on
their area of responsibility.
Executive Risk Management Meeting:
At least twice each year, the Chief
Financial Officer chairs the Executive Risk
Management Meeting which reviews the
Group’s corporate and emerging risks,
associated mitigations and controls. This
meeting is attended by the Chief Executive
Officer, the Chief Commercial Officer, the
Chief Operating Officer, the General Counsel
& Company Secretary, the Group HR Director
and the Director of Risk & Compliance.
VMT Risk & Compliance Meeting:
Meeting six times each year, the Chief
Financial Officer chairs the Executive Risk &
Compliance Meeting which reviews legal
compliance matters, internal audit matters,
IT security matters, and performance in SHE,
quality and regulatory matters. This meeting
is attended by the Chief Executive Officer,
the Chief Commercial Officer, the Chief
Operating Officer, the General Counsel &
Company Secretary, the Group HR Director
and the Director of Risk & Compliance. The
Group Head of SHE, Internal Audit Manager,
R&D Director, Head of Regulatory Affairs
and Product Stewardship and Group Head
of Security participate in relevant sessions.
Industry-based risk committees meet three
times a year and are chaired by the Chief
Commercial Officer with support from the
Director of Risk & Compliance.
The SHE Steering Committee meets quarterly
and is chaired by the Chief Operating Officer.
A description of how risk management is
conducted by the Group can be found in the
Strategic report on pages 34 and 35.
Currency Committee: The Board has
ultimate responsibility for the annual
approval of the Treasury and Cash
Management Policy and continues
to besupported in its work by the
management-led Currency Committee.
The Currency Committee is chaired by the
Chief Financial Officer and meets monthly
to manage the application of the policy.
Attendees include the Chief Executive Officer.
Further details on this policy and the activities
of the Currency Committee are included in
note 16 to the financial statements.
Innovation Portfolio Review: Meeting
quarterly and chaired by the Marketing
Director, the Innovation Portfolio Review
meeting reviews and manages the balance
of the innovation portfolio, as well as
ensuring the appropriate and effective
allocation of resources to projects. This
meeting is attended by the Chief Executive
Officer, the Chief Financial Officer, the Chief
Commercial Officer, the Chief Operating
Officer and those in senior positions in R&D
and marketing with other subject matter
experts attending as necessary.
Portfolio Steering Committee: Meeting
six times each year, the Chief Commercial
Officer chairs the Portfolio Steering
Committee which oversees the selection,
prioritisation, resourcing and delivery of
our mega-programmes. This meeting is
attended by SBU Directors responsible for
mega-programme projects, the Marketing
Director, the R&D Director, the Director of
Global Manufacturing and the Sales Director,
as well as other subject matter experts
attending asnecessary.
IP Committee: Chaired by the Intellectual
Property Director and attended by the Chief
Commercial Officer, the Marketing Director,
the R&D Director, the Chief Scientist and the
Group’s Intellectual Property team, as well
as those in senior positions in R&D. The IP
Committee meets quarterly and manages
the Group’s IP portfolio.
CORPORATE GOVERNANCE
89
Annual Report 2022 Victrex plc
VMT MEMBERS’ ROLES AND RESPONSIBILITIES
Jakob Sigurdsson
1
Chief Executive Officer
(see page 85)
Ian Melling
1
Chief Financial Officer
u
Responsible for financial control
u
Leads the Finance, IT and Legal teams
Martin Court
1
Chief Commercial Officer
u
Responsible for strategic and divisional
commercial performance
u
Oversees all science and
innovation functions
Jeff Versterre
1
Chief Operating Officer
u
Responsible for overall performance
and development of the integrated
supply chain
u
Leads the Procurement, SHE and Supply
Chain teams
Jilly Atherton
2
Group HR Director
u
People strategy
u
Leads the Human Resources and
Business Administration teams
Barry Andrew
1
Group Customer Experience Director
u
Customer experience
u
Leads the Sales, Customer and Technical
Service teams
Andrew Hanson
1
Director of Investor Relations,
CorporateCommunications & ESG
u
Investor relations, internal
communications and
corporatecommunications
u
Leads the Communications
and ESG teams
Jane Brisley
2
General Counsel & Company Secretary
u
Legal, governance and company
secretarial matters
u
Leads the Legal, Governance and
Executive PA teams
1 Male.
2 Female.
The VMT is treated as senior management for the purposes of the Corporate Governance Code. The VMT (excluding the Executive
Directors) is treated as senior managers for the purposes of section 414C(8) of the Companies Act 2006. Only the Executive Directors are
treated as key management personnel for the purposes of IAS 24.
Performance evaluation
The FY 2022 performance evaluation was conducted internally and assessed the performance of the Board, its Committees and the Chair.
Questionnaires produced sought input on how the Board, its Committees and the Chair performed against current best practice corporate
governance principles. Progress against areas identified for focus in the FY 2021 internal performance evaluation was also assessed. Please
see page 96 for more information. The Board intends to conduct an externally facilitated evaluation in FY 2023.
Following the Board’s discussion of the outcome of the FY 2022 internal Board evaluation, an action plan was agreed which included the
following key features:
Topic Action/recommendation
Board papers and presentations Continue evolution of materials submitted to the Board to support focus and efficiency
Engagement Review opportunities for engagement outside of formal meetings and build on
opportunities to meet with employees
Strategy Build on the strategy decision-making process and maintain focus on strategic matters
anddeployment
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
90
Statement of corporate governance continued
Performance evaluation continued
Review of the Chair’s performance
Taking into account feedback from the
internal Board evaluation, Dr Ros Rivaz,
as the Senior Independent Director and in
discussion with the other Non-executive
Directors, led the review of the Chair’s
performance. Vivienne’s leadership of the
Board was considered effective.
Review of the individual Directors’
performance
The Chair reviewed the performance of the
individual Directors. Each of the Directors
was found to be effective in discharging
their responsibilities and to be making a
valuable and effective contribution to the
Board. As Ian Melling joined the Board on
4 July 2022, a formal performance review
for Ian was not deemed appropriate given
his very short tenure prior to the evaluation
process being conducted in July and August.
All Directors are subject to annual election
at the AGM in February 2023. The Board
recommends that shareholders vote in
favour of those standing at the forthcoming
AGM, as they will be doing in respect of
their individual shareholdings. The papers
accompanying the resolutions to elect each
Director contain the specific reasons why
their contribution is, and continues to be,
important to the Company’s long-term
sustainable success.
Company purpose, values,
strategy and culture
The Board has established the Company’s
purpose, values and strategy and monitors
Company culture to ensure that these
are aligned.
Culture
Values Behaviours
Strategy
Purpose
u
Our purpose is to bring transformational
and sustainable solutions that address
world material challenges every day.
u
Our strategy is to drive core business and
create and deliver future value through
Polymer & Parts. We will do this by
innovating in high performance polymer
solutions to focus on our key strategic
markets of Automotive, Aerospace,
Energy & Industrial, Electronics and
Medical. This is with the aim of shaping
future performance for our customers
and creating long-term value for our
shareholders, enabled by differentiation
through innovation and underpinned by
safety, sustainability and capability.
u
Our long-term values of Passion,
Innovation and Performance shape our
culture and drive responsible business
conduct in line with our Code of
Conduct. You can find more on our Code
of Conduct on pages 72 and 73.
u
Our entire workforce (including our
Directors) are reviewed against our
core behaviours of driving results,
working together, doing the right thing,
continuously improving and focusing
onour customers.
u
Throughout its annual programme of
business, receiving reports from Brendan
Connolly, our Non-executive Director
responsible for Workforce Engagement,
and meeting with employees, the Board
gains an insight into the culture of
Victrex. A formal review of corporate
culture is conducted by the Board twice
a year, using the dashboard of cultural
indicators which has been developed.
Our cultural dashboard has a behavioural focus
tracking cultural insights in the following areas:
Safety
Employee engagement,
inclusion anddiversity
Doing the right thing Service for customers
Innovation
Sustainable
businesspractices
The Board retains the power to take decisions
which affect the future developments and
business prospects of the Group and the
authority and responsibility for planning,
directing and controlling the activities of
the Group. Where the matter has not been
reserved for Board decision, it is delegated
to the Chief Executive Officer. The Group
operates a Group Authorities Manual &
Matrix which sets out the delegation of
operational decision-making authorities
for certain management roles operating at
different levels of the organisation.
The operational management of our business
is delegated by the Board to the Chief
Executive Officer who uses several teams,
meetings and below Board Committees to
assist him in this responsibility. Further details
are set out on pages 88 and 89.
Stakeholder engagement
It is important to the Board that we
develop strong and positive relationships
with our employees, customers, suppliers
and investors, as well as government and
regulators. We also strive to make a positive
contribution to the environment and local
communities in which we operate. A
summary of how we engage is set out on
pages 20 and 21. The Board conducts a
formal review of the Group’s stakeholder
engagement programme annually,
considering other touchpoints throughout
the year. Details of how the Board is
informed about stakeholder engagement
are outlined on page 91. Our section 172
statement is set out on pages 20 to 23 and
outlines examples of how the Board has
considered the interests of stakeholders in
decision making.
CORPORATE GOVERNANCE
91
Annual Report 2022 Victrex plc
Employees Attracting and retaining a skilled, talented, experienced and engaged workforce is key to supporting the Group in achieving
our strategy. The Board promotes effective engagement with the Group’s workforce and this is supported by a range of
direct and indirect engagement activities. The Board programme of business typically schedules visits to one or more of
the Group’s sites. This year, the Chair, Chief Executive Officer and Non-executive Directors visited the Group’s operations
in Rotherham and Seal Sands. Due to restrictions posed by COVID-19, virtual site visits took place to two of the Group’s
locations in China which included presentations by some of the Group’s employees. Board dinners with senior management
have taken place periodically. The Board reviews the results of engagement surveys and receives regular ‘people’ updates
throughout the year. The Group has operated a range of measures to facilitate workforce engagement including works
councils, employee forums, staff briefings, regular communications from the Chief Executive Officer and anonymous
communication channels. The Board has continued to enhance its engagement with the workforce through the role of
Brendan Connolly as the Non-executive Director with designated responsibility for Workforce Engagement. Brendan’s third
annual report in this capacity is set out on pages 92 and 93.
Working groups established at the outset of the COVID-19 pandemic have continued to hold periodic meetings to review,
revise and implement appropriate policies and practices to provide a safe working environment for our workforce. We have
encouraged employees to be vaccinated. As we implemented our Return to Site plans supported by our Global Flexible
Working Policy, the health, safety and wellbeing of employees was at the forefront of plans, and we continue to respond
andadapt to COVID-19 as appropriate based on regional risk profiles.
Customers The Board engages with customers indirectly through the Executive Directors who provide information about key customer
relationships. The Board receives information on key customer interactions and regularly reviews information on how the Group
is performing for its customers including delivery ‘on time in full’ metrics and product quality statistics. During the year, Board
members met with a number of key customers as part of the virtual Board visit to the Asia-Pacific region. The Board received
a presentation from TechnipFMC to further develop the relationship as they progress their industrialisation and scale up plans
in Brazil. Material customer contracts are reviewed and approved. Since the year end Board members have held face-to-face
meetings with several key customers in Europe as part of the Board’s site visit to our European base in Germany.
Suppliers Information about key suppliers is provided to the Board by the Executive Directors when relevant to Board deliberations.
The Board is committed to fair treatment and payment of suppliers and the Company is a signatory to the government’s
Prompt Payment Code. The Board reviews proposed updates to the Group’s Modern Slavery & Human Trafficking Policy
as well as approving the Group’s modern slavery and human trafficking statement, which can be found on our website,
www.victrexplc.com. From time to time material supplier contracts are also reviewed and approved.
Investors The Board receives monthly reports on investor engagement and sentiment, prepared by the Company’s Investor Relations
team which frequently interacts with key investors and investor groups. The Chief Executive Officer, the Chief Financial
Officer and the Director of Investor Relations, Corporate Communications & ESG regularly meet shareholders, prospective
shareholders and analysts. This year, over 190 virtual meetings or calls were hosted with institutional investors or prospective
investors. Two major UK roadshows were held and there was one major US roadshow and one virtual roadshow in Europe.
Five investor conferences were attended by our Director of Investor Relations, Corporate Communications & ESG with two
selected ‘Company Overview’ Q&A sessions with North American prospective investors. Due to succeeding as Chair midway
through FY 2022, the Chair has had a limited number of engagements with shareholders to date, through the Annual
General Meeting and financial results. Both the Chair and Senior Independent Director remain available for engagement
with shareholders. The Board receives reports from sector analysts to ensure that it maintains an understanding of investor
priorities. The Board attends the Annual General Meeting so as to be available to answer any questions that may arise from
investors. The Board believes that appropriate steps have been taken during the year so that all members of the Board and,
inparticular, the Non-executive Directors, have an understanding of the views of major shareholders.
The Chair of the Remuneration Committee consulted with major shareholders on remuneration matters during FY 2022.
Please see page 106 of the the Directors’ remuneration report for more information.
Communities
and
environment
The Board recognises its impact on local communities and its responsibility to the environment and society as a whole.
The Group has a busy engagement programme with local communities which is described on pages 70 and 71. The
Board receives information on key community activities. During the year the Board has established an additional Board
Committee, the Corporate Responsibility Committee, in order to enhance focus on ESG matters including monitoring of
itsstanding with key stakeholder groups. See page 85 for more information.
Government
and
regulators
The Board engages directly and indirectly with a wide range of government bodies and regulators. The Health and Safety
Executive and the Environment Agency monitor compliance by the Group’s UK sites with environmental, health and safety
legislation. The Board receives regular updates on safety, health and environmental performance and material interaction
with regulators. The Board engages directly and indirectly with a wide range of government bodies and regulators.
Board engagement is primarily through the Chief Operating Officer and our Global SHE Lead to reflect our SHE focus,
environmental reporting and activities aligned to our sustainability agenda. Governmental and NGO interactions occur
typically through the Chemical Industry Association (of which we are an active member) via the Chief Executive Officer,
with relevant functions taking the lead in responding to UK government consultations and submissions of relevant data.
Engagement with MPs and regional government bodies has also been undertaken this year, via the IR, Communications &
ESG team, as part of lobbying efforts to enable access to alternative fuels, including potential access to a future hydrogen
grid or alternative. From time to time the Group receives some government funding associated with its innovation and
Research & Development agenda. As part of a new PEEK manufacturing facility in China, engagement was held with a
number of regional governmental bodies there, with the facility in commissioning since the start of FY 2023. From time
totime the Group receives some government funding associated with its innovation agenda.
Victrex plc Annual Report 2022
92
CORPORATE GOVERNANCE
Statement of corporate governance continued
Workforce engagement
statement – hearing the
employee voice
Brendan Connolly was appointed the
designated Non-executive Director for
Workforce Engagement with effect from
1October 2019 (the ‘Workforce Engagement
NED’). This statement summarises the third
year of the ‘employee voice’ programme.
Objectives and role
The Workforce Engagement NED is
responsible for the following matters to
support the Directors’ collective responsibility
to consider a wide range of stakeholder
perspectives when arriving at Board decisions:
u
understand the concerns of the
workforce and articulate those views
and concerns in Board meetings on an
ongoing basis;
u
ensure that the Board, and particularly
the Executive Directors, take appropriate
steps to evaluate the impact of proposals
and developments on the workforce;
u
where relevant and appropriate, provide
feedback to the workforce on Board
decisions and direction during the
engagement process;
u
primarily use existing engagement
mechanisms, including the employee
survey, quarterly staff briefings, works
council meetings, union meetings, regional
forums and Q&A sessions, to gather the
relevant feedback from the workforce;
u
ensure that feedback is obtained from all
levels of the workforce in multi-locations;
u
organise bespoke events for additional
feedback where required; and
u
solicit employee views about executive
remuneration and share feedback obtained
with the Remuneration Committee.
The Workforce Engagement NED is not
expected to take on responsibilities that are
those of an Executive Director or of the HR
team or act as a proxy for those teams.
Third year highlights
During FY 2022 the focus has been on
continuing regular dialogue with the
workforce through a variety of means
including face-to-face meetings, site visits,
involving other Non-executive Directors
in engagement activities and making
progress on areas previously identified for
enhancement including providing feedback
for employees on matters raised and actions
taken. Relevant Board papers contain a
workforce impact statement to ensure that
the interests of our employees are a central
consideration in our decision making.
The Workforce Engagement NED had
interactions with several groups of employees
representing every level and region in the
Group through face-to-face and virtual
meetings across a variety of forums:
u
UK Hillhouse Operational Forum meeting
(in person), together with the Chair;
u
US Gender Engagement Network
meeting (virtual);
u
UK Employee Forum meeting (virtual);
u
Strategic Inclusion Group meeting
(virtual); and
u
European Forum & Workshop (in person).
There was a wide range of topics discussed
and employees were keen to engage.
Examples of the topics covered are set
out below:
On operations: Request for enhanced
communications and accessibility of
SHE reporting and occupational health,
and wider training and development
opportunities and initiatives. As a result of the
matters raised a detailed programme of activity
was put in place and reported to the Board.
On leadership: Employees were positive on
‘skills and promoting values’; perhaps ‘not as
visible aswe would like’ at times; but‘good
working relationships’.
On what motivates our employees:
Good communications; access to
management; recognition; success;
transparency; strong brand; and good
products to sell.
During my third year as Workforce Engagement Director
I have welcomed the opportunity to further engage with
a variety of forums and groups, in person where possible,
to build on the work undertaken in the last two years.
Progress has been made. It was also important to be able
to create the feedback loop on the topics and questions
discussed. All discussions have been open and constructive,
with the forums setting the agenda on the discussion
topics. The passion and interest of our people is clear,
and I would like to thank everyone for their continued
engagement. I look forward to continuing the
dialogue in 2023.
Brendan Connolly
Workforce Engagement Director
CORPORATE GOVERNANCE
93
Annual Report 2022 Victrex plc
Workforce engagement
statement – hearing the
employee voice continued
On diversity: There was no difference
perceived in treatment due to gender,
with the same opportunities available
to all. A question arose on whether all
roles are published. Suggestions were
made for training for leaders to ensure all
voices are heard at meetings and for more
female leaders or mentors. Employees
were broadly satisfied with the direction
oftravelondiversity.
On employee survey actions – are
they visible and acted on? ‘Yes, but are
they effective if same areas come up every
survey?’ emphasising the importance of
continuing to communicate the actions
taken on specific areas. There was positive
feedback on the survey overall including
thecharitable donation aspect.
In summary, there were no major negative
themes and many positive ones. What is also
clear is that ESG is a key topic of interest
generally and that SHE remains a priority for
our employees. This is strong alignment with
the Board’s continued focus on these areas.
Key focus areas for FY 2023 include
continuing to involve other Non-executive
Directors in employee engagement
initiatives where possible, continuing to
attend a cross-section of employee forums
and bodies, and continuing to embed
the recently established feedback loop
with employees on matters raised and
actions taken.
Relations with shareholders
Annual General Meetings
The Annual General Meeting (‘AGM’) is an
important part of effective communication
with shareholders. The forthcoming AGM
will be held at 11am on 10 February 2023.
All shareholders will have the opportunity
to ask questions at the AGM. The Chairs
of the Audit, Nominations, Remuneration
and Corporate Responsibility Committees
will be available to answer questions at
that meeting. The details of the 2023
AGM are summarised in the Chair’s
introduction on page 77 and in the Notice
of Annual General Meeting from page 187.
If there are any queries, please contact
cosec@victrex.com.
The Notice of Annual General Meeting,
together with an explanation of the
resolutions to be considered, is set out
on pages 187 to 196 and sent out in a
circular to shareholders. Proxy votes lodged
on each resolution will be announced at
the AGM, published on the Company’s
website and announced via the Regulatory
Information Service.
Outcome of the February 2022
AnnualGeneral Meeting
At the 2022 Annual General Meeting,
votes were cast in relation to approximately
83.04% of the issued share capital. All 22
resolutions were passed by the required
majority. Votes were cast in favour of the
re-appointment (or, in the case of Vivienne
Cox, appointment) of the following Board
Directors as follows:
u
Vivienne Cox: 99.98%
u
Jane Toogood: 98.80%
u
Janet Ashdown: 98.62%
u
Brendan Connolly: 97.36%
u
David Thomas: 98.81%
u
Ros Rivaz: 90.85%
u
Jakob Sigurdsson: 99.83%
u
Martin Court: 99.75%
u
Richard Armitage: 98.36%
Share capital
Details of the Company’s share capital,
including the rights and obligations attached
to the shares, are set out in the Directors’
report on page 130.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
94
Dear shareholders,
On behalf of the Nominations Committee,
I am pleased to present its report for the
year ended 30 September 2022. I became
Chair of the Committee after the Company’s
Annual General Meeting on 11 February
2022 when the Company’s previous Chair,
LarryPentz, stood down.
This year, in addition to the Committee’s
regular programme of business, our focus
has been on conducting the search for
a new Chief Financial Officer as well as
overseeing my own induction process
following my appointment to the Board as
Non-executive Director on 1 December 2021
and transition into the role of Board Chair.
New Chief Financial Officer search
Following the announcement by Richard
Armitage that he intended to step down as
Chief Financial Officer to take up another
opportunity, the Nominations Committee
conducted a search process for the
recruitment of a new Chief Financial Officer.
Following a comprehensive process, the
Committee recommended the appointment
of Ian Melling and this recommendation was
approved by the Board. Further details can be
found on page 95.
Main responsibilities
ofCommittee
u
Leading the process for Board
appointments and making
recommendations to the Board
about proposed appointments
to the Board, including the
Company Secretary
u
Evaluating the skills, experience
andknowledge of the Board
u
Overseeing the development
ofadiverse pipeline for
successionto Board and senior
management positions
Terms of Reference for the Nominations
Committee can be found on
www.victrexplc.com
FY 2022 highlights
u Overseeing a full induction programme for new Chair and new Chief Financial Officer
u Leading the search process for new Chief Financial Officer
u Maintaining focus on talent development and succession planning
u Reviewing and updating our Board Diversity & Inclusion Policy
FY 2023 focus areas
u Continued focus on Diversity &Inclusion at Board, Committee and senior management
level and relatedsuccessionplanning
u Overseeing an externally facilitated Boardand Committee evaluation exercise
Nominations Committee report
NOMINATIONS COMMITTEE REPORT
Inclusion and diversity
The Committee maintained its focus
on the Group’s inclusion and diversity
initiatives, further details of which can
be found on pages 95 and 96. Following
the establishment of the Corporate
Responsibility Committee (‘CRC’) during
the year, the CRC will oversee the focus on
inclusion and diversity from a business-wide
perspective going forwards. The Committee
reviewed and updated the Board Diversity
& Inclusion Policy, which can be found
on page 96.
Board effectiveness
This year’s Board and Committee evaluation
was conducted internally for the third year
in a row and concluded that the Board
and each Committee continued to operate
effectively. Further details can be found on
page 96. Whilst recognising that an internal
exercise was not in line with the Corporate
Governance Code recommendation for an
externally facilitated effectiveness review
every three years, after careful consideration
it was decided that it would be more
appropriate and of greater value to conduct
an external process in FY 2023 due to the
Board changes in the current year.
The following Nominations Committee
report was approved by the Committee
atits meeting held on 1 December 2022.
Dr Vivienne Cox DBE
Chair of the Nominations Committee
6 December 2022
The Committee held three scheduled
meetings during FY 2022 and has a
programme of business reflecting its Terms
of Reference. One ad hoc meeting took
place at short notice and the Committee
members who were unable to attend
provided feedback in advance. Please see
footnotes to the table on page 86.
Committee member
Meeting
attendance
V Cox (Chair)* 3/4
L C Pentz** 1/1
J E Ashdown 3/4
B W D Connolly 3/4
D Thomas 4/4
J E Toogood 4/4
R Rivaz 3/4
* Vivienne Cox was appointed as a Non-
executive Director on 1 December 2021,
becoming Chair Designate on 1 January 2022
and Board and Nominations Committee
Chair on 11 February 2022. She became a
member of the Nominations Committee on
2 December 2021 and chaired two scheduled
meetings during the year.
** Larry Pentz stood down from the Board at
the conclusion of the 2022 Annual General
Meeting on 11 February 2022. He was Chair of
the Nominations Committee meeting held in
December 2021 and attended all meetings for
which he was eligible to attend.
Secretary: Jane Brisley
Other attendees:
u
the Chief Executive Officer is not a
member of the Committee but is
invited to attend;
u
the Group HR Director regularly attends
meetings; and
u
from time to time the Chief Commercial
Officer and Chief Financial Officer
may be invited to attend Committee
meetings to support and participate
in discussions regarding inclusion and
diversity initiatives.
All members of the Committee are
independent, thus fulfilling the Corporate
Governance Code requirement that a
majority of members of the Nominations
Committee should be independent
Non-executive Directors.
The Chair would not chair or otherwise
participate in the Committee when it
is dealing with the appointment of her
successor. No Director would participate in
the Committee when it is dealing with the
appointment of his or her successor.
The Chair’s other significant commitments
are set out in her biography on page 78.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
95
Annual Report 2022 Victrex plc
The Committee’s agenda in FY 2022
The Committee’s principal activities during the year, and up to the
date of approval of this Annual Report, were as follows:
u
search for new Chief Financial Officer;
u
Board and senior management composition;
u
overseeing changes to senior management. Details of the
composition of the Victrex Management Team are set out
on page 89;
u
Board and senior management succession planning;
u
talent management framework and pipeline development;
u
approval of the Nominations Committee report in the Annual
Report and Accounts;
u
reviewing Victrex’s diversity profile and enterprise-wide
activities to promote inclusion and diversity before these focus
areas transitioned to the Corporate Responsibility Committee
which was established during the year;
u
reviewing the Board skills matrix;
u
reviewing and recommending changes to the Board Diversity
& Inclusion Policy for approval by the Board; and
u
reviewing the Committee Terms of Reference and the
Committee’s annual programme of business.
Succession planning
During the year, the Committee conducted a
review of succession planning for the Board
and senior management over the short and
medium term, as well as contingency plans
for emergency situations. The Committee
aims to ensure that the Board and senior
management have the appropriate balance
of skills and experience to support the
Group’s strategic objectives. The Board uses
a succession planning toolkit which includes
consideration of diversity and use of a
Board skills matrix to help assess the Board’s
composition and identify any opportunities
for enhancement. Together with the written
succession plan, the succession planning
toolkit facilitates Committee deliberations.
The Committee holds regular Board succession
planning discussions, considering potential
timing for changes to key Board positions,
the likely evolution of the business and its
strategic needs. The Committee is mindful of
current Director tenure and the importance of
an orderly refreshment of the Board which
factors in the Company’s strategy, its current
performance and its focus on enhancing
diversity. The tenure of Non-executive
Directors is set out on page 86.
The Committee conducted a review of the
Board skills matrix during the year. The skills
matrix supports there being a broad balance
of skills, experience and knowledge on the
Board, with particular strength in chemicals,
strategic direction setting, M&A, risk
management and compliance, and broad
experience across functional disciplines.
Board appointments
The Committee assesses the balance,
skills, experience, diversity, knowledge and
independence on the Board to identify any
gaps and consider the need for refreshment.
During the year, the role of Company
Chair transitioned to Dr Vivienne Cox
with effect from the conclusion of the
Company’s AGM on 11 February 2022 when
Larry Pentz stood down after serving more
than the recommended nine years in the
role. Vivienne has a wealth of experience
in executive and non-executive roles over
more than 40 years, with a particular focus on
sustainability, innovation, alternative energy
and diversity & inclusion.
Following the announcement by Richard
Armitage that he intended to step down
asChief Financial Officer to take up another
opportunity, the Committee developed a
candidate profile for the new Chief Financial
Officer and engaged Russell Reynolds, a
professional search agency to lead the search
process. There is no personal connection
between Russell Reynolds and any individual
Director. Potential candidates were
interviewed by Committee members. The
candidates were assessed against the agreed
candidate profile which included the desired
experience, skills, characteristics and traits for
the role. Following a thorough process and
after careful consideration, the Committee
made a recommendation to the Board to
appoint Ian Melling. This recommendation
was accepted by the Board and Ian was
appointed to the Board with effect from
4July 2022. Ian has valuable experience
to support the Company in the pursuit of
its strategy. His biography can be found
on page 79. During the period from when
Richard Armitage stood down and Ian joined,
Michael Ward, Finance Director, acted as
Interim CFO to facilitate a smooth transition.
Any new Directors appointed by the
Board must be elected at the next AGM
to continue in office. All existing Directors
retire by rotation every year.
Board induction, development
and business engagement
A formal induction programme is in place
for new Board members and is tailored as
appropriate depending on role, skills and
experience. This typically includes meeting
with members of senior management,
SBU and functional leaders, and certain
employees identified as talent individually,
visiting a number of operations and sites,
access to Board and relevant Committee
papers, undertaking relevant training,
meeting the external auditors, brokers and
advisors and receiving briefings on pertinent
matters. Acomprehensive induction
programme wasconducted for DrVivienne
Cox and has been completed for Ian Melling.
All Directors are encouraged to keep up to
date with relevant legal and governance
matters, best practice and evolving areas of
risk. The Board receives training and updates
on relevant topics as appropriate, taking into
account individual qualifications and relevant
experience. The Directors are supported to
undertake any other professional development
identified as necessary or desirable.
VMT members, other senior leaders and
those designated as talent are invited,
as appropriate, to deliver presentations
at Board meetings on their areas of
responsibility. It is the Company’s usual
policy for all Directors to attend the AGM.
Board diversity
The Company is committed to diversity,
inclusive practices and equality of
opportunity amongst its employees
and its Board members. The Company
acknowledges the value of diversity in its
widest sense and its contribution towards
effective Board operations and decisions
as different perspectives drive a broader
and more detailed debate. The Group
operates a Group Diversity, Inclusion &
Equal Opportunities Policy which is reviewed
each year and provides the framework for
productive working relationships.
Our Board Diversity & Inclusion Policy is
set out in the blue box on page 96. It is
also contained on our corporate website –
www.victrexplc.com. The Board Diversity &
Inclusion Policy was reviewed and updated
during the year to expand its scope to our
key Board Committees and in preparation for
mandatory diversity disclosures for our financial
year commencing 1 October 2022. Our policy
reflects diversity in its broadest sense, including
gender, social and ethnic backgrounds, and
cognitive and personal strengths.
There is ongoing focus on the Group’s
initiatives designed to promote inclusion
and diversity across the business. Read
more about this on pages 68 and 72 which
includes our target of 40% of females in the
leadership group (comprising the top two
grades) by 2030 (FY 2022: 19%, FY2021:
10%). With the establishment of the
Corporate Responsibility Committee
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
96
Nominations Committee report continued
Board diversity continued
(‘CRC’) during the year, going forward,
business-wide initiatives designed to
promote inclusion anddiversity, the impact
of such initiatives and progress against
targets will be monitored by the CRC.
The Board has not set express gender,
ethnic or other related diversity quotas
or measurable objectives for the Board’s
composition. The Board and the Committee
seek to encourage applications from a
diverse range of candidates, subject to the
selection criteria being met.
The current ethnic composition of our
Board is 100% White, with a breakdown
of nationalities provided on page 86. The
Board will continue to consider the various
diversity factors set out in the Corporate
Governance Code and the recommendations
of the FTSE Women Leaders Review
(following on from the Hampton-Alexander
Review) and the Parker Report.
The Board strives to broaden the diversity
of the Board and senior management
pipelines. As at the date of approval of this
Annual Report, we have four women on our
Board, representing 44% (FY 2021: 40%).
Two members of the VMT (excluding the
Executive Directors) are women (40%) and
34% of senior management and their direct
reports are women (29 men, 15 women). In
accordance with the Corporate Governance
Code, senior management is defined as the
VMT (excluding the Chief Executive, the Chief
Financial Officer and the Chief Commercial
Officer). See page 89 for a list of members of
the VMT. For further details on inclusion and
diversity across Victrex, including our Group
Diversity, Inclusion & Equal Opportunities
Policy, see pages 68 and 72.
Board, Committee and
individual Director effectiveness
The Board and its Committees carry out a
formal review of effectiveness each year.
An external evaluation was conducted in
2019 by Equity Communications. Due to
the changes in Board composition in the
year, after careful consideration it was
determined that an externally facilitated
evaluation exercise would be of greater
value in 2023. Accordingly, this year’s review
was facilitated internally via questionnaires
developed by the Company Chair, the
Chairs of each Committee and the General
Counsel & Company Secretary. The Board
and each Committee reviewed the output
and determined the priorities for the 2023
financial year. The Board actions and
recommendations agreed following the
review are set out on page 89.
The reviews of the Audit, Nominations and
Remuneration Committees confirmed that
these Committees continue to provide effective
support to the Board. The effectiveness
evaluation in 2023 will be expanded to cover
the Corporate Responsibility Committee
which was established during the year.
Each Director receives a formal performance
review process. The Chair led the review
of each Non-executive Director. The
annual performance review of the Chair
is led by the Senior Independent Director,
DrRos Rivaz. The Nominations Committee
reviewed the performance of the Chief
Executive Officer and the Chief Commercial
Officer. These reviews confirmed that each
Director continues to make a valuable
personal contribution to the Board.
Individual contributions are summarised in
the biographies on pages 78 and 79. All
Non-executive Directors are considered
to have sufficient time to perform their
duties at the Company. Where an Executive
Director has an external appointment,
the time commitment involved is kept
under review and the Board is satisfied the
Executive Directors devote sufficient time
to discharging their responsibilities to the
Company. Details of individual Executive
Director appointments are included in the
biographies on pages 78 and 79.

Board diversity – gender
(as at 30 September 2022)
Board Diversity &
Inclusion Policy
The Company acknowledges the value
of diversity in its widest sense (age,
gender, ethnicity, sexual orientation,
disability and socio-economic background
as well as educational and professional
backgrounds) and its contribution
towards effective Board and Committee
operations and decisions.
The Group operates a Group Diversity,
Inclusion and Equal Opportunities Policy
which is reviewed each year and
providesthe framework for productive
working relationships.
Taking account of its changing strategic
needs, the Board will ensure:
1. it and its Committees have the
appropriate balance, composition and
mix of skills, experience, independence
and knowledge to ensure their
continued effectiveness, having regard
to regulatory diversity targets and
external guidance on diversity;
2. a pipeline is maintained promoting
diversity for succession to the Board
and senior management positions;
3. only executive search consultants
which have signed up to the voluntary
code of conduct for executive search
firms on gender diversity on corporate
boards are engaged when seeking
appointments to the Board so that
the selection processes provide access
to a diverse range of candidates;
4. appointments to the Board are made
on the basis of merit, with regard for
suitability for the role, Board balance
and composition and the required mix
of skills, background and experience
– with diversity in its widest sense as
described above being an important
consideration;
5. policies adopted by the Group
promote diversity in the
broadest sense;
6. adequate and appropriate
disclosure of:
a. this Policy and diversity initiatives
the Group has in place and the
steps it is taking to promote
diversity at Board level and
across the Company including
adescription of progress made;
b. the composition and structure
ofthe Board and its Committees;
c. whether the Company has met
regulatory diversity targets on
acomply or explain basis, and
theBoard’s approach to such
data collection*;
d. external reporting requirements
including: (i) the ethnic
background and gender identity
or sex of the Board and executive
management*; and (ii) the
gender balance of those in senior
management and their direct
reports; and
e. the process for appointments
tothe Board; and
7. this Policy is reviewed from time to
time to monitor progress being made
to assess its effectiveness.
* With effect from financial year commencing
1 October 2022.
Female 44%
Male 56%
CORPORATE GOVERNANCE
97
Annual Report 2022 Victrex plc
Dear shareholders,
I am pleased to present the report of
the Audit Committee for the year ended
30 September 2022. The Directors’
responsibility statement in respect of the
Annual Report can be found on page 132.
During 2022 I was involved in the recruitment
process for our new Chief Financial Officer
ensuring that the successful candidate had the
requisite financial experience and skill set to
maintain the strong financial governance within
the Company. Following the appointment of
Ian Melling, in my role as Audit Committee
Chair, I have been engaged in the induction
process to ensure a smooth transition.
The Committee has maintained its focus on
the robustness of financial forecasts used
by management in assessing going concern,
viability and the carrying value of assets
and the associated disclosures. Whilst the
business has recovered from COVID-19,
FY 2022 highlights
u Ongoing monitoring of developments regarding the BEIS
Consultation and Draft Audit Reform Bill along with the
Company’s proposed response
u Supporting the Company in addressing the requirements
of the Task Force on Climate-related Financial Disclosures
(‘TCFD’), including consideration of disclosure and consistency
of reporting between sections of the Annual Report
u Continuing focus on operations in China where significant
investment in manufacturing capacity is reaching the
mechanical completion phase
u Review of the process for identification and reporting of
risks and the Company’s control environment including
integration with the TCFD requirements noted above
u Focus on inventory valuation as input costs have increased,
driven by both raw material and utility cost inflation
FY 2023 focus areas
u Continued monitoring of developments regarding the Draft
Audit Reform Bill, its passage through parliament and likely
implementation timelines along with the associated evolution
ofmanagement’s response
u Monitoring the progress of the ERP
implementation project, both the level and
nature of costs treated as exceptional and
the use of the new system to automate
the control environment ahead of
the likely requirements from the
aforementioned Draft Audit Reform Bill
u Supporting the transition of the new
PwC audit partner and monitoring the
effectiveness of the knowledge transfer
plan proposed by PwC
u Supporting the evolution of reporting
underTCFD
u Continuing to review and make suggestions
toenhance risk management processes
Main responsibilities of Committee
u
Reviewing financial statements and announcements relating
to the financial performance of the Company, including
reporting to the Board on the significant issues considered by
the Committee in relation to the financial statements, how
these were addressed, and whether the financial statements
are fair, balanced and understandable
u
Reviewing the scope and results of the annual external audit
and reporting to the Board on the effectiveness of the audit
process and how the independence and objectivity of the
auditors have been safeguarded
u
Reviewing the scope, remit and effectiveness of the internal
audit function and the Group’s internal control and risk
management systems
u
Reviewing significant legal and regulatory matters
u
Reviewing matters associated with the appointment, terms,
remuneration, independence, objectivity and effectiveness of
the external audit process and reviewing the scope and results
of the audit
u
Reporting to the Board on how the Committee has discharged
its responsibilities
Terms of Reference for the Audit Committee can be found on
www.victrexplc.com
AUDIT COMMITTEE REPORT
global economic challenges remain,
particularly the uncertainty over energy
prices and the knock-on impact through
global supply chains and the resulting
inflationary pressures. The Committee has
challenged management’s assumptions and
judgements made in the preparation of the
forecasts, their correlation with outputs
from the Integrated Business Planning
process used to run the business and the
potential range of outcomes under scenario
and sensitivity analysis. The Committee also
challenged management’s assumptions on
the potential impact of climate change on
the longer-term forecasts used in assessing
the carrying value of assets and viability.
The Corporate Governance Code calls
for the Board to ‘present a fair, balanced
and understandable assessment of the
Company’s position and prospects’.
The Board asks the Audit Committee to
advise on whether the Annual Report,
when taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy.
The Committee undertakes this role through
independent review of the Annual Report,
discussions with management, including
assessment of Alternative Performance
Measures against the regulatory guidance,
consideration of FRC Thematic Review
findings and reporting from PwC. The FRC
undertook a review of the Annual Report
for the year ended 30 September 2021.
Pleasingly there were no questions or
queries raised. The FRC did note a number
of potential improvements to existing
disclosures. The Company is grateful for the
FRC’s feedback with a default position being
to incorporate the improvements where
material. The Committee has overseen
this process.
Audit Committee report
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
98
The Committee receives regular reports
from management covering the key
areas of estimation and judgement
underpinning the financial statements.
The Committee’s role is to ensure that
management’s disclosures reflect the
supporting information or challenge them
to explain and justify their interpretation.
The Committee is supported in this role
by the external auditors, which, in the
course of the statutory audit, review the
accounting records kept by the Company to
test whether information is beingrecorded
in line with agreed accounting practices.
The external auditors present their findings
to the shareholders and their report is set
out in the Independent auditors’ report. The
Committee reports its findings and makes
recommendations to the Board accordingly.
The Committee is responsible for
ensuring that the relationship between
the Committee, the external auditors
and management is appropriate. The
external auditors must be independent
of the Company. Information on how the
Committee assesses the independence
of the external auditors is set out in the
Audit Committee report. During the year
I led a subcommittee in interviewing
partner candidates put forward by PwC to
succeed Ian Morrison as the audit partner
following completion of his fifth year. The
subcommittee’s recommendation was
approved by the Audit Committee with
Graham Parsons, a partner with relevant
sector, international and listed company
experience, succeeding Ian Morrison for our
financial year ending 30 September 2023.
The Audit Committee has agreed a plan
with PwC to transition Graham into the role.
Following the publication of the FRC’s Audit
Quality Inspection Reports, it is pleasing to see
PwC return to the level we observed during
the process to appoint them as our external
auditors. The Committee challenged PwC on
their response to the three key findings noted
in the FRC’s Quality Inspection Report (revenue
testing, impairment assessments and audit of
journals) and evidenced the increase in level
of work performed in these areas compared
to previous years. Through the Committee’s
programme to monitor audit quality and
effectiveness, evidence has been seen over
the last three years that PwC are committed
to addressing the findings, with significant
increases in the level of substantive testing
across most areas of the audit, including
the aforementioned key findings. This work,
along with increased regulatory pressure and
new auditing standards, is the primary driver
behind the fee increase of more than 170%
since 2019. The Committee reviewed further
evidence of the enhancements and specific
reporting from PwC at the final Committee
The Committee met three times during FY 2022 and has a programme
of business reflecting the Committee’s Terms of Reference.
Committee member Meeting attendance
D Thomas (Committee Chair) 3/3
J E Ashdown 3/3
B W D Connolly 3/3
J E Toogood 3/3
R Rivaz 3/3
Secretary: Jane Brisley
The following other attendees regularly attend meetings:
u
the Chair and Executive Directors;
u
the Director of Risk & Compliance;
u
the Finance Director; and
u
representatives from the external auditors, PwC.
Other members of the management team may also be asked to
attend meetings for discussion on specific issues. The Committee
also meets with the external auditors at least twice each year
without management being present.
The Chair meets with members of the executive and management
teams and PwC outside of formal Committee meetings to
discuss matters which fall within the Committee’s Terms of
Reference. These have included a meeting with the Finance
Director and the Director of Risk & Compliance in addition to
meetings with the General Counsel & Company Secretary as
part of reviewing relevant matters and forward planning on the
businessoftheCommittee.
The Committee is authorised to seek outside legal or other
independent professional advice as it sees fit but has not done
soduring the year.
The qualifications of Committee members are outlined in the
Directors’ biographies on pages 78 and 79. The members of the
Committee are all independent Non-executive Directors. The
Board is satisfied that the Committee as a whole has competence
relevant to the sectors in which the Group operates and its
members have an appropriate level of experience in corporate
and financial matters and are financially literate. The effectiveness
of the Committee in fulfilling its remit was considered as part of
the most recent evaluation of performance which was completed
in the summer of 2022 and subsequently reported to the Board.
The Committee Chair is a member of the Institute of Chartered
Accountants of England and Wales. He previously served as chief
financial officer of Invensys plc. Prior to this, he was a senior
partner at Ernst & Young and is a former member of the Auditing
Practices Board. The Board is satisfied that he has recent and
relevant financial experience as required by the Code.
meeting as part of the overall assessment of
auditor effectiveness.
We continue to be committed to providing
meaningful disclosure of the Committee’s
activities as well as ensuring the Committee’s
agenda is kept under review and that
we maintain an awareness of relevant
developments. Details of the annual
evaluation process of the Committee’s
performance can be found in the Corporate
governance report.
The following Audit Committee report was
approved by the Committee at its meeting
held on 1 December 2022.
The Committee has reflected upon the
FRC Guidance on Audit Committees
and was satisfied that the principles
concerning internal audit are reflected
intheresponsibilities and function of
theinternal audit function.
I will be available to answer any questions
in relation to this Audit Committee report
before the Annual General Meeting. Please
email your queries to ir@victrex.com.
David Thomas
Chair of the Audit Committee
6 December 2022
Audit Committee report continued
CORPORATE GOVERNANCE
99
Annual Report 2022 Victrex plc
The Committee’s agenda in FY 2022
The Committee’s principal activities during the year, in addition
to those noted in the FY 2022 highlights, and up to the date of
approval of this Annual Report, were as follows:
u
negotiated and agreed PwC’s engagement letter and the
statutory audit fee for the year ended 30 September 2022;
u
reviewed the results of the Committee’s assessment of
the effectiveness of the 2020/21 external audit along with
receiving a presentation from PwC on the proposals for their
programme to enhance audit quality;
u
reviewed PwC’s proposed audit strategy and plan for the
2021/22 statutory audit, including the level of materiality
applied by PwC, the final audit report from PwC on the financial
statements detailing their key findings from the 2021/22 audit;
u
confirmed the independence of the external auditors and
recommended to the Board the re-appointment of PwC as the
external auditors at the upcoming AGM;
u
reviewed the basis of preparation of the financial statements
as a going concern (prior to making a recommendation to the
Board) as set out in the accounting policies;
u
reviewed and discussed reports on the financial statements and
considered management’s significant accounting judgements
and key areas of estimation uncertainty and the policies
being applied, and how the statutory audit contributed to the
integrity of the financial reporting;
u
reviewed the long-term viability statement, prior to making
arecommendation to the Board;
u
reviewed the FY 2022 Annual Report and recommended to
the Board that it complied with the Code principle to be ‘fair,
balanced and understandable’;
u
approved the strategic internal audit planning approach and
reviewed reports on the work of the internal audit function
from the Director of Risk & Compliance;
u
considered the findings brought to the Committee’s attention
by internal audit and satisfied itself that management has
resolved or is in the process of resolving any outstanding
issues or concerns;
u
reviewed and approved the internal audit plan and approach
for 2022/23;
u
reviewed the effectiveness of the risk management and internal
control systems prior to making a recommendation to the Board;
u
reviewed the Group’s linkage between the identification
of risk and the control environment, including the formal
evaluation of the Lines of Defence conducted by the business
and the processes for testing the second line of defence; and
u
reviewed the conclusions of the Committee’s annual evaluation.
It was concluded that the Committee continued to be effective.
How did the Committee assess
whether the Annual Report,
taken as a whole, is fair,
balanced and understandable
and provides the information
necessary for shareholders to
assess the Company’s financial
position and performance,
business model and strategy?
The Committee made this assessment by:
u
reviewing key messages proposed for the
Annual Report;
u
reviewing copies of the Annual Report
at various stages during the drafting
process to ensure the key messages were
being followed and were aligned with
the Company’s position, performance
and strategy being pursued and that the
narrative sections of the Annual Report were
consistent with the financial statements;
u
ensuring that all key events and issues
which had been reported to the Board in
the executive Board reports during the
year had been appropriately referenced
or reflected within the Annual Report;
u
reviewing how alternative performance
measures were used in the Annual Report,
ensuring completeness and accuracy of
definitions, consistency of use, relevance
to users of the Annual Report and balance
with statutory metrics; and
u
considering reports produced by both
management and the external auditors on
principal matters and judgements in areas
underpinning the financial statements.
External auditor independence
u
Written assurances were received from
the external auditors that all partners
and staff involved with the audit are
independent of any links to Victrex.
u
PwC confirmed all partners and
staff complied with their ethics and
independence policies and procedures
which are fully consistent with the FRC’s
Ethical Standard.
u
PwC are required to disclose at the
planning stage of the audit any
significant relationships and matters
that may reasonably be thought to
have an impact on their objectivity
and independence and that of the
lead partner and audit team – no such
matters were disclosed.
u
PwC operate a policy requiring the
change in lead audit partner every five
years, with other senior audit staff
rotating at regular intervals. During the
year the Committee considered potential
candidates for a new lead audit partner
and approved Graham Parsons to take
over this role from 2023.
u
The Committee is responsible for
maintaining an appropriate policy on
non-audit services and associated fees
that are paid to PwC.
To further safeguard the independence and
objectivity of the external auditors, non-audit
services provided by the external auditors
are considered and where appropriate
authorised by the Committee in accordance
with a non-audit services policy. The policy is
outlined in an appendix to the Committee’s
Terms of Reference, which are published on
our investor website – www.victrexplc.com. This
policy limits the amount and type of services
undertaken by our auditors. Our auditors will
not be asked to carry out non-audit work
with the exception of a half-year review
(should it be required) and regulatory and
bank required reporting. When awarding
non-audit work to PwC, the Committee is
cognisant of the FRC Revised Ethical Standard
2019, paragraph 4.15, including the limit on
non-audit fees of 70% of the audit fee based
on a rolling three-year average.
Non-audit fees for the year ended
30September 2022 were £nil representing
0% of the audit fee (2021: £35,000
representing 9% of the audit fee).
Thenon-audit fee in 2021 related to the
interim review performed at the half year.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
100
Audit Committee report continued
External auditor independence
continued
The Audit Committee took the decision
that an interim review was not required in
2022 with the Committee able to obtain
sufficient assurance over the Interim Report
through internal processes. During the year,
the Company’s US based former Chair,
Larry Pentz, stood down from the Board at
the conclusion of the Company’s AGM on
11 February 2022. Prior to standing down
Larry Pentz received an allowance from the
Group to independently procure tax filing
preparation services. PwC provided such
services through a direct engagement with
Larry Pentz; however, these services are not
considered to meet the definition of non-
audit fees in relation to the Group.
Over a three-year rolling period, the level of
non-audit fees has averaged 6% of the audit
fee. No further non-audit fees are expected
to be incurred with PwC due to their revised
general approach to not provide such
services to listed audit clients.
Taking into account our findings in relation
to the effectiveness of the audit process and
in relation to the independence of PwC, the
Committee is satisfied that PwC continue
to be independent and free from conflicting
interests with the Group.
External auditor re-appointment
We last undertook a formal tender process
in compliance with the CMA Order 2014 for
statutory audit services in 2017. PwC
commenced their appointment as auditors
and presented their first report to shareholders
for the year ended 30 September 2018.
IanMorrison has completed his fifth year as
the lead audit partner and will be succeeded
in this role by Graham Parsons from 2023
following the Committee’s assessment of
the proposed candidates. The next formal
tender process, in compliance with the CMA
Order 2014, is required ahead of the 2028
audit with PwC having completed 10 years
as the Group’s auditors in the year ended
30September 2027. TheGroup has no
current plans to perform a formal tender in
advance of this, a decision which is reviewed
annually by the Audit Committee following
the review of auditor effectiveness.
In the 2020 Annual Report we disclosed that
PwC had proposed a significant fee increase,
to be staged over two years, which took the
fee from £191,000 in 2019 to £380,000 in
2021, an increase of 100%. This increase
is attributed to external factors in the audit
market resulting in an increase in cost of
delivery. Key factors, predicated on regulatory
changes and responses to AQRT findings,
include the separation of the audit practice
from other service lines, additional investment
in training and technology and investment
in improved risk and quality management.
Despite work between PwC and
management to identify audit efficiencies,
a further increase has been proposed in
2022 to £507,000 taking the total increase
since 2019 to c.170%. The further increase
has again been attributed to the cost of
regulation and investment in audit quality,
significant changes in auditing standards
and the impact of inflation in a competitive
job market. The Committee recognises the
changing regulatory environment and the
unfortunate consequence that companies,
such as Victrex, are ultimately paying the
price for the profession overlaying significant
levels of substantive testing across all areas
of the audit, including those which are
considered low risk, with minimal perceived
additional benefit for the key stakeholders.
The Company continues to explore ways of
mitigating elements of the increase through
audit efficiency and smarter audit scoping.
The Committee recommended to the Board
that PwC be proposed for re-appointment at
the forthcoming AGM in February 2023. There
are no contractual obligations that restrict
the Committee’s choice of external auditors,
the recommendation is free from third-party
influence and no auditor liability agreement,
in accordance with sections 534–538 of the
Companies Act 2006, has been entered into.
Financial reporting
The primary role of the Committee in relation
to financial reporting is to review with both
management and the external auditors, and
report to the Board the appropriateness of,
the annual and half-year financial statements,
considering amongst other matters:
Clarity of the disclosures and
compliance with financial reporting
standards and relevant financial and
governance reporting requirements
Areas in which significant judgements
and estimation have been applied,
including discussions on such matters
undertaken with the external auditors
Whether the Annual Report, taken
as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy. The
statement incorporating the conclusion
of this assessment is included onpage132
Any correspondence from regulators
in relation to our financial reporting
In addition to the above, the Committee
supports the Board in completing its
assessment of the adoption of the going
concern basis of preparing the financial
statements. In addition, as part of the
Committee’s responsibility to provide advice
to the Board on the long-term viability
statement, the Committee performed a
robust review of the process and underlying
assessment of the Group’s longer-term
prospects made by management, including:
u
the review period and its alignment with
the Group’s five-year strategic plan;
u
the assessment of the prospects of the
Group after consideration of the Group’s
principal risks, current financial position,
available banking facilities and ability to
generate cash;
u
the modelling of the financial impact of
additional key scenarios which encompass
the potential impact of crystallisation of
one or more of the principal risks;
u
the consideration of the impact of climate
change on the Group’s strategic plan; and
u
ensuring transparent disclosures in the
Annual Report as to why the viability
period selected was appropriate, including
what the key scenarios tested were and
how the analysis was performed.
As a result of that review, the Committee
was satisfied that the approach adopted
was appropriate. The viability statement for
the 2021/22 financial year was prepared
on a consistent basis with that reported in
previous years and is on pages 42 and 43.
Significant issues considered by
the Committee in relation to the
financial statements and how
these were addressed
In the preparation and final approval of
the financial statements, the Committee
discussed with management the key sources
of estimation and critical accounting
judgements outlined in note 1. The
significant areas of focus considered and
assessed by the Committee in relation to
the 2022 financial statements and how
these have been addressed are set out
below. In concluding that these represented
the primary areas of judgement, or a high
degree of estimation, the Audit Committee
considered reports by management which
referenced both quantitative and qualitative
judgement factors across each significant
account balance, assessing the impact on
the user of the financial statements.
Other than in the recurring areas of inventory
valuation and UK defined benefit accounting,
detailed on page 101, the primary focus is on
those areas of accounting which rely on the
use of future financial forecasts which
inherently involve higher levels of judgement
and estimation. This includes the carrying
value ofboth tangible and intangible
assetsand the going concern and
viabilityassessments.
CORPORATE GOVERNANCE
101
Annual Report 2022 Victrex plc
Significant issues considered by
the Committee in relation to the
financial statements and how
these were addressed continued
The Audit Committee’s work on viability and
going concern is detailed above with the
disclosure included on pages 41 and 43. The
annual impairment review performed on the
Company’s tangible and intangible assets is
also reviewed by the Audit Committee,
including the level of sensitivity analysis
performed, which in the current year
considered the impact of inflation and the
longer-term impact of climate change and
the Company’s ambition to achieve Net Zero
Carbon by 2030 in its own operations. In the
cases of both the carrying value of assets and
going concern, the level of headroom
remained at a level where, even under
sensitivity, reasonable changes to the key
sources of estimation would not cause a
different outcome with the reverse sensitivity
scenario analysis performed considered
beyond plausible. PwC’s report to the
Committee came to the same conclusion.
The classification of costs as exceptional
is inherently a judgemental area and
one where the Audit Committee also
supports the Remuneration Committee in
making an assessment of the treatment of
exceptional costs for executive remuneration
purposes. In the current year the cost of
the new ERP implementation has been
treated as exceptional, in line with the IFRS
Interpretations Committee’s agenda decision
relating to the capitalisation of configuration
and customisation costs in a cloud computing
(Software as a Service, ‘SaaS’) arrangement.
The Audit Committee has assessed this
treatment, considered management’s
rationale and also taken input from PwC in
reaching the conclusion that the treatment as
exceptional was appropriate. The Committee
will continue to monitor this position along
with the level and nature of costs over the
duration of the project, which is expected to
complete in 2024.
The Committee considered the clarity
of disclosure in the Annual Report and
discussed with PwC the consistency of such
treatment with the approach adopted by
other companies.
The areas of inventory valuation and UK
defined benefit pension accounting are areas
of higher audit risk and, accordingly, PwC
were asked to focus on and report to the
Committee on, and the Audit Committee
discussed and assessed, these judgements
and estimates. During the meeting of the
Committee which considered the draft of
the Annual Report, the matters raised by
PwC in their report were discussed with
management, including how such analysis
related to management’s own assessment
and the appropriateness of the form of
disclosure provided by the Company in the
Annual Report. In particular, the Committee
considered the following recurring matters:
u
Valuation of inventory: the Committee
reviews the nature of the costs absorbed
into inventory, the level of production
over which these costs are absorbed, the
variances, including in respect of material
usage and purchase price, between
standard cost and actual cost, and the
reasons for movements in inventory value
period to period. 2022 has seen inflation
across key input costs, primarily raw
materials and energy costs, reach levels
not seen for a long time. Management
has absorbed these additional costs
into inventory to reflect the actual
cost of production. The Committee
has reviewed the increase in inventory
valuation resulting from the increase in
costs, assessing this for reasonableness,
supported by the testing and reporting
provided by PwC. The level of production
over which costs were absorbed is
judgemental with the higher of actual
production and ‘normal’ production to be
used. Production levels in 2022 returned
to pre-COVID-19 levels to a level where
actual production is considered as a
reasonable approximation for ‘normal’,
which had not been the case through
2020 and 2021 when COVID-19 impacted
production requirements. This judgement
was reviewed by the Committee,
with input from PwC, including an
assessment of the level of sensitivity
with the estimation. The basis for and
level of provisioning, including for aged,
obsolete and non-conforming product
which is judgemental or requires a high
degree of estimation, are presented
to the Committee by management.
Management produced analysis showing
the ageing profiles of inventory and
analysed inventory movements over the
past 12 months providing the Committee
with sufficient information to challenge
judgements and reach a conclusion on
the level of provisioning. After discussion
with management, and review of reporting
from PwC, the Committee concluded that
the valuation of inventory and level of
provisioning were reasonable. The impact
of changes in the key areas of estimation
on inventory are included in note 3.
u
UK defined benefit pension
accounting: the valuation of the UK
defined benefit scheme obligation is
dependent on a number of assumptions
that are inherently judgemental or
requirea high level of estimation.
Following the closure of the scheme
on 31 March 2016, judgement on
future salary growth rates ceased,
but judgement over future interest
and inflation rates, together with the
estimation of mortality rates, remain,
with sensitivities of +/-1% having a
material impact on the value of scheme
liabilities and therefore the balance
recognised on the Group balance sheet.
The Audit Committee assesses these
judgements and estimates, based on
reports received from management
and the Group’s actuarial advisors. The
Committee also considered the opinions
made and benchmark provided by PwC.
The current economic environment, with
inflation running at double-digit levels
and interest rates rapidly rising in the run-
up to 30 September 2022, increases the
level of estimation involved, particularly
with the scheme using LDIs to manage
interest rate risk, but the Committee
concluded that the assumptions used and
the resulting valuation were reasonable. It
was also noted by the Committee that
the Company’s approach to funding the
scheme has been stable with a track
record of making voluntary contributions
of approximately £1m each financial year
as the scheme worked towards self-
sufficiency. The sensitivity of the scheme
valuation to interest rate and inflation
assumptions is disclosed in note 17.
To aid the conduct of reviews, the
Committee considers reports from the
Chief Financial Officer and the Finance
Director and also reports from the
external auditors on the outcomes of
their annual audit.
The main features of the Group’s internal
controls and risk management systems are
summarised below:
Risk management systems and
internalcontrols
The Audit Committee has responsibility
forreviewing the risk management systems
and effectiveness of these systems. The
responsibilities and processes in respectof
risk management are described separately
on pages 34 to 40 and page 84. The
Committee receives updates and reports
from the Director of Risk & Compliance on
key activities relating to the Group’s risk
management systems and processes at every
meeting. These are then reported to the
Board, as appropriate. The Group designs
its risk management activities in order to
eliminate risk wherever possible, mitigating
residual risk where practicable to within
tolerance, to achieve its strategic objectives.
The Chief Financial Officer has executive
responsibility for risk management and is
supported in this role by the Director of Risk
& Compliance and his team. The Director
of Risk & Compliance manages a series of
risk management committees across the
business which feed into the Executive Risk
Management Committee formed by the
Executive Directors, the Chief Operating
Officer, the Group HR Director, the General
Counsel & Company Secretary and the
Director of Risk & Compliance.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
102
Audit Committee report continued
Effectiveness and quality of the external audit
The Committee actively considers the effectiveness and quality of the external audit process on an ongoing basis.
Following the process outlined below, the Committee assessed the effectiveness of the external audit and concluded that the external
audit process and services provided by PwC were satisfactory and effective.
PwC present key findings from the FRC’s Audit Quality Inspection Report for PwC and planned actions.
The Committee discusses and agrees at the planning stage the draft list of specific risks to audit effectiveness
andquality (specific audit quality risks).
PwC report against audit scope and subsequent meetings provide the Committee with an opportunity to monitor
progress and raise questions.
The Committee assesses audit planning work in respect of specific audit quality risks and ensures that matters of key
interest (including those listed as significant issues above) are addressed in the audit plan.
PwC report on specific audit quality risks applicable to Victrex and how these have been addressed at the planning
and final stages of the audit.
The Committee discusses both internally and with PwC the extent to which PwC have demonstrated professional scepticism
and challenged management’s assumptions through the audit process, particularly in areas of estimation and judgement.
All Committee members, key members of management, and those who regularly provide input into the Audit Committee
or have regular feedback with the external auditors are asked for feedback on how well PwC performed the year-end audit.
Feedback and conclusions are discussed, along with the conclusion and transparency of reporting regarding specific
audit risks and issues, with an overall conclusion on audit effectiveness and quality reached. Any opportunities
forimprovement are brought to the attention of the external auditors.
The FRC’s Audit Quality Inspection Report for PwC, published in July 2022, showed that PwC’s responses to previous reviews
were making a positive impact on the scores with the second consecutive year of improvement, with the FRC recognising the
improvements which had been made whilst also noting there was still work to do. The Committee has engaged with PwC during
each year of their appointment to discuss PwC’s response to weaknesses identified by the FRC in general, but particularly those
relevant to the Company’s audit. The Committee seeks evidence in the final audit report of the work performed by PwC on those
areas relevant to the Company’s audit, probing the audit team on the level of professional scepticism they have demonstrated and
the level of challenge they have given management. Due to the time lag between the FRC issuing findings to PwC for response
and the publication of the report, evidence of PwC’s revised approach has been evident across the recent audits. The Committee,
asamatter of course, does seek full explanation of work undertaken in the more judgemental aspects of the accounts.
Private meetings are held at most Committee meetings between the Audit Committee and representatives from the external
auditors without management being present in order to encourage open and transparent feedback by both parties.
The Committee assesses final audit work and reporting along with the overall conclusion reached regarding specific
audit quality risks and the significant audit issues (as outlined above).
CORPORATE GOVERNANCE
103
Annual Report 2022 Victrex plc
Significant issues considered by
the Committee in relation to the
financial statements and how
these were addressed continued
They meet biannually and review the
principal risks of the Company, emerging
risks, the governance processes and their
effectiveness. This review then feeds into
the information and assurance processes
of the Audit Committee and into the
Board’s assessment of risk exposures and
the strategies to manage these risks. The
Board has conducted a robust assessment of
the principal and emerging risks facing the
Group. Details of the Group’s principal risks,
the procedures in place to identify emerging
risks and an explanation as to how they are
being managed and mitigated are contained
on pages 34 to 40.
Over the last year, the Committee has
overseen the development of climate-related
risks and opportunities, ensuring that they
are aligned to the requirements of TCFD and
considered in the context of the principal
business risks.
During FY 2023 the Committee will continue
to review the Group’s linkage between
the identification of risk and the control
environment, including the formal evaluation
of the Lines of Defence conducted by the
business and the processes for testing the
second line of defence.
The Committee also reviews the Group’s
internal control systems and their
effectiveness, and receives updates on the
findings of the internal audit’s investigations
at every meeting, prior to reporting any
significant matters to the Board. Internal
control systems are part of our business as
usual activities and are documented in the
Group Authorities Manual/Matrix, which
covers financial, operational and compliance
controls and processes. Internal control
systems are the responsibility of the Chief
Financial Officer.
Confirmation that the controls and
processes are being adhered to throughout
the business is the responsibility of
managers but is continually tested by the
work of the internal audit team as part of its
annual plan of work which the Committee
approves each year as well as aspects being
tested by other internal assurance providers.
The internal audit function
The internal audit function is a key element
of the Group’s corporate governance
framework. The purpose of internal audit
is to enhance and protect organisational
value by providing risk-based and objective
assurance, advice and insight to the Audit
Committee, the Board and management.
In addition to reviewing the design and
operational effectiveness of controls in
managing risks, the internal audit function
also considers, where relevant, the risk and
control culture/environment, efficiency of
controls, compliance with law/regulations,
internal policies and also controls to support
the safeguarding of Company assets.
The internal audit function monitors the
implementation of agreed audit actions to
verify its completion and routinely reports
the status at each Audit Committee meeting.
A three to five-year audit planning approach
has been applied that has identified key areas
requiring periodic assurance which is focused
around financial controls and compliance of
key policies. In addition, an audit planning
assessment exercise is undertaken annually
that identifies further areas requiring
assurance that are aligned to strategic risks
and/or projects. This approach results in the
development of a risk-based annual internal
audit plan that is endorsed, managed and
approved by the Audit Committee.
The purpose, scope and authority of internal
audit are defined within its charter which is
approved annually by the Audit Committee.
The in-house team is supplemented by
additional resource and skills sourced from
external providers, based on specialism
or workload. The Committee keeps the
relationship with external providers under
review to ensure the independence of the
internal audit function is maintained.
Assessing the effectiveness of the
internal audit function
The annual internal audit plan for the
internal audit function is considered and
approved each year by the Committee. In
reviewing the proposed plan, the Committee
gives consideration to the Group’s strategic
priorities and specific initiatives which are
being undertaken, which could impact the
business and also the findings and actions
arising from the assessment of the Group’s
risk register. Thereafter, together with
findings from audits which are presented
at each meeting, the Committee considers
the appropriateness of the internal audit
plan and the resourcing of the function to
enable it to deliver it. Where appropriate to
the nature of the work being undertaken,
reviews are supported by other independent
assurance providers.
The Director of Risk & Compliance has
responsibility for internal audit and
independently reports to the Chair of the
Audit Committee in relation to internal
control matters. In addition to attendance
by invitation at meetings of the Committee,
the Director of Risk & Compliance has met
with the Chair of the Audit Committee on
a number of occasions to consider findings
from internal audit and other matters
relating to the internal audit function.
The effectiveness of the internal audit
function’s work is continually monitored:
u
ongoing audit reports are received;
u
scopes of audits are received by the Chair
of the Audit Committee;
u
Committee interaction with the Director
of Risk & Compliance;
u
internal audit, led by the Director of Risk
& Compliance, reports functionally to the
Chief Financial Officer. The Director of
Risk & Compliance attends all scheduled
meetings of the Audit Committee and
has the opportunity to raise any matters
with the members of the Committee
without the presence of management.
He is also in regular contact with the
Chair of the Committee outside of the
Committee meetings; and
u
progress against the internal audit plan
isreviewed at each meeting.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
104
CORPORATE GOVERNANCE
end of our financial year and commissioning
underway. Capital expenditure remained
high during the year and is expected to
be similar in FY 2023, as we complete our
current investment in assets and capability
within China.
2022 remuneration outcomes
Annual bonus
The FY 2022 annual bonus was based on
PBIT pre-exceptional items (50%), strategic
(30%) and personal (20%) objectives. If the
threshold PBIT target was not met, then
no payment would be made under any
element. The Committee retained the ability
to adjust the outcome if it did not reflect the
wider performance of the business.
FY 2022 was a record year for revenue and
volume, underlining the strong demand
for applications using high performance
materials, across a diverse setof end
markets. As a result, the PBIT (pre-exceptional
items) achieved was £95.4m. The Executives
also performed well against the personal
and strategic objectives resulting in a
total pay-out between 56% and 64%
of maximum. Half of the bonus for the
Executive Directors will be deferred into
shares for three years.
The Committee is comfortable that the
formulaic bonus outcome reflects the wider
business performance of the Company.
TheCommittee did consider whether it was
appropriate to use its discretion to adjust
the formula-based bonus assessment but
noting both the financial and non-financial
achievements delivered in the context of the
current challenging external environment it
concluded that the bonus was a fair reflection
of overall performance and so it was not
deemed appropriate to adjust the bonus
outcome. As part of approving bonuses,
the Committee also considered the bonuses
payable to all employees. All Group employees
were eligible to receive bonuses with the same
financial targets applying to all participants.
Therefore, paying bonuses based on the
formulaic outcome was consistent with the
approach taken across the Group.
LTIP
The 2019/20 long-term incentive awards are
eligible to vest based on performance from
1 October 2019 to 30 September 2022.
Performance was based on cumulative
EPS (75%) and TSR performance vs FTSE
250 excluding investment trusts (25%).
Based on TSR and EPS performance over
the performance period 6.73% of the LTIP
award will vest. After reviewing the overall
financial and strategic performance over
the period, and noting that awards were
granted prior to the onset of COVID-19 (i.e.
there was no potential for COVID-19 related
windfall gains), the Committee believes
that this outcome is appropriate and has
not applied discretion in relation to the
incentive outcome.
The Committee is comfortable that actions
taken on pay during the year across the
Company were appropriate and balanced
the interests of all stakeholders and that the
remuneration policy operated as intended.
Change in CFO
Richard Armitage stepped down from the
Board on 27 May 2022. As disclosed in the
2021 Annual Report, Richard was eligible to
receive salary, pension and benefits during
the period of his employment. He did not
receive an annual bonus or LTIP award in
FY2022. All outstanding LTIP awards lapsed
on cessation of employment and he received
no further payments. Richard Armitage
is required to retain his shareholding of
32% of salary for two years post as the
threshold of 200% of salary in accordance
with the shareholding guidelines under the
remuneration policy was not met.
Ian Melling joined the Company as CFO
with effect from 29 June 2022 and was
appointed to the Board on 4 July 2022.
He was recruited on a base salary of
CORPORATE GOVERNANCE
FY 2022 highlights
u Oversaw the implementation of the
current remuneration policy
u Reviewed the remuneration policy ahead
of the 2023 AGM
u Consulted with investors on the
remuneration policy and the proposed
implementation of the policy in FY 2023
u Engaged with the wider workforce on
the alignment between executive pay
and the wider workforce
u Reviewed formulaic incentive outcomes
and considered whether they were
aligned to Company performance over
the short and long term
u Oversaw the review of the operation
ofshare plans across the Company
u Reviewed and approved salaries for
the Executive Directors and the senior
leadership team
u Considered and approved the Directors’
remuneration report
FY 2023 priorities
u Oversee the implementation of the
newpolicy
u Set incentive plan performance targets
for the upcoming year
Main responsibilities
of Committee
u
Designing and determining the
remuneration for the Company
Chair, Executive Directors and
seniormanagement
u
Reviewing workforce remuneration
and related policies
u
Exercising judgement when
determining remuneration awards
Terms of Reference for the
Remuneration Committee can be
foundon www.victrexplc.com
Dear shareholders,
On behalf of the Remuneration Committee
(the ‘Committee’) I am pleased to introduce
the Directors’ remuneration report for
the year ended 30 September 2022. This
report is divided into three sections: my
statement, the Directors’ remuneration
policy being put to shareholders at the 2023
Annual General Meeting and our annual
report on remuneration for the year ended
30September 2022.
Background
Victrex delivered record revenue and volume
over the year, with good progress in our
medical business as elective surgeries
return in greater numbers, as well as
growth in emerging applications. We
also saw improved average selling prices
compared to FY 2021. Our attractive and
differentiated portfolio includes sustainable
products which enable environmental and
societal benefits, with just under 50%
of our revenues being from sustainable
products. Cash generation remained
strong, supporting growth investment and
shareholder returns. We are also pleased to
see good progress at our new PEEK facility
in China, with construction completed at the
DIRECTORS’ REMUNERATION REPORT
Directors’ remuneration report
CORPORATE GOVERNANCE
105
Annual Report 2022 Victrex plc
The Committee’s agenda in FY 2022
Our principal activities during the year, and up to the date of
approval of this Annual Report, were as follows:
u
reviewing the remuneration policy ahead of the 2023 AGM;
u
consulting with major shareholders ahead of the AGM on the
proposed remuneration policy;
u
ensuring the successful implementation of the Directors’
remuneration policy;
u
agreeing the Executive Directors’ FY 2023
remuneration packages;
u
assessing FY 2022 bonus and LTIP outturns; and
u
preparing the Directors’ remuneration report.
Committee meetings in FY 2022
The Committee met five times during FY 2022 and has a programme
of business reflecting the Committee’s Terms of Reference.
Committee member Meeting attendance
J E Ashdown (Chair) 5/5
B W D Connolly* 4/5
D Thomas 5/5
J E Toogood 5/5
R Rivaz 5/5
* Please see the footnote to the table on page 86.
Secretary: Jane Brisley
Other attendees:
u
the Company Chair and the CEO are not members
oftheCommittee but are invited to attend;
u
the Group HR Director regularly attends meetings;
u
representatives from the Committee’s remuneration advisors,
currently Korn Ferry, regularly attend meetings;
u
the Director of Investor Relations, Corporate Communications
& ESG is an occasional attendee based on engagement
matters with shareholders; and
u
the CFO is an occasional attendee to represent financial
matters such as target setting.
No attendee participates in the Committee when it deals with
their own remuneration.
£350,000. When setting Ian’s salary, the
Committee considered a number of factors
including: (i)the salary of the outgoing CFO
(£378,000); (ii) the experience and calibre
of the individual; (iii) his salary at Smith &
Nephew; and (iv) the market rate for the
role based on Victrex’s size and complexity.
In line with the remuneration policy, his
pension contribution was set in line with
the wider workforce. Ian was eligible for a
pro-rata FY2022 bonus and will be eligible
for his first LTIP grant in FY 2023. Ian did
not forfeit all of his awards on leaving Smith
& Nephew andso no buy-out awards were
considered necessary. Allother elements
of remuneration are in line with the
remuneration policy.
Change in Non-executive
Director Chair
As disclosed in the 2021 Annual Report,
Larry Pentz retired from the Board on
11February 2022. Vivienne Cox was
appointed as Non-executive Director on
1December 2021 until she became Board
Chair Designate on 1 January 2022. She then
became Board Chair from 11 February 2022.
Other Board changes
During the year, the Board established a new
committee, the Corporate Responsibility
Committee (‘CRC’) to oversee and keep
under review the development and execution
of the Company’s sustainability strategy
and progress towards targets, as well as the
Company’s societal obligations. Effective on
1 May 2022, Jane Toogood was appointed
the Chair of the Committee. To reflect the
additional time and responsibility for this
role, the Chair of the CRC will be paid a
fee of £11,000 per annum (pro-rated for
FY 2022), in line with the other Committee
Chair fees. This additional fee came into
effect on 1May 2022.
Directors’ remuneration policy
Our current policy was approved at our
2020 AGM and is due for renewal at our
2023 AGM. Our current policy has served
the Company well over the past three years,
enabling us to be flexible in the payments
to Executive Directors, to recruit a new
CFO and it has provided a good overall
link between pay and performance. On
this basis, and having explored alternative
incentive mechanisms, our review concluded
that only a few minor amendments were
necessary to align to market best practice.
A summary of the key changes to the policy
are set out on page 108.
Other considerations during
theyear
Wider workforce context
During the year the Committee had oversight
of the reward and compensation packages
that operate across the Company, which are
considered competitive. As a part of the
policy review, the Committee reviewed the
pay alignment across the business. Victrex’s
pay and culture is aligned across the business,
and we offer a competitive remuneration
package to our employees. All employees are
eligible for an annual bonus; high achievers
may also receive additional awards for
excellence and all new joiners receive share
options after successful probation. In addition,
the LTIP is cascaded below the Board in
aconsistent manner. During the year the
Committee also reviewed the CEO pay ratio.
In FY 2022, the CEO pay ratio has decreased
slightly. This is in part due to lower long-term
incentive pay-outs for the CEO and higher
remuneration for employees due to increases
inbase pay during FY 2022. The remuneration
policy and its implementation are considered
appropriate as it aligns with pay across the
business and the resulting ratios are considered
to be consistent with our wider pay, reward and
progression policies for employees.
Wider workforce engagement
Brendan Connolly, who is the appointed
designated Workforce Engagement Non-
executive Director and is a member of the
Committee, enables employees to provide
feedback on remuneration during the various
engagement mechanisms he undertakes
that includes attendance at several forums.
Brendan shares our approach to executive
remuneration, and how it aligns with wider
workforce and Company strategy and
invites comments and questions. The views
he receives on remuneration (including
executive and wider employee remuneration)
are then fed back to the Committee and
the wider Board as part of his membership
of the Committee and his wider workforce
engagement role. The executive remuneration
policy and its implementation were not
raised as material issues during the year.
Therefore, no amendments were required
to the remuneration policy or its proposed
implementation as a result of this engagement.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
106
Directors’ remuneration report continued
Other considerations during theyear continued
Wider workforce engagement continued
The Company’s biannual Employee Experience Survey indicated a change in the perception of Victrex’s total remuneration (pay and
benefits) package, compared with the FY 2020 survey. Reward and performance was an emerging key theme from those discussions
and as such will form a key workstream focusing on improving employee awareness in this area, as part of the enterprise-wide
engagement outcomes.
Shareholder engagement
Ahead of the 2023 AGM, we engaged with our largest investors as well as Institutional Shareholder Services (‘ISS’), The Investment
Association (‘IA’) and Glass Lewis, to understand their views on our proposed new policy and the proposed implementation in FY 2023.
Based on the feedback received from our engagement, investors were supportive of the changes proposed to the remuneration policy and
the proposed implementation of the policy in FY 2023.
Implementation of policy in 2023
The Committee considered how remuneration should be implemented for FY 2023. Part of this process was reviewing current practice
against both market and best practice, our Group reward principles and pay ratios. The outcome of the review was that our current overall
approach remains appropriate with greater weighting and total remuneration opportunity for senior executives reflecting their roles and
responsibilities. The key decisions taken for FY 2023 included:
Base salary: During the year the Committee reviewed the salary increases for the wider workforce taking into account high inflation
and the increase in cost of living. As a result of the review, the wider workforce received an average increase of 5%. In addition, wider
workforce employees (excluding senior managers) received an additional one-off payment of up to £1,200. Therefore, with a 5% budget
increase applied to the wider workforce and the additional payments, the Remuneration Committee were comfortable with an increase of
4% in salary for Executive Directors. However, in recognition of the fact that Ian Melling joined the Company part way through the financial
year it was agreed that a lower rate of increase of 2% should be applied notwithstanding that normal Company policy is to increase in line
with the wider workforce where employment starts prior to 1 July in the year.
Pension: As of 1 October 2022, the Company pension contribution for the Executive Directors has been aligned to the rate most
commonly provided to the wider UK employee population (14% of salary). This aligns Victrex with the recommendations of the 2018 UK
Corporate Governance Code with effect from 1 October 2022.
Annual bonus: In line with the bonus operated in FY 2022, the annual bonus will be subject to financial, strategic objectives and personal
objectives. The weighting on the financial targets will increase from 50% to 60% with a corresponding reduction to the weighting on the
personal targets. The financial targets are set as a challenging range of profit targets derived from the Company’s budget with the strategic
and personal targets linked to the Company’s incremental progress in delivering against its ‘mega-programmes’ as well as improving
internal operational and safety performance. Similar to the approach taken in FY 2022, the non-financial targets will be subject to an
underpin equal to the threshold profit target. Half of any bonus paid will be deferred into shares for three years. The Committee retains
the ability to adjust bonus outcomes in the event that there is a perceived disconnect between performance and reward in the current
financial year.
Long-term incentives: In line with the approach for FY 2022, the FY 2023 performance targets will include a challenging range of EPS
growth, relative total shareholder return targets and ESG targets. For the FY 2023 awards, the weighting on TSR has been increased to
30% of the award (from 20%) with a corresponding reduction to the weighting on EPS. This reflects the Committee’s objective of further
aligning the executives with delivering shareholding returns.
The EPS targets, determining vesting of 60% of the award, will measure performance based on growth in earnings of between 5% and
12% p.a. over the three years ending 30 September 2025. The range of targets is considered similarly challenging to targets set in prior
years allowing for current internal planning, external market expectations for the Company and current economic conditions. The TSR
portion, to determine the vesting of 30% of the award, will again compare Victrex’s relative TSR performance over the period against the
FTSE 250 Index constituents less investment trusts. The remaining 10% of the LTIP will be assessed against a challenging range of carbon
reduction targets. With regards to the carbon reduction targets, both the targets for the FY 2022 and FY 2023 LTIP are measured on
emissions per tonne of PEEK produced (with the FY 2022 targets included on page 120 and the FY 2023 targets included on page 127). The
FY 2022 targets were originally set based on intensity per £m of revenue. However, the targets were restated to be emissions per tonne of
PEEK produced to avoid the artificial benefits of increased pricing on the performance target. This ensures the envisaged degree of stretch
in the target operates as intended. With regard to the quantum of FY 2023 awards, the Committee intends to make awards at 175% of
salary for the CEO and 150% of salary for other Executive Directors. In recognition of current share price volatility the Committee is to
include the ability to adjust the number of shares vesting in the FY 2023 long-term incentive award in the event there was to be a perceived
windfall gain on vesting.
Non-executive Board fees: As described on page 127, to reflect the additional time and responsibilities of the Chair of the newly formed
Corporate Responsibility Committee, a Chair fee of £11,000 p.a. was introduced on 1 May 2022. An increase of 4% to the NED base fee was
approved by the Board. The Remuneration Committee anticipated an increase of 4% for the Chair; however, the Chair waived this increase.
I hope it is clear from the way we are proposing to apply policy in FY 2023 that we continue to take account of the feedback of our
shareholders and we look forward to receiving your support for the Directors’ remuneration report at the upcoming Annual General
Meeting. I will be available to answer any questions before the Annual General Meeting. Please email your queries to ir@victrex.com.
The following Remuneration Committee report was approved by the Committee at its meeting held on 1 December 2022.
Janet Ashdown
Chair of the Remuneration Committee
6 December 2022
CORPORATE GOVERNANCE
107
Annual Report 2022 Victrex plc
Directors’ remuneration policy
This report has been prepared in accordance with the provisions of the Companies Act 2006, The Large and Medium Sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2008 and the subsequent amendments, and the UK Listing Authority Listing
Rules. In addition, the report has been prepared on a ‘comply or explain’ basis with regard to the UK Corporate Governance Code 2018.
The remuneration policy described in this section is intended to apply for three years and will be applicable from the date of approval by
shareholders at the Company’s 2023 AGM.
Determining the remuneration policy
The Committee is responsible for the development, implementation and review of the Directors’ remuneration policy. In addressing this
responsibility, the Committee works with management and external advisors to develop proposals and recommendations. The Committee
considers the source of information presented to it, takes care to understand the detail and ensures that independent judgement is
exercised when making decisions. The Remuneration Committee works alongside other Board Committees as needed; for example, the
Group Audit Committee confirms incentive plan performance results.
When setting the remuneration policy, the Committee considered the Company’s strategic objectives over both the short and the long
term, the external market and market best practice. In addition, the Committee also considered the alignment across the business as well as
stakeholder views. A summary of the pay alignment across the business and how stakeholder views are taken into account in the policy is
set out in the sections below.
The pay alignment across the business
The Committee has oversight of the reward and compensation packages that operate across the Company and this is taken into account
when setting the remuneration policy for Executive Directors and determining the implementation of the policy.
The remuneration approach is consistently applied at levels below the Executive Directors. Key features include:
u
all employees are eligible for an annual bonus based on a Group profit target;
u
base salary, incentives and benefits are regularly benchmarked for employees;
u
all UK roles are eligible for employer pension contributions of up to 14%;
u
employee benefits include 29 days’ paid holiday, private medical insurance, group income protection, car allowance (where appropriate)
and the opportunity to participate in our share plans;
u
all new joiners receive share options after successful probation; and
u
roles considered critical to the business are eligible for a long-term incentive award.
At senior levels, remuneration is increasingly long term and ‘at risk’ with an increased emphasis on performance related pay and share-
based remuneration.
How employee views are taken into account
Processes are in place for the Committee to review and consider any remuneration related matters that may arise from the activities
undertaken by the Board to take account of the ‘employee voice’, including the Non-executive Director with designated responsibility for
Workforce Engagement reporting to the Committee any employee feedback on matters relating to pay and conditions.
The Workforce Engagement Director is responsible for explaining how executive remuneration is structured and how it aligns with wider
workforce remuneration and strategy. The Workforce Engagement Director also enables employees to provide feedback on remuneration
via various engagement mechanisms which is then fed back to the Remuneration Committee. The Committee then considers this feedback
when designing the remuneration policy and determining the implementation of the policy.
Based on feedback during FY 2022, the executive remuneration policy and its implementation were not raised as material issues in the
discussions during the year and therefore no amendments to the remuneration policy were required as a result of this engagement.
How shareholder views are taken into account
The Committee has a standard annual agenda item whereby the feedback from shareholders and investor advisory bodies is presented and
discussed following the AGM. The Committee Chair is also available for questions at the AGM. This feedback is sought and collated by our
Director of Investor Relations, Corporate Communications & ESG. The feedback that the Committee receives then informs discussions for
the formulation of future policy and subsequent remuneration decisions. The Committee is also regularly updated on the collective views
ofshareholders and investor advisory bodies by its independent advisor.
As part of the policy renewal process the Committee Chair consulted with major shareholders, as well as proxy voting bodies and
shareholder advisory groups. Based on the feedback from our engagement, shareholders welcomed the proposed changes to the
remuneration policy and so no amendments were required to the proposed policy.
The Committee welcomes shareholder feedback and questions. Should you have any questions or feedback, please contact ir@victrex.com.
This feedback is sought and collated by our Director of Investor Relations, Corporate Communications & ESG.
Other considerations
In line with the UK Corporate Governance Code, the policy has been tested against the six factors listed in Provision 40:
Clarity – the remuneration policy is transparent, and the implementation of the policy is disclosed in straightforward, concise terms
toshareholders.
Simplicity – remuneration structures are simple and market typical, whilst at the same time incorporating the necessary structural features
to ensure a strong alignment to performance, strategy and minimising the risk of rewarding failure.
CORPORATE GOVERNANCE
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108
Determining the remuneration policy continued
Other considerations continued
Risk – the remuneration policy has been shaped to discourage inappropriate risk taking as remuneration is focused on long-term success
through the LTIP and the Deferred Bonus Scheme (‘DBS’). Awards under the remuneration policy are subject to malus and clawback
provisions. The performance conditions are reviewed annually to ensure that they remain suitable and do not incentivise risk taking.
Toavoid conflicts of interest, Committee members are required to disclose any conflicts or potential conflicts ahead of Committee
meetings. No Executive Director or other member of management is present when their own remuneration is under discussion.
Predictability – examples of the caps under the remuneration policy are illustrated in the scenario charts.
Proportionality – the link between each element of policy and Company strategy is noted in the table below. Variable pay is subject
toacombination of financial and non-financial measures that are linked to Company strategy.
Alignment to culture – the Remuneration Committee reviews workforce composition and remuneration across the Group every year and
takes them into account when reviewing the implementation of the policy. Where possible, in support of our performance culture, we align
remuneration across the Group; for example, all employees are eligible for an annual bonus and all new joiners receive share options after
successful probation.
Conclusion of the review and key changes to the policy
The Committee concluded that the remuneration policy had operated as intended over the past three years, enabling us to be flexible in the
payments to Executive Directors and to recruit a new CFO, and provided a good overall link between pay and performance. On this basis,
and having explored alternative incentive mechanisms, the Committee concluded that the policy was fit for purpose and only the minor
amendments listed below were necessary to align to market best practice.
The clarifications and changes to the policy are set out below:
u
Pension:
u
All Executive Directors (incumbent and new hires) must have a pension contribution in line with the wider workforce (currently 14%
of salary) rather than just new hires.
u
Annual bonus:
u
Pay-out schedule: We have clarified that where financial targets are set, the maximum proportion of each target that can be paid for
achieving the threshold performance target is up to 20% of that part of the bonus, rising on a graduated scale to the maximum performance
level where 100% of the relevant part of the bonus becomes payable. This is in line with market practice and the current approach at Victrex
for setting financial targets. Where non-financial targets are set (e.g. strategic and/or personal targets) it may not be possible to structure the
target in the same way as a financial target but, in principle, the same graduated approach to target setting will apply.
u
Recovery and withholding provisions: These will in future apply for up to two years following the payment of the cash bonus or the
end of the share deferral period (rather than one year). The provisions have been broadened to include insolvency as a trigger.
u
LTIP:
u
Performance measures and vesting schedules: The references to specific performance measures have been removed (e.g. being
required to have EPS or TSR) from the policy to allow the Committee market consistent flexibility to select the most appropriate
performance measures. However, at least half of an award must be subject to financial and/or shareholder return measures.
u
Recovery and withholding provisions: The provisions have been broadened to include insolvency as a trigger.
Directors’ remuneration policy table
The table below and the accompanying notes describe the remuneration policy for Executive Directors.
Element of
remuneration
Purpose and link
to strategy Operation Maximum Performance target
Base salary
To provide
competitive and
fixed remuneration.
To attract and retain
executives of the
calibre required
to deliver the
Company’s strategy
and enhance
earnings over the
long term.
The basic salary for each Executive
Director is normally reviewed annually
(effective 1 October) taking into account
individual performance and the Group’s
financial circumstances, as well as pay
for all employees in the Group and the
external market.
Increases in salary above those of the
general workforce should only take
place infrequently, for example where
there has been a material increase in role
responsibility, size of the Company or
movement in the external market.
On recruitment or promotion to
Executive Director, the Committee will
take into account previous remuneration
and pay levels for comparable companies
which may lead to salary being set at
a higher or lower level than for the
previous incumbent.
Executive Directors will normally
receive a salary increase
(expressed as a percentage
of salary) up to the level of
increase awarded to the
general workforce. There is no
prescribed maximum.
Where the Committee has set
the salary of a new Executive
Director at a discount to the
market level initially, a series
of planned increases may be
implemented over the following
few years to bring the salary
to the appropriate market
position, subject to individual
performance.
Current salary levels are
shown in the annual report on
remuneration on page 126.
None.
Directors’ remuneration report continued
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Annual Report 2022 Victrex plc
Element of
remuneration
Purpose and link
to strategy Operation Maximum Performance target
Benefits
To provide market-
consistent benefits,
including insured
benefits to support
the individual and
their family during
periods of ill health,
or in the event of
accidents or death.
This is consistent
with a culture of
safety, sustainability
and capability.
Car allowances
to facilitate
effective travel.
Benefit provision includes the following
benefits and allowances:
u
health benefits;
u
car allowance;
u
relocation assistance;
u
life assurance;
u
group income protection;
u
all-employee share schemes (e.g.
opportunity to join the SIP or SAYE);
u
travel;
u
communication costs; and
u
any reasonable business related
expenses can be reimbursed (and
anytax thereon met if determined
tobe a taxable benefit).
Executive Directors will be eligible for
any other benefits or allowances which
are introduced for the wider workforce
on broadly similar terms and additional
benefits or allowances might be provided
from time to time if the Committee decides
payment of such benefits is appropriate
and in line with market practice.
There is no defined
maximum as the costs
of benefits can vary
year on year.
Not applicable.
Pension
To attract and
retain high calibre
Executive Directors.
To provide a level
of benefits that
allow for personal
retirement planning.
Executive Directors are offered the
choice of:
u
a Company contribution into a
defined contribution pension scheme;
u
a cash allowance in lieu of pension; or
u
a combination of a Company
contribution into a defined contribution
pension scheme and a cash allowance.
The maximum Company
pension contribution for an
Executive Director will be
limited to that available to
the wider workforce which is
currently 14% of base salary.
Not applicable.
Bonus
To incentivise
performance
against personal
objectives and
selected financial
and operational
KPIs which are
directly linked to
business strategy.
Deferral of part of
bonus into shares
aligns the interests
of Executive Directors
and shareholders.
A maximum of 50% of bonus paid in
cash with 50% of the bonus deferred
into Company shares under the
Deferred Bonus Scheme (‘DBS’) for
aperiod of at least three years. With
regards to the treatment of awards
oncessation of employment, details
areon page 113.
DBS shares accrue dividend equivalents.
Not pensionable.
Bonus and DBS awards are subject to
‘malus’ and/or ‘clawback’ provisions (for
up to two years following (i) the
payment of a cash bonus or (ii) in the
case of a DBS award, the end of the
relevant deferral period) in exceptional
circumstances, including material
misstatement of the Company’s audited
financial results; an error in the relevant
financial information that led to the bonus
or DBS award being greater than it
otherwise would have been; personal
misconduct; serious reputational
damage; insolvency; or a failure
ofriskmanagement.
Maximum award of up
to 150% of salary for the
CEO and 125% for other
Executive Directors.
At least 50% of the bonus will be
based on financial and operational
performance. The remainder of
the bonus will be based on the
achievement of other non-financial
objectives such as personal objectives.
Targets and weightings are set by
reference to the Company’s financial and
operating plans and the current targets
and weightings are shown on page 117.
Bonus outcomes are subject to the
Committee being satisfied that the
Company’s performance on the measures
is consistent with underlying business
performance and individual contribution.
The Committee will exercise discretion on
bonus outcomes if it deems necessary.
Where financial targets are set, up to
20% of the relevant part of the bonus
becomes payable at the threshold
performance level rising on a graduated
scale to the maximum performance level
where 100% of the relevant part of the
bonus becomes payable. Where non-
financial targets are set (e.g. strategic
and/or personal targets) it may not be
practicable to set a pre-set percentage
of the relevant part of the bonus that
becomes payable at the threshold
performance level (i.e. the testing of
non-financial targets may be binary for
the relevant part of the bonus).
Directors’ remuneration policy table continued
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Victrex plc Annual Report 2022
110
Directors’ remuneration report continued
Directors’ remuneration policy table continued
Element of
remuneration
Purpose and link
to strategy Operation Maximum Performance target
Victrex Long
Term
Incentive Plan
2019 (‘LTIP’)
Designed to align
the strategic
objective of
delivering
sustainable earnings
growth over the
longer term with
the interests
ofshareholders.
Awards under the LTIP are rights to
receive Company shares, subject to
certain performance conditions.
Each award is measured over at least a
three-year performance period.
An additional holding period applies
after the end of the three-year
performance period so that the total
vesting and holding period is at least
five years.
Shares subject to awards may accrue
dividend equivalents.
LTIP awards are subject to ‘malus’
and/or ‘clawback’ provisions (for up
to a year following the end of the
relevant holding period), in exceptional
circumstances including material
misstatement of the Company’s
audited financial results; an error in
the relevant financial information that
led to the award being greater than it
otherwise would have been; personal
misconduct; serious reputational
damage; insolvency; or a failure of
riskmanagement.
The normal maximum award
level will be up to 175% of
salary p.a. in respect of the
CEO and 150% for other
Executive Directors.
The overall policy limit is 200%
of salary. It is not anticipated
that awards above the
normal level will be made to
current Executive Directors
and any such increase on an
ongoing basis will be subject
to prior consultation with
major shareholders.
Awards will be subject to a
combination of long-term measures
which are aligned to the shareholder
experience and may include financial
metrics (such as EPS), shareholder
value metrics (such as TSR), and ESG
or strategic measures. At least half of
the award will be subject to financial
and/or shareholder return measures.
The Committee will have discretion to
set different measures and weightings
for awards in future years to best
support the strategy of the business
at that time.
Normally, below threshold
performance, 0% will vest.
Wherepracticable, no more than
25%of maximum will vest at
threshold performance, increasing
pro-rata to 100% vesting for
maximum performance.
Any vesting is also subject to the
Committee being satisfied that the
Company’s performance on the
measures is consistent with underlying
business performance and individual
contribution. The Committee will
exercise discretion on LTIP outcomes
ifit deems necessary.
Share
ownership
guidelines
To increase
alignment between
Executive Directors
and shareholders
including for a period
post-employment.
Awards made under the DBS on a
net of tax basis shall count towards
the share ownership guideline and
Executive Directors are required to
retain 50% of the net of tax vested LTIP
shares until the guideline is met.
The requirement to hold shares for
a period post-employment shall be
implemented by contractual means.
Minimum of 200% of salary.
Executive Directors will
also be required to retain
shares equivalent to the
lower of 200% of salary
ortheir actual shareholding
at the time employment
ceases. Theshares must
be held for two years with
the Committee having
discretion to allow half of
the sharestobe released
after one year.
Not applicable.
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Annual Report 2022 Victrex plc
Directors’ remuneration policy table continued
Element of
remuneration
Purpose and link
to strategy Operation Maximum Performance target
Non-executive
Directors’ fees
and benefits
(Determined by
theBoard)
To attract Non-
executive Directors
with a broad range
of experience and
skills to oversee the
development and
implementation of
our strategy.
Reflects anticipated
time commitments
and responsibilities
of each role.
Reflects fees paid
and benefits provided
by comparator
companies.
The remuneration policy for the
Non-executive Directors (with the exception
of the Chair) is set by a separate
Committee of the Board. The policy for
the Chair is determined by the Committee
(of which the Chair is not a member).
Fees are paid in cash and are reviewed
annually considering the salary increase
for the general workforce and the
Executive Directors, and the level of
fees paid by companies of a similar size
and complexity. Any changes are
normally effective from 1 October.
Additional fees are paid in relation to
extra responsibilities undertaken, such as
chairing certain Board subcommittees, and
to the Senior Independent Non-executive
Director and the Non-executive Director
with designated responsibility for
WorkforceEngagement.
Non-executive Directors may be eligible
for such cash and non-cash benefits as
the Company deems appropriate from
time to time.
In exceptional circumstances, if there is
a temporary yet material increase in the
time commitments for Non-executive
Directors, the Board may pay extra fees
on a pro-rata basis to recognise the
additional workload.
No eligibility for bonuses, Long Term
Incentive Plans (‘LTIPs’), pension schemes,
healthcare arrangements or employee
share schemes.
The Company pays any reasonable expenses
that a Non-executive Director incurs in
carrying out their duties as a Director,
including travel, hospitality related and
other modest benefits and any tax liabilities
thereon, and the provision of advice relating
to any such tax liabilities, if appropriate.
There is no prescribed
maximum other than the
Company’s Articles of
Association containing a limit
on the fees that can be paid
to Non-executive Directors.
The Board is guided by
the general increase in the
market for Non-executive
Director roles and for
the broader employee
population but on occasion
may need to recognise, for
example, an increase in the
scale, scope or responsibility
of the role.
Current fee levels are set out
on page 127.
Not applicable.
Non-executive Directors do
not participate in variable pay
arrangements and do not receive
retirement benefits.
Additional notes to the policy table
Annual bonus and long-term incentives
The Committee will operate the Company’s incentive plans according to their respective rules as approved by shareholders and consistent
with normal market practice, the Listing Rules and HMRC rules where relevant. These include making awards and setting performance
criteria each year, dealing with leavers and adjustments to awards and performance criteria following acquisitions, disposals and changes
inshare capital and taking account of the impact of other merger and acquisition activity.
With regards to performance measures for variable pay, these are set with reference to Victrex’s strategy and align the senior executives’
interests with those of shareholders. The annual bonus plan performance metrics include a mix of financial targets and non-financial
objectives, reflecting the key annual priorities of the Company. The financial metrics determine at least half the bonus and typically include
a measure of profitability (e.g. PBIT) alongside a combination of key strategic and wider non-financial targets (e.g. progress with our mega-
programmes). For FY 2023 the performance measures are 60% PBIT (pre-exceptional items), 30% strategic targets and 10% personal targets.
The long-term incentive plan performance metrics relate to creating long-term sustainable returns and typically include measures of long-term
profitable growth (e.g. EPS) and shareholder returns (e.g. TSR), along with sustainability and/or strategic targets (e.g. carbon reduction). For FY 2023,
the performance measures are 60% EPS growth, 30% TSR and 10% carbon reduction targets (set as a measure of emissions intensity).
The Committee retains discretion within policy to set different performance criteria and/or alter weightings for the annual bonus plan
and long-term incentives in line with the Company’s strategic priorities, pay dividend equivalents on vested shares under the long-term
incentives up to the date those shares can first reasonably be exercised and, in exceptional circumstances, under the rules of the LTIPs
adjust performance conditions to ensure that the awards fulfil their original purposes (for example, if a measure is no longer available).
Performance targets are set based on a range of expected outcomes, taking into account both internal and external expectations of
performance. Targets are set to be challenging yet realistic. All assessments of performance are ultimately subject to the Committee’s
judgement. Any discretion exercised, and the rationale, will be disclosed in the annual report on remuneration.
Legacy scheme and awards
All historical awards that were granted under any current or previous share schemes operated by the Company and remain outstanding
remain eligible to vest based on their original award terms.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
112
Directors’ remuneration report continued
Recovery provisions
As outlined in the policy table the Committee has the power to operate ‘malus’ and/or clawback provisions in exceptional circumstances, including
material misstatement of the Company’s audited financial results; an error in the relevant financial information that led to a bonus, DBS or LTIP award
being greater than it otherwise would have been; personal misconduct; serious reputational damage; a failure of risk management; or insolvency.
Discretion
The Remuneration Committee can exercise discretion in a number of areas when operating the Company’s incentive schemes, in line with
the relevant rules of the schemes. These include (but are not limited to):
u
the choice of participants;
u
the size of awards in any year (subject to the limits set out in the Directors’ remuneration policy table);
u
the extent of payments or vesting in light of the achievement of the relevant performance conditions;
u
the determination of good or bad leavers and the treatment of outstanding awards (subject to the provisions of the scheme rules and
the remuneration policy provisions); and
u
the treatment of outstanding awards in the event of a change of control.
In addition, if events occur which cause the Remuneration Committee to conclude that any performance condition is no longer appropriate,
that condition may be substituted, varied or waived as is considered reasonable in the circumstances in order to produce a fairer measure of
performance that is not materially less difficult to satisfy.
Illustrations of the application of remuneration policy
£797k
£1,836k
Below target Target Maximum
Total remuneration (£000)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£2,876k
£437k
£928k
£1,419k
£413k
£875k
£1,337k
Chief Executive Officer Chief Financial Officer Chief Commercial Officer
£3,435k
£1,686k
£1,589k
Max + 50%
share price
appreciation
Below target Target Maximum Max + 50%
share price
appreciation
Below target Target Maximum Max + 50%
share price
appreciation
Fixed pay
LTIP + 50% share price appreciation
LTIP
Annual bonus
100% 43%
26%
31%
28%
33%
39%
100%
47%
24%
29%
31%
31%
38%
100% 47%
24%
29%
31%
31%
38%
23%
28%
33%
16%
26%
26%
32%
16%
26%
26%
32%
16%
Notes on the scenario methodology:
u
The above charts give an illustrative value of the remuneration package for each of the Executive Directors in the upcoming year.
u
Minimum is the base salary and pension contribution for FY 2023 plus the value of benefits as disclosed in the FY 2022 single figure table. As the CFO joined
during the year, the benefits are based on the expected benefits value in FY 2023.
u
On target is the aforementioned minimum plus an assumed 50% pay-out of the annual bonus opportunity and 50% vesting of LTIP awards to be made in FY 2023.
u
Maximum is the aforementioned minimum with an assumed 100% pay-out of the annual bonus opportunity and full vesting of LTIP awards to be made in FY 2023.
u
Maximum + share price assumption shows maximum plus 50% share price appreciation on the shares subject to vested LTIP awards to be made in FY 2023.
External directorships
The Company accepts that its Executive Directors may be invited to become Non-executive Directors of other companies outside the
Company and exposure to such non-executive duties can broaden experience and knowledge, which would be of benefit to the Company.
Any external appointments are subject to Board approval (which would not be given if the proposed appointment was with a competing
company, would lead to a material conflict of interest or could have a detrimental effect on a Director’s performance). Whether any related
fees are retained by the individual or are remitted to the Company will be considered on a case-by-case basis.
Service contracts and letters of appointment
Each of the Executive Directors’ service contracts are terminable by either the employing company or the Director on 12 months’ notice.
The Chair and other Non-executive Directors have letters of appointment rather than service contracts. Their appointments may be
terminated without compensation at any time, subject to a three-month notice period. All Non-executive Directors are subject to
re-election at each Annual General Meeting.
CORPORATE GOVERNANCE
113
Annual Report 2022 Victrex plc
Service contracts and letters of appointment continued
The table below summarises the notice periods for each Director as well as the date of appointment and current contract/letter of appointment.
Date of
appointment
Date of current
contract/letter
of appointment
Notice from
the Company
Notice from
the individual
Unexpired period
of service contract/
letter of appointment
Executive Directors
J O Sigurdsson 01/10/2017 19/04/2017 12 months 12 months Rolling contract
M L Court 01/04/2015 10/01/2013 12 months 12 months Rolling contract
I C Melling 29/06/2022 04/04/2022 12 months 12 months Rolling contract
Non-executive Directors
V Cox 01/12/ 2021 17/09/2021 3 months 3 months Rolling contract
J E Ashdown 09/02/2018 18/12/2017 3 months 3 months Rolling contract
B W D Connolly 09/02/2018 18/12/2017 3 months 3 months Rolling contract
D Thomas 14/05/2018 11/ 05/ 2018 3 months 3 months Rolling contract
J E Toogood 01/09/2015 30/07/2015 3 months 3 months Rolling contract
R Rivaz 01/05/2020 24/03/2020 3 months 3 months Rolling contract
Copies of Executive Directors’ service contracts and Non-executive Directors’ letters of appointment are available for inspection on request;
please contact the General Counsel & Company Secretary on cosec@victrex.com.
Policy on payment for loss of office
The circumstances of termination, the relevant individual’s performance and an individual’s duty and opportunity to mitigate losses are
considered in every case. Our policy is to stop or reduce compensatory payments to former Executive Directors to the extent that they
receive remuneration from other employment during the compensation period. A robust line on reducing compensation is applied and
payments to departing employees may be phased to mitigate loss. Our policy is shown in the table below:
Provision Summary terms
Compensation
for loss of office
u
An Executive Director’s service contract may be terminated without notice and without any further payment or
compensation, except for sums earned up to the date of termination, on the occurrence of certain contractually
specified events such as gross misconduct.
u
No termination payment if full notice is worked.
u
Otherwise, a payment in respect of the period of notice not worked of basic salary, plus pension and benefits for
that period.
u
The termination payment will be paid in monthly instalments over what would have been the period of notice
not worked. This will be reduced by the value of any salary, pension contribution and benefits earned in new paid
employment in that period.
Treatment of
annual bonus
ontermination
u
A time pro-rated bonus may be payable for the period of active service; however, there is no automatic entitlement to
payments under the bonus scheme. Any payment (e.g. for a good leaver) is at the discretion of the Committee and is
subject to recovery and withholding provisions as detailed in the policy table.
u
Performance targets would apply in all circumstances.
Treatment of
deferred bonus
ontermination
u
Determined based on the DBS rules. Full details are available on request.
u
Deferred bonuses are subject to recovery and withholding provisions as detailed in the policy table.
u
The default treatment for good leavers is that any unvested awards will vest with no time pro-rating applying.
Awardswill normally vest at the normal vesting date unless the Committee decides they will vest on cessation of
employment. Awards to ‘bad leavers’ lapse on cessation of employment.
Treatment of
unvested
long-term
incentives on
termination
u
Determined based on the relevant plan rules. Full details are available on request.
u
Normally, any unvested awards will lapse on date of cessation of employment (if that occurs during the performance
period) unless, in certain prescribed circumstances such as death, disability, mutually agreed retirement or other
circumstances at the discretion of the Committee, ‘good leaver’ status is applied. In these circumstances, awards
vest on a time pro-rated basis subject to the satisfaction of relevant performance criteria, with the balance of
awards lapsing. The Committee retains the discretion not to time pro-rate if it is inappropriate to do so in particular
circumstances. The Committee will consider the individual’s performance and the reasons for their departure when
determining whether ‘good leaver’ status can be applied. Awards will normally vest at the normal vesting date unless
the Committee decides that they will vest on the date of cessation of employment.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
114
Directors’ remuneration report continued
Approach to recruitment remuneration
The remuneration package for a new Executive Director will be set in accordance with the terms of the Company’s approved remuneration
policy in force at the time of appointment and the Committee shall seek to recruit within the parameters of approved policy and on the
principle that recruitment remuneration shall be no more than is necessary to secure the services of a preferred candidate.
Base salary
Base salary levels for new Executive Directors will be set in accordance with the policy, considering the experience of the individual
recruited. Where appropriate, the Committee has the flexibility to set the salary of a new appointee at a discount to the market level
initially, with a series of planned increases implemented over the following years to bring the salary to the appropriate market position,
subject to individual performance in the role.
Maximum level of variable pay
The maximum level of variable pay which may be awarded to a new Executive Director will be 350% of salary (i.e. 150% annual bonus plus
200% LTIP award). These limits will be separate to the value of any buy-out arrangement which may be necessary to secure the services of
a preferred candidate.
In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out
according to its terms, underlying as relevant to take into account the appointment. In addition, any other previously awarded entitlements
would continue, and be disclosed in the next annual report on remuneration.
Annual bonus performance conditions
Where a new Director is appointed part way through a financial year, the Committee may set different annual bonus measures and targets
for the new Executive Director from those used for other Executive Directors (for the initial part year only).
Buy-out awards
The Committee may offer additional cash and/or share-based elements (on a one-time basis or ongoing) when it considers these to be in
the best interests of the Company (and therefore shareholders). Any such payments would be limited to a reasonable estimate of value of
remuneration lost when leaving the former employer and would reflect the delivery mechanism (i.e. cash and/or share based), time horizons
and whether performance requirements are attached to that remuneration.
Relocation and incidental expenses
The Committee may agree that the Company will meet certain relocation and/or incidental expenses as may be necessary to recruit a
preferred candidate and as deemed appropriate by the Committee.
Appointment of Non-executive Directors
For the appointment of a new Chair or Non-executive Director, the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time. Non-executive Directors’ fees are set by a separate Committee of the Board; the Chair’s fees are
set by the Committee.
Outplacement services, reimbursement of legal costs and any other incidental expenses may be provided where appropriate. Any statutory
entitlements or compromise claims in connection with a termination of employment would be paid as necessary. Outstanding savings/
shares under all-employee share plans would be transferred in accordance with the terms of the plans as approved by HMRC.
Change of control
On a change of control, Executive Directors’ incentive awards will be treated in accordance with the rules of the relevant plans. In summary:
u
bonus payments will consider the extent to which the performance measures have been satisfied between the start of the performance
period and the date of the change of control, and the value will normally be pro-rated to reflect the same period;
u
deferred bonuses will generally vest on the date of a change of control, unless the Committee permits (or requires) awards to roll over
into equivalent shares in the acquirer; and
u
LTIP awards will generally vest on the date of a change of control, taking into account the extent to which any performance condition
has been satisfied at that point. Time pro-rating will normally apply unless the Committee determines otherwise.
CORPORATE GOVERNANCE
115
Annual Report 2022 Victrex plc
Annual report on remuneration
The Remuneration Committee (the ‘Committee’) presents the Directors’ remuneration report (excluding the remuneration policy), to be
putto shareholders for an advisory (non-binding) vote at the 2023 Annual General Meeting.
Members of the Committee during the year
The role of the Committee is to determine and recommend to the Board a fair and responsible remuneration framework for the Company’s
Chair and Executive Directors. The members of the Committee (all of whom were independent Non-executive Directors) during the year
under review were as follows:
u
Janet Ashdown (Remuneration Committee Chair);
u
Ros Rivaz;
u
Jane Toogood;
u
Brendan Connolly; and
u
David Thomas.
Biographical information on the Committee members, details of attendance at the Committee’s meetings and activities during the year are
set out on pages 78, 79 and 105. The purpose, roles and responsibilities are thereby included in this section of the report by reference.
External advisor
Korn Ferry provided independent advice to the Committee during FY 2022 having been appointed by the Committee following a
competitive tender process in 2020.
Korn Ferry provided advice on market practice updates and benchmarking and supported management with undertakings such as
producing the Directors’ remuneration report to the extent this did not impact the independence of its advice. The fees paid to Korn
Ferry for providing advice to the Committee in relation to Directors’ remuneration were £70,000 which included fixed fees for planned
undertakings and ad-hoc support on a time and expense basis. Korn Ferry provided other human capital related services during the year to
a separate part of the business, but these services were carried out by a team separate to the remuneration advisory team. As a result, the
Committee is satisfied that the advice received was objective and independent. Korn Ferry is a member of the Remuneration Consultants
Group and abides by the voluntary code of conduct of that body, which is designed to ensure objective and independent advice is given
toremuneration committees.
Annual General Meeting voting outcomes
The following table summarises the details of votes cast for and against the Directors’ remuneration policy and the Directors’ remuneration
report at the 2020 AGM and 2022 AGM, along with the number of votes withheld. The Committee will continue to consider the views of,
and feedback from, shareholders when determining and reporting on remuneration arrangements.
Voting outcome Votes for Votes against Votes withheld
Directors’ remuneration report 2022 AGM 67,651,442 (99.23%) 523,183 (0.77%) 4,050,685
Directors’ remuneration policy 2020 AGM 64,813,885 (93.73%) 4,337,0 65 (6.27%) 593,713
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
116
Directors’ remuneration report continued
Implementation of the Directors’ remuneration policy for the year ended 30 September 2022
A summary of how the Directors’ remuneration policy was applied for the year ended 30 September 2022 is set out below.
Remuneration received by Directors for the year ended 30 September 2022 (audited)
Salary
and fees
1
£
Taxable
benefits
2
£
Pension
3
£
Total
fixed pay
£
Annual
bonus
4
£
Long-term
incentives
5
£
Total
variable pay
£
Total
£
J O Sigurdsson
2022 615,000 68,000 130,740 813,740 579,754 47,334 627,088 1,440,828
2021 557,535 71,875 117,076 746,486 780,270 — 780,270 1,526,756
I C Melling
*
2022 80,096 8,034 12,606 100,736 63,371 — 63,371 164,107
R J Armitage
2022 249,577 18,167 47,387 315,131 — — — 315,131
2021 378,000 16,664 72,192 466,856 — — — 466,856
M L Court
2022 323,044 30,000 57,751 410,795 259,834 22,109 281,943 692,738
2021 313,635 16,664 56,101 386,400 371,463 — 371,463 757, 863
V Cox
**
2022 214,292 — — 214,292 — — — 214,292
L C Pentz
2022 76,022 6,000 — 82,022 — — — 82,022
2021 200,593 6,000 —
206,593
— —
—
206,593
J E Ashdown
2022 62,500 — — 62,500 — — — 62,500
2021 60,000 — — 60,000 — — — 60,000
B W D Connolly
2022 60,500 — — 60,500 — — — 60,500
2021 58,000 — — 58,000 — — — 58,000
D Thomas
2022 62,500 — — 62,500 — — — 62,500
2021 60,000 — — 60,000 — — — 60,000
J E Toogood
2022 56,083 — — 56,083 — — — 56,083
2021 50,000 — — 50,000 — — — 50,000
R Rivaz
2022 61,000 — — 61,000 — — — 61,000
2021 58,500 — — 58,500 — — — 58,500
* Ian Melling’s salary has been pro-rated from the date of employment on 29 June 2022. Ian took some unpaid leave in line with the policy for the wider workforce.
** As detailed on page 109 of the 2021 annual report, the fee for the Board Chair for Vivienne Cox, was set at £280,000. The fee was set as part of
theworkundertaken in respect of the search for a successor to Larry Pentz and recognised the expected future time commitment of the role, the calibre
and experience of the individual and current market fee rates.
The remuneration for Executive and Non-executive Directors comprising salary (or fees), taxable benefits, pension and bonus was £3.2m
(FY2021: £3.2m).
CORPORATE GOVERNANCE
117
Annual Report 2022 Victrex plc
Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued
Notes and additional information (audited)
1. Salary and fees
Several Board changes occurred during the year:
u
Richard Armitage stepped down from the Board on 27 May 2022. Richard received a salary of £378,000 pro-rata up until he stepped
down from the Board;
u
Ian Melling was appointed to the Board as CFO with effect from 4 July 2022. Ian received a base salary of £350,000 pro-rata from the
first date of his employment on 29 June 2022;
u
Larry Pentz retired from the Board on 11 February 2022 and received a fee of £206,610 p.a. pro-rata for the period until leaving the Board;
u
Vivienne Cox received a pro-rata fee based on the annualised rate of £51,500 p.a. from her appointment as a Non-executive Director on
1 December 2021 until she became Board Chair Designate on 1 January 2022, at which time her fee became £280,000 p.a. to reflect
the expected time commitment of her role from that date as Board Chair Designate and then Board Chair from 11 February 2022; and
u
as described on page 127 Jane Toogood received an additional fee as Corporate Responsibility Committee Chair of £11,000 p.a.
effective on 1 May 2022.
2. Taxable benefits
All Executive Directors are eligible for a company car allowance up to £21,000 and membership to a private medical scheme covering
themselves and their immediate families. The remaining taxable benefits for Jakob Sigurdsson and Martin Court relate to communication,
tax, services and insured benefits allowance. Larry Pentz received support to complete UK and overseas tax submissions.
3. Pensions
Members of the UK pension scheme are entitled to life assurance cover of four times salary and a retirement pension subject to the scheme
rules. If a member dies whilst in pensionable service, the value of the member’s retirement account will be used by the trustees to provide
either or both a lump sum and a pension payable to dependants. Where the promised levels of benefits cannot be provided through the
appropriate scheme, the Group provides benefits through the provision of salary supplements.
In 2022, Martin Court remained opted out of the defined contribution pension scheme and received a cash supplement of 12%.
JakobSigurdsson continues to participate in the Company defined contribution pension scheme in line with HMRC limits (£4,000) and
receives the balance between these limits and the Company contributions as a cash supplement of 12%. The aforementioned contributions
of 12% apply up to the Notional Earnings Cap (‘NEC’) for basic salary. Above the NEC, participants receive a cash supplement of 25%
of basic pay. All supplements are subject to statutory deductions. Details of the value of pension contributions received by the Executive
Directors in the year under review are provided in the ‘Pensions’ column of the ‘Remuneration received by Directors’ table.
For new entrants and with effect from 1 October 2022, all Executive Directors will align with the wider workforce on pension contributions.
Ian Melling participates in the defined contribution pension scheme in line with HMRC limits (£4,000) and receives the balance between
these limits and the maximum Company contribution of 14% of salary (as a cash supplement) which is aligned to the wider workforce.
Allsupplements are subject to statutory deductions.
Two of the Directors are accruing pension benefits under defined contribution schemes (FY 2021: one). None of the Directors are accruing
pension benefits under defined benefit schemes (FY 2021: none).
4. Annual bonus payments
The annual bonus was operated on the same basis as FY 2021 with 50% subject to a stretching Group underlying profit before interest
and tax (‘PBIT’) target and performance against shared strategic (30% weighting) and individual personal performance objectives (20%
weighting). No payment is made on any element of bonus (including strategic and personal) if the underlying PBIT threshold is not met.
The maximum annual bonus opportunity for the CEO is 150% of salary and 125% of salary for the other Executive Directors. Following his
appointment as CFO, Ian Melling was eligible for a pro-rata bonus for FY 2022.
The performance against measures to 30 September 2022 is set out in the tables below.
Threshold Target Stretch Outcome (% of maximum)
Measure Weighting
20% of
maximum
50% of
maximum
100% of
maximum Actual result* J O Sigurdsson I C Melling M L Court
Financial
PBIT 50% £91.7m £96.0m £105.6m £95.4m 45.8% 45.8% 45.8%
Strategic and
personal objectives
Strategic objectives 30% See below 75.6% 75.6% 75.6%
Personal objectives 20% See below 86.3% 50.0% 93.8%
Total 62.9% 55.6% 64.4%
* Group profit before tax and exceptional items of £95.6m less Finance income of £0.5m plus Finance costs of £0.3m.
Executive Directors were set a number of stretching strategic and personal performance objectives for FY 2022, which account for 50%
of total annual bonus opportunity. The Committee assesses performance against those objectives using a combination of quantitative and
qualitative information. A summary of the strategic objectives for the Executive Directors collectively and of the personal objectives along
with key performance highlights is shown on pages 118 and 119.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
118
Directors’ remuneration report continued
Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued
Notes and additional information (audited) continued
4. Annual bonus payments continued
Strategic
objectives Weighting Overview Performance target and assessment by Committee
Achievement
(% of max)
Drive core
business
12.5%
Deliver growth Target: Revenue of at least £316m.
Performance: Achieved in excess of target with record revenue of £341m, representing an
11% year-on-year increase which was marginally below the maximum target.
Additional reference points: Record sales volume of 4,727t, up 8% on prior year, plus price
increase programme.
Overall achievement between target and maximum.
85%
12.5%
Delivering the
supply and
cost plans
Target: Cost per tonne on budget with additional savings of £2.7m.
Achieved: Delivered budget with £3.1m of cost savings.
Additional reference points: Record volume (exceeding the target by over 400 tonnes) with
productivity results also ahead of budget.
Overall achievement between target and maximum.
70%
Differentiate
through
innovation
25%
Commercial
traction
in mega-
programmes
milestones to
deliver forecast
Target: Deliver five new product milestones and associated revenues.
Achieved: Six of eight new product milestones achieved with all revenue targets achieved.
Additional reference points: Revenue from new business 3% above budget with cost 33%
below. Sales from new products 6% of Group revenue at £19m. Roadmap to £10m revenue in
place for Magma, Trauma, E-mobility, Aerospace and Knee mega programmes.
Overall achievement between target and maximum.
75%
Create and
deliver future
value
25%
Deliver China
development
plan
Target: Completion and commissioning of new production facilities.
Achieved: New PVYX PEEK facility in China on track – mechanically complete with
commissioning underway. Investment in capability to underpin growth well advanced.
Overall achievement at target.
50%
Underpin
through safety,
sustainability
and capability
25%
Traction in
ESG strategy
Target: Achieve RIFR of <0.5. Manage communication of ESG progress to improve rating
agencies and /or investor assessments. Improve external positioning in relation to third party
ESG assessments. Improve performance across range of ESG KPIs.
Achieved: RIFR of 0.2, positive feedback from investors and ESG rating agencies (MSCI score
up to A from BB) and steps towards SBTi submission. Scope 3 and Lifecycle Assessment
projects completed to map full carbon footprint.
Additional reference points: Safety improved through near miss management, ‘Golden Rules’
and process safety.
Overall achievement at maximum.
100%
Total 100% 76%
Personal objectives Weighting Assessment of performance by Committee
Achievement
(% of max)
Jakob Sigurdsson
Drive core business
Manufacturingcost base
25%
Target: Improve manufacturing cost base and pricing structures.
Achieved: Pricing mix improved to an exit rate of £12m with cost savings ahead of budget and
targets for productivity and cost reduction initiatives delivering an outcome between target
and maximum.
Overall achievement between target and maximum.
70%
Differentiate through
innovation Mega-programmes
25%
Target: Achieve contract partner for Trauma mega programme plus deliver demonstrable
progress on up to two other mega programme partners.
Achieved: Trauma partner established, along with progress against other mega
programmemilestones.
Overall achievement between target and maximum.
75%
Create and deliver future
value Building core competence
and M&Astrategy
25%
Target: Develop to a conclusion up to three specific initiatives (covering both process and execution).
Achieved: Manufacturing partnership established in the year, with development and strategy
projects progressed ahead of Board expectations.
Overall achievement at maximum
100%
Underpin through safety,
sustainability and capability
DE&I development withESG
25%
Target: Increase female representation in leadership roles vs FY2021 and deliver at least
12targeted broader DE&I initiatives.
Achieved: Females in leadership up to 19% (FY 2021: 10%) with 26 DE&I initiatives delivered.
Additional reference points: New ESG function established.
Overall achievement at maximum.
100%
Total 100% 86%
CORPORATE GOVERNANCE
119
Annual Report 2022 Victrex plc
Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued
Notes and additional information (audited) continued
4. Annual bonus payments continued
Personal objectives Weighting Assessment of performance by Committee
Achievement
(% of max)
Martin Court
Drive core business
Further develop PEEKoffering
25% Target: Establish pipeline and market adoption plan for a PEEK offering in China.
Achieved: Board approved plan with progress on track in relation to execution of the pipeline and
the market adoption plan for a PEEK offering in China.
Overall achievement at maximum.
100%
Differentiate
throughinnovation
Enhance mega-programmes
25% Target: Establish enhanced innovation processes and controls to enhance delivery of mega programmes.
Achieved: Revised working protocols were established resulting in enhanced team engagement
and increased average project size.
Overall achievement between target and maximum.
75%
Create and deliver
futurevalue
Opportunities for energy
transition and renewable
rawmaterials
25% Target: Assess opportunities for both energy transition and renewable raw materials.
Achieved: Access to alternative fuels and technologies assessed, including hydrogen, with programmes
ahead of plan. Developed sustainable product applications, including wind turbine applications.
Overall achievement at maximum.
100%
Underpin through safety,
sustainability andcapability
Development of
innovationresources
25% Target: Establish a new graduate R&D programme and partnership with targeted universities.
Achieved: New R&D graduate programme established, plus new innovation partnerships with
academia and manufacturing groups.
Overall achievement at maximum.
100%
Total 100% 94%
Personal objectives Weighting Assessment of performance by Committee
Achievement
(% of max)
Ian Melling
Drive core business
ERP upgrade
50%
Target: Deliver ERP system in line with Board approved plan, maximum target
includes exceeding Board plan.
Achieved: New business-wide ERP system delivery on track, progressing well
against agreed timescales and within budget.
Overall achievement at target.
50%
Create and deliver future value
Corporate development activities
50%
Target: Support up to two initiatives in M&A process and product
development areas.
Achieved: Two initiatives on track.
Overall achievement at target.
50%
Total 100% 50%
The above reflects a full summary of the targets set and achievements delivered within the bounds of commercial confidentiality.
Based on performance to 30 September 2022, the annual bonus outcome for Executive Directors during the year is shown below.
Theabove reflects a full summary of the targets set and achievements delivered within the bounds of commercial confidentiality.
Measure
Annual bonus outcome
% of maximum % of salary
Bonus outcome
(£)
J O Sigurdsson 63% 94% 579,754
I C Melling
1
56% 69% 63,371
M L Court 64% 80% 259,834
1 I C Melling’s bonus has been pro-rated for the period of employment, in line with the approach used for the wider workforce.
Half of the bonus will be deferred in shares for three years. No further performance conditions apply. Deferred shares are subject to
continued service.
CORPORATE GOVERNANCE
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Directors’ remuneration report continued
Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued
Notes and additional information (audited) continued
5. Vesting of LTIP awards
The LTIP awards granted on 11 December 2019 and 12 February 2020 were based on performance to the year ended 30 September 2022.
The performance targets for these awards and actual performance against those targets were as follows with the Committee comfortable
with TSR vesting following considering the overall progress of the business and the current market wide share price volatility:
Metric Weighting
Vesting at threshold
(% of max)
Threshold
target
Stretch
target
2
Actual % vesting
Cumulative underlying earnings per share 75% 20% 352.9p 395.8p 253.7p 0%
Total shareholder return vs. FTSE 250 Index
(excluding investment trusts)
1
25% 25% -4.20% 26.80% -3.00% 26.9%
Total 100% Total vesting 6.73%
1 TSR measured over three financial years with a three-month average at the start and end of the performance period.
2 If the stretch target is achieved 100% of the element vests. Straight line vesting applies between the threshold and the stretch target.
The vesting details for the Executive Directors are therefore as follows:
Executive
1
Grant date Vest date
Number
of shares
at grant
Number
of shares
to vest
Number
of shares
to lapse
Dividend
equivalent
on shares
to vest
£
Estimated
value
3
£
J O Sigurdsson 11 December 2019 11 December 2022 29,327 1,972 27,355 4,244 39,603
12 February 2020
2
12 February 2023 5,865 394 5,471 666 7,731
M L Court 11 December 2019 11 December 2022 13,172 885 12,287 1,905 17,773
12 February 2020
2
12 February 2023 3,293 221 3,072 373 4,336
1 Richard Armitage’s options lapsed in accordance with the Plan rules following his leaving employment of the Company. For information relating to the
awards that vested in relation to the 30 September 2021 year end, please see page 104 in the 2021 Annual Report.
2 In 2019, LTIP awards at the outgoing policy level were granted on 11 December 2019. After the approval of the current remuneration policy at the
2020 AGM, the Committee granted top-up awards on 12 February 2020 so that the total value of awards granted was consistent with the approved
remuneration policy.
3 Estimated value of shares based on the three-month average share price during the month ended 30 September 2022 of £17.93. This value will be restated
in the single figure table next year based on the actual share price on the date of vesting.
The share price was £23.42 at the time of grant of the award for the December award and £23.48 for the February award, compared
totheshare price of £23.81 used to determine the grants and therefore none of the value of the award is due to share price appreciation.
Long-term incentives granted during the year (audited)
On 10 December 2021, the following LTIPs were granted to Executive Directors:
Executive Type of award Basis of award
Average share
price used
at grant
1
Number of shares
over which award
was granted
Face value
of award
% of face value
that would vest
at threshold
performance
Vesting
determined by
performance over
2
J O Sigurdsson Nil-cost option 175% of salary £24.6267 43,702 £1,076,236 21%
Three financial
years to
30 September
2024
M L Court Nil-cost option 150% of salary £24.6267 19,676 £484,555 21%
1 The share price at date of grant is the mid-market price quoted over a three-day average on 7, 8 and 9 December 2021 in accordance with the Plan rules.
2 An additional two-year holding period applies after the end of the three-year performance period.
The LTIP was awarded as nil-cost options with an exercise price of £nil. There is no change in the approach to the exercise price or date.
The award is subject to the performance conditions set out below:
Performance measure Weighting
Payment at
threshold Threshold Maximum
EPS (compound annual growth over three years) 70% 20% 7% p.a. 15.5% p.a.
Relative TSR vs FTSE 250 (excluding investment trusts) 20% 25% Median Upper quartile
Reduction in Scope 1 & Scope 2 emissions (per tonne PEEK produced) 10% 20% -2.5% p.a. -7. 2% p. a.
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Annual Report 2022 Victrex plc
Deferred shares granted in the year to 30 September 2022 (audited)
Awards of deferred bonus shares over the Company’s shares were granted to Executive Directors on 10 December 2021 as shown below.
The deferred share awards are based on 50% of the bonus awarded for the year to 30 September 2021. No further performance conditions
apply and vesting of the awards is subject to continued employment at the date of vesting in three years’ time.
Executive Type
Number of
shares granted
1
Face value of the
award at grant date Grant date Vest date
J O Sigurdsson Nil-cost options 15,841 £392,540 10 December 2021 10 December 2024
M L Court Nil-cost options 7,5 41 £186,866 10 December 2021 10 December 2024
1 The share price at date of grant is £24.63 and is the mid-market price quoted over a three-day average on 7, 8 and 9 December 2021 in accordance
withthe Plan rules. The closing share price on the date of grant was £24.78.
Sharesave options granted during the year (audited)
During the year Jakob Sigurdsson received an award under the Company’s Save as You Earn Scheme (‘SAYE’). The details are set out below.
Name
Number of options
granted
1
Exercise price
1
Face value at grant
2
% of award vesting
at threshold
Date on which
exercisable
J O Sigurdsson 951 £18.912 £17,985 n/a 1 April 2025
1 The exercise price represents a 20% discount to the average price used to determine the number of shares comprising the award which was the share price
on 10 January 2022 of £23.64.
2 The number of shares included in the award was determined based on his expected monthly saving over a 36-month period of £500 per month.
Payments for loss of office and to past Directors (audited)
Richard Armitage stepped down from the Board on 27 May 2022. As disclosed in the 2021 Annual Report, Richard was eligible to
receive salary, pension and benefits during the period of his employment. The value received under each element is set out in the single
figure table.
Richard did not receive an annual bonus or LTIP award in FY 2022. All outstanding LTIP awards lapsed on cessation of employment and he
received no further payments. Richard Armitage’s deferred bonus share award granted on 10 December 2018 vested on 10 December 2021,
asRichard was still employed on this date. There are no outstanding deferred bonus share awards. Richard Armitage is required to retain all
of his shareholding upon cessation for two years as the threshold of 200% of salary in accordance with the Shareholding Guidelines under
the remuneration policy was not met.
Larry Pentz retired from the Board on 11 February 2022 and received a pro-rata fee for the period until leaving the Board (based on his
FY2022 fee of £206,610 p.a., being the FY 2021 fee plus 3% in line with the wider workforce) and benefits of £6,000.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
122
Directors’ remuneration report continued
Statement of Directors’ shareholdings and share interests (audited)
During employment, Executive Directors are required to build and maintain a shareholding equivalent to 200% of their base salary.
Executive Directors are required to retain 50% of the net of tax value of any vested LTIP shares until the guideline is met. The table
below summarises each Director’s current shareholding, and share awards subject to performance conditions, and whether or not the
shareholding requirement has been met.
Director
Beneficially
owned at
1 October
2021
Beneficially
owned
at
30 September
2022
1
Unvested
options
with
performance
conditions
(LTIP)
Unvested
options
without
performance
conditions
(DBS/SAYE)
Vested
unexercised
options
(LTIP/
DBS/SAYE) Total
Total for
shareholding
guidelines
Shareholding
as a % of
salary at
30 September
2022
2
J O Sigurdsson 16,200 22,000 124,686 16,792 10,237 173,715 35,828 99%
M L Court 12,426 22,613 58,221 8,450 2,269 91,553 27,681 146%
I C Melling
3
— 1,000 — — — 1,000 1,000 5%
R J Armitage 6,396 7,133 — — 1,562 8,695 7,133 32%
V Cox — — — — — — n/a n/a
B W D Connolly 350 850 — — — — n/a n/a
J E Ashdown — — — — — — n/a n/a
D Thomas — — — — — — n/a n/a
J E Toogood 500 500 — — — — n/a n/a
R Rivaz — — — — — — n/a n/a
L Pentz 4,000 4,000 — — — — n/a n/a
1 The table above includes the holdings of persons connected with each of the Directors. The holdings stated represent shares beneficially held.
2 The shareholding as a percentage shown above is based on the average share price during September 2022 of £17.01.
3 Ian Melling joined the Company on 29 June 2022 with no award of LTIP made in FY 2022.
There are no unvested scheme interests in the form of shares.
Martin Court acquired an additional 18 shares during the period from 1 October 2022 to the date of this report through his participation
inthe All-Employee Share Ownership Scheme.
There have been no other changes in the Directors’ shareholdings and share interests up to the date of this report.
LTIP awards are nil-cost options. Vested but unexercised LTIPs are not subject to performance conditions as they are out of the performance
period. The unvested LTIPs are subject to EPS and TSR performance conditions, and an ESG measure also applying to options granted from
2021. Outstanding deferred bonus share awards are nil-cost options which are not subject to performance conditions. Outstanding share
awards under all-employee share plans relate to the options issued under the Save As You Earn Scheme; none of this type of option are
subject to performance conditions. The details of outstanding scheme interests are included in the table above.
The aggregate gain for Martin Court in the year from the exercise of awards granted under the LTIP and DBS was £411,249 based on the
respective share price on the date of exercise of £24.78. The gain for Richard Armitage in the year from the exercise of awards granted
under the DBS was £31,427 based on the share price on the date of exercise of £24.75.
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Annual Report 2022 Victrex plc
Details of outstanding scheme interest (audited)
The table below sets out details of outstanding share awards held by Executive Directors. The table shows changes in the options held by each
Director, taking into account grants made, options which have lapsed and any options exercised. The closing position at 30 September 2022
is shown in bold.
Plan Grant date
Exercise
price
No. of
share
awards at
1 October
2021
Granted
during
the year
Vested
during
the year
Exercised
during
the year
Lapsed
during
the year
No. of
share
awards
at 30
September
2022
End of
performance
period
Date
from which
exercisable Expiry date
M L Court
LTIP 08/12/2016 nil 14,550 — — 14,550 — — 30/09/2019 08/12 /2021 08/12/2026
08/12/2017 nil 2,269 — — — — 2,269 30/09/2020 08/12/2022 08/12/2027
10/12/2018 nil 12,972 — — — 12,972 — 30/09/2021 10/12/2023 10/12/2028
11/12 / 2019 nil 13,172 — — — — 13,172 30/09/2022 11/12 / 2024 11/12 / 2029
12/02/2020 nil 3,293 — — — — 3,293 30/09/2022 12/02/2025 12/02/2030
14/12/2020 nil 22,080 — — — — 22,080 30/09/2023 14/12/2025 14/12/2030
10/12/2021 nil — 19,676 — — — 19,676 30/09/2024 10/12/2026 10/12/2031
Total 68,336 19,676 — 14,550 12,972 60,490
SAYE 01/04/2020 £19.97 450 — — — — 450 n/a 01/04/2023 30/09/2023
01/04/2021 £19.60
459 — — — — 459 n/a 01/04/2024 30/09/2024
Total 909 — — — — 909
Deferred
shares 10/12/2018 nil 2,046 — — 2,046 — — n/a 10/12/2021 10/12/2026
10/12/2021 nil — 7,541 — — — 7,541 n/a 10/12/2024 10/12/2029
Total 2,046 7,5 41 — 2,046 — 7,541
J O Sigurdsson
LTIP 08 /12/2017 nil 4,890 — — — — 4,890 30/09/2020 08/12/2022 08/12/2027
10/12/2018 nil 29,586 — — — 29,586 — 30/09/2021 10/12/2023 10/12/2028
11/12 / 2019 nil 29,327 — — — — 29,327 30/09/2022 11/12 / 2024 11/12 / 2029
12/02/2020 nil 5,865 — — — — 5,865 30/09/2022 12/02/2025 12/02/2030
14/12/2020 nil 45,792 — — — — 45,792 30/09/2023 14/12/2025 14/12/2030
10/12/2021 nil — 43,702 — — — 43,702 30/09/2024 10/12/2026 10/12/2031
Total 115,460 43,702 — — 29,586 129,576
SAYE 01/04/2019 £19.20 937 — 937 — — 937 n/a 01/04/2022 30/09/2022
01/04/2022 £18.91 — 951 — — — 951 n/a 01/04/2025 30/09/2025
Total 937 951 937 — — 1,888
Deferred
shares 10/12/2018 nil 4,410 — — — — 4,410 n/a 10/12/ 2021 10/12/2026
10/12/2021 nil — 15,841 — — — 15,841 n/a 10/12/2024 10/12/2029
Total 4,410 15,841 — — — 20,251
Note: I C Melling does not have any outstanding scheme interests.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
124
Directors’ remuneration report continued
Total shareholder return graph
The following graph shows the cumulative total shareholder return of the Company over the last 10 financial years relative to the FTSE 250
Index. The FTSE 250 Index has been selected for consistency as it is the Index against which the Company’s total shareholder return is
measured for the purposes of the LTIP. In addition, the Company is a constituent of the Index. TSR is a measure of the returns that a
company has provided for its shareholders, reflecting share price movements and assuming reinvestment of dividends. Data is averaged
over three months at the end of each financial year.
£0
£50
£100
£150
£200
£250
£300
£350
30
September
2012
30
September
2013
30
September
2014
30
September
2015
30
September
2016
30
September
2017
30
September
2018
30
September
2019
30
September
2020
30
September
2021
30
September
2022
Value of hypothetical £100 investment
Victrex
FTSE 250
£217
£196
Source: DataStream Return Index.
CEO total remuneration
The total remuneration figures for the Chief Executive during each of the last 10 financial years are shown in the table below. The total remuneration
figure includes the annual bonus based on that year’s performance and LTIP awards based on three-year performance periods ending in the relevant
year. The annual bonus pay-out and LTIP vesting level as a percentage of the maximum opportunity are also shown for each of these years.
Year ended
30September 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Name J O
Sigurdsson
J O
Sigurdsson
J O
Sigurdsson
J O
Sigurdsson
J O
Sigurdsson
D R
Hummel
D R
Hummel
D R
Hummel
D R
Hummel
D R
Hummel
Total
remuneration £1,440,828 £1,526,756 £888,780 £763,672 £1,071,351
£1,462,274
£6 68, 211 £735,103 £832,147 £709,288
Annual bonus
(% of maximum) 62.9% 93.3% 0% 0% 65% 77.6% — 22.5% 53.1% —
1
LTIP vesting
(% of maximum) 6.73% 0% 19.8% n/a
2
n/a
2
22.1% — — — 16.56%
1 There were no bonus payments made to Directors in 2013 as they waived their entitlement to receive bonus payments.
2 Jakob Sigurdsson was appointed as CEO on 1 October 2017. His first tranche of LTIPs was eligible to vest in 2020.
CORPORATE GOVERNANCE
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Annual Report 2022 Victrex plc
Annual percentage change in Director and employee remuneration
The table below shows the percentage change in the Directors’ salary, benefits and annual bonus over the last three financial years,
compared to employee average.
Average percentage change 2021–2022 Average percentage change 2020–2021
1
Average percentage change 2019–2020
1
Salary
Taxable
benefits
Annual
bonus Salary
Taxable
benefits
Annual
bonus Salary
Taxable
benefits
Annual
bonus
J O Sigurdsson
2
10.30% (5.40)% (25.70)% 0.00% (24.50)% 100.00% 2.30% (8.10)% 0.00%
I C Melling n/a n/a n/a
R J Armitage
3
(34.00)% 9.00% 0.00% 0.00% 0.50% 0.00% 5.00% 1.60% 0.00%
M L Court
4
3.00% 80.00% (30.10)% 0.00% 0.50% 100.00% 5.00% 1.60% 0.00%
Dr V Cox n/a n/a n/a
L C Pentz
3
(62.10)% 0.00% n/a 0.00% 9.10% n/a 2.30% 0.00% n/a
J E Ashdown 4.20% n/a n/a 0.00% n/a n/a 3.40% n/a n/a
B W D Connolly 4.30% n/a n/a 0.00% n/a n/a 20.80% n/a n/a
D Thomas 4.20% n/a n/a 0.00% n/a n/a 3.40% n/a n/a
J E Toogood
5
12.20% n/a n/a 0.00% n/a n/a 4.20% n/a n/a
R Rivaz 4.30% n/a n/a 140.00% n/a n/a n/a n/a n/a
Employee average (0.40)% (11.04)% (43.10)% (2.93)% (2.02)% 100.00% 1.78% 7.56% 0.00%
1 Explanations for large increases in between 2020 and 2021, and 2019 and 2020, are provided in the previous Annual Reports.
2 Jakob Sigurdsson’s benefits reduced due to decreased education benefits for his children in FY 2021.
3 Richard Armitage and Larry Pentz both received pro-rated salary/fees and benefits up to their last date of service.
4 Martin Court’s benefits increased due to the introduction of communication, tax, services and insured benefits allowance.
5 Jane Toogood’s fee increase is in line with new responsibility as Chair of the CRC as detailed on page 127.
As the Parent Company does not have any employees, the employee average is based on global employees. The reason for the decreases
year on year was predominantly due to a change in the distribution of the global workforce and the impact of exchange rate movements.
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends:
2022
£m
2021
£m % change
Staff costs
1
72.3 71.5 1%
Dividends
2
51.8 51.6 0%
1 FY 2021 staff costs are offset by a £0.8m credit in respect of restructuring costs. No such credit was included in FY 2022.
2 2022 includes a proposed final regular dividend of 46.14p. The 2021 comparative excludes the special dividend of £43.5m (based on 50p per share).
£3.0m (FY 2021: £3.0m) of the staff costs figures relate to pay for the Directors (excluding pension contributions), of which £1.3m relates
to the highest paid Director (FY 2021: £1.4m). Total pension contributions were £0.2m (FY 2021: £0.2m) and for the highest paid Director
were £0.1m (FY 2021: £0.1m).
The dividend figures relate to amounts payable in respect of the relevant financial year.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
126
CEO pay ratio
Below we have calculated our UK CEO pay ratio comparing the CEO single total figure of remuneration to the equivalent pay for the lower quartile,
median and upper quartile UK employees (calculated on a full-time equivalent basis). The ratios have been calculated in accordance with the
Companies (Miscellaneous Reporting) Regulations 2018 which first formally applied to Victrex from the financial year beginning 1 October 2019.
CEO pay ratio
Financial year Calculation methodology 25th percentile pay ratio
50th percentile (median) pay ratio
75th percentile pay ratio
2022 Option A 31.78 27.41 22.43
2021 Option A 32.60 28.38 22.87
2020 Option A 20.22 17.66 13.85
2019 Option A 17.82 15.91 12.56
Victrex reports against Option A as this option is considered to be the most statistically robust. The ratios are based on total pay and benefits
as well as short-term and long-term incentives applicable for the financial year 1 October 2021 to 30 September 2022. The reference
employees at the 25th, 50th and 75th percentile have been determined by reference to the last day of the financial year, 30 September 2022,
and all items of remuneration for employees have been calculated on the same basis as the single figure for the CEO.
The regulations require the total pay and benefits and the salary component of total pay and benefits to be set out as follows:
Base salary
Total pay
and benefits
CEO remuneration £615,000 £1,440,828
25th percentile employee £37,265 £45,336
50th percentile employee £42,802 £52,561
75th percentile employee £44,488 £64,250
Our principles for pay setting and progression in our wider workforce are the same as for our executives – total reward being sufficiently
competitive to attract and retain high calibre individuals without over-paying and providing the opportunity for individual development and
career progression. The pay ratios reflect how remuneration arrangements differ as accountability increases for more senior roles within the
organisation and in particular the ratios reflect the weighting towards long-term value creation and alignment with shareholder interests
for the CEO.
In FY 2022, the CEO pay ratio has improved slightly. This is in part due to lower long-term incentive pay-outs for the CEO and higher
remuneration for employees due to increases in base pay and full bonus pay-out during FY 2022. The CEO pay ratio deteriorated slightly
in 2021 due to the partial vesting of the 2017 LTIP and a pay-out under the annual bonus. In 2020 and 2019, the bonus did not meet
threshold performance, resulting in lower pay ratio figures.
We are satisfied that the median pay ratio reported this year is consistent with our wider pay, reward and progression policies for
employees. The median reference employee has the opportunity for annual pay increases, annual performance payments and career
progression and development opportunities.
Implementation of policy in FY 2023
The section below sets out the implementation of the remuneration policy in FY 2023 which has been set in line with the remuneration
policy to be put to shareholders at the 2023 AGM. There are no significant changes in the implementation of the policy proposed
in FY 2023.
Salaries and fees
Executive Directors
During the year the Committee reviewed the salary increases for the wider workforce taking into account high inflation and the increase in
cost of living. As a result of the review the wider workforce received an average increase of 5%. In addition, wider workforce employees
(excluding senior managers) received an additional one-off payment of up to £1,200 as a support payment to recognise the extreme cost of
living increase in 2022. The Remuneration Committee determined that the Executive Directors should receive an increase below that of the
average wider workforce rate at 4% of salary. With regard to Ian Melling, in view of his joining the Company part way through the year, it
was agreed that his increase would be limited to 2% of salary notwithstanding that normal Company policy is to increase in line with the
wider workforce where employment starts prior to 1 July in the year.
2023 2022 % increase
J O Sigurdsson £639,600 £615,000 4%
I C Melling £357,000 £350,000 2%
M L Court £335,966 £323,044 4%
Directors’ remuneration report continued
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127
Annual Report 2022 Victrex plc
Implementation of policy in FY 2023 continued
Non-executive Directors
The Company’s approach to Non-executive Directors’ remuneration is set by the Board, with account taken of the time and responsibility
involved in each role, including, where applicable, the chairship of Board Committees.
As detailed in the Committee Chair’s introductory letter on page 105, to reflect the additional time and responsibilities of the Chair of the
newly formed Corporate Responsibility Committee, a Chair fee of £11,000 p.a. was introduced on 1 May 2022.
The Committee fees will remain at FY 2022 levels as they are considered aligned to market. The base fee will increase in line with the
Executive Directors at 4%.
The table below shows the fees for the Board with effect from 1 October 2022.
Position 2023 2022 % increase
Chair
1
£280,000 £280,000 0%
Base fee £53,560 £51,500 4%
Senior Independent Director £9,500 £9,500 0%
Workforce Engagement Director £9,000 £9,000 0%
Audit Committee Chair £11,000 £11,000 0%
Remuneration Committee Chair £11,000 £11,000 0%
Corporate Responsibility Committee Chair £11,000 £11,000 0%
1 V Cox waived her proposed fee increase for FY 2023.
Annual bonus
For FY 2023 the maximum annual bonus will be 150% of salary for the Chief Executive and 125% of basic salary for the other Executive
Directors. Half of any bonus earned will be deferred into shares for three years.
Targets will be a combination of PBIT (weighted at 60%), strategic objectives (weighted at 30%) and an executive’s personal performance
(weighted at 10%). Profit targets for FY 2023 will be based on PBIT (pre-exceptional items) with the Committee retaining discretion to
determine the impact of any exceptional items on the testing of the targets, to ensure performance outcomes are a fair reflection of
underlying business performance. Similar to previous years, the non-financial targets will be subject to an underpin equal to the threshold
profit target. The Committee retains the ability to adjust bonus outcomes in the event that there is a perceived disconnect between
performance and reward.
The Company believes that this combination of financial, strategic and personal performance objectives reflects the strategic focus on PBIT
while maintaining a measurement of progression against strategic milestones and personal contribution across key operational goals for the
business. The Committee will continue to run a thorough annual review of strategic and personal objectives to ensure they are measurable,
robust and aligned with overall Group-wide objectives. The Committee considers certain aspects of the performance targets for the annual
bonus to be commercially sensitive and, as such, they will be disclosed either at the end of the performance period or when they are no
longer commercially sensitive.
Long-term incentives
The Committee intends to make LTIP awards at 175% of salary for the CEO and 150% of salary for other Executive Directors. In recognition
of current share price volatility the Committee is to include the ability to adjust the number of shares vesting in the FY 2023 long-term
incentive award in the event there was to be a perceived windfall gain on vesting.
The extent to which the LTIP awards will vest will be determined by the performance measures listed below.
Targets
Performance measure Weighting Payment at threshold Threshold Maximum
EPS (compound annual growth over three years) 60% 20% 5% 12%
Relative TSR vs FTSE 250 (excluding investment trusts) 30% 25% Median Upper quartile
Reduction in market-based Scope 1 & 2 emissions
(per tonne PEEK produced) FY 2025 compared to FY 2022 10% 20% -3.4% p.a. -9.1% p.a.
The Committee retains discretion to adjust vesting outcomes (e.g. if TSR vesting is not considered aligned with the underlying financial
performance of the Company or EPS vesting outcomes are impacted by relevant events such as material acquisitions or divestments or
material changes in corporate tax rates). Any such discretion would be used to ensure that the performance targets fulfil their original intent
and were not more or less challenging than intended when set but for the relevant events in the performance period. Furthermore, as set
out in the Directors’ remuneration policy, awards are granted subject to malus and clawback provisions.
As noted in the Chair’s Introductory letter, the annual bonus and long-term incentive plan targets were the subject to minor adjustments to
the weightings between metrics to better align with current business priorities. The targets were set to be similarly challenging to those set
in prior years in light of business planning and the wider economic environment.
This Directors’ remuneration report was approved by the Board on 5 December 2022 and is signed on its behalf by:
Janet Ashdown
Chair of the Remuneration Committee
6 December 2022
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
128
Annual General
Meeting
The Notice of the 2023 Annual General Meeting of the Company (‘AGM’) and explanatory notes are set out
onpages 187 to 196. The AGM will be held on Friday 10 February 2023 at 11am at the offices of J.P. Morgan,
1JohnCarpenter Street, London EC4Y 0JP.
Members, appointed representatives and proxies are requested not to attend the meeting if they have tested
positive for COVID-19 or if they are displaying symptoms of COVID-19.
Whether or not they propose to attend the AGM in person, all shareholders are encouraged to vote on each of the
resolutions set out in the Notice of AGM by appointing a proxy to act on their behalf. Shareholders are strongly
encouraged to appoint the Chair of the meeting as their proxy. This will ensure that the appointing shareholder’s
vote will be counted if ultimately they are (or any other proxy they might otherwise choose to appoint is) not able to
attend the AGM for any reason. If a shareholder appoints the Chair of the meeting as proxy, the Chair will vote in
accordance with the shareholder’s instructions. If the Chair is given discretion as to how to vote, he or she will vote
in favour of each of the resolutions in the Notice of AGM. All proposed resolutions in the Notice of AGM will, once
again, be put to the vote on a poll.
If shareholders have any questions for the Board on the business of the meeting, please send them in advance of the
AGM to ir@victrex.com. We will aim to respond to all questions as quickly as possible. A summary and key themes
of the questions and answers will be posted on our website, www.victrexplc.com, on the morning of the AGM.
Results and dividends
Group profit before tax for the year was £87.7m (FY 2021: £92.5m).
The Directors recommend the payment of a final dividend of 46.14p per ordinary share that, subject to shareholder
approval at the AGM on 10 February 2023, will be paid on 17 February 2023 to all shareholders on the register of
members as at 6pm on 20 January 2023. Together with the interim dividend paid in June 2022 this makes a total
regular dividend of 59.56p per ordinary share for the year (FY 2021: 59.56p per ordinary share).
The Company has established Employee Benefit Trusts (‘EBTs’) in connection with the obligation to satisfy future
share awards under certain employee share incentive schemes. The trustees of the EBTs have waived their rights to
receive dividends on those ordinary shares of the Company held in the EBTs. Such waivers represent less than 1%
of the total dividend payable on the Company’s ordinary shares. There are no other arrangements in place under
which a shareholder has waived or agreed to waive any dividends.
Important events since
30 September 2022
There have been no important events affecting the Company or any member of the Group since 30 September 2022.
Financial instruments
Information on the Group’s financial risk management objectives and policies and its exposure to credit risk, liquidity
risk, interest rate risk and foreign currency risk can be found in note 16 to the financial statements. Such information
is incorporated into this Directors’ report by reference and is deemed to form part of this Directors’ report.
Directors
The Directors of the Company and their biographical details are set out on pages 78 and 79.
Directors’ interests in
the Company’s shares
The interests of the Directors of the Company and their connected persons at 30 September 2022 in the issued share
capital of the Company (or other financial instruments) which have been notified to the Company in accordance with
the Market Abuse Regulation are set out in the Directors’ remuneration report on page 122. The biographies of all
Directors serving at the date of this Annual Report are shown on pages 78 and 79. Details of Directors’ interests in
shares are provided in the Directors’ remuneration report on pages 122 and 123.
The Directors’ report required under the Companies Act 2006 comprises this Directors’ report (pages 128 to 131), the Corporate
governance report (pages 76 to 131) and the Sustainability report set out in the Strategic report (pages 44 to 74). The management report
required under Disclosure Guidance and Transparency Rule 4.1.8R comprises the Strategic report (pages 1 to 74) and this Directors’ report.
This Directors’ report meets the requirements of the corporate governance statement required under Disclosure Guidance and Transparency
Rule 7.2. As permitted by legislation, some of the matters required to be included in the Directors’ report have been included in the
Strategic report by cross-reference.
Directors’ report – other statutory information
CORPORATE GOVERNANCE
129
Annual Report 2022 Victrex plc
Major interests
inshares
The following information has been disclosed to the Company on request pursuant to the Financial Conduct
Authority’s Disclosure Guidance and Transparency Rules and is published on a Regulatory Information Service and
on the Company’s website. The following has been received, in accordance with DTR 5, from holders of notifiable
interests in the Company’s issued share capital as at 23 November 2022:
Holding %
Sprucegrove Investment Management (CA) 8,354,218 9.60
The Vanguard Group Inc (US) 6,265,314 7.20
BlackRock Inc 5,668,355 6.52
Fidelity International Ltd 4,321,792 4.71
Baillie Gifford & Co Ltd (SC) 3,836,057 4.41
Columbia Threadneedle Investments 3,136,760 3.61
Brown Capital Management Inc (US) 3,079,544 3.54
Schroder Investment Management Ltd 2,989,930 3.44
Royal London Asset Management Ltd 2,891,095 3.32
The positions stated above represent the holdings in shares either in their own right or on behalf of third parties and may
not represent the total voting rights (or authority to vote) as at 23 November 2022. The information provided above was
correct at the date of notification. However, these holdings may have changed since the Company was notified.
Appointment
andreplacement
ofDirectors
The Company’s Articles of Association (the ‘Articles’) provide that the Company may by ordinary resolution at a
general meeting appoint any person to act as a Director, provided that notice is given of the resolution identifying
the proposed person by name and, if he or she has not been recommended by the Board, that the Company
receives written confirmation (within the time frame specified in the Articles) of that person’s willingness to act as
Director. The Articles also empower the Board to appoint as a Director any person who is willing to act as such.
The maximum possible number of Directors under the Articles is 12, unless the Company decides otherwise by
ordinary resolution. The Articles provide that the Company may by special resolution, or by ordinary resolution of
which special notice is given, remove any Director before the expiration of his or her period of office. The Articles
also set out specific circumstances in which a Director shall vacate office.
The Articles require that at each Annual General Meeting any Director who was appointed after the previous
Annual General Meeting must be proposed for election by the shareholders. Additionally, any other Director who
has not been elected or re-elected at one of the previous two Annual General Meetings must be proposed for
re-election by the shareholders. The Articles also allow the Board to select any other Director to be proposed for
re-election. In each case, the rules apply to Directors who were acting as Directors on a specific date selected
by the Board. This is a date not more than 14 days before, and no later than, the date of the Notice of AGM.
Notwithstanding the provisions of the Articles, it is the Company’s current practice that all Directors stand for
election or re-election on an annual basis in compliance with the provisions of the UK Corporate Governance Code.
The Articles are available on the Company’s website (www.victrexplc.com).
Indemnification
ofDirectors
The Company has granted indemnities in favour of all of its Directors under Deeds of Indemnity (‘Deeds’).
Deedswere in force during the year ended 30 September 2022 (or from the date of appointment for those
appointed during the year) and remain in force as at the date of this report. The Deeds are available for inspection
during normal business hours on Monday to Friday (excluding public holidays) at the Company’s registered office.
The Company has appropriate directors’ and officers’ liability insurance cover in place in respect of legal action
brought against the Directors. An appointment can be made with the General Counsel & Company Secretary
toreview the Deeds. Please contact cosec@victrex.com.
Conflict of
interestduties
Procedures are in place to ensure compliance with the Directors’ conflict of interest duties set out in the Companies
Act 2006. The Company has complied with these procedures during the year and the Board believes that these
procedures operate effectively. During the year, details of any new conflicts or potential conflict matters were
submitted to the Board for consideration and, where appropriate, these were approved. Authorised conflict or
potential conflict matters will continue to be reviewed by the Board at least on an annual basis.
Principal activity
The Company is a public limited company, incorporated in England, registration number 2793780. The principal
activity of the Company is that of a holding company. The principal activity of the Group is the manufacture and
sale of high performance polymers.
Branches
The Company does not have any branches outside the UK. Victrex Manufacturing Limited is a subsidiary of the
Company and has a branch in Korea.
Information set out in
the Strategic report
Certain information required to be included in the Directors’ report has been set out in the Strategic report,
including information to be disclosed pursuant to section 414C(11) of the Companies Act 2006. The Strategic
reportrequired by the Companies Act 2006 can be found on pages 1 to 74. The report sets out the business model
(pages 12 and 13), strategy (pages 14 and 15) and likely future developments (pages 2 to 74). Itcontains a review
of the business and describes the development and performance of the Group’s business duringthe financial year
and the position at the end of the financial year. It also contains a description of the principal risks and uncertainties
facing the Group (pages 34 to 40). Such information is incorporated into thisreport byreference and is deemed to
form part of this Directors’ report.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
130
Directors’ report – other statutory information continued
Employee and
otherstakeholder
engagement
Details of the Company’s arrangements for engaging with employees and actions taken during the year can be found
on pages 66 to 71 of the Strategic report and page 91 of the Corporate governance report. Details of the arrangements
in place under which employees can raise any matter of concern are set out on page 72. Disclosures relating to the
Group’s human rights and anti-bribery policies are contained on pages 72 and 73. The Group’s non-financial information
statement is set out on page 74. Details of employee involvement in Company performance through share scheme
participation can be found on page 70. Details of how the Directors have engaged with employees and how the
Directors have had regard to employee interests and the effect of that regard on the principal decisions taken by the
Company during the financial year can be found in the section 172 statement on pages 20 to 22. These are deemed to
form part of this Directors’ report.
A summary of how the Company has engaged with suppliers, customers and other third parties can be found on pages
20 to 21 and 91. Details of how the Directors have had regard to the need to foster the Company’s business relationships
with suppliers, customers and others, and the effect of that regard on the principal decisions taken by the Company
during the financial year, are contained in the section 172(1) statement on pages 20 to 22. Further information on our
payment practices with suppliers can be found on the government’s reporting portal. In addition, during the year, we
have continued to be a signatory to the Prompt Payment Code for suppliers. Further details can be found on page 91.
These are deemed to form part of this Directors’ report.
Political donations
No contributions were made to political parties during the year ended 30 September 2022 (FY 2021: £nil).
Employment policies
The Group’s policies as regards the employment of disabled persons including those who have become disabled during
their employment with the Group, and a description of actions the Group has taken to encourage greater employee
involvement in the business, are set out on page 68. Such information is incorporated into this Directors’ report by
reference and is deemed to form part of this Directors’ report. Read more about the Group’s diversity on pages 66 to 69.
Environmental matters
Information on our greenhouse gas emissions energy consumption and energy efficiency actions required to be
disclosed by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, Schedule 7 of
the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008/410 and our TCFD
reporting is set out in the Sustainability report on pages 52 to 65. Such information is incorporated into this report
by reference and is deemed to form part of this Directors’ report.
Research &
Development
Our innovative culture is reflected in high Research & Development investment (of approximately 5–6% of revenue),
with the majority of this being on development, as we seek to move our programmes faster towards greater
commercialisation. The Group’s spend on Research & Development is disclosed in note 10 to the financial statements.
Such information is incorporated into this report by reference and is deemed to form part of this Directors’ report.
Share capital
The Company has a single class of shares in the form of ordinary shares with a nominal value of 1p per share which have
a Premium Listing on the London Stock Exchange and trade as part of the FTSE 250 Index under the symbol VCT. Details
of the Company’s share capital and reserves for own shares are given in note 22 to the financial statements. During the
year 26,456 shares were issued in respect of options exercised under employee share schemes. Details of these schemes
are summarised in note 21 to the financial statements. The information in notes 21 and 22 to the financial statements is
incorporated into this Directors’ report by reference and is deemed to form part of this Directors’ report.
Rights and obligations
attaching to shares
The rights and obligations attaching to shares are set out in full in the Company’s Articles of Association which are
available on the Company’s website (www.victrexplc.com). The holders of ordinary shares are entitled to receive
dividends when declared, to receive the Company’s Annual Report, to attend and speak at general meetings of the
Company, to appoint proxies and to exercise voting rights.
There are no restrictions on transfer or limitations on the holding of ordinary shares and no requirements to obtain prior
approval to any transfer except where the Company has exercised its right to suspend their voting rights, withhold a
dividend or prohibit their transfer following failure by the member or any other person appearing to be interested in
the shares to provide the Company with information requested under section 793 of the Companies Act 2006. The
Directors may, in certain limited circumstances, also refuse to register the transfer of a share in certified form. This
includes where the instrument of transfer does not comply with the specific requirements of the Articles of Association,
where the shares are not fully paid up or where the transfer is in favour of more than four joint transferees. The Directors
may also refuse to register the transfer of an uncertificated share if it is in favour of more than four persons jointly or
if any other circumstances apply in respect of which refusal to register a share transfer is permitted or required by the
Uncertificated Securities Regulations 2001. No shares carry any special rights with regard to control of the Company and
there are no restrictions on voting rights except that a shareholder has no right to vote in respect of a share unless all
sums due in respect of that share are fully paid and except also where the Company suspends voting rights as referred
to above in the event of non-disclosure of an interest as permitted by the Articles of Association. There are no known
agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights
and no known arrangements under which financial rights are held by a person other than the holder of the shares.
Shares acquired by employees under employee share schemes rank equally with the other shares in issue and have
no special rights.
Own shares held
As at the date of this Annual Report, the Company does not hold any shares as treasury shares. Details of the
Company’s share capital are given in note 22 to the financial statements. A summary of the Directors’ powers in
relation to buying back shares is set out below in the paragraph entitled ‘Powers of the Directors in relation to share
capital’. As part of routine resolutions which are proposed to shareholders, the Directors will be seeking to renew
the authority allowing the Company to purchase its own shares, which is set out in Resolution 21 of the Notice of
AGM and which can be found on page 189.
No market purchases of the Company’s own shares were made during the year ended 30 September 2022 or from
1 October 2022 up to the date on which this Annual Report was approved.
A total of 87,903 ordinary shares are held by the Employee Benefit Trusts in order to satisfy the exercise of options
by Directors under the Company’s 2009 and 2019 Long Term Incentive Plans (‘LTIPs’) and the 2017 Deferred
Bonus Plan. No shares were purchased by the Employee Benefit Trusts in the financial year to 30 September 2022.
TheDirectors and certain participating employees are beneficiaries of the Employee Benefit Trusts.
CORPORATE GOVERNANCE
131
Annual Report 2022 Victrex plc
Related party
transactions
During the year ended 30 September 2022, the Company did not have any material transactions or transactions of an
unusual nature with, and did not make loans to, related parties in which any Director has or had a material interest.
Details of related party transactions are given in note 23 to the financial statements.
Nominees, financial
assistance and liens
During the year ended 30 September 2022, no shares in the Company were acquired by the Company’s nominee or by
a person with financial assistance from the Company, in either case where the Company has a beneficial interest in the
shares (and no person acquired shares in the Company in any previous financial year in its capacity as the Company’s
nominee or with financial assistance from the Company). Furthermore, the Company did not obtain or hold a lien or
other charge over its own shares.
Change of control
There are no significant agreements that take effect, alter or terminate on change of control of the Company following
a takeover. None of the Directors’ or employees’ service contracts contain provisions providing for compensation for
loss of office or employment that occurs because of a takeover bid. The rules of the Company’s employee share plans
set out the consequences of a change in control of the Company on participants’ rights under the plans.
Generally, such rights will vest and become exercisable on a change of control subject to a separate determination as
to the satisfaction of performance conditions.
Amendment of Articles
ofAssociation
The Company’s Articles of Association may only be amended by Special Resolution of the Company at a general
meeting of its shareholders.
Powers of the
Directorsinrelation
toshare capital
The powers of the Directors are determined by the Company’s Articles of Association, UK legislation including the
Companies Act 2006 and any directions given by the Company in general meeting.
The Directors were granted authority at the 2022 Annual General Meeting to allot shares in the Company or to
grant rights to subscribe for, or to convert any securities into, shares in the Company: (i) up to a maximum aggregate
nominal amount representing approximately one third of the issued share capital (as at the last practicable date
before the publication of the 2022 Notice of AGM) in any circumstances; and (ii) up to a further maximum aggregate
nominal amount representing approximately one third of the issued share capital in connection with a rights issue
only. This authority is due to expire at the 2023 Annual General Meeting when shareholders will be invited to grant a
similar allotment authority.
The Directors were also empowered at the 2022 Annual General Meeting to make non-pre-emptive issues for cash:
(i) up to a maximum aggregate nominal amount representing approximately 5% of the issued share capital (as at the
last practicable date before the publication of the 2022 Notice of AGM); and (ii) up to a maximum aggregate nominal
amount representing approximately 5% of the issued share capital for use only in connection with acquisitions and
specified capital investments. These powers are due to expire at the 2023 Annual General Meeting and shareholders
will be asked to grant similar powers.
The Directors also sought authority at the 2022 Annual General Meeting to repurchase shares in the capital of the
Company up to a maximum aggregate number of ordinary shares representing approximately 10% of the issued
share capital (as at the last practicable date before the publication of the 2022 Notice of AGM). This authority is also
due to expire at the 2023 AGM and shareholders will be asked to grant a similar share repurchase authority.
Notice required for
shareholder meetings
On the basis of a resolution passed at the 2022 Annual General Meeting, the Company is currently able to call
general meetings (other than an Annual General Meeting) on at least 14 days’ notice. The Company would like to
preserve this ability and Resolution 22 seeks approval to do so. The approval will be effective until the Company’s
next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will offer
an electronic voting facility for a general meeting called on 14 days’ notice.
Information required
byLR 9.8.4R
There is no information required to be disclosed under LR 9.8.4R save in respect of allotments of equity securities
for cash and dividend waivers, which can be found on page 128 of this Annual Report.
Disclosure
ofinformation
toauditors
The Directors in office at the date of approval of this report each confirm that, so far as they are aware, there is no
relevant audit information of which the Company’s auditors are unaware and that they have taken all the steps that
they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
Auditors
An Ordinary Resolution will be put before the 2023 Annual General Meeting to re-appoint PricewaterhouseCoopers
LLP as external auditors for the 2023 financial year.
The Directors’ report was approved by the Board on 5 December 2022 and is signed on its behalf by:
Ian Melling
Chief Financial Officer
6 December 2022
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
132
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulation.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the Directors
have prepared the Group and Company
financial statements in conformity with the
requirements of the UK-adopted international
accounting standards. In preparing the
Group and Company financial statements,
the Directors have also elected to comply with
International Financial Reporting Standards
issued by the International Accounting
Standards Board (IFRSs as issued by IASB).
Under company law the Directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the Group
and Company and of the profit or loss of
the Group and Company for that period.
In preparing the financial statements,
theDirectors are required to:
u
select suitable accounting policies
andthen apply them consistently;
u
state whether applicable international
accounting standards in conformity with
the requirements of the UK-adopted
international accounting standards
and IFRSs issued by IASB have been
followed, subject to any material
departures disclosed and explained
inthefinancialstatements;
u
make judgements and accounting estimates
that are reasonable and prudent; and
u
prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and Company will continue in business.
The Directors are responsible for
safeguarding the assets of the Group and
Company and hence for taking reasonable
steps for the prevention and detection of
fraud and other irregularities.
The Directors are also responsible for
keeping adequate accounting records that
are sufficient to show and explain the
Group’s and Company’s transactions and
disclose with reasonable accuracy at any
time the financial position of the Group and
Company and enable them to ensure that
the financial statements and the Directors’
remuneration report comply with the
Companies Act 2006.
The Directors are responsible for the
maintenance and integrity of the Group’s
and Company’s website. Legislation
in theUnited Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Group and
Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and
functions are set out below:
u
Vivienne Cox, Chair;
u
Jakob Sigurdsson,
ChiefExecutive Officer;
u
Ian Melling, Chief Financial Officer;
u
Martin Court, Chief Commercial Officer;
u
Janet Ashdown, Non-executive Director;
u
Brendan Connolly,
Non-executive Director;
u
Ros Rivaz, Non-executive Director;
u
David Thomas, Non-executive
Director; and
u
Jane Toogood, Non-executive Director,
confirm that, to the best of his or
herknowledge:
u
the Group and Company financial
statements, which have been prepared
in accordance with international
accounting standards in conformity with
the requirements of the UK-adopted
international accounting standards and
IFRSs issued by IASB, give a true and fair
view of the assets, liabilities, financial
position and profit of the Company; and
u
the Strategic report includes a fair review
of the development and performance
of the business and the position of the
Group and Company, together with a
description of the principal risks and
uncertainties that they face.
In the case of each Director in office at
thedate the Directors’ report is approved:
u
so far as the Director is aware, there is
no relevant audit information of which
the Group’s and Company’s auditors are
unaware; and
u
they have taken all the steps that they
ought to have taken as a Director in order
to make themselves aware of any relevant
audit information and to establish that
the Group’s and Company’s auditors are
aware of that information.
This Responsibility statement was approved
by the Board on 5 December 2022 and is
signed on its behalf by:
Ian Melling
Chief Financial Officer
6 December 2022
Statement of Directors’ responsibilities in respect
of the Annual Report and the financial statements
CORPORATE GOVERNANCE
133
Annual Report 2022 Victrex plc
Independent auditors’ report to the members of Victrex plc
Report on the audit of the financial statements
Opinion
In our opinion, Victrex plc’s group financial statements and company
financial statements (the “financial statements”):
u
give a true and fair view of the state of the group’s and of the
company’s affairs as at 30 September 2022 and of the group’s
profit and the group’s and company’s cash flows for the year
then ended;
u
have been properly prepared in accordance with UK-adopted
international accounting standards; and
u
have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within
theAnnual Report, which comprise: the Group and Company
Balance sheets as at 30 September 2022; the Consolidated income
statement and the Consolidated statement of comprehensive
income, the Group and Company Cash flow statements, and the
Consolidated statement of changes in equity and the Company
statement of changes in equity for the year then ended; and the
notes to the financial statements, which include a description
ofthesignificant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by the FRC’s Ethical Standard were not provided.
We have provided no non-audit services to the company or its
controlled undertakings in the period under audit.
Our audit approach
Overview
Audit scope
u
Our audit focused on those entities with the most significant
contribution to the group’s profit before tax and exceptional
items. Of the group’s 23 reporting units, we identified four,
which in our view, required an audit of their complete financial
information for group reporting purposes. These were Victrex
Manufacturing Limited, Invibio Limited, Victrex Europa GmbH
and Victrex plc. We also audited material consolidation journals.
u
Another three reporting units were subject to audit procedures
over specific balances and transactions, due to their contribution
towards specific financial statement line items. Revenue was in
scope for Invibio Inc. and Victrex USA Inc., trade receivables for
Victrex USA Inc., and cash and cash equivalents, property, plant
and equipment, accruals and bank loans were in scope for Panjin
VYX High Performance Materials Co.
u
All audits were performed by the group engagement team with
the exception of Victrex Europa GmbH, which was audited by a
PwC component audit team.
u
The components within the scope of our work, and work
performed centrally by the group team, accounted for 81%
of group revenue and 83% of group profit before tax and
exceptional items.
Key audit matters
u
Valuation of the UK defined benefit pension scheme (group)
u
Valuation of inventories (group)
u
Risk of impairment of investments in subsidiaries and amounts
owed by group undertakings (company)
Materiality
u
Overall group materiality: £4.8m (2021: £4.6m) based on 5%
ofprofit before tax and exceptional items.
u
Overall company materiality: £1.5m (2021: £1.4m) based on
0.5% of total assets capped due to group materiality allocation.
u
Performance materiality: £3.6m (2021: £3.5m) (group) and £1.1m
(2021: £1.1m) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed
the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the results of
our procedures thereon, were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Risk of impairment of investments in subsidiaries and amounts owed
by group undertakings (company) is a new key audit matter this year.
Otherwise, the key audit matters below are consistent with last year.
CORPORATE GOVERNANCE
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134
Independent auditors’ report to the members of Victrex plc continued
Report on the audit of the financial statements continued
Our audit approach continued
Key audit matters continued
Key audit matter How our audit addressed the key audit matter
Valuation of the UK defined benefit pension scheme (group)
Refer to page 101 of the Audit Committee report and pages 171
to 176 of the Notes to the financial statements of the Annual
Report 2022.
The measurement of the net defined benefit asset (£14.9m net surplus at
30 September 2022, (2021: £14.2m net surplus)) requires the application
of an actuarial valuation method, the attribution of benefits to periods
of service, and the use of significant actuarial assumptions including
in particular the discount rate, inflation rates and the average life
expectancy of members. Small changes in the assumptions used could
have a significant effect on the financial position of the group.
The present value of the defined benefit obligation is deducted from
the fair value of any plan assets in determining the net surplus.
To assess the appropriateness of the valuation of the UK defined
benefit pension scheme, we performed the following:
u
We challenged, with the support of our own actuarial experts,
the key assumptions applied against externally derived data and
internally developed benchmarks;
u
We assessed the appropriateness of the recognition of the UK
surplus in line with accounting standards;
u
We assessed the membership data used in valuing the defined
benefit pension obligation. We confirmed that there were no
significant changes since the last Scheme Funding valuation
(performed to 31 March 2022) by way of reviewing administrator
controls related to member data and performed roll forward
procedures where applicable; and
u
We considered the adequacy of the group’s disclosures in respect
of the sensitivity of the surplus to changes in the assumptions.
Based on the results of our testing, we found the assumptions made in
the valuation of the UK defined benefit pension scheme to be within an
acceptable range. We also consider the disclosures made in the financial
statements to be appropriate.
Valuation of inventories (group)
Refer to page 101 of the Audit Committee report and pages
164to 165 of the Notes to the financial statements of the
Annual Report 2022.
A number of estimates are involved in arriving at the valuation of
inventories. At 30 September 2022 inventories amounted to £86.8m
(2021: £70.3m).
A standard costing process is adopted to value work in progress and
finished goods. This process includes an assessment of the extent
to which actual production levels are within a normal range and the
level of variations between actual and standard costs capitalised into
inventory at each period end.
In addition, inventory provisions are recorded based on specific policies,
taking into account batch ageing, quality, and future sales expectations
based on forecast sales rates. Judgements are made with regards to the
categorisation of stock as non-conforming, slow moving or obsolete,
and therefore whether items should be considered for provision.
Estimation is then involved in arriving at the provision percentage to
apply to these identified items such that inventory is carried at the
lower of cost or net realisable value.
To assess the appropriateness of the valuation of inventories, we
performed the following:
u
We reviewed the assessment of normal levels of production for
standard costing purposes by comparing actual and budgeted
levels of production over the past five years;
u
We understood and tested the application of group’s policy for
capitalisation of cost variances;
u
We tested the cost of inventories, through tracing a sample of
standard costs to bills of material and raw material inputs to
source documentation. We understood management’s approach
to overhead allocation and tested the reasonableness of costs
absorbed versus expensed;
u
For a sample of inventory items we evaluated the appropriateness
of management’s categorisation of inventories as non-conforming,
slow moving or obsolete to supporting evidence;
u
We performed look-back procedures on the provision at the
prior year-end and compared the level of inventory write-offs
and utilisation during the current period in order to assess the
reasonableness of the estimated provision percentages applied
bymanagement;
u
We tested a sample of post year-end sales in order obtain evidence
that inventory items are held at the lower of cost or net realisable
value; and
u
We attended year-end and cycle inventory counts to gain an
understanding of management’s processes over the identification
of non-conforming, slow moving or obsolete items.
Based on our audit work, we found estimates made in the valuation
ofinventory to be acceptable. We also consider the disclosures made
in the financial statements to be appropriate.
CORPORATE GOVERNANCE
135
Annual Report 2022 Victrex plc
Key audit matter How our audit addressed the key audit matter
Risk of impairment of investments in subsidiaries and amounts
owed by group undertakings (company)
Refer to pages 159 to 163 and page 165 of the Notes to the
financial statements of the Annual Report 2022.
The company has investments in subsidiaries of £131.9m (2021: £131.9m)
and amounts owed by group undertakings of £191.9m (2021: £152.7m).
Given the magnitude of both of these balances we considered the risk
of impairment of these assets.
Management have considered both of these balances for impairment
and concluded that no impairments are required.
In assessing the appropriateness of valuation of investment in
subsidiaries and amounts owed by group undertakings we have
performed the following procedures:
u
We obtained a schedule of investments in subsidiaries and ensured
this is reconciled to the financial statements;
u
We performed a review of the performance and net assets of each
material subsidiary against the carrying value of the investments;
and
u
We compared the overall carrying value of the investments to the
group’s market capitalisation and also our review of the discounted
cash flow models prepared for the purposes of testing overall
group goodwill for impairment.
Based on the above procedures we concluded that there were no
triggers that would indicate the directors were required to perform a
full impairment test of the carrying value of investments in subsidiaries.
u
We performed a reconciliation of the amounts owed by group
undertakings and ensured this agrees with the counterparty;
u
We have obtained management’s intercompany recoverability
model and assessed whether the methods applied were consistent
with IFRS 9. We checked the calculations within the model and
agreed the figures included to the relevant financial information
included in the group consolidation schedules;
u
We evaluated management’s assessment of the recoverability
of amounts owed by group undertakings including assessing
the ability of other group companies to settle the intercompany
balances; and
u
We also assessed the adequacy of the disclosure provided in the
company financial statements in relation to the relevant accounting
standards.
We found no exceptions as a result of our procedures and consider
the recoverability of amounts owed by group undertakings to be
appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which
they operate.
The group is organised into 23 reporting components and the group financial statements are a consolidation of these reporting
components. The reporting units vary in size. We identified four units that required a full scope audit of their financial information due to
either their size or risk characteristics. These were Victrex Manufacturing Limited, Invibio Limited, Victrex Europa GmbH, and Victrex plc.
We also audited material consolidation journals. Three reporting components were subject to audit procedures over specific balances and
transactions due to their contribution to the group’s results: revenue for Invibio Inc. and Victrex USA Inc., trade receivables for Victrex USA Inc.,
and cash and cash equivalents, property, plant and equipment, accruals and bank loans for Panjin VYX High Performance Materials Co.
Ouraudit scope was determined by considering the significance of each component’s contribution to profit before tax and exceptional
items, and individual financial statement line items, with specific consideration to obtaining sufficient coverage over significant risks.
All audit work was performed by the group team, with the exception of one component audit which was performed by a PwC component
audit team. The group audit team supervised the direction and execution of the audit procedures performed by the component team.
Our involvement in their audit process included the review of their reporting and supporting working papers. The group audit team also
attended planning and clearance meetings during the audit cycle. Together with the additional procedures performed at group level, this
gave us the evidence required for our opinion on the financial statements as a whole.
The group engagement team also performed the audit of the company.
As part of our audit we made enquiries of management to understand the process they have adopted to assess the extent of the potential
impact of climate risk on the group’s financial statements, including their commitments made to achieving Net Zero carbon emissions
for Scope 1 & 2 by 2030. The key areas of the financial statements where management evaluated that climate risk has a potential impact
are set out in note 1 – Basis of preparation – Climate change in the notes to the financial statements. The directors have reached the
overall conclusion that there has been no material impact on the financial statements for the current year from the potential impact of
climate change.
We used our knowledge of the group, with assistance from our internal climate experts, to challenge management’s assessment.
Weparticularly considered how climate risk would impact the assumptions made in the forecasts prepared by management used in their
impairment analyses and going concern. We also considered the consistency of the disclosures in relation to climate change (including the
disclosures in the Task Force on Climate-related Financial Disclosures (TCFD) section) within the Annual Report with the financial statements
and our knowledge obtained from our audit.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole, or on our key audit
matters for the year ended 30 September 2022.
Report on the audit of the financial statements continued
Our audit approach continued
Key audit matters continued
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
136
Independent auditors’ report to the members of Victrex plc continued
Report on the audit of the financial statements continued
Our audit approach continued
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – group Financial statements – company
Overall materiality
£4.8m (2021: £4.6m). £1.5m (2021: £1.4m).
How we determined it
5% of profit before tax and exceptional items 0.5% of total assets capped due to group
materialityallocation.
Rationale for
benchmark applied
Based on the benchmarks used in the Annual Report 2022,
profit before tax and exceptional items is in our view the
primary measure used by the shareholders in assessing
the performance of the group, and is a generally accepted
auditing benchmark.
We believe that total assets is the primary measure
used by the shareholders in assessing the performance
of the entity, and is a generally accepted auditing
benchmark for non-trading companies.
For each component in the scope of our group audit, we allocated a
materiality that is less than our overall group materiality. The range
of materiality allocated across components was between £0.9m and
£4.1m. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use
performance materiality in determining the scope of our audit and
the nature and extent of our testing of account balances, classes
of transactions and disclosures, for example in determining sample
sizes. Our performance materiality was 75% (2021: 75%) of overall
materiality, amounting to £3.6m (2021: £3.5m) for the group financial
statements and £1.1m (2021: £1.1m) for the company financial statements.
In determining the performance materiality, we considered a number
of factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls – and concluded
that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £0.2m (group
audit) (2021: £0.2m) and £0.1m (company audit) (2021: £0.1m)
as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the
company’s ability to continue to adopt the going concern basis of
accounting included:
u
We obtained from management their latest assessments that
support the board’s conclusions with respect to the going
concern basis of preparation for the financial statements;
u
We evaluated management’s forecast and downside scenarios
and challenged the adequacy and appropriateness of the
underlying assumptions;
u
We reviewed management accounts for the financial period to
date and checked that these were consistent with the starting
point of management’s scenarios and supported the key
assumptions included in the assessments;
u
We evaluated the historical accuracy of the budgeting process to
assess the reliability of the data;
u
We challenged management with regards to the impact of climate
change and how this has been taken into account in the forecasts;
u
We tested the mathematical integrity of management’s going
concern forecast models; and
u
We reviewed the disclosures made in respect of going concern
included in the financial statements.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s
and the company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements
are authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the group’s and
the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
Reporting on other information
The other information comprises all of the information in the Annual
Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information,
which includes reporting based on the Task Force on Climate-
related Financial Disclosures (TCFD) recommendations. Our opinion
on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except
to the extent otherwise explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is
a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
CORPORATE GOVERNANCE
137
Annual Report 2022 Victrex plc
Report on the audit of the financial statements
continued
Reporting on other information continued
With respect to the Strategic report and Directors’ report, we also
considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Directors’
report for the year ended 30 September 2022 is consistent with
the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and
company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic
report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of
this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement, included within the Statement of corporate
governance is materially consistent with the financial statements
and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
u
The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
u
The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
u
The directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the group’s and
company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial statements;
u
The directors’ explanation as to their assessment of the group’s
and company’s prospects, the period this assessment covers and
why the period is appropriate; and
u
The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the group was substantially less in scope than an audit
and only consisted of making inquiries and considering the directors’
process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate
Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the group and company and their environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the audit:
u
The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the group’s and company’s position, performance, business
model and strategy;
u
The section of the Annual Report that describes the review
of effectiveness of risk management and internal control
systems; and
u
The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to report
when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a
relevant provision of the Code specified under the Listing Rules for
review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’
responsibilities in respect of the financial statements, the directors
are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group’s and the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to
cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is
detailed below.
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws
and regulations related to medical devices regulations and REACH
regulations (Registration, Evaluation, Authorisation and Restriction
of Chemicals), and we considered the extent to which non-
compliance might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct
impact on the financial statements such as the Companies Act
2006 and tax legislation. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and
determined that the principal risks were related to posting journal
entries to manipulate revenue and financial performance, and
management bias within accounting estimates and judgements.
CORPORATE GOVERNANCE
Victrex plc Annual Report 2022
138
Independent auditors’ report to the members of Victrex plc continued
Report on the audit of the financial statements
continued
Responsibilities for the financial statements and the audit
continued
Auditors’ responsibilities for the audit of the financial
statements continued
The group engagement team shared this risk assessment with the
component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures
performed by the group engagement team and/or component
auditors included:
u
challenging assumptions and judgements made by management
in their significant accounting estimates, in particular around
the valuation of inventories and the valuation of the UK defined
benefit pension scheme;
u
identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations;
u
discussions with the Audit Committee, management, internal
audit and the in-house legal team including consideration of
known or suspected instances of non-compliance with laws and
regulation or fraud; and
u
reviewing minutes of meetings of those charged with
governance throughout the year and post year end to identify
any one off or unusual transactions.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to
events and transactions reflected in the financial statements. Also,
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations. We
will often seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use audit sampling
to enable us to draw a conclusion about the population from which
the sample is selected.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only
for the company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose.
We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
u
we have not obtained all the information and explanations we
require for our audit; or
u
adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been
received from branches not visited by us; or
u
certain disclosures of directors’ remuneration specified by law
are not made; or
u
the company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the members on 9 February 2018 to audit the financial
statements for the year ended 30 September 2018 and subsequent
financial periods. The period of total uninterrupted engagement
is five years, covering the years ended 30 September 2018 to
30September 2022.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance
and Transparency Rule 4.1.14R, these financial statements form
part of the ESEF-prepared annual financial report filed on the
National Storage Mechanism of the Financial Conduct Authority
in accordance with the ESEF Regulatory Technical Standard (‘ESEF
RTS’). This auditors’ report provides no assurance over whether the
annual financial report has been prepared using the single electronic
format specified in the ESEF RTS.
Ian Morrison (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Manchester
6 December 2022
FINANCIAL STATEMENTS
139
Annual Report 2022 Victrex plc
ALL TEXT TO BE SUPPLIED
AUDITED
CONSOLIDATED
FINANCIAL
STATEMENTS
140 Consolidated income statement
141 Consolidated statement ofcomprehensiveincome
142 Balance sheets
143 Cash flow statements
144 Consolidated statement ofchangesinequity
145 Company statement ofchangesinequity
146 Notes to the financial statements
SHAREHOLDER
INFORMATION
185 Five-year financial summary
186 Cautionary note regarding forward-looking statements
187 Notice of Annual GeneralMeeting
192 Explanatory notes
197 Appendix to Notice of AnnualGeneralMeeting
199 Financial calendar
200 Advisors
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
140
2022 2021
Note £m £m
Revenue 2 3 41 . 0 306.3
(Losses)/gains on foreign currency net hedging (2 .8) 4 .9
Cost of sales 3 (16 3 . 7) (145 . 9)
Gross profit 174 . 5 165 . 3
Sales, marketing and administrative expenses 3 (8 6. 0) (71. 9)
Operating profit before exceptional items 96.4 92. 6
Exceptional items 3 (7. 9) 0.8
Operating profit 88.5 93. 4
Finance income 6 0.5 0. 2
Finance costs 6 (0. 3) (0. 2)
Share of loss of associate 11 (1. 0) (0.9)
Profit before tax and exceptional items 95.6 91. 7
Exceptional items 3 (7. 9) 0.8
Profit before tax 8 7. 7 92.5
Income tax expense 7 (12 . 2) (19. 7)
Profit for the financial year 75 .5 7 2.8
Profit/(loss) for the year attributable to:
– Owners of the Company 76 . 2 73 .2
– Non-controlling interests 11 (0.7) (0 .4)
Earnings per share
Basic 8 8 7. 6p 8 4.3p
Diluted 8 8 7. 3p 8 4.0p
Dividend per ordinary share
Interim 22 13 . 4 2p 13. 4 2 p
Final 22 4 6 .1 4p 4 6 .1 4p
Special 22 — 5 0.00 p
22 59.56p 10 9 .5 6p
A final dividend in respect of FY 2022 of 46.14p per ordinary share has been recommended by the Directors for approval at the Annual
General Meeting on 10 February 2023.
Consolidated income statement
for the year ended 30 September
FINANCIAL STATEMENTS
141
Annual Report 2022 Victrex plc
2022 2021
Note £m £m
Profit for the financial year 75. 5 72. 8
Items that will not be reclassified to profit or loss
Defined benefit pension schemes’ actuarial gains 17 0.2 4.5
Income tax on items that will not be reclassified to profit or loss 7 (0 .1) (1.1)
0 .1 3.4
Items that may be reclassified subsequently to profit or loss
Currency translation differences for foreign operations 1 1 .1 (2.0)
Effective portion of changes in fair value of cash flow hedges (19 . 7) 5.7
Net change in fair value of cash flow hedges transferred to profit or loss 2.8 (4 .9)
Income tax on items that may be reclassified to profit or loss 7 3. 2 (0. 2)
(2 .6) (1. 4)
Total other comprehensive (expense)/income for the year (2 .5) 2.0
Total comprehensive income for the year 73.0 74 . 8
Total comprehensive income/(expense) for the year attributable to:
– Owners of the Company 73 .7 75 .2
– Non-controlling interests (0.7) (0 .4)
Consolidated statement of comprehensive income
for the year ended 30 September
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
142
Balance sheets
as at 30 September
Group Company
2022 2021 2022 2021
Note £m £m £m £m
Assets
Non-current assets
Property, plant and equipment 9 3 4 7. 2 3 0 5.7 — —
Intangible assets 10 20.2 24 . 8 — —
Investment in subsidiaries 11 — — 131.9 131.9
Investment in associated undertakings 11 10 . 4 11 . 4 — —
Financial assets held at fair value through profit and loss 11 1 0 .1 12 .7 — —
Deferred tax assets 12 7. 2 8 .9 — —
Retirement benefit asset 17 14 .9 14 . 2 — —
410 . 0 3 7 7. 7 131.9 131.9
Current assets
Inventories 13 86.8 70. 3 — —
Current income tax assets 7. 9 2.9 — —
Trade and other receivables 14 6 8 .1 4 9 .1 191.9 152.7
Derivative financial instruments 16 — 2.9 — —
Other financial assets 16 1 0 .1 3 7. 5 — —
Cash and cash equivalents 16 5 8 .7 74 .9 0.3 —
231. 6 237 .6 192.2 152.7
Total assets 6 41. 6 615 . 3 324.1 284.6
Liabilities
Non-current liabilities
Deferred tax liabilities 12 (34.3) (3 1. 6) — —
Long-term lease liabilities 19 (7. 8) (8 . 2) — —
Borrowings 15 (21.6) (5 .9) — —
Retirement benefit obligation 17 (2 .7) (1. 9) — —
(66 . 4) (4 7. 6) — —
Current liabilities
Derivative financial instruments 16 (19 . 9) (1. 9) — —
Borrowings 15 (0.9) — — —
Current income tax liabilities (2.3) (2.9) — —
Trade and other payables 18 (59.7) (49. 4) (0.1) —
Current lease liabilities 19 (1. 8) (1. 8) — —
(84 .6) (5 6.0) (0.1) —
Total liabilities (151. 0) (10 3 . 6) (0.1) —
Net assets 490.6 5 11 . 7 324.0 284.6
Equity
Share capital 22 0.9 0.9 0.9 0.9
Share premium 22 61. 5 6 1.1 61.5 61.1
Translation reserve 22 12 . 8 1.7 — —
Hedging reserve 22 (13 . 6) 0 .1 — —
Retained earnings
1
22 4 2 7. 2 445 .4 261.6 222.6
Equity attributable to owners of the Company 488.8 5 09. 2 324.0 284.6
Non-controlling interest 1.8 2.5 — —
Total equity 490.6 5 11 . 7 324.0 284.6
1 The profit for the financial year dealt with in the financial statements of the Company is £132.4m, which includes dividends from subsidiaries of £132.8m
(FY 2021: profit of £5.2m, which includes dividends from subsidiaries of £5.7m).
These financial statements of Victrex plc on pages 140 to 184, registered number 2793780, were approved by the Board of Directors on
6December 2022 and were signed on its behalf by:
Jakob Sigurdsson Ian Melling
Chief Executive Officer Chief Financial Officer
FINANCIAL STATEMENTS
143
Annual Report 2022 Victrex plc
Group Company
2022 2021 2022 2021
Note £m £m £m £m
Profit for the financial year 75 .5 7 2.8 132.4 5.2
Income tax expense 7 12 . 2 19 .7 — —
Finance income (0 .5) (0. 2) — —
Finance costs 0. 3 0.2 — —
Share of loss of associate 1. 0 0 .9 — —
Dividends received from subsidiaries — — (132.8) (5.7)
Operating profit/(loss) 88.5 93. 4 (0.4) (0.5)
Adjustments for:
Depreciation 9 19. 0 18 . 5 — —
Amortisation 10 2 .6 3.4 — —
Loss on disposal of non-current assets 9, 10 2 .4 0.8 — —
Equity-settled share-based payment transactions 21 1. 8 1. 4 1.8 1.4
Losses/(gains) on derivatives recognised in income statement that have not yet settled 16 4.0 (0.5) — —
Gain on financial assets held at fair value 11 (0 . 3) (0 .9) — —
(Increase)/decrease in inventories (13 . 4) 26 .0 — —
(Increase)/decrease in receivables (1 6 . 9) (18 . 3) (39.2) 38.9
Increase in payables 2.8 11 . 9 0.1 —
Retirement benefit obligations charge less contributions 0. 2 (0 . 2) — —
Cash generated from/(used in) operations 9 0.7 13 5 . 5 (37.7) 39.8
Interest received 0. 3 0.2 — —
Interest paid (0 .4) — — —
Net income tax paid (10 . 6) (8 .6) — —
Net cash flow generated from/(used in) operating activities 8 0.0 1 2 7.1 (37.7) 39.8
Cash flows (used in)/generated from investing activities
Acquisition of property, plant and equipment and intangible assets 9, 10 (45.5) (4 1 .9) — —
Proceeds from disposal of financial asset held at fair value through profit and loss 4.2 — — —
Withdrawal/(deposit) of cash invested for greater than three months 16 2 7. 4 (37 .5) — —
Dividends received — — 132.8 5.7
Loan to associated undertakings (2.3) (3. 8) — —
Net cash flow (used in)/generated from investing activities (16 . 2) (83 .2) 132.8 5.7
Cash flows used in financing activities
Proceeds from issue of ordinary shares exercised under option 22 0. 4 6 .1 0.4 6.1
Repayment of lease liabilities 19 (2 .1) (1. 8) — —
Loan received from non-controlling interest 11 — 5.6 — —
Bank borrowings received 15, 16 14 . 5 — — —
Dividends paid 22 (95 . 2) (51 . 6) (95.2) (51.6)
Net cash flow used in financing activities (82 .4) (41. 7) (94.8) (45.5)
Net (decrease)/increase in cash and cash equivalents (1 8 . 6) 2. 2 0.3 —
Effect of exchange rate fluctuations on cash held 2.4 (0 .4) — —
Cash and cash equivalents at beginning of year 74 . 9 7 3 .1 — —
Cash and cash equivalents at end of year 58 .7 74 . 9 0.3 —
Cash flow statements
for the year ended 30 September
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
144
Consolidated statement of changes in equity
Total
attributable Non-
Share Share Translation Hedging Retained to owners controlling
capital premium reserve reserve earnings of the Parent interest Total
Note £m £m £m £m £m £m £m £m
Equity at 1 October 2020 0.9 55 .0 3 .7 (0.5) 419 . 0 4 7 8 .1 2.9 4 81. 0
Total comprehensive income/(expense) for the year
Profit for the year attributable to the Parent — — — — 73. 2 73. 2 — 73. 2
Loss for the year attributable to non-controlling interest — — — — — — (0 .4) (0.4)
Other comprehensive (expense)/income
Currency translation differences for foreign operations — — (2.0) — — (2.0) — (2.0)
Effective portion of changes in fair value of
cash flow hedges — — — 5.7 — 5.7 — 5.7
Net change in fair value of cash flow hedges
transferred to profit or loss — — — (4 .9) — (4.9) — (4.9)
Defined benefit pension schemes’ actuarial gains 17 — — — — 4 .5 4.5 — 4.5
Tax on other comprehensive income 7 — — — (0 . 2) (1 .1) (1. 3) — (1. 3)
Total other comprehensive income forthe year — —
(2.0) 0.6 3. 4 2. 0 — 2. 0
Total comprehensive income for the year — — (2.0) 0.6 76 .6 75. 2 (0 .4) 74 . 8
Contributions by and distributions to owners
ofthe Company
Share options exercised 22 — 6 .1 — — — 6 .1 — 6 .1
Equity-settled share-based payment transactions 21 — — — — 1. 4 1. 4 — 1. 4
Dividends to shareholders 22 — — — — (51. 6) (51. 6) — (51 . 6)
Equity at 30 September 2021 0.9 6 1.1 1. 7 0 .1 4 45 .4 509. 2 2.5 5 11 . 7
Total comprehensive income/(expense) for the year
Profit for the year attributable to the Parent — — — — 76 . 2 76. 2 — 76 . 2
Loss for the year attributable to non-controlling interest — — — — — — (0 .7) (0 .7)
Other comprehensive income/(expense)
Currency translation differences for foreign operations — — 11 .1 — — 11 .1 — 11 .1
Effective portion of changes in fair value of
cash flow hedges — — — (19 .7) — (19 .7) — (19 . 7)
Net change in fair value of cash flow hedges
transferred to profit or loss — —
— 2.8 — 2.8 — 2.8
Defined benefit pension schemes’ actuarial gains 17 — — — — 0.2 0.2 — 0.2
Tax on other comprehensive expense/(income) 7 — — — 3.2 (0 .1) 3 .1 — 3 .1
Total other comprehensive expense for the year — — 11 .1 (13 .7) 0 .1 (2 .5) — (2 .5)
Total comprehensive income for the year — — 1 1 .1 (13 . 7) 76 . 3 73 .7 (0.7) 73.0
Contributions by and distributions to owners of
the Company
Share options exercised 22 — 0. 4 — — — 0.4 — 0. 4
Equity-settled share-based payment transactions 21 — — — — 1. 8 1. 8 — 1. 8
Tax on equity-settled share-based payment
transactions 7 — — — — (1 .1) (1 .1) — (1 .1)
Dividends to shareholders 22 — — — — (95 . 2) (95 .2) — (9 5. 2)
Equity at 30 September 2022 0.9 61. 5 12 . 8 (13 . 6) 4 2 7. 2 488.8 1.8 490.6
FINANCIAL STATEMENTS
145
Annual Report 2022 Victrex plc
Company statement of changes in equity
Share Share Retained
capital premium earnings Total
Note £m £m £m £m
Equity at 1 October 2020 0.9 55.0 267.6 323.5
Total comprehensive income for the year
Profit for the year (including dividends from subsidiaries of £5.7m) — — 5.2 5.2
Contributions by and distributions to owners of the Company
Share options exercised 22 — 6.1 — 6.1
Equity-settled share-based payment transactions 21 — — 1.4 1.4
Dividends to shareholders 22 — — (51.6) (51.6)
Equity at 30 September 2021 0.9 61.1 222.6 284.6
Total comprehensive income for the year
Profit for the year (including dividends from subsidiaries of £132.8m) — — 132.4 132.4
Contributions by and distributions to owners of the Company
Share options exercised 22 — 0.4 — 0.4
Equity-settled share-based payment transactions 21 — — 1.8 1.8
Dividends to shareholders 22 — — (95.2) (95.2)
Equity at 30 September 2022 0.9 61.5 261.6 324.0
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
146
1. Basis of preparation
General information
Victrex plc (the ‘Company’) is a public company, which is limited by shares and is listed on the London Stock Exchange. This Company is
incorporated and domiciled in England in the United Kingdom. The address ofitsregistered office is Victrex Technology Centre, Hillhouse
International, Thornton Cleveleys, Lancashire FY5 4QD, United Kingdom.
The consolidated financial statements of the Company for the year ended 30 September 2022 comprise the Company and its subsidiaries
(together referred to as the ‘Group’).
These consolidated financial statements have been approved for issue by the Board of Directors on 6 December 2022.
Basis of preparation and statement of compliance
Both the consolidated and Company financial statements have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and in accordance with UK-adopted International Accounting Standards.
On31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 October 2021. This change
constitutes a change in accounting framework. However, there is no impact on the recognition, measurement or disclosure in the period
as a result of the change in framework. The financial statements have been prepared under the historical cost basis except for derivative
financial instruments, defined benefit pension scheme assets and financial assets held at fair value through profit and loss, which are
measured at their fair value.
The Group’s business activities, together with factors likely to affect its future development, performance and position, are set out in the
Strategic report on pages 12 to 19. In addition, note 16 on financial risk management details the Group’s exposure to a variety of financial
risks, including currency and credit risk.
On publishing the Company financial statements here together with the consolidated financial statements, the Company is taking
advantage of section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form part of
the approved financial statements.
Unless a change has been required by adoption of new standards, the accounting policies set out in these notes have been applied
consistently to all periods presented in these consolidated financial statements.
The accounting policies have been consistently applied by Group entities.
Climate change
In preparing the financial statements of the Group an assessment of the impact of climate change has been made in line with the
requirements of TCFD and with specific consideration of the disclosures made in the Sustainability report starting on page 44. This has
specifically incorporated the impact of the physical risks of climate change, transitional risks including the potential impact of government
and regulatory actions as well as the Group’s stated Net Zero 2030 (Scope 1 & 2 emissions) target. The potential impact has been
considered in the following areas:
u
the key areas of judgement and estimation – see below;
u
the expected useful lives of property, plant and equipment;
u
those areas which rely on future forecasts which have the potential to be impacted by climate change:
u
carrying value of non-current assets;
u
going concern; and
u
viability;
u
the recoverability of deferred taxation assets; and
u
the recoverability of inventory and trade receivables.
The specific considerations have been included in the corresponding financial statement notes below.
The Directors recognise the inherent uncertainty in predicting the impact of climate change and the actions which regulators and
governments, both domestic and overseas, will take in order to achieve their various targets. However, from the work undertaken to date,
outlined in the Sustainability report, the Directors have reached the overall conclusion that there has been no material impact on the
financial statements for the current year from the potential impact of climate change.
The specific considerations in respect to the viability of the Group are included in the viability statement on pages 42 and 43.
The Group’s analysis on the impact of climate change continues to evolve as more clarity on timings and targets emerges, with Victrex
committed to reducing its carbon impact towards Net Zero (Scope 1 & 2 emissions) in 2030.
Notes to the financial statements
FINANCIAL STATEMENTS
147
Annual Report 2022 Victrex plc
1. Basis of preparation continued
Going concern
The Directors have performed a robust going concern assessment including a detailed review of the business’ 24-month rolling forecast and
consideration of the principal risks faced by the Group and the Company, as detailed on pages 34 to 40. This assessment has paid particular
attention to the impact of the ongoing global economic challenges on the aforementioned forecasts.
The Company maintains a strong balance sheet providing assurance to key stakeholders, including customers, suppliers and employees.
The combined cash and other financial assets balance at 30 September 2022 was £68.8m, having reduced from £112.4m at 30 September
2021 following payment of the regular and special dividends of £83.5m in February 2022. Of the £68.8m, £2.8m is held in the Group’s
subsidiaries in China for the sole purpose of funding the construction of our new manufacturing facilities. Of the remaining £66.0m,
approximately 80% is held in the UK where the Company incurs the majority of its expenditure and 85% is held in instant access accounts.
The Group has drawn debt of £15.7m in its Chinese subsidiaries (with a total facility of c.£45m available until December 2026) and has
unutilised UK banking facilities of £40m through to October 2024, of which £20m is committed and immediately available and £20m is
available subject to lender approval.
The 24-month rolling forecast is derived from the Company’s Integrated Business Planning (‘IBP’) process which runs monthly. Each area of
the business provides revised forecasts which consider a number of external data sources, triangulating with customer conversations, trends
in market and country indices as well as forward-looking industry forecasts. For example, forecast aircraft build rates from the two major
manufacturers for Aerospace, World Semiconductor Trade Statistics Semiconductor market forecasts for Electronics through to2024 and
Needham and IQVIA forecasts for Medical procedures.
The assessment of going concern included conducting scenario analysis on the aforementioned forecast which, given current economic
forecasts, focused on the Group’s ability to sustain a period of falling demand, whether caused by a pandemic, geo-political event(s) or
other global economic challenges. In assessing the severity of the scenario analysis, the scale of the impact experienced during previous
economic downturns has been used, including the differing impacts on Industrial versus Medical segments.
Using the IBP data and reference points from previous downturns management has created two scenarios to model the effect of reductions
to revenue at regional/market level and aggregated levels on the Company’s profits and cash generation through to January 2024. The
impact of climate change and the Group’s Net Zero 2030 goal for its own operations (Scope 1 & 2 emissions) has been considered as part
of this assessment. Any impact on revenue over the shorter going concern period, either positive or negative, is likely to be insignificant,
with the greater risk being that of higher carbon taxes. The current elevated price of gas and electricity included in the 24-month forecast,
reflecting current supply side uncertainty, and the government focus on limiting the impact of the current economic slowdown mean that
additional carbon taxes over the going concern period are considered unlikely, and therefore no additional costs have been included in
either the base forecast or the scenarios noted below.
Scenario 1 – the global economy contracts with sales volumes reducing by 30% from the level seen over the past 12 months,
toapproximately 280 tonnes per month, from January 2023 for aperiod of six months (to mirror the length of the most recent downturn
in 2020) before a partial recovery to c.330 tonnes per month for the remainder of the going concern period. Medical revenue remains
unchanged from the past 12 months’ run rate, withthe economic situation historically having minimal impact onthis segment.
Scenario 2 – in line with scenario 1, c.280 tonnes per month from January 2023, but the economic contraction lasts for a full 12months,
i.e. throughout the going concern period. This would give an annual volume of c.3,300 tonnes, a level not seen since 2013. Prior to
COVID-19, the last recession was the financial crisis in 2008 and 2009 which lasted approximately 12 months. In this scenario Medical
revenue is reduced by 10% during the second six months to reflect a limited impact from a longer lasting slowdown. The Group considers
scenario 2 to be a severe but plausible scenario.
Before any mitigating actions the sensitised cash flows show the Company has significantly reduced cash headroom. Under scenario 2
there is minimal cash generation through the going concern period and there is potential that the committed facility would be required to
manage intra-month cash flows. However, the Company has a number of mitigating actions which are readily available in order to generate
significant headroom. These include:
u
use of committed facility – £20m could be drawn at short notice. Conversations with our banking partner indicate that the £20m
accordion could also be readily accessed. The covenants of the facility have been successfully tested under each of the scenarios;
u
deferral of capital expenditure – the base case capital investment over the next 12 months is approximately £50m as major projects
are completed in China and the UK. This could be reduced significantly by limiting expenditure to essential projects, deferring all other
projects later into 2024, with the exception of completing the manufacturing facilities in China which will continue as planned;
u
reduction in discretionary overheads – costs would be limited to prioritise and support customer related activity; and
u
deferral/cancellation of dividends – the dividend payable in June 2023 could be deferred or cancelled. The Company’s intention is to
continue payment of dividends where cash reserves facilitate but it remains a key lever in downside scenario mitigation.
Reverse stress testing was performed to identify the level that sales would need to drop by in order for the Group to run out of cash by the
end of the going concern assessment period. Sales volumes would need to consistently drop materially below the low point in scenario 2
which is not considered plausible.
As a result of this detailed assessment and with reference to theCompany’s strong balance sheet, existing committed facilities and the cash
preserving levers at the Company’s disposal, but alsoacknowledging the current economic uncertainty as a number ofglobal economies
close to/in recession and the war in Ukraine continues, the Board has concluded that the Company has sufficient liquidity to meet its
obligations when they fall due for a period of atleast 12 months after the date of this report. For this reason, it continues to adopt the
going concern basis for preparing the financial statements.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
148
1. Basis of preparation continued
Critical judgements and key sources of estimation uncertainty
The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances. These estimates and assumptions form the basis for making judgements about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis including formal consideration by the Audit Committee.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or
in the period of revision and future periods if the revision affects both current and future periods.
Judgements made in applying accounting policies
Other than judgements involving the use of estimates, the Directors do not consider there are any judgements made in applying the
Group’s significant accounting policies which would have a material impact on the amounts recognised in the financial statements
within the next 12 months.
Sources of estimation uncertainty
The Group uses estimates and assumptions in applying the critical accounting policies to value balances and transactions recorded in the
financial statements. The estimates and assumptions that, if revised, would have a significant risk of a material impact on the valuation of
assets and liabilities within the next financial year are retirement benefits (see note 17) and the valuation of inventory (see note 13).
The critical judgements and key sources of estimation uncertainty, defined as those with a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next 12 months, that the Directors have considered in the
process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial
statements are included within the relevant notes. Critical judgements and key sources of estimation uncertainty can be identified
throughout the notes by the following symbol . Management has discussed these with the Audit Committee. These should be read in
conjunction with the significant accounting policies provided in the notes to the financial statements.
In the current year the consideration of critical judgements and key sources of estimation uncertainty has included consideration of
the potential impact of climate change on the financial statements. The areas considered and the conclusions made can be identified
throughout the financial statements by the symbol . None of the areas of estimation uncertainty considered had a significant risk
of material adjustment in the next 12 months as a result of climate change, although it is noted that there could be a more significant
impact over the medium and longer time frames.
Other areas of judgement and sources of estimation uncertainty
The financial statements include other areas of judgement and sources of estimation uncertainty which do not meet the above definition of critical
either due to the level of risk or the time frame of the potential impact, however apply to the measurement of certain material assets and liabilities.
These include the useful economic lives and residual value of property, plant and equipment, the carrying value of investment in associates, the fair
value of convertible loans and the recognition of deferred taxation balances for which there is uncertainty over the longer term.
New accounting standards and amendments to existing standards
New standards and amendments to existing standards were effective for the financial year ended 30 September 2022, which included:
u
Amendments to IFRS 3 – Reference to the Conceptual Framework;
u
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use;
u
Amendments to IAS 37 – Onerous Contracts – Costs of Fulfilling a Contract; and
u
IFRS 9 – Financial Instruments – fees in the ‘10%’ test for derecognition of financial liabilities.
None of these have had a material impact on the Group’s consolidated result or financial position.
IFRIC – configuration or customisation costs in cloud computing arrangements
The Group has changed its accounting policy related to the capitalisation of configuration and customisation costs in a cloud computing (Software
as a Service, ‘SaaS’) arrangement, with costs now being expensed as incurred. This change is as a result of the IFRS Interpretations Committee’s
agenda decision published in April 2021. The Group’s accounting policy has historically been, where the criteria within IAS 38 have been met,
to capitalise costs directly attributable to the implementation, including configuration and customisation of cloud computing arrangements, as
intangible assets in the Balance sheet. Following the publication of the above IFRIC agenda decision, current cloud computing arrangements were
identified and assessed to determine if the Group has control of the software. For those arrangements where the Group does not have control of
the developed software, the intangible assets previously capitalised as at 1 October 2021 have been derecognised. On the basis that the carrying
value of these intangibles is not material the criteria in IAS 8 to restate the comparative financial statements has not been met and therefore the
intangibles have been expensed in the current financial year.
Further details are provided within note 3.
Standards effective from 1 October 2022 onwards
A number of standards, amendments and interpretations have been issued and endorsed by the UK but are not yet effective or have been
issued but not endorsed by the UK and, accordingly, the Group has not yet adopted them. These include:
u
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current;
u
Narrow scope amendments to IAS 1, Practice Statement 2 and IAS 8 – distinguish between Changes in Accounting Policies and
Accounting Estimates; and
u
Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction.
None of these are expected to have a material impact on the Group’s consolidated result or financial position.
Notes to the financial statements continued
FINANCIAL STATEMENTS
149
Annual Report 2022 Victrex plc
2. Segment reporting
The Group complies with IFRS 8 – Operating Segments, which requires operating segments to be identified and reported upon that
are consistent with the level at which results are regularly reviewed by the entity’s chief operating decision maker. The chief operating
decision maker (‘CODM’) for the Group is the Victrex plc Board. Information on the business units is the primary basis of information
reported to the Victrex plc Board. The performance of the business units is assessed based on segmental gross profit. Management of
sales, marketing and administration functions servicing both business units is consolidated and reported at a Group level. Segmental
balance sheets are not produced; instead the CODM reviews the balance sheet at a Group level which provides the necessary level of
detail to make an informed assessment of the financial position of the Group on which to base key business decisions.
The Group’s business is strategically organised as two business units (operating segments): Industrial, which focuses on our Energy and Industrial,
VAR, Automotive, Aerospace and Electronics markets, and Medical, which focuses on providing specialist solutions for medical device manufacturers.
Year ended 30 September 2022 Year ended 30 September 2021
Industrial Medical Group Industrial Medical Group
£m £m £m £m £m £m
Segment revenue 285.8 58.3 344 .1 257.4 51.1 308.5
Internal revenue (3.1) — (3.1) (2.2) — (2.2)
Revenue from external sales 282.7 58.3 341.0 255.2 51.1 306.3
Segment gross profit 124.8 49.7 174.5 119.7 45.6 165.3
Impact of climate change
The CODM for the Group has started monitoring climate change metrics, primarily the revenue from sustainable products, on
a six-monthly basis. However, the primary basis for reviewing financial performance over all time horizons, from monthly to
annually, remains at the operating segment level. It is noted that products sold into sustainable applications are primarily the same
as products sold into non-sustainable applications. It is only the end application which differentiates them. As a result it is not
anticipated that any change will be required in the segmental reporting as a result of the Group’s focus on sustainable applications.
Transactions between segments are conducted at arm’s length.
Revenue recognition
Revenue in both segments comprises the amounts receivable for the sale of goods, net of value added tax, rebates and discounts and
after eliminating sales within the Group. Revenue from the sale of goods is recognised when all performance obligations are met,
which is when the goods are dispatched or delivered in line with Incoterms. Victrex receives Medical Unit Payments (‘MUPs’) from a
number of medical customers. MUPs are deferred payments contingent on the customer selling its final component to the end user.
Revenue from MUPs is a form of variable consideration where all performance obligations have been met when the material is sold by
the Group. The initial value of the MUP recognised is based on management’s best estimate of the value that will flow to the Group
only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur
when the uncertainty associated with the variable consideration is subsequently resolved. This will be adjusted as appropriate, with a
final adjustment being made in the period the final declaration is made. The value of MUPs recognised but not invoiced is included in
prepayments and accrued income. See note 14.
No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due or associated costs.
The Group has taken advantage of the expedient allowed in IFRS 15 (121b) not to disclose information about its remaining performance
obligations because the Group only recognises revenue on the satisfaction of performance obligations.
Information about products
The Group derives its revenue from the sale of high performance thermoplastic polymers.
Information about geographical areas
The Group’s country of domicile is the United Kingdom.
1) Revenue from external sales
The following is an analysis of external revenues based on the customer’s location.
Revenue from external sales
Industrial Medical 2022 Industrial Medical 2021
£m £m £m £m £m £m
United Kingdom 4.3 — 4.3 3.7 — 3.7
Europe, the Middle East and Africa (‘EMEA’) 129.1 15.2 144.3 125.6 13.7 139.3
Americas 65.8 28.7 94.5 50.2 27.2 77.4
Asia-Pacific 83.5 14.4 97.9 75.7 10.2 85.9
282.7 58.3 341.0 255.2 51.1 306.3
Revenue from external customers based in Germany was £90.1m (2021: £87.4m), US was £87.6m (2021: £71.6m) and China was £40.3m
(2021: £32.3m). The revenue from any individual country, with the exception of Germany, the US and China, is not more than 10% of the
Group’s total revenue in either current or prior year.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
150
2. Segment reporting continued
Information about geographical areas continued
2) Non-current assets
The following is an analysis of the carrying value of non-current assets by the geographical area in which the assets are located.
Non-current assets include property, plant and equipment, intangibles assets, and investments in associates. It does not include
retirementbenefit assets, deferred tax assets and financial instruments.
2022 2021
£m £m
United Kingdom 257.8 263.9
China 85.3 43.9
Other 34.7 34.1
377.8 341.9
Non-current assets held in any individual country, with the exception of the UK and China, is not more than 10% of the Group’s total non-
current assets (FY 2021: same).
Information about major customers
In the current year one customer within our Industrial segment contributed more than 10% to Group revenue (FY 2021: no customer
contributed more than 10% to Group revenue).
3. Expenses by nature
2022 2021
Note £m £m
Staff costs 5 72.3 71.5
Depreciation of property, plant and equipment 9 19.0 18.5
Loss on disposal of non-current assets 9, 10 2.4 0.8
Amortisation of intangibles 10 2.6 3.4
Trade receivables impairment allowance during the year 1.4 —
Reversal of trade receivable impairment allowance 16 (1.0) (0.5)
Research & Development expenditure 10 15.7 15.5
Inventory written down during the year 13 3.2 4.0
Reversal of write down of inventories 13 (2.5) (1.5)
Fees payable to auditors 4 0.5 0.4
Fair value gain on investment in Magma Global Limited 11 — (0.9)
Other costs of manufacture 116.2 10 0.1
Other sales, marketing and administrative expenses 19.9 6.5
249.7 217. 8
During the year the Group wrote down inventory by £3.2m (FY 2021: £4.0m) and reversed previously written down inventory by £2.5m
(FY 2021: £1.5m) resulting in a net increase in the overall inventory write down charge in the year of £0.7m (FY 2021: increase of £2.5m).
Victrex continues to focus on driving down aged and non-conforming product by working with suppliers and customers, reworking and
repackaging product to realise value from this inventory.
Exchange differences recognised in the consolidated income statement, except for those arising on financial instruments measured at fair
value through profit or loss in accordance with IFRS 9, are a gain of £2.2m (FY 2021: gain of £0.1m).
Exceptional items
Exceptional items are those which are, in aggregate, material in size and/or unusual or infrequent in nature.
Exceptional items were as follows:
2022 2021
£m £m
Included within sales, marketing and administrative expenses:
Implementation of SaaS ERP system 7.9 —
Restructuring costs — (0.8)
Exceptional items before tax 7.9 (0.8)
Tax on exceptional items (1.5) —
Exceptional items after tax 6.4 (0.8)
Notes to the financial statements continued
FINANCIAL STATEMENTS
151
Annual Report 2022 Victrex plc
3. Expenses by nature continued
Implementation of SaaS ERP system
The Group has commenced a multi-year implementation of a new cloud-based ERP system. The Group forecasts to spend approximately
£15m–£20m on the implementation, including process redesign, customisation and configuration of the system, change management and
training, which will deliver benefits to both customer interactions and internal business processes.
The IFRS Interpretations Committee issued its decision clarifying how arrangements in respect of cloud-based software as a service (‘SaaS’)
systems should be accounted for. The new ERP system does not meet the criteria for capitalisation (as the majority of costs relating to past
systems have) and therefore the cost is being expensed rather than capitalised and amortised. Given the size of the project and its impact
on the reported profit-based metrics, the fact the system is evergreen and thus this level and nature of cost will not happen again, it meets
the Group’s criteria to be presented as exceptional. The ERP system is expected to be completed in 2024.
Restructuring costs
During FY 2020, the Group reviewed cost actions and efficiencies required to support profitability in a lower production environment. The
credit in FY 2021 related to more favourable settlements being reached on finalisation than assumed when making the restructuring charge
in FY 2020 when the Group commenced consultation. These costs were treated as non-tax deductible in FY 2020 and the corresponding
credit was treated as non-chargeable inFY 2021 accordingly, which resulted in a credit in income tax expenses for expenses not deductible
for tax purposes in FY 2021 (see note 7).
The cash flow in the year associated with exceptional items was a £5.6m outflow (FY 2021: £1.9m outflow).
4. Fees payable to auditors
Auditors’ remuneration was as follows:
2022 2021
£000 £000
Audit services relating to:
– Victrex plc and Group consolidation* 172 153
– The Company’s subsidiaries, pursuant to legislation 335 250
507 403
Non-audit services relating to:
– Interim review — 35
— 35
507 438
* Due to the impact of COVID-19 on 2020 year-end reporting, PwC charged an additional audit fee of £23,000 which was billed in 2021. Given the timing
of the agreement of this fee, the amount was not included within the audit fee disclosed for 2020. It was added instead to the 2021 fee of £380,000,
increasing the total amount disclosed to £403,000.
5. Staff costs
2022 2021
Note £m £m
Wages and salaries 59.7 58.8
Social security costs 5.8 5.9
Defined contribution pension schemes 5.8 5.5
Defined benefit pension schemes 17 (0.3) (0.1)
Equity-settled share-based payment transactions 21 1.3 1.4
72.3 71.5
Detailed disclosures that form part of these financial statements are given in the Directors’ remuneration report on pages 104 to 127.
InFY2021 staff costs includes a credit in respect of exceptional staff costs of £0.8m. Further details are set out in note 3.
The monthly average number of people employed by the Group during the year, analysed by category, was as follows:
2022 2021
Number Number
Make 586 541
Develop, market and sell 230 224
Support 188 130
1,004 895
There are no people employed by the Company (FY 2021: none).
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
152
6. Finance income and costs
2022 2021
£m £m
Finance income/(costs):
– Interest received 0.5 0.2
– Interest payable and similar charges (0.1) —
– Interest on lease liabilities (0.2) (0.2)
0.2 —
In addition, the Group has incurred borrowing costs of £0.5m on bank loans and loans payable to the non-controlling interest funding the
construction of property, plant and equipment in China, which have been capitalised within the associated cost of the qualifying property,
plant and equipment (see note 9).
7. Income tax expense
Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the income statement except to
the extent that it relates to items recognised directly in other comprehensive income or equity as appropriate.
Current tax is the expected tax payable on the taxable income for the current and prior years, using tax rates (and tax laws) enacted or
substantively enacted at the balance sheet date. The Group is subject to income tax in numerous jurisdictions. Estimates are required
in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain because it may be unclear how tax law applies to a particular transaction or circumstance. Where the
Group determines that it is more likely than not that the tax authorities would accept the position taken in the tax return, amounts are
recognised in the financial statements on that basis. Where the amount of tax payable or recoverable is uncertain, the Group recognises
a liability based on either the Group’s judgement of the most likely outcome or, where there is a wide range of possible outcomes, the
expected value.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided
for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affects neither accounting nor taxable
profit; and differences relating to investments in subsidiaries except to the extent that they will probably reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable, within a reasonable time frame (typically a period of up to five
years), that future taxable profits will be available against which the asset can be utilised. The probability assessment takes into account
the legislation in each jurisdiction, including any restrictions in place, on a company by company basis, including consideration of the
ability to relieve losses between Group companies in the same country. The availability of taxable temporary differences (i.e. deferred
tax liabilities) relating to the same tax jurisdiction and company, which are expected to reverse over a similar time frame, are also taken
into account when assessing the recognition of any deferred tax asset. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised. The assessment over the recoverability of deferred tax assets is reviewed at each
reporting date. Where forward-looking forecasts are used to assess the recognition of a deferred tax balance, forecasts consistent
with those used for other assessments within the Annual Report (including going concern, impairment and viability) are used, but
disaggregated to a level appropriate for tax to be assessed, either by company or by tax jurisdiction.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and
where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a
legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
2022 2021
Note £m £m
Current tax
UK corporation tax on profits for the year 9.0 10.4
Overseas tax on profits for the year 2.4 1.7
11.4 12.1
Deferred tax
Change in deferred tax rate — 6.1
Origination and reversal of temporary differences 12 1.7 1.4
1.7 7.5
Tax adjustments relating to prior years:
– Current tax (2.6) 0.2
– Deferred tax 1.7 (0.1)
Total tax expense in income statement 12.2 19.7
Notes to the financial statements continued
FINANCIAL STATEMENTS
153
Annual Report 2022 Victrex plc
7. Income tax expense continued
Reconciliation of standard and effective tax rate
2022 2021
% £m % £m
Profit before tax 87.7 92.5
Tax expense at UK corporation tax rate 19.0 16.7 19.0 17.6
Effects of:
– Expenses not deductible for tax purposes 1.3 (0.2)
– Higher rates of tax on overseas earnings 0.7 0.5
– Effect of UK tax incentives for capital expenditure and other allowances (1.2) (0.4)
– Tax adjustments relating to prior years (0.9) 0.1
– Change in deferred tax rate — 6.1
– Share of loss of associate 0.2 0.2
– Difference in rates between deferred tax and corporation tax 0.9 0.4
– Deferred tax on losses not recognised 0.9 0.8
– Deferred tax on unremitted earnings 0.1 0.5
– Patent Box deduction (6.5) (5.9)
Effective tax rate and total tax expense 13.9 12.2 21.3 19.7
Deferred tax assets/liabilities have been recognised at the rate they are expected to reverse. For UK assets/liabilities this is 25% for the majority
of assets and liabilities (30 September 2021: 25%), being the UK tax rate effective from 1 April 2023, in accordance with the Finance Bill 2021,
which was substantively enacted on 24 May 2021. The impact of remeasuring the deferred tax assets and liabilities accordingly increased the
tax charge in FY 2021 by £6.1m. For overseas assets/liabilities the corresponding overseas tax rate has been applied.
Tax components of other comprehensive income
2022 2021
£m £m
Tax on items that will not be reclassified to the income statement:
Deferred tax charge on defined benefits pension schemes’ actuarial result (0.1) (1.1)
Tax on items that have or may be subsequently reclassified to the income statement:
Current tax credit/(charge) on changes in fair value of cash flow hedges 3.2 (0.2)
3.1 (1.3)
Current tax credit/(charge) 3.2 (0.2)
Deferred tax charge (0.1) (1.1)
3.1 (1.3)
Tax components of items recognised directly in equity
2022 2021
£m £m
Tax credit on equity-settled share-based payment transactions 1.1 —
1.1 —
8. Earnings per share
Basic earnings per share is based on the Group’s profit attributable to ordinary shareholders and a weighted average number of ordinary
shares outstanding during the year, excluding own shares held (see note 22). Diluted earnings per share is calculated by adjusting the
weighted average number of shares used for the calculation of basic earnings per share as increased by the dilutive effect of potential
ordinary shares. Dilutive shares arise from employee share option schemes where the exercise price is less than the average market price of
the Company’s ordinary shares during the period. Where the option price is above the average market price, the option is not dilutive and is
excluded from the diluted earnings per share calculation.
2022 2021
Earnings per share – basic 87.6p 84.3p
– diluted 87. 3p 84.0p
Profit for the financial year attributable to the owners of the Company £76.2m £73.2m
Weighted average number of shares used:
Number Number
– Issued ordinary shares at beginning of year 86,968,573 86,617,582
– Effect of own shares held (87,903) (108,977)
– Effect of shares issued during the year 16,683 196,184
Basic weighted average number of shares 86,897,353 86,704,789
Effect of share options 341,959 340,564
Diluted weighted average number of shares 87,239,312 87,045,353
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
154
9. Property, plant and equipment
Owned assets
All owned items of property, plant and equipment are stated at historical cost less accumulated depreciation and provision for impairment.
The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of overheads.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the income statement during the financial year in which they are incurred.
Borrowing costs relating to the construction of qualifying property, plant and equipment are capitalised, at the actual cost incurred where
the funds are borrowed specifically to fund the construction project. All other finance costs are expensed as incurred.
Depreciation
Depreciation is charged to the income statement on a straight line basis over the estimated useful economic lives as follows:
Buildings 25–50 years
Plant and machinery 10–30 years
Fixtures, fittings, tools and equipment 5–10 years
Computers and motor vehicles 2–5 years
Freehold land is not depreciated.
The residual values and useful lives of assets are reviewed annually for continued appropriateness and indications of impairment and adjusted if
appropriate.
Depreciation on assets classified as in the course of construction commences when the assets are ready for their intended use.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.
Impact of climate change
The impact of climate change on property, plant and equipment is primarily a result of physical risks, for example increasing
severity of flooding or high winds which could impact the useful economic life of the asset. The maximum useful life of assets
is 50 years, relating to office buildings, with primary plant assets being depreciated over 30 years. The latest date for an asset
to be fully depreciated is 2062, with the latest date for manufacturing assets currently under construction expected to be 2053.
Based on the site by site climate change impact assessments performed to date, it is not anticipated that any physical risks would
materially impact the Group’s assets to the extent that their current carrying value or remaining useful economic lives would
be reduced.
Assets which may be impacted by proactive actions to reduce carbon emissions, for example gas powered boilers, or by
potential regulations to curb carbon emissions, are being assessed as the path to Net Zero is planned in detail and regulators
provide more transparency on their potential approach. Based on the planning work performed to date, for example replacing
gas as the heat source with hydrogen, biogas or green electricity, and the infancy of the regulatory approach, there is not
expected to be a material impact on the remaining useful economic lives, or the carrying value, of the assets held by the Group.
The Company has minimal asset value in market/application specific property, plant and equipment where there is expected to
be a material drop in demand due to climate change.
Right of use (‘ROU’) assets
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases are
recognised as a ROU asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.
At the lease commencement date a ROU asset is measured at cost comprising the following: the amount of the initial measurement of
the lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial direct
costs; and restoration costs to return the asset to its original condition.
The ROU asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis. If ownership of the
ROU asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is
calculated using the estimated useful life of the asset.
Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone prices. However, for leases of retail estate for which the Company is a lessee
and for which it has major leases, it has elected not to separate lease and non-lease components and instead accounts for these as a
single lease component.
Notes to the financial statements continued
FINANCIAL STATEMENTS
155
Annual Report 2022 Victrex plc
9. Property, plant and equipment continued
Land and
buildings
£m
Plant and
machinery
£m
Computers
and motor
vehicles
£m
Fixtures,
fittings,
tools and
equipment
£m
Right
of use
assets
£m
Assets in
course of
construction
£m
Total
£m
Cost
At 1 October 2020 63.4 338.3 3.6 3.9 8.6 20.2 438.0
Exchange differences (0.3) (0.3) — (0.2) — 0.9 0.1
Additions — 1.4 0.1 — 4.7 44.6 50.8
Disposals — (0.3) (0.5) — (0.2) (0.7) (1.7)
Reclassification 0.1 4.0 2.7 0.2 — ( 7.0) —
At 30 September 2021 63.2 343.1 5.9 3.9 13.1 58.0 487.2
Exchange differences 1.2 2.9 0.1 0.1 — 6.3 10.6
Additions — 3.9 0.2 — 1.6 45.6 51.3
Disposals — (0.8) — — (1.2) — (2.0)
Reclassification 0.2 3.4 0.6 0.1 — (4.3) —
At 30 September 2022 64.6 352.5 6.8 4.1 13.5 105.6 547.1
Accumulated depreciation
At 1 October 2020 14.7 142.2 2.1 3.6
1.7 — 164.3
Exchange differences (0.1) (0.1) — (0.2) — — (0.4)
Disposals — (0.2) (0.5) — (0.2) — (0.9)
Depreciation charge 2.0 13.6 0.8 0.2 1.9 — 18.5
At 30 September 2021 16.6 155.5 2.4 3.6 3.4 — 181.5
Exchange differences 0.4 0.7 0.1 — — — 1.2
Disposals — (0.6) — — (1.2) — (1.8)
Depreciation charge 2.0 13.8 1.0 0.1 2.1 — 19.0
At 30 September 2022 19.0 169.4 3.5 3.7 4.3 — 199.9
Carrying amounts
At 30 September 2022 45.6 183.1 3.3 0.4 9.2 105.6 347.2
At 30 September 2021 46.6 187.6 3.5 0.3 9.7 58.0 305.7
At 30 September 2020 48.7 196.1 1.5 0.3 6.9 20.2 273.7
£0.5m of additions within assets in the course of construction relate to borrowing costs capitalised; see note 15 for further details.
At 30 September 2022 and 30 September 2021, the Group leased a small number of assets, principally land and buildings:
Land and Motor
buildings vehicles Total
£m £m £m
Right of use assets
Balance at 1 October 2020 6.6 0.3 6.9
Additions 4.4 0.3 4.7
Depreciation charge for the period (1.6) (0.3) (1.9)
Balance at 30 September 2021 9.4 0.3 9.7
Additions 1.5 0.1 1.6
Depreciation charge for the period (1.9) (0.2) (2.1)
Balance at 30 September 2022 9.0 0.2 9.2
The information in respect of the lease liabilities associated with the right of use assets is disclosed in note 19.
Land and building right of use assets are primarily leases to support manufacturing capability.
Reclassification relates to the movement from assets in course of construction to the relevant asset category when the assets are ready
fortheir intended use. Details of significant projects reclassified are included in the Financial review.
The fair value of property, plant and equipment is not materially different to its carrying value.
The Company has no property, plant or equipment.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
156
10. Intangible assets
Goodwill
Goodwill arising on the acquisition of businesses is allocated, at acquisition, to the cash-generating units (‘CGUs’) that are expected to
benefit from that business combination.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment.
Any impairment provisions that arose during impairment testing would not be reversed.
In respect of acquisitions prior to 1 October 2004, goodwill is included on the basis of its deemed cost, which represents the net
amount recorded previously under UK GAAP. In respect of acquisitions that have occurred since 1 October 2004, goodwill represents
the difference between the cost of the acquisition and the fair value of the assets, liabilities and contingent liabilities acquired.
Goodwill is tested annually for impairment by reference to the estimated future cash flows of the relevant CGU, discounted to their
present value using risk-adjusted discount factors to give its value in use. A CGU is the smallest identifiable asset group that generates
cash flows that are largely independent from other assets and groups.
Impairment losses are recognised if the carrying amount of the CGU to which goodwill has been allocated exceeds its recoverable
value (the higher of value in use and fair value less costs to sell) and are recognised in the income statement.
Other intangible assets
Other intangible assets are stated at cost less accumulated amortisation and any provisions for impairment. The cost of an internally
generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of
operating in the manner intended by management. The cost of intangible assets acquired in a material business combination is the fair
value as at the date of acquisition. Other intangibles are assessed for impairment only when there is an indication that they might be
impaired. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Intangible assets not yet ready for use are not amortised but are subject to annual impairment reviews. Other intangible assets are
amortised from the time they are first ready for use.
Amortisation
Amortisation is charged to sales, marketing and administrative expenses in the income statement over the estimated useful economic
lives as follows:
Computer software 3–7 years straight line
Customer relationships 10 years systematic
Brand name 5 years systematic
Know-how 10 years straight line
Amortisation on assets classified as in the course of construction commences when the assets are ready for their intended use, the point
at which they are reclassified from assets in course of construction, on the same basis as other assets of that class.
Notes to the financial statements continued
FINANCIAL STATEMENTS
157
Annual Report 2022 Victrex plc
10. Intangible assets continued
Assets in
Computer Customer course of
Goodwill software relationships Brand name Know-how construction Total
£m £m £m £m £m £m £m
Cost
At 1 October 2020 14.3 15.9 2.0 0.7 3.2 1.6 37.7
Additions — 0.4 — — — 1.7 2.1
Disposals — (0.5) (0.3) — — — (0.8)
Reclassification — 2.5 — — — (2.5) —
At 30 September 2021 14.3 18.3 1.7 0.7 3.2 0.8 39.0
Additions — 0.1 — — — 0.1 0.2
Disposals — (1.8) — — — (0.8) (2.6)
Reclassification — 0.1 — — — (0.1) —
At 30 September 2022 14.3 16.7 1.7 0.7 3.2 — 36.6
Accumulated amortisation
At 1 October 2020 — 9.2 1.5 0.6 — — 11.3
Amortisation charge — 2.5 0.5 0.1 0.3 — 3.4
Disposals — (0.2) (0.3) — — — (0.5)
At 30 September 2021 — 11.5 1.7
0.7 0.3 — 14.2
Amortisation charge — 2.3 — — 0.3 — 2.6
Disposals — (0.4) — — — — (0.4)
At 30 September 2022 — 13.4 1.7 0.7 0.6 — 16.4
Carrying amounts
At 30 September 2022 14.3 3.3 — — 2.6 — 20.2
At 30 September 2021 14.3 6.8 — — 2.9 0.8 24.8
At 30 September 2020 14.3 6.7 0.5 0.1 3.2 1.6 26.4
Computer software is an internally generated intangible asset. The average remaining useful life is three years (FY 2021: three years).
The Group has know-how in respect of the hybrid overmoulding technology for brackets. The remaining useful life of the know-how is
eight years.
Goodwill recognised is assessed for impairment against discounted future pre-taxation cash flow projections for the relevant CGU (value in
use model). Management has prepared cash flow projections for a five-year period derived from the business’ 24-month forecast and the
five-year strategy. These forecasts are the same ones used for both the going concern review and viability statement. Further details are
included on pages 41 to 43. These forecasts include assumptions around volumes and sales prices, costs of manufacture, operating costs,
working capital movements and capital expenditure. In measuring these assumptions, the Directors have taken into account:
u
expected demand in the markets and geographies within which the Group operates, including industry trends and external market forecasts;
u
operating profits, based on historical experience of operating margins including changes to the price of raw material and utility costs
and production volumes;
u
the timing and cost of major capital projects;
u
cash conversion, based on historical rates; and
u
the impact of climate change (see below).
Impact of climate change
The impact of climate change on the carrying value of goodwill has been considered. The majority of the goodwill relates to
the acquisition of the monomer supply chain. As with all manufacturing areas the monomer supply chain is being assessed
for its impact on the path to Net Zero with the potential for decarbonising, and reducing water usage and waste. The impact
of this on the processes associated with the goodwill is not yet known, but current forecasts used for the consideration of
impairment, see below, underpin the carrying value at 30 September 2022. This position will continue to be monitored as the
approach to decarbonisation of the monomer supply chain is developed to support the Group’s path to Net Zero.
Climate change will potentially impact the future forecasts of the Group which are used for the aforementioned impairment
review. The overall impact on the revenue of the Group is assessed as positive, with the majority of the growth programmes
supporting carbon reduction in end markets, which will more than offset the adverse impact from reductions anticipated to be
seen, for example, in oil & gas and internal combustion engine related applications. The primary adverse impact is expected to
be seen in carbon pricing and the cost of using greener energy sources. To reflect this in the forecast an amount of £20m per
annum (growing by inflation) from 2024 has been included in the forecasts used for the impairment calculation. Further detail
of this is included in the Sustainability report starting on page 44.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
158
10. Intangible assets continued
The sensitivity analysis performed as part of our viability assessment on the CGUs of the Group demonstrated a sufficient level of headroom
as noted below; therefore, no specific adjustments or impairments have been made.
The Group has two CGUs, Industrial and Medical, which are the smallest identifiable independent groups of assets that generate cash
inflows that are largely independent of the cash inflows from other assets or groups of assets. Where assets and costs are shared between
the two CGUs a reasonable apportionment of these are made for the purpose of the impairment calculation.
Goodwill is split between the two CGUs: Industrial £12.8m (FY 2021: £12.8m) and Medical £1.5m (FY 2021: £1.5m).
The goodwill and other intangible assets that relate to the Industrial CGU include Kleiss Gears Inc., Zyex Limited and TxV which have been
fully integrated. These businesses are employed to generate revenue across all industrial geographies and markets.
The long-term average growth rate used was 2.0% (FY 2021: 2.0%) which reflects the long-term inflation rates in the main territories
within which the Group operates, and the risk-adjusted pre-tax discount rate was 9.1% (FY 2021: 9.6%). The impairment test results
in more than 100% headroom (FY 2021: more than 100% headroom) and so it is unlikely that a reasonably possible change in a key
assumption would result in an impairment of goodwill or other intangibles.
Research & Development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding,
is recognised within the income statement as an expense as incurred.
Development expenditure is recognised in the income statement as an expense as incurred unless it meets all the criteria to be
capitalised under IAS 38 – Intangible Assets, including technical feasibility of completing the asset, intention to complete, probability
of future economic benefits, the availability of resources to complete and the ability to reliably measure expenditure attributed to
thedevelopment.
Research & Development expenditure of £15.7m (FY 2021: £15.5m) was expensed to the income statement in the year within sales,
marketing and administrative expenses. No development expenditure was capitalised (FY 2021: £nil) as the Directors consider there is
insufficient evidence available that the criteria have been met for the reasons noted below.
The Company has the intention and resources to complete the projects being undertaken, along with the ability to accurately measure
attributable expenditure. Therefore whilst these criteria are met, the assessment of the technical feasibility and future economic benefits is
more difficult.
For Medical based development projects there are strict regulatory approvals which are required to be obtained before a new product can
be brought to market. Prior to these approvals a varying degree of clinical trials need to be undertaken, many of which are multi-year in
length. The vast majority of development expenditure is incurred up to the point of regulatory approval, however, the outcome cannot be
considered probable until approval is obtained; without approval the Company or its customers cannot sell a medical product. Even with
regulatory approval, market adoption remains uncertain and therefore the criteria for capitalisation is rarely met.
Industrial based development projects typically do not have the same strict regulatory approvals, however, are often subject to rigorous
qualification and testing programmes, often over a sustained period of time. Examples of this include wear testing within Automotive,
Aerospace and Energy & Industrial. Potential customers are also often testing multiple solutions at the same time with a view to selecting
one following the testing/qualification programme. As a result it is only when a successful outcome to the testing/qualification programmes
is achieved that technical feasibility is reached and market adoption becomes the key assessment. At this point, whilst market adoption risk
remains, the vast majority of development expenditure has been incurred and expensed.
Notes to the financial statements continued
FINANCIAL STATEMENTS
159
Annual Report 2022 Victrex plc
11. Interests in other entities
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the investee and can affect those returns through its power over the investee. This can be determined either
by the Group’s ownership percentage, or by the terms of the shareholder agreement. Where there is deemed to be an ability to affect
the return, investments are consolidated from the date that ability commences until the date that it ceases.
The acquisition method is used to account for business combinations. Goodwill represents the difference between the acquisition
date fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree (if any) and the net of
the acquisition date fair values of the identifiable assets acquired, including intangibles, and liabilities assumed, including contingent
liabilities as required by IFRS 3. If this difference is negative, the amount is recognised directly in the consolidated income statement.
A non-controlling interest is the proportion of net assets of the subsidiary entity owned by shareholders external to the Group. The
value of non-controlling interests at the acquisition date is measured as the non-controlling interests’ proportionate share of net assets
of the acquiree or at fair value. The choice of measurement basis is determined on an acquisition-by-acquisition basis as permitted by
IFRS 3. Financial derivatives in place over the remaining equity of an entity are taken into account when calculating the proportionate
share of the non-controlling interest.
Any contingent consideration is measured at fair value at the date of acquisition. Subsequent changes to the fair value of contingent
consideration are recognised in the consolidated income statement.
Costs related to the acquisition, other than those associated with the issue of debt, that the Group incurs in connection with a
business combination are expensed as incurred.
Non-controlling interests in the net assets of consolidated subsidiaries are distinguished from the equity attributable to holders of the
Parent. The value of non-controlling interests comprises the value of non-controlling interests on the date control commences adjusted
for the non-controlling interests’ share of any subsequent changes in equity.
Investment in subsidiaries
Investments in subsidiaries are stated at cost less any impairment in the value of the investment.
Investment in associated undertakings
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint
arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but where
the Group does not have control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of
accounting. Investments in associates are carried in the Balance sheet at cost as adjusted for post-acquisition changes in the Group’s
share of the net assets of the associate, less any impairment in the value of the investment. Any goodwill recognised on acquisition
is included in the carrying values of the investment. Impairment is recognised when there is objective evidence that a loss event
(or events) has arisen which adversely impacts the future cash flows from the net investment and therefore provides evidence of
impairment. Where evidence exists an impairment test is performed whereby the carrying value of the investment is compared to the
recoverable amount (higher of value in use and fair value less costs to sell).
The Group’s share of the post-tax profits/(losses) of associates is included in the consolidated income statement. If the Group’s share
of losses in an associate equals or exceeds its investment in the associate, the Group does not recognise further losses, unless it
has incurred legal or constructive obligations to do so or made payments on behalf of the associate. Unrealised gains arising from
transactions with associates are eliminated to the extent of the Group’s interest in the entity.
Interests in joint arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject
to joint control. Joint arrangements are either joint operations or joint ventures.
Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control have the rights to the assets, and obligations for
the liabilities, relating to the arrangement or other facts and circumstances indicate that this is the case. The Group’s share of assets,
liabilities, revenue, expenses and cash flows are combined with the equivalent items in the financial statements on a line-by-line basis.
Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in
preparing the consolidated financial statements.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
160
11. Interests in other entities continued
Basis of consolidation continued
Financial assets held at fair value through the profit and loss
Financial assets held at fair value through the profit and loss comprise investments in unquoted companies and convertible loans made
to associated undertakings. Investments in unquoted companies are initially carried at fair value, where neither control nor significant
influence is held. The initial fair value is deemed to be cost where transactions are at arm’s length. They are remeasured at subsequent
reporting dates to fair value with any changes recognised directly in the income statement.
Financial assets that are compound financial instruments from the holder’s perspective are accounted for under IFRS 9. Under IFRS
9 financial assets are held at either amortised cost, fair value through other comprehensive income (‘FVTOCI’) or fair value through
profit and loss (‘FVTPL’). In making the assessment the Company’s business model and the contractual terms are assessed against
the conditions in IFRS 9. Where the conditions for holding an asset at amortised cost are not met and where no election is made to
measure at FVTOCI, FVTPL is the default.
At initial recognition financial assets are measured at fair value. This is assumed to be the transaction price unless there is evidence to
the contrary.
All transaction costs related to financial instruments designated as at fair value through profit or loss are expensed as incurred.
Investments in unquoted companies and convertible loans are classified as level 3 in the financial hierarchy because there are no
observable market inputs. For these assets unobservable inputs are used to measure the range of fair values, using an income approach
to convert future cash flows into present values. Inputs into the valuation model include both Group forecasts and forecasts from the
investee, with consideration given to performance against technical and commercial milestones. Where there is insufficient information
to determine fair value or there is a wide range of possible fair value measures, and cost represents the best estimate in that range,
then, as permitted by IFRS 9, cost will continue to be used as a proxy for fair value. Cost will not be used as a proxy if, at the balance
sheet date, there is an identified change in value, which could be illustrated by significant performance variations to plan or the value
implied by subsequent funding rounds or other equity transactions.
Group
Material subsidiaries and non-controlling interest (‘NCI’)
Panjin VYX High Performance Materials Co. Ltd (‘PVYX’) is a limited liability company set up during FY 2020, for the purpose of the
manufacture of PAEK polymer powder and granules, based in mainland China. The Group continues to hold a 75% equity interest with the
remaining 25% held by Yingkou Xingfu Chemical Co. Ltd (‘YX’). Consistent with prior years, with 75% of the voting equity and the majority
of appointments on the board, the Group is considered to have control of PVYX and therefore it is accounted for as a subsidiary. The
income statement and balance sheet of PVYX are fully consolidated with the share owned by YX represented by a non-controlling interest.
In the year to 30 September 2022 the subsidiary incurred a loss of £2.9m (FY 2021: loss of £1.4m), of which £0.7m (FY 2021: £0.4m)
isattributable to the non-controlling interest. Total non-controlling interest as at 30 September 2022 is £1.8m (FY 2021: £2.5m).
The first tranche of investment of £8.6m in this company was made by the Group via Victrex Hong Kong Limited, in March 2020. During
FY2021, the Group made further cash injections into PVYX, totalling £24.5m, split in the form of loans of £22.0m and further equity
investment of £2.5m. YX also made loans to PVYX of £5.6m during FY 2021. See note 15 for further details of this loan.
Investments in associates and financial assets held at fair value through profit and loss
Investment in
associates
Financial assets
held at fair
value through
profit and loss Total
£m £m £m
At 1 October 2021 11.4 12.7 24.1
Group’s share of loss of Bond 3D High Performance Technology BV (1.0) — (1.0)
Disposal of investment in Magma Global Limited — (5.4) (5.4)
Convertible loans issued to Bond 3D High Performance Technology BV — 2.3 2.3
Interest on loans issued to Bond 3D High Performance Technology BV — 0.2 0.2
Gain on financial assets held at fair value – exchange differences — 0.3 0.3
At 30 September 2022 10.4 10.1 20.5
Surface Generation Limited — 3.5 3.5
Bond 3D High Performance Technology BV 10.4 6.6 17.0
At 30 September 2022 10.4 10.1 20.5
Notes to the financial statements continued
FINANCIAL STATEMENTS
161
Annual Report 2022 Victrex plc
11. Interests in other entities continued
Group continued
Bond 3D High Performance Technology BV (‘Bond’)
Bond is a company incorporated in the Netherlands, developing unique, protectable 3D printing (Additive Manufacturing) processes which
are capable of producing high strength parts from existing grades of PEEK and PAEK polymers. The investment offers the potential of
utilising this technology to help accelerate the market adoption of 3D printed PEEK parts, with particular emphasis on the Medical market.
The Group’s investment in the ordinary share capital of Bond at 30 September 2022 is €14.7m/£12.9m (24.5%) at cost (30 September
2021: same), with a carrying value of £10.4m (30 September 2021: £11.4m) which includes the impact of the Group’s share of losses since
investment. As the Group isconsidered to have significant influence in Bond, the investment continues to be accounted for as an associate
using the equity method.
The Directors have considered whether there is any objective evidence that a loss event (or events) exists at 30 September 2022. No
objective evidence has been identified with the investment performing in line with expectations for a company of its relative immaturity.
In addition, there has been no transaction in the equity of Bond in the year, whereby a transaction at a discount to the price paid for the
Group’s equity stake would be an indicator of impairment. Accordingly, the investment has not been tested for impairment.
In line with the agreed programme of further investments into Bond by Victrex and another investor, LaLune, Bond has received cash
injections of €4.5m in the current financial year, of which €2.7m/£2.3m was made by Victrex in the form of convertible loans. The loans
are convertible into ordinary shares of the entity, at the Group’s option, or are to be repaid by Bond on or before the end of the five-
year agreed term. Of the convertible loan balance of €7.4m/£6.6m at 30 September 2022, €2.0m/£1.8m is interest free, €0.3m/£0.2m
is accruing interest at 3%, and the remainder is accruing interest at a rate of 6% per annum. The interest is capitalised into the value of
the convertible loan on a monthly basis, attracting conversion rights in the same proportion as the original instrument. During the year
€0.2m/£0.2m (FY 2021: €0.02m/£0.02m) of interest was capitalised into the convertible loan.
The convertible loans in Bond do not meet the criteria to be classified as amortised cost nor FVTOCI (the cash flows are not solely payments
of principal and interest due to the existence of conversion rights) and are therefore classified as FVTPL. The transaction value is considered
materially equal to the fair value of the convertible loan for initial recognition.
The lack of observable market inputs for subsequent fair value assessments of the unlisted convertible loan calculation results in the
instrument being classified as Level 3 (see also note 16).
At 30 September 2022 the convertible loans in Bond are considered to meet the criteria to use cost (the initial fair value) as the best
estimate for fair value given the wide range of possible outcomes, a range in which the cost represents the best estimate within the range.
Bond is an early-stage investment in new technology for the 3D printing of PEEK with a detailed programme of milestones to take it
through to commercialisation. Technology is moving quickly within this space and whilst there is confidence that the Bond technology will
win significant market share (which in itself has the potential for a high level of variability across different markets and applications), thus
generating a fair value upside, the risk remains that this will not be the case resulting in fair value below cost. Given the relative immaturity
of Bond and its current stage of development it is likely to be a longer time period before the range of outcomes can be reduced to such an
extent that a fair value which is different to the initial fair value can be established.
The fair value of the convertible loans receivable in future periods will be assessed on the basis of the most likely outcome of scenarios at
the end of the convertible term, including the probability attached to each future outcome.
Following the €4.5m convertible loans received in FY 2022, Bond is due to receive a further €3.0m from Victrex and La Lune during FY 2023
subject to the satisfactory completion of pre-determined development milestones. These cash injections will accrue interest at 6% but, if
converted to equity, the interest will roll into the conversion rights, resulting in a total ownership at the end of the term at 43.5% for Victrex.
Impact of climate change
The impact of climate change on the Medical part of the business is expected to be limited with the applications into which
the Group’s products go providing proven clinical benefits to patients in a low carbon way. The use of 3D printed PEEK being
developed by Bond will only serve to reduce carbon usage through a lower level of waste in the manufacturing process and
therefore climate change is not expected to have a negative impact on the carrying value of assets associated with Bond,
including the associate investment and the convertible loans.
Disposal of investment in Magma Global Limited
On 13 October 2021, the Group sold its investment in Magma Global Limited to TechnipFMC. This investment was recognised as a financial
asset held at fair value through the profit and loss, with a fair value of £5.4m at 30 September 2021. The Group received cash of £4.2m at
the point of disposal with £1.2m deferred consideration received on 13 October 2022. The deferred consideration was included within trade
and other receivables at 30 September 2022.
Company
Shares in Group
undertakings
£m
Cost and carrying value
At 1 October 2021 and at 30 September 2022 131.9
The Company has considered impairment of its investment in subsidiaries. The results of the impairment tests described in note 10 have
been used in this consideration. Given the results of those tests, the Directors do not consider that the carrying value of the Company’s
investment in subsidiaries has been impaired.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
162
11. Interests in other entities continued
Company continued
The following is a full list of the Company’s interests:
Company number Company status Registered office address
Wholly owned subsidiary undertakings
Victrex Manufacturing Limited
1
2845018 Trading entity Victrex Technology Centre,
Hillhouse International,
Thornton Cleveleys,
Lancashire FY5 4QD, UK
Invibio Limited
1
4088050 Trading entity
Invibio Knees Limited 8149440 Trading entity
Invibio Device Component
Manufacturing Limited
8861250 Trading entity
Juvora Limited 8149439 Trading entity
Victrex Trading Limited
1
4956435 Dormant
Victrex Trustee Limited
1
3075501 Dormant
Victrex USA Holdings Limited
1
7752971 Dormant
Zyex Limited 2890014 Dormant
Zyex Group Limited 2839512 Dormant
Zyex Reclaim Limited 2890 011 Dormant
Victrex USA Holdings Inc.
1
Intermediate holding company 300 Conshohocken State Road, Suite 120,
West Conshohocken, PA 19428, USA
Victrex USA Inc. Trading entity
Invibio Inc. Trading entity
Invibio Device Components
Manufacturing Inc.
Trading entity
Victrex Europa GmbH
1
Trading entity Langgasse 16, 65719 Hofheim, Germany
Victrex Japan, Inc.
1
Trading entity Mita Kokusai Building Annex, 1-4-28 Mita,
Minato-ku, Tokyo, 108/0073, Japan
Victrex High Performance Materials
(Shanghai) Co., Ltd
Trading entity Victrex Asian Innovation & Technology Centre,
Part B Building G, No. 1688, Zhuanxing Road,
Xinzhuang Industry Park, Shanghai, 201108, China
Invibio (Beijing) Trading Co., Limited Trading entity Room 7108, Building 7, Second Lane 5, The South of
Xiang Jun, Chao Yang District, Beijing, 100020, China
Kleiss Gears, Inc. Trading entity 390 Industrial Avenue, Grantsburg, WI 54840, USA
TxV Aerospace Composites LLC Trading entity 55 Broadcommon Road, Bristol,
Rhode Island, RI 02809, USA
Victrex Hong Kong Limited Trading entity Level 54, Hopewell Centre 183,
Queen’s Road East, Hong Kong
Subsidiary undertakings with non-controlling interests
Panjin VYX High Performance
Materials Co., Ltd
Trading entity Room 501–23, Technology
Mansion, Qingyu Road East, Zhifang Street North,
Liaodong Bay New District, Panjin,
Liaoning Province, China
Associates
Bond 3D High Performance
Technology BV
Trading entity Institutenweg 25A, 7521 PH,
Enschede, Netherlands
Joint operations
Aghoco 1491 Limited
2
10523749 Trading entity Victrex Technology Centre, Hillhouse International,
Thornton Cleveleys, Lancashire FY5 4QD, UK
Investments
Surface Generation Limited 4379384 Trading entity 7 Brackenbury Court, Lyndon Barns,
Edith Weston Road, Lyndon, Oakham LE15 8TW, UK
1 Directly held by Victrex plc.
2 On 13 December 2016, the Group, via its subsidiary Victrex Manufacturing Limited, incorporated Aghoco 1491 Limited with AGC Chemicals Europe Limited.
Aghoco 1491 Limited is a joint arrangement in which the Group holds equal ownership and rights over the entity. The purpose of Aghoco 1491 Limited is to
build, operate and maintain an electrical substation (cost of c.£3m) for both parties’ own use to ensure continuity of electrical supply. Due to the terms of
the joint arrangement, Aghoco 1491 Limited meets the criteria to be accounted for as a joint operation.
Notes to the financial statements continued
FINANCIAL STATEMENTS
163
Annual Report 2022 Victrex plc
11. Interests in other entities continued
Company continued
The Group also had an investment in Magma Global Limited (company number 6528820, registered office address Magma House,
TrafalgarWharf, Hamilton Road, Portsmouth, Hampshire PO6 4PX) until 13 October 2021, when the Group disposed all of its shares.
Annual reports and accounts are filed with Companies House for all UK dormant companies.
All subsidiaries are wholly owned, with the exception of Panjin VYX High Performance Materials Co., Ltd (‘PVYX’), and are involved in the
principal activities of the Group.
In the opinion of the Directors the recoverable amount of investments in and amounts due from the Company’s subsidiary undertakings are
at least the carrying value at which they are stated in the balance sheet.
12. Deferred tax assets and liabilities
As at 30 September 2022
Property, Set-off of
plant and Employee Unremitted deferred tax
equipment benefits Inventories earnings Other Total
balances * Net
£m £m £m £m £m £m £m £m
Deferred tax assets — 1.5 6.1 — 1.6 9.2 (2.0) 7. 2
Deferred tax liabilities (32.0) (3.7) — (0.6) — (36.3) 2.0 (34.3)
Net deferred tax (liabilities)/assets (32.0) (2.2) 6.1 (0.6) 1.6 (27.1) — (27.1)
As at 30 September 2021
Property, Set-off of
plant and Employee Unremitted deferred tax
equipment benefits Inventories earnings Other Total
balances * Net
£m £m £m £m £m £m £m £m
Deferred tax assets — 2.0 5.5 — 1.4 8.9 — 8.9
Deferred tax liabilities (27.4) (3.5) — (0.5) (0.2) (31.6) — (31.6)
Net deferred tax (liabilities)/assets (27.4) (1.5) 5.5 (0.5) 1.2 (22.7) — (22.7)
* At 30 September 2022, the Group has applied the tax consolidation legislation, in accordance with IAS 12, whereby deferred tax assets and liabilities
recognised on consolidation have been allocated to the tax jurisdictions where they arise, resulting in an offset within deferred tax assets and deferred tax
liabilities in the Balance sheet.
Property,
plant and Employee Unremitted
equipment benefits Inventories earnings Other Total
Note £m £m £m £m £m £m
Movement in net provision
At 1 October 2020 (22.4) (0.4) 7. 4 — 1.2 (14.2)
Prior period adjustment 0.1 — — — — 0.1
Change in UK deferred tax rate (6.1) (0.2) 0.2 — — (6.1)
Recognised in income statement 7 1.0 0.2 (2.1) (0.5) — (1.4)
Recognised in other comprehensive income — (1.1) — — — (1.1)
At 30 September 2021 (27.4) (1.5) 5.5 (0.5) 1.2 (22.7)
Exchange differences — — — — 0.2 0.2
Prior period adjustment (1.7) — — — — (1.7)
Recognised in income statement 7 (2.9) 0.5 0.6 (0.1) 0.2 (1.7)
Recognised in other comprehensive income — (0.1) — — — (0.1)
Recognised directly in equity — (1.1) — — — (1.1)
At 30 September 2022 (32.0) (2.2) 6.1 (0.6) 1.6 (27.1)
Of the net deferred tax liability of £27.1m (FY 2021: £22.7m), £4.5m net asset (FY 2021: £3.0m net asset) is expected to be recovered no
more than 12 months after the reporting period, and £31.6m net liability (FY 2021: £25.7m net liability) is expected to be settled more than
12 months after the reporting period.
Deferred tax liabilities of £0.6m (FY 2021: £0.5m) have been recognised for the withholding tax and other taxes that would be payable on the
unremitted earnings of £11.8m of the EU subsidiaries, as the Group no longer benefits from the EU Parent Subsidiary Directive on dividends
payable from 1 January 2021. It is likely that future amounts will be remitted as a dividend rather than being permanently reinvested.
Outside the EU no deferred tax liabilities have been recognised (FY 2021: £nil) for the withholding tax and other taxes, as such amounts
are permanently reinvested, and the Group can control the timing of any dividends. Unremitted earnings from non-EU subsidiaries totalled
£54.2m at 30 September 2022 (FY 2021: £43.7m).
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
164
12. Deferred tax assets and liabilities continued
Impact of climate change
Deferred tax assets are recognised to the extent that it is probable that future taxable profits are generated against which to
utilise the carried forward tax losses and other timing differences. The majority of the deferred tax assets relates to profit in
inventory generated when the UK manufacturing entities sell products to overseas subsidiaries prior to onward sale to the
end customer. The targeted inventory levels at overseas locations is set at approximately three to four months, a time period
considered to be too short to be impacted by climate change. The short time period between 30 September 2022 and the
expected external sale of the aforementioned inventory makes the realisation of the deferred tax asset probable, supporting
itsrecognition at the end of the year.
Unrecognised deferred tax assets
In the US, the Group has unrelieved net operating losses arising in the year ended 30 September 2022 of £nil (FY 2021: £3.9m). Thepotential
deferred tax asset on the cumulative unrelieved tax losses of £6.3m in the USA amounts to £1.6m (FY 2021: £2.0m), which have accumulated
from the early stage losses resulting from the readiness investment in Kleiss Gears Inc. and TxV Aerospace CompositesLLC. Given the early
stage of these two entities and their alignment to individual mega-programmes, the time to profitably is uncertain with further losses
expected in the short term. As a result it is not considered probable that the losses will be utilised over areasonable time frame.
In addition, the Group has unrelieved net operating losses arising in the year ended 30 September 2022 of £2.9m (FY 2021: £1.3m), which
relate to the early stage losses in Panjin VYX High Performance Materials Co. Ltd. The potential deferred tax asset on these losses amounts
to £1.1m (FY 2021: £0.2m). The Company is now in the commissioning phase ahead of commencing manufacturing towards the end of
FY2023. The Company is not expected to become profitable until it produces at approximately 50% of its capacity. The uncertainty over
thetime period to profitability and therefore utilisation of the losses means that recovery within a reasonable time frame is not probable.
13. Inventories
Inventories are measured at the lower of cost or net realisable value. The cost of inventories is based on the first-in, first-out principle and
includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. The cost of finished
goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (allocated based
on the higher of actual and normal production levels). Cost is calculated using the standard cost method. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
In calculating the estimated selling price a number of factors are taken into account, including the age of the inventory, customer order
profiles, the quality status, alternative routes to market and options to reprocess. Where the net realisable value is below the cost of the
inventory a provision is made to write down the inventory to the net realisable value which is expensed to the profit and loss account.
If subsequently the value realised from the inventory is above the net realisable value the provision is written back to the profit and
loss account.
Critical judgements and key sources of estimation uncertainty in relation to valuation of inventories
The carrying value of inventory, comprising raw materials, work in progress and finished goods totalling £86.8m, requires the use of
estimates and judgement. The Group absorbs directly attributable costs over the higher of actual production and normal production to
avoid absorbing more overheads than incurred in periods of high production or absorbing excess overheads in periods of low production.
Judgement is required when assessing the level of normal production to compare with the actual production in determining the rate
at which to absorb the directly attributable costs. This judgement considers historical production levels, budgeted production, as well
as the relationship between production and sales when concluding on the appropriate level over which to absorb production costs.
The primary estimate is in respect of the level of variations, including material usage and purchase price variances, between actual and
standard cost absorbed into inventory at each period end. Management uses its detailed experience in the process of forming its view
on the adjustments required to record inventory at cost. Management has assessed the range of possible outcomes which might result
from a change in assumptions and has determined this to be from a £1.0m increase in inventory to a £6.0m reduction in inventory at 30
September 2022 and therefore could result in a material adjustment to the carrying value of inventory within the next 12 months.
Inventory provisions are put in place for slow moving and potentially obsolete inventory as well as damaged and/or out of specification
product where cost is considered to be higher than net realisable value. The level of provisioning is an estimate, with judgement required
on ageing, customer order profiles, alternative routes to market and the option to reprocess. The estimation of the range of possible
outcomes is an increase in the value of inventory of £2.0m to a decrease of £3.0m and is therefore not considered to materially impact
the carry value of inventory within the next 12 months.
Impact of climate change
The impact of climate change on consumer behaviour may affect the demand for the Group’s products resulting in
obsolescence or reduced demand thus reducing the net realisable value. The Group targets carrying approximately three
to four months of inventory at any point in time, a time frame over which the impact of climate change on consumer
behaviour is not expected to impact. The majority of the Group’s core products serve multiple applications in multiple markets
further reducing the risk of material obsolete inventory over the longer term with each SKU’s inventory holding levels and
manufacturing plan regularly reviewed against forecast demand over the next 24 months.
Notes to the financial statements continued
FINANCIAL STATEMENTS
165
Annual Report 2022 Victrex plc
13. Inventories continued
2022 2021
As at 30 September £m £m
Raw materials and consumables 16.7 11.7
Work in progress 13.7 11. 2
Finished goods 56.4 47.4
86.8 70.3
The amount of inventory expensed in the period is £147.1m (FY 2021: £131.6m).
During the year the Group wrote down inventory by £3.2m (FY 2021: £4.0m) and reversed previously written down inventory by £2.5m
(FY 2021: £1.5m) resulting in a net increase in the overall inventory write down charge in the year of £0.7m (FY 2021: increase of £2.5m).
Victrex continues to focus on driving down aged and non-conforming product by working with suppliers and customers, reworking and
repackaging product to realise value from this inventory.
14. Trade and other receivables
Trade receivables are amounts due from customers for goods sold in the ordinary course of business.
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost
using the effective interest method less any impairment losses. The carrying amount of these balances approximates to fair value due to
the short maturity of amounts receivable.
Allowances are calculated by reference to credit losses expected to be incurred over the lifetime of the receivable using the simplified
approach, as described in note 16.
Group Company
2022 2021 2022 2021
As at 30 September £m £m £m £m
Trade receivables 39.3 26.7 — —
Amounts owed by Group undertakings — — 191.9 152.7
Prepayments and accrued income 20.1 12.2 — —
Sales taxes recoverable 5.6 8.4 — —
Other receivables 3.1 1.8 — —
68.1 49.1 191.9 152.7
Amounts owed by Group undertakings are interest free, unsecured and repayable on demand. These balances have been considered for
impairment and no credit losses are expected on these balances.
The value of MUPs recognised but not invoiced is included in prepayments and accrued income. The value at 30 September 2022 was£1.8m
(30September 2021: £1.7m). No credit loss has been recognised in respect of the MUPs balance at 30 September 2022 (30September 2021: £nil).
No credit losses are expected on the sales taxes recoverable balance due to the financial strength of the counterparties.
15. Borrowings
Borrowings are recognised initially at fair value, which equals the proceeds received less attributable transaction costs. Following the
initial recognition, borrowings are subsequently held at amortised cost.
2022 2021
As at 30 September £m £m
Due within one year
Bank loans 0.9 —
Total due within one year 0.9 —
Due after one year
Bank loans 14.8 —
Loan payable to non-controlling interest 6.8 5.9
Total due after one year 21.6 5.9
Bank loans are repayable in line with an agreed schedule up to December 2026. Interest is charged at the five-year Loan Prime Rate of the People’s
Republic of China, which has been in the range of 4.3%–4.65% in the period between the initial draw-down and 30 September 2022.
Thepurpose of the loan is funding of capital expenditure in China and is guaranteed by Victrex plc. Interest payable is capitalised as part of
the qualifying capital expenditure within property, plant and equipment. During the year £0.3m of interest has been capitalised accordingly.
The loan from the non-controlling interest, YX, is unsecured and is repayable on 30 September 2026 or such date as may be mutually
agreed by YX and Victrex Hong Kong Limited. Interest is charged at 4% per annum. Interest payable on the loan payable is rolled up into
the value of the loan, until repayment occurs. The purpose of the loan is funding of capital expenditure in China, with the interest payable
also capitalised as part of that qualifying capital expenditure within property, plant and equipment. During the year, interest of £0.2m has
been capitalised accordingly.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
166
16. Financial instruments and risk management
Derivative financial instruments and hedging activities
Derivative financial instruments are primarily used by the Group to manage its exposure to changes in foreign exchange rates relating to
overseas sales and purchases. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for
trading purposes.
The Group hedges a proportion of its net forecast sales, purchases and capital expenditure which are denominated in a foreign currency
(cash flow hedge) using forward exchange contracts. The Board is responsible for setting the hedging policy which is detailed overleaf.
At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items including
whether or not a net position is being hedged. A conclusion is reached as to whether the transaction qualifies as a cash flow hedge.
Details on hedge documentation are shown below.
Cash flow hedges
As permitted by IFRS 9 B.6.6.1, the Group designates overall net positions as hedged items when:
u
transactions are managed as net positions for risk management purposes;
u
the hedges are for foreign currency risks; and
u
the initial hedge designation and documentation set out how the items within the net position will affect the income statement.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used
inhedging transactions are effective in offsetting changes in cash flows of hedged items.
These foreign exchange contracts are initially recognised at fair value, with most having maturities of less than one year after the balance
sheet date.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability,
ora highly probable forecast transaction, the effective portion of changes in fair value is recognised in equity via the Statement
ofcomprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement,
throughsales, marketing and administrative expenses.
The recognition of any cumulative gain or loss existing in equity is aligned to the timing of the hedged transaction impacting the income
statement and is classified as follows:
u
hedging of a net position – separately on the face of the income statement within gains/(losses) on foreign currency net hedging; and
u
other cash flow hedges – cumulative gain or loss existing in equity at the time when the forecast transaction occurs is recognised in
the income statement in the corresponding line that the hedged item goes through being revenue, cost of sales or sales, marketing
and administrative expenses.
When a forecast transaction is no longer expected to occur, and therefore does not meet the criteria for cash flow hedge accounting,
the cumulative gain or loss that was reported in equity is immediately transferred to the income statement, through sales, marketing
andadministrative expenses.
Hedge documentation and effectiveness testing
The documentation includes identification of the hedging item(s), the nature of the risk being hedged and how the Group will assess
whether the hedging relationship meets the hedge effectiveness requirements.
Hedge effectiveness is a qualitative assessment of effectiveness performed in accordance with IFRS 9. A hedging relationship qualifies
forhedge accounting if it meets all the following effectiveness requirements:
u
there is an economic relationship between the hedged item and the hedging instrument;
u
the effect of the credit risk does not dominate the value changes that result from the economic relationship; and
u
the hedge ratio of the hedging relationship is the same as that used for risk management purposes.
For financial instruments not designated in hedge accounting relationships or that do not meet the criteria for hedge accounting,
the gain or loss on remeasurement to fair value is recognised immediately in the income statement through sales, marketing and
administrative expenses.
Other derivative financial instruments
Other financial derivatives are stated at the present value of the exercise price which is based on the expected cash payment associated
with the arrangement and are included as a liability in the Group’s balance sheet. Subsequent changes in the value of the liability to fair
value are recognised in the income statement.
If the financial derivative expires unexercised, the liability is derecognised and a corresponding non-controlling interest is recognised,
withany difference being recognised in equity.
Notes to the financial statements continued
FINANCIAL STATEMENTS
167
Annual Report 2022 Victrex plc
16. Financial instruments and risk management continued
Group
Currency risk
Currently, the Group exports in excess of 98% of sales from the UK and also makes raw material purchases overseas.
Currency risk is managed by the Currency Committee, which is chaired by the Chief Financial Officer and comprises the Chief Executive
Officer and senior finance executives. It meets monthly to review and manage the Group’s currency hedging activities, in line with the
hedging policy approved by the Board.
The Group’s hedging policy is to defer the impact on profits of currency movements by hedging:
u
a minimum of 80% and a maximum of 100% of projected transaction exposures arising from trading in the forthcoming six-month
period; and
u
a minimum of 75% and a maximum of 100% of projected transaction exposures arising in the following six-month period.
Profitability can vary due to the impact of fluctuating exchange rates on the unhedged portion of the transaction exposures and from
revised forecasts of future trading, which can lead to an adjustment of currency cover in place.
In addition, the Group includes a number of foreign subsidiaries. As a result of these factors, the Group’s financial statements are exposed
to currency fluctuations. The currencies giving rise to this risk are primarily US Dollar and Euro.
Sensitivity analysis
The impact of a 5% strengthening in the average Sterling/US Dollar and Sterling/Euro rates reduces profit for 2022 by £4.8m and £6.0m
(FY2021: £5.1m and £5.7m) respectively. The impact of a 5% strengthening in the average Sterling/US Dollar and Sterling/Euro rates
reduces equity for 2022 by £2.2m and £1.1m (FY 2021: £1.9m and £1.3m) respectively.
In accordance with IFRS 9, the fair value of gains and losses recognised on cash flow hedges is recognised in the consolidated income
statement as part of gross margin.
The notional contract amount, carrying amount and fair value of the Group’s forward exchange contracts and swaps are as follows:
As at 30 September 2022 As at 30 September 2021
Notional Carrying Notional Carrying
contract amount and contract amount and
amount fair value amount fair value
£m £m £m £m
Current assets — — 61.2 2.9
Current liabilities 197.5 (19.9) 106.9 (1.9)
197.5 (19.9) 168.1 1.0
The fair values have been calculated by applying (where relevant), for equivalent maturity profiles, the rate at which forward currency
contracts with the same principal amounts could be acquired at the balance sheet date. These are categorised as Level 2 within the fair
value hierarchy under IFRS 7.
The following table indicates the periods in which cash flows associated with the maturity date of the forward foreign exchange contracts
for which hedge accounting is applied are expected to occur:
As at 30 September 2022 As at 30 September 2021
Expected Expected
cash 6 months 6 to 12 12 to 18 cash 6 months 6 to 12 12 to 18
flows or less months months flows or less months months
£m £m £m £m £m £m £m £m
Forward exchange contracts:
– Assets — — — — 61.2 46.2 8.7 6.3
– Liabilities 197.5 85.8 90.1 21.6 106.9 36.4 61.4 9.1
197.5 85.8 90.1 21.6 168.1 82.6 70.1 15.4
The average exchange rates on open forward currency contracts are:
US Dollar 1.34 1.29 1.27 1.33 1.39 1.37
Euro 1.17 1.16 1.15 1.12 1.16 1.15
Gains and losses deferred in the hedging reserve in equity on forward foreign exchange contracts at 30 September 2022 will be recognised
in the income statement during the period in which the hedged forecast transaction affects the income statement, which is typically one
to two months prior to the cash flow occurring. At 30 September 2022, there are a number of hedged foreign currency transactions which
are expected to occur at various dates during the next 12 months. During the year, losses of £3.1m (FY 2021: gains of £0.8m) relating to
unsettled forward exchange contracts on the balance sheet at 30 September 2022 were released to the income statement.
Gains and losses recognised in the income statement on contracts which are yet to settle are adjusted as a non-cash movement on the
Cash flow statement. This equated to a loss of £4.0m in the year (FY 2021: gain of £0.5m).
There was no hedge ineffectiveness during the year (FY 2021: nil). The hedge ratio is 1:1 in all instances.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
168
16. Financial instruments and risk management continued
Group continued
Credit risk
The Group manages exposure to credit risk at many levels ranging from Executive Director approval being required for the credit limits of
larger customers, to the use of letters of credit and cash in advance where appropriate. Internal procedures require regular consideration
of credit ratings, both internally for lower value customers and recognised credit reference agencies for higher value customers, payment
history, aged items and proactive debt collection. All customers are assigned a credit limit which is subject to annual review. Consideration
is given to significant adverse changes in business, financial and economic conditions that may cause a significant change in the ability
of customers to meet their obligations. Any adverse data relating to these factors is considered in determining whether there has been a
significant increase in credit risk of a financial asset on an ongoing basis throughout each reporting period. Regardless of the analysis, an
increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment.
The Group has applied the simplified approach to measuring expected credit losses, which requires lifetime expected losses to be
recognised from initial recognition for trade receivables. Lifetime expected credit losses for trade receivables are calculated based on
historical loss rates and adjusted where necessary for relevant forward-looking estimates. Trade receivables have been grouped for this
analysis based on shared credit risk characteristics, including the segment and country/region in which the customer operates. The model,
which considers macroeconomic information, has been applied to the Group’s two segments differently. For trade receivables in the
Industrial sector, a different loss rate has been applied to the US and Japan compared to the remainder of the segment’s geographical
markets. In the Medical sector, a single higher rate of allowance has been used to reflect the higher risk of default of the customer base.
The Group’s payment terms typically range from 30 to 60 days depending on geography. Trade receivables are specifically impaired and
considered in default when the amount is in dispute, when customers are believed to be in financial difficulty, or if any other reason exists
which implies that there is doubt over the recoverability of the debt. They are written off when there is no reasonable expectation of
recovery, based on an estimate of the financial position of the customer.
Impact of climate change
Climate change will impact the Group’s customers in different ways and over different time horizons. Whilst the overall
impact of climate change on the Group’s revenue is anticipated to be positive, there will be markets/sectors which are adversely
impacted. This is not anticipated to have an adverse impact in the short-term assessment of recoverability, i.e. over the life of
the receivables on the balance sheet at 30 September 2022. The ageing of trade receivables is shown below with 89% not yet
due of which the vast majority will be cleared within 60 days of the year end. The Group monitors the ageing and profile of
the receivables on a regular basis, including the regular use of external credit rating agencies, and updates the expected credit
loss model assumptions if evidence of changing trends or risk profiles emerges.
Trade receivables, being ‘held to collect’ assets, can be analysed as follows:
2022 2021
As at 30 September £m £m
Amounts not past due 36.0 24.4
Amounts past due:
– Less than 30 days 2.3 2.2
– 30–60 days 0.9 0.3
– More than 60 days 1.2 0.1
Total past due 4.4 2.6
Lifetime expected credit losses (1.1) (0.3)
Amounts specifically impaired 0.1 0.5
Specific allowances for bad and doubtful debts (0.1) (0.5)
Carrying amount of impaired receivables — —
Trade receivables net of allowances 39.3 26.7
Movements in the allowance for impairments were:
2022 2021
£m £m
At beginning of year 0.8 1.3
Charge in the year 1.4 —
Release of allowance (1.0) (0.5)
At end of year 1.2 0.8
Notes to the financial statements continued
FINANCIAL STATEMENTS
169
Annual Report 2022 Victrex plc
16. Financial instruments and risk management continued
Group continued
Credit risk continued
The range of estimated credit loss (‘ECL’) allowance is as follows:
Less than 30 to 60 60 to 90 More than
30 days days days 90 days
Current past due past due past due past due Total
£m £m £m £m £m £m
2022
% allowance 0%–0.3% 0.5%–1.5% 20%–50% 50%–60% 75%–100%
Trade receivables 36.0 2.3 0.9 0.6 0.7 40.5
Allowance (inclusive of specific provision) (0.1) (0.1) (0.2) (0.3) (0.5) (1.2)
39.3
2021
% allowance 0%–0.3% 0.5%–1.5% 20%–50% 50%–60% 75%–100%
Trade receivables 24.4 2.2 0.3 0.1 0.5 27.5
Allowance (inclusive of specific provision) (0.1) — (0.1) (0.1) (0.5) (0.8)
26.7
The credit risk in respect of cash and cash equivalents, other financial assets and derivative financial instruments is limited because the
counterparties with significant balances are established international banks whose credit ratings are monitored on an ongoing basis. These
balances are therefore considered to have low credit risk on initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and other short-term deposits with original maturities typically of three
months or less. The cash and cash equivalents disclosed in the Group balance sheet and in the Group statement of cash flows include
£2.8m ring-fenced in the Group’s Chinese subsidiaries, which is committed to capital expansion (FY 2021: £12.5m) and therefore is not
available for general use by the other entities within the Group.
Other financial assets
Cash invested in term or notice deposits with original maturities greater than three months in duration does not meet the criteria to be
classified as cash and cash equivalents. Accordingly, these deposits have been presented within other financial assets and are carried at
amortised cost in accordance with IFRS 9.
As at 30 September 2022, the maximum exposure with a single bank for deposits (cash and cash equivalents and other financial assets)
was £26.3m (FY 2021: £32.5m) for the Group. As at 30 September 2022, the largest mark to market exposure for gains on forward foreign
exchange contracts to a single bank was £nil (FY 2021: £1.7m) as all forward foreign exchange contracts were ‘out of the money’ at this
date. The amounts on deposit at the year end represent the Group’s maximum exposure to credit risk on cash and deposits.
Liquidity risk
The Group’s objective in terms of funding capacity is to ensure that it always has sufficient short-term and long-term funding available,
either in the form of the Group’s cash resources or committed bank facilities. The Group has sufficient funds available to meet its current
funding requirements for both revenue and capital expenditure. In order to further manage liquidity risk to an acceptable level, the
Group has a bank facility of £40m (£20m committed and £20m accordion), which expires in October 2024, all of which was undrawn
atthe year end.
The facility contains covenant measures that are tested biannually. They consist of leverage, measuring debt to equity, and interest cover,
measuring the interest charge related to profit before interest.
As at 30 September 2022, the Group had a cash and cash equivalents balance of £58.7m (FY 2021: £74.9m). In addition to this, the Group
had cash held on 95-day notice deposit accounts of £10.1m (FY 2021: £37.5m). The maximum deposit length utilised by the Group when
cash is invested both during the year ended 30 September 2022 and up to the date of this report is 95 days (FY 2021: 95 days).
Price risk
The Group’s products contain a number of key raw materials and its operations require energy, notably electricity and natural gas.
Anyincrease or volatility in prices and any significant decrease in the availability of raw materials or energy could affect the Group’s results.
Victrex strives to obtain the best prices and uses contractual means to benefit where appropriate and possible. The Group has a significant
degree of control over its supply chain which enables it to effectively manage the risk in this area.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
170
16. Financial instruments and risk management continued
Group continued
Capital management
The Group defines the capital that it manages as the Group’s total equity. The Group’s policy for managing capital is to maintain a strong
balance sheet with the objective of maintaining customer, supplier and investor confidence in the business and to ensure that the Group
has sufficient resources to be able to invest in future development and growth of the business.
The Board does not expect to make significant share repurchases in 2022, although there is a resolution proposed at each AGM to
authorise the Company to make one or more market purchases of its ordinary shares up to a maximum number of shares equal to 10%
ofits issued ordinary share capital as at the date of the Notice of Annual General Meeting.
The Group’s capital and equity ratio is as follows:
2022 2021
As at 30 September £m £m
Total equity 490.6 511.7
Total assets 641.6 615.3
Equity ratio 76% 83%
Financial instruments
Summary of categories of financial assets and liabilities
Carrying amount and fair value
As at 30 September Note Classification under IFRS 9
2022
£m
2021
£m
Financial assets
Forward exchange contracts used for hedging (derivative instruments) Fair value –
hedging instrument — 2.9
Unquoted investments 11 FVTPL 3.5 8.9
Other financial assets held at fair value FVTPL 6.6 3.8
Trade and other receivables 14 Amortised cost 42.4 28.5
Cash and cash equivalents Amortised cost 58.7 74.9
Other financial assets Amortised cost 10.1 37.5
Financial liabilities
Forward exchange contracts used for hedging (derivative instruments) Fair value –
hedging instrument (19.9) (1.9)
Borrowings – due within one year 15 Amortised cost (0.9) —
Borrowings – due after one year 15 Amortised cost (21.6) (5.9)
Trade and other payables 18 Other financial liabilities (59.7) (49.4)
Financial assets and liabilities held at fair value
Fair value is determined using the fair value hierarchy which takes into account the availability of input data into the fair value calculation,
with levels going from Level 1 (quoted market prices available) through to Level 3 (unobservable inputs) with more assumptions inherent
in the fair value calculation of Level 3 assets. Where observable inputs are not available then another valuation technique is used, such as
an income approach or market approach.
All financial assets and liabilities measured at fair value are categorised as Level 2 within the fair value hierarchy, with the exception of
investments in unquoted companies and other financial assets held at fair value which are categorised as Level 3.
The maturity profiles of the derivative instruments in designated hedge accounting relationships and trade receivables are given on pages
167 and 168 respectively.
Information on the maturity of the financial liabilities is included both within this note and within note 15.
For trade and other payables there are no amounts due after one year, the majority falling due in 30 days or less.
All fair value measurements are recurring.
Notes to the financial statements continued
FINANCIAL STATEMENTS
171
Annual Report 2022 Victrex plc
16. Financial instruments and risk management continued
Reconciliation of movement in net funds/(debt)
Net funds/(debt) consists of cash and cash equivalents together with other financial assets, long-term and short-term loans and finance
lease liabilities.
Note
At
1 October
2021 Cash flow
Exchange and
other non-cash
movements
Long-term
loans
At
30 September
2022
Cash and cash equivalents 16 74.9 (18.6) 2.4 — 58.7
Other financial assets 16 37.5 (27.4) — — 10.1
Borrowings – due within one year 15, 16 — — — (0.9) (0.9)
Borrowings – due after one year 15, 16 (5.9) 0.3 (2.3) (13.7) (21.6)
Lease liabilities 19 (10.0) 2.1 (1.7) — (9.6)
Net funds 96.5 (43.6) (1.6) (14.6) 36.7
Note
At
1 October
2020 Cash flow
Exchange and
other non-cash
movements
Long-term
loans
At
30 September
2021
Cash and cash equivalents 16 73.1 2.2 (0.4) — 74.9
Other financial assets 16 — 37.5 — — 37.5
Borrowings – due after one year 15, 16 — — — (5.9) (5.9)
Lease liabilities 19 (7.1) 1.8 (4.7) — (10.0)
Net funds 66.0 41.5 (5.1) (5.9) 96.5
Company
The only receivables of the Company are amounts owed by subsidiary undertakings. These are carried at amortised cost subsequent to
initial recognition.
There are no future expected credit losses on amounts owed by Group undertakings.
17. Retirement benefits
Employee benefits
Defined contribution pension schemes
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred.
Defined benefit pension schemes
The Group’s net obligation in respect of defined benefit pension schemes recognised in the balance sheet is the present value of the
future benefits that employees have earned in return for their service in the current and prior periods, less the fair value of plan assets.
The defined benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and have terms to maturity approximating to the terms of
the related pension liability.
When the calculation results in a benefit to the Group, the recognised asset is the present value of economic benefits available in the
form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of
economic benefits, consideration is given to any minimum funding requirements that apply. An economic benefit is available to the
Group if it is realisable during the life of the plan or on settlement of the plan liabilities. When the benefits of a plan are improved,
the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight line basis over
the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised in
profit or loss.
Actuarial gains and losses are immediately recognised in full through the Statement of comprehensive income.
Critical judgements and key sources of estimation uncertainty in relation to pension scheme valuation
The valuation of pension scheme liabilities is calculated in accordance with Group policy. The valuation is prepared by independent
qualified actuaries, but significant estimates are required in relation to the assumptions for pension increases, inflation, the discount
rate applied and member longevity, which underpin the valuations. Information about the assumptions relating to retirement benefit
obligations and also the sensitivity of the pension liability to movements in these assumptions is presented below. The sensitivity shows
that a change in the estimation assumptions could result in a material change in the carrying value of the scheme assets and/or liabilities
within the next 12 months.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
172
17. Retirement benefits continued
Employee benefits continued
Impact of climate change
The impact of climate change has been discussed with the UK pension trustee. Whilst not an income statement impacting change,
a movement in the net defined benefit pension balance would potentially impact long-term cash flows if further contributions
were required or a lower surplus were returned to the Company on satisfaction of all outstanding liabilities. The potential
impact of climate change would most likely seen in the value of scheme assets if they were not appropriately managed.
At 30 September 2022, the scheme holds approximately 30% of its assets in equities and growth funds spread across a
number of funds, each of which is tasked with maximising return within an appropriate risk framework. In addition, the
pension trustees are working on their own ESG policy, into which the Company will have an input, which is likely to result in
an ESG linked investment strategy. This will align to the Company’s strategy and also ensure that investments are not ‘stuck’
in declining equities thus risking under performance. As a result, the Directors have concluded that no climate-related risk
adjustment is required at 30 September 2022.
The Group operates a number of pension schemes for its employees throughout the world. Outside the UK and Germany, the Company
operates defined contribution pension schemes.
Victrex Pension Fund (UK)
The principal scheme operated by the Group is a funded UK pension scheme, which is subject to the statutory funding objective under
the Pensions Act 2004, in which employees of UK subsidiary undertakings participate. The scheme has two sections. One section provides
benefits on a defined benefit basis with benefits related to final pensionable pay. The defined benefit section was closed to new members
from 31 December 2001. From this date new employees have been invited to join the second section that provides benefits on a defined
contribution basis. The defined benefit scheme closed to future accrual on 31 March 2016, with employees in the scheme eligible to join
the defined contribution scheme.
The latest triennial valuation was performed to 31 March 2019 and showed a scheme surplus of £7.9m. The surplus position means the
Company has no current obligation to make further contributions to the scheme, although this may change following future valuations.
TheCompany made additional contributions of £1.0m during the years ended 30 September 2020 and 2021 as part of an ongoing programme
with the trustees to work towards self-sufficiency. The triennial valuation at 31 March 2022 is in the process of being finalised which is
expected to show that the scheme remains in surplus. The Company remains committed to working towards self-sufficiency and intends to
continue to make voluntary contributions where appropriate. A contribution of £1m will be made following finalisation of the triennial valuation at
31March 2022 and the associated investment strategy, unless the outcome of those activities shows that further contributions are notrequired.
The current investment strategy was agreed with the trustees following the last triennial valuation and focused on working towards self-
sufficiency with the assets increasingly matched to the nature and term of the liabilities. This included reducing the exposure to equities
and increasing the use of liability-driven investments to better manage the scheme’s exposure to interest rate risk. A level of growth assets
was retained aligned with the longer-term goal of reducing the deficit on a self-sufficiency basis. The investment strategy is reviewed on a
regular basis with the trustees and scheme advisors.
Victrex Europa GmbH Pension Fund (Germany)
The Company operates another defined benefit scheme in Germany for the benefit of one, now retired, employee. Due to the small size
of this scheme the disclosure has historically been combined with that of the UK defined benefit scheme. The Company operates another
defined benefit scheme in Germany for the benefit of one, now retired, employee. In the prior financial year, the insurance policies
which comprise the assets of the scheme have started to mature. At this point, under German law, having received permission from the
beneficiary, the Company elected to assume the benefit of these assets for use in the business and leave the scheme unfunded – making
the pension payments from Company cash flow. As a result the net liability of the scheme increased in the prior year, and has increased
further during the year ended 30 September 2022, as the last remaining assets were transferred to the Company.
Risks associated with the defined benefit scheme
Investment risk
The scheme holds investments in asset classes, such as equities, which have volatile market values, and while these assets are expected to
provide real returns over the long term, the short-term volatility can cause additional funding to be required if a deficit emerges.
Interest rate risk
The scheme’s liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the scheme holds
assets such as equities the value of the assets and liabilities may not move in the same way, although this is mitigated to some extent by
thescheme’s liability-driven investment holdings which, although not based on changes in corporate bonds, would be expected to move
ina similar way to the liabilities.
Inflation risk
A significant proportion of the benefits under the scheme are linked to inflation. Although the scheme’s assets are expected to provide a
good hedge against inflation over the long term, in particular through the scheme’s liability-driven investment holdings, movements in the
short term could lead to deficits emerging.
Longevity risk
In the event that members live longer than assumed, an additional deficit will emerge in the scheme, as the present value of the defined
benefit liabilities is calculated with regards to a best estimate of the mortality of plan members.
Where the IAS 19 valuation shows scheme assets in excess of scheme liabilities, an asset is recognised based on the fact that under the
terms of the Trust Deed agreement, the sponsoring company is entitled to any assets that remain in the scheme after the settlement of
allpension liabilities. There are no restrictions on the current realisability of the surplus.
Notes to the financial statements continued
FINANCIAL STATEMENTS
173
Annual Report 2022 Victrex plc
17. Retirement benefits continued
IAS 19 disclosures relating to defined benefits are as follows:
Principal actuarial assumptions
As at 30 September 2022 – UK Scheme 2022 – German Scheme 2021 – UK Scheme 2021 – German Scheme
Discount rate 5.05% 3.72% 1.95% 0.64%
RPI inflation 3.80% n/a 3.60% n/a
CPI inflation 3.20% 2.00% 3.00% 1.75%
Future pension increases 3.50% n/a 3.40% n/a
Mortality tables:
– Male 92% of S3PMA 100% of RT2018G 92% of S3PMA 100% of RT2018G
– Female 95% of S3PFA n/a 95% of S3PFA n/a
Mortality improvements:
– Model CMI 2021 RT2018G CMI 2020 RT2018G
– Long-term rate of improvement 1.25% Individual 1.25% Individual
– Initial addition 0.25% Individual 0.50% Individual
Life expectancy from age 62 of current
pensioners:
– Male 25.4 yrs
1
23.4 yrs
1
25.5 yrs
2
23.2 yrs
2
– Female 27.7 yrs
1
n/a 27.8 yrs
2
n/a
Life expectancy from age 62 of active
anddeferred members:
– Male 26.6 yrs
3
25.8 yrs
3
26.7 yrs
4
25.7 yrs
4
– Female 28.9 yrs
3
n/a 29.0 yrs
4
n/a
1 Life expectancy from age 62 for members aged 62 in 2022.
2 Life expectancy from age 62 for members aged 62 in 2021.
3 Life expectancy from age 62 for members aged 45 in 2022.
4 Life expectancy from age 62 for members aged 45 in 2021.
The average duration of the benefit obligation at the end of the reporting period is 17 years (FY 2021: 22 years).
Significant actuarial assumptions for the determination of the defined benefit surplus are discount rate and inflation rate. The sensitivity
analysis below has been determined based on reasonably possible changes in the assumptions occurring at the end of the reporting period
assuming that all other assumptions are held constant:
UK Scheme – reduction in fund
surplus as at 30 September
Change in assumption
2022
£m
2021
£m
Reduce discount rate by 1% p.a. 8.6 19.0
Increase inflation expectations by 1% p.a. 5.8 15.1
Increase life expectancy by 1 year 1.3 3.0
Interrelationships between the assumptions, especially between discount rate and expected inflation rates, are expected to exist in practice.
The above analysis does not take the effect of these interrelationships into account.
Amounts recognised in the balance sheet
2022 2021
As at 30 September £m £m
Retirement benefit assets
UK Scheme 14.9 14.2
Total retirement benefit assets 14.9 14.2
Retirement benefit liabilities
German Scheme (2.7) (1.9)
Total retirement benefit liabilities (2.7) (1.9)
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
174
17. Retirement benefits continued
UK Scheme/Combined Scheme disclosures
UK Scheme Combined Schemes
2022 2021 2020 2019 2018
As at 30 September £m £m £m £m £m
Present value of funded obligations (49.2) (81.1) (88.2) (85.8) (72.1)
Fair value of scheme’s/schemes’ assets 6 4 .1 95.3 95.7 94.9 85.6
Net asset before deferred taxation 14.9 14.2 7.5 9.1 13.5
Related deferred taxation liability (3.7) (3.6) (1.4) (1.5) (2.3)
Net asset after deferred taxation 11.2 10.6 6.1 7.6 11. 2
Change in assumptions and experience adjustments arising
onscheme’s/schemes’ liabilities 30.8 (0.4) (2.2) (14.8) 2.0
Experience adjustments arising on scheme’s/schemes’ assets (31.4) 4.1 (0.8) 8.9 3.6
Changes in the present value of the funded obligation
UK Scheme
2022 2021
£m £m
Defined benefit obligation at beginning of year (81.1) (88.2)
German Scheme obligation disclosed separately in 2021 — 4.6
Interest cost (1.6) (1.3)
Actuarial gains/(losses) 30.8 (0.4)
Benefits paid 2.7 4.2
Defined benefit obligation at end of year (49.2) (81.1)
Changes in the fair value of the scheme assets
UK Scheme
2022 2021
£m £m
Fair value of scheme assets at beginning of year 95.3 95.7
German Scheme assets disclosed separately from 2021 — (2.7)
Interest income on assets 1.9 1.4
Return on assets excluding interest (31.4) 4.1
Contributions by employer 1.0 1.0
Benefits paid (2.7) (4.2)
Fair value of scheme assets at end of year 64.1 95.3
Major categories of scheme assets
UK Scheme UK Scheme
2022
Quoted
2022
Unquoted
2022
Total
2021
Quoted
2021
Unquoted
2021
Total
As at 30 September £m £m £m £m £m £m
UK equities — 0.3 0.3 — 0.8 0.8
Non-UK equities — 9.0 9.0 — 11.1 11.1
Diversified growth and absolute return funds
1
— 10.3 10.3 — 12.8 12.8
Liability-driven instruments
2
19.7 — 19.7 41.1 — 41.1
Debt instruments 5.8 16.9 22.7 7.6 20.6 28.2
Cash in transit 1.9 — 1.9 — — —
Cash 0.2 — 0.2 1.3 — 1.3
Fair value of scheme assets at end of year 27.6 36.5 64.1 50.0 45.3 95.3
1 Diversified growth and absolute return funds are funds that invest in a wide variety of asset classes in order to deliver real capital appreciation over the
medium to long term, typically aiming for a certain level of absolute return.
2 Liability-driven instruments are a portfolio of assets that are linked to the drivers of movements in pension liabilities such as inflation and interest rates.
These are assets designed to deliver geared movements in the underlying liabilities as they reflect changes to inflation and interest rates.
Quoted assets are those with a quoted price in an active market. Unquoted assets are those which do not have a daily market price and are
valued by Investment Managers, except for the insurance policies which are valued at surrender price.
Notes to the financial statements continued
FINANCIAL STATEMENTS
175
Annual Report 2022 Victrex plc
17. Retirement benefits continued
Amounts recognised in the income statement
UK Scheme
2022 2021
Note £m £m
Interest on liabilities (1.6) (1.3)
Interest income on assets 1.9 1.4
Total included in ‘staff costs’ 5 0.3 0.1
The total included in ‘staff costs’ of £0.3m is included within sales, marketing and administrative expenses (FY 2021: £0.1m).
Gross amounts of actuarial gains and losses recognised in the Statement of comprehensive income
UK Scheme
2022 2021
£m £m
UK Scheme at beginning of year 3.7 —
(Loss)/gain in year (0.6) 3.7
Cumulative amount at end of year 3.1 3.7
Up to and including the year ending 30 September 2020 the cumulative amount of actuarial gains and losses on the UK and German
schemes were presented on a combined basis and totalled a loss of £16.3m. Obtaining a historical split of this balance between this
schemes was not practical and therefore, from 1 October 2021, following the presentation of these schemes gross, the individual
cumulative effects were restarted from £nil. The cumulative aggregate amount of actuarial gains and losses on the UK and German
schemes at 30September 2022 was a loss of £13.5m (30 September 2021: loss of £11.8m).
Actuarial gains and losses arising from changes in demographic and financial assumptions
UK Scheme
2022 2021
£m £m
Changes in demographic assumptions 0.3 0.9
Changes in financial assumptions 34.1 (2.7)
Experience (losses)/gains on liabilities (3.6) 1.4
Total actuarial gains/(losses) on scheme liabilities 30.8 (0.4)
Return on assets excluding interest (31.4) 4.1
Total actuarial (losses)/gains (0.6) 3.7
German Scheme disclosures
German Scheme
2022 2021
As at 30 September £m £m
Present value of funded obligations (2.7) (3.5)
Fair value of scheme assets — 1.6
Net liability before deferred taxation (2.7) (1.9)
Related deferred taxation asset 0.7 0.5
Net liability after deferred taxation (2.0) (1.4)
Change in assumptions and experience adjustments arising on scheme’s liabilities 0.8 0.7
Experience adjustments arising on scheme’s assets — 0.1
Changes in the present value of the funded obligation
German Scheme
2022 2021
£m £m
Obligations at beginning of year (3.5) (4.6)
Exchange (loss)/gain on opening obligations (0.1) 0.4
Interest cost — (0.1)
Actuarial gains 0.8 0.7
Benefits paid 0.1 0.1
Defined benefit obligation at end of year (2.7) (3.5)
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
176
17. Retirement benefits continued
Changes in the fair value of the scheme assets
German Scheme
2022 2021
£m £m
Assets at beginning of year 1.6 2.7
Exchange gain/(loss) on opening assets 0.1 (0.2)
Return on assets excluding interest — 0.1
Contributions by employer — 0.1
Benefits paid (0.1) (0.1)
Assets distributed to employer (1.6) (1.0)
Fair value of scheme assets at end of year — 1.6
The scheme assets were all held as unquoted insurance policies.
Amounts recognised in the income statement in respect of the German Scheme were less than £0.1m (FY 2021: less than £0.1m).
The gross amount of actuarial gains and losses recognised in the Statement of comprehensive income in respect of the scheme was £0.8m.
German Scheme
2022 2021
£m £m
German Scheme at the beginning of the year 0.8 —
Movement in year 0.8 0.8
Cumulative amount at end of year 1.6 0.8
Actuarial gains and losses arising from changes in demographic and financial assumptions
German Scheme
2022 2021
£m £m
Changes in demographic assumptions — 0.4
Changes in financial assumptions 0.8 0.2
Experience gains on liabilities — 0.1
Total actuarial gains on scheme liabilities 0.8 0.7
Return on assets excluding interest — 0.1
Total actuarial gains 0.8 0.8
18. Trade and other payables
Trade payables are obligations to pay for goods acquired in the ordinary course of business from suppliers.
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using
the effective interest method.
Group Company
2022 2021 2022 2021
As at 30 September £m £m £m £m
Trade payables 7.3 4.7 — —
Accruals 40.1 38.9 0.1 —
Other 12.3 5.8 — —
59.7 49.4 0.1 —
The fair value of trade and other payables approximates to their carrying value.
Notes to the financial statements continued
FINANCIAL STATEMENTS
177
Annual Report 2022 Victrex plc
19. Lease liabilities
Lease liabilities
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease
payments made.
The Group has elected not to recognise ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less
and those leases of low-value assets. Payments associated with short-term leases and leases of low-value assets are recognised ona
straight line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less that do
notcontain a purchase option. Low-value assets mainly comprise office equipment.
Lease liabilities are initially measured at their present value, which includes the following lease payments: fixed payments (including
in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate (using the
index or rate in place at transition); amounts expected to be payable by the Group under residual value guarantees; the exercise price of
a purchase option if the Group is reasonably certain to exercise that option; payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option; and payments to be made under reasonably certain extension options. Lease liabilities and
the corresponding right of use asset are subsequently remeasured where there is a change in future lease payments resulting from a rent
review or change in index or rate.
The lease payments are discounted using the Group’s incremental borrowing rate. Each lease payment is allocated between the principal
and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the lease liability for each period.
Lease liabilities recognised at 30 September are recognised as follows:
£m
Lease liabilities
Balance at 1 October 2020 7.1
Additions 4.5
Payments in the period (1.8)
Interest on lease liabilities 0.2
Balance at 30 September 2021 10.0
Additions 1.5
Payments in the period (2.1)
Interest on lease liabilities 0.2
Balance at 30 September 2022 9.6
The maturity of these lease liabilities at 30 September is as follows:
2022
£m
2021
£m
Due within one year 1.8 1.8
Due between two and five years 3.3 3.5
Due after five years 4.5 4.7
Total 9.6 10.0
20. Contingent liabilities
Contingent liabilities
Contingent liabilities are potential future cash outflows, where the likelihood of payment is considered more than remote but is not
considered probable or cannot be measured reliably.
At 30 September 2022, the Group had no contingent liabilities (FY 2021: none).
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
178
21. Share-based payments
Share-based payment transactions and employee share ownership trusts (‘ESOT’)
The fair value of the employee services received in exchange for the grant of the options is recognised as an expense with a
corresponding increase in equity. Share-based payment transactions are recharged from the Company to those subsidiaries benefiting
from the service of the employees to whom options are granted.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding
the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of
options that are expected to vest and include employee service periods and performance targets which are not related to the Company’s
share price, such as earnings per share growth. The fair value of the options is measured by the Stochastic model, taking into account
the terms and conditions upon which the instruments were granted. At each balance sheet date, the entity revises its estimates of the
number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the
income statement and a corresponding adjustment to equity over the remaining vesting period.
Any failure to meet market conditions, which include performance targets such as share price or total shareholder return, would not
result in a reversal of original estimates in the income statement and any remaining charges would be accelerated.
The proceeds received, net of any directly attributable costs, are credited to share capital (nominal value) and share premium when the
options are exercised.
The Group and Company provide finance to the ESOT to purchase Company shares in the open market. Costs of running the ESOT
are charged to the income statement. The cost of shares held by the ESOT is deducted in arriving at equity until they are exercised
byemployees.
All share-based payment costs are recharged to the trading entities.
All options are settled by the physical delivery of shares. The terms and conditions of all the grants are as follows:
Victrex 2005/2015 Executive Share Option Plan (‘ESOP’)
All employees are eligible to participate. The Remuneration Committee currently excludes Executive Directors from participating in this
plan. Option awards are based on a percentage of basic salary, not exceeding 100% of salary in each financial year. The exercise price
of the options is equal to the market price of the shares on the date of grant. ESOP options are conditional on the employee completing
three years’ service (the vesting period) and achieving the performance condition where applicable. The level of awards vesting will vary
depending on EPS growth. In order for awards issued prior to December 2020 to reach the threshold level of vesting, the EPS growth of
the Group must exceed 2% per annum with some awards requiring this growth to be above the Retail Price Index. For awards over 33%
ofsalary, the threshold increases to 3%, and then to 4% for awards over 66%. Straight line vesting will occur to the extent that EPS growth
falls between these annual EPS growth targets.
For awards issued in December 2020 and May 2021, where awards granted are at less than 50% of salary, to reach the threshold level of
vesting, the EPS growth of the Group must exceed 5.8% per annum. Shares will vest up to 100% on a straight line basis if the EPS grows by
9.9% over the three-year period. For awards granted at 50% of salary, EPS must be at least 89.25p per ordinary share in the final financial
year of the performance period to vest at 20%. Vesting will increase to a maximum vesting of 100% at 100.0p per share in FY 2023, with
the options vesting on a straight line basis between these targets. All ESOP options are exercisable from the date of vesting to the 10-year
anniversary of the grant date.
For awards issued on or after December 2021, where awards granted are at less than 50% of salary, to reach the threshold level of vesting,
the EPS growth of the Group over the three-year period must exceed 5%. For awards over 33% of salary, the threshold increases to 7.5%.
Straight line vesting will occur to the extent that EPS growth falls between these annual EPS growth targets. For awards granted at 50%
of salary, EPS must be at least 96.5p per ordinary share in the final financial year of the performance period to vest at 20%. Vesting will
increase to a maximum vesting of 100% at 111.0p per share in FY 2024, with the options vesting on a straight line basis between these
targets. All ESOP options are exercisable from the date of vesting to the 10-year anniversary of the grant date.
Victrex 2015 Sharesave Plan
UK resident employees and full-time Directors of the Company or any designated participating subsidiary are eligible to participate.
Theexercise price of the granted Sharesave Plan options is equal to the market price of the ordinary shares less 20% on the date of grant.
Victrex 2015 Employee Stock Purchase Plan
US-based employees (including Executive Directors) are eligible to participate. The price payable for each ordinary share shall be a price
determined by the Board, and it shall not be less than 85% of the lower of the market value of an ordinary share on the date of grant
orthedate of purchase.
Awards may be granted over a number of ordinary shares determined by the amount employees have saved by the end of a one-year
savings period.
Victrex 2009/2019 Long Term Incentive Plan
Each year Executive Directors, and senior executives by invitation, are eligible to be awarded options to acquire, at no cost, market
purchased ordinary shares in the Company up to a maximum equivalent of 150% of basic salary. In exceptional circumstances, such
asrecruitment or retention, this limit is increased to 200% of an employee’s annual basic salary.
Details of the 2019 LTIP can be found within the Directors’ remuneration report on page 110.
Notes to the financial statements continued
FINANCIAL STATEMENTS
179
Annual Report 2022 Victrex plc
21. Share-based payments continued
Victrex 2017 Deferred Bonus Scheme (‘DBS’)
Adopted by the Remuneration Committee on 9 October 2017, this plan requires Executive Directors to defer up to a maximum of 100%
oftheir earned bonus into shares for three years.
Number and weighted average exercise prices of share options
ESOP Sharesave Plan Stock Purchase Plan LTIP DBS
Weighted Weighted Weighted Weighted Weighted
average average average average average
exercise Number exercise Number exercise Number exercise Number exercise Number
price of options price of options price of options price of options price of options
Outstanding at
1 October 2020 2,150p 1,293,036 1,815p 328,898 — — nil p 243,462 nil p 14,190
Granted during the year 2,163p 198,031 1,960p 89,000 2,153p 11,0 81 nil p 149,702 — —
Forfeited during the year 2,434p (332,608) 1,923p (13,537) — — nil p (56,420) — —
Cancelled during the year — — 1,972p (35,196) — — — — — —
Exercised during the year 1,829p (249,619) 1,486p (90,291) 2,153p (11,081) nil p (15,633) — (4,543)
Outstanding at
30 September 2021 2,137p 908,840 1,942p 278,874 — — nil p 321,111 nil p 9,647
Granted during the year 2,369p 239,359 1,891p 113,785 2,153p 8,059 nil p 152,161 nil p 23,382
Forfeited during the year 2,212p (272,910) 1,939p (21,204) — — nil p (131,995) nil p —
Cancelled during the year — — 1,962p (21,939) — —
nil p — nil p —
Exercised during the year 1,771p (9,559) 1,648p (8,838) 2,153p (8,059) nil p (14,550) nil p (5,237)
Outstanding at
30 September 2022 2,182p 865,730 1,932p 340,678 — — nil p 326,727 nil p 27,792
Range of exercise prices
2022 1,502p–2,730p 1,891p–2,164p — nil p n/a
2021 1,502p–2,730p 1,266p–2,164p — nil p n/a
Weighted average
contractual life (years)
2022 6.9 1.9 0.4 8.3 6.8
2021 7.1 2.3 0.4 8.0 5.3
Exercisable at end of year
2022 1,920p 285,286 1,920p 95,022 — — nil p 7,159 — —
2021 1,899p 268,125 1,929p 1,806 — — nil p 21,709 — —
During the year, the weighted average share price at the date of exercise was 2,069p for ESOPs and was 1,784p for the Sharesave Plan.
Details of the LTIP and DBS exercises are included in the Directors’ remuneration report on pages 121 and 123.
Fair value of share options and assumptions
Fair value of share options and weighted average assumptions
As at 30 September 2022 As at 30 September 2021
Stock Stock
Sharesave Purchase Sharesave Purchase
ESOP Plan Plan LTIP DBS ESOP Plan Plan LTIP DBS
Fair value at
measurement date 388p 478p 144p 1,899p 2,272p 394p 503p 363p 1,721p 2,094p
Share price at grant 2,188p 2,225p 1,948p 2,358p 2,444p 2,135p 2,300p 2,096p 2,245p 2,266p
Exercise price 2,181p 1,932p n/a nil p n/a 2,136p 1,942p n/a nil p n/a
Expected volatility 29% 28% 22% 28% n/a 28% 27% 29% 28% n/a
Expected dividends 2.5% 2.6% 3.1% 2.6% 2.4% 2.5% 2.5% 2.5% 2.7% 2.6%
Risk-free interest
rate 0.5% 0.8% 0.3% 0.3% n/a 0.6% 0.5% 0.8% 0.3% n/a
Option life 10 years 3 years 1 year 10 years 8 years 10 years 3 years 1 year 10 years 8 years
The Company uses the Black-Scholes model for calculating the fair value of the share options where there are no market-based
performance conditions. Where there are market-based performance conditions a stochastic model is used.
The expected volatility is based on historical volatility over the period prior to grant equal to the expected term.
All share options are granted under a service condition and, for ESOP and LTIP, a non-market condition (‘EPS’). Such conditions are not
taken into account in the grant date fair value measurement of services received. In addition, the LTIP has a market condition (‘TSR’) (and
for the LTIPs issued in FY 2022, a further non-market condition for ESG), which is taken into account in the grant date measurement of
fair value.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
180
21. Share-based payments continued
Staff costs – equity-settled share-based payment transactions
2022 2021
Note £m £m
ESOP (0.5) —
Sharesave Plan 0.3 0.6
LTIP and Deferred Bonus Scheme 1.5 0.8
Total equity-settled share-based payment transactions recognised in staff costs 5 1.3 1.4
Reclassified from trade and other payables 0.5 —
Amount recognised directly in equity 1.8 1.4
22. Share capital and reserves
Share capital
2022 2021
Number £m Number £m
Allotted, called up and fully paid shares of 1p each
Ordinary shares
At beginning of year 86,968,573 0.9 86,617,582 0.9
Issued for cash 26,456 — 350,991 —
At end of year 86,995,029 0.9 86,968,573 0.9
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per ordinary share
at meetings of the Company.
Share premium
During the year 26,456 (FY 2021: 350,991) shares were issued for cash, resulting in an increase in share premium of £0.4m (FY 2021: £6.1m).
Retained earnings
Retained earnings have been reduced by the reserve for own shares, which consists of the cost of shares of Victrex plc held by employee
trusts, and are administered by independent trustees. The total number of shares held in trust as at 30 September 2022 was 87,903
(FY 2021: 108,977). Distribution of shares from the trusts is at the discretion of the trustees. Dividends attaching to these shares have
been waived.
Translation reserve
The translation reserve comprises all foreign exchange differences, since 1 October 2004 (as permitted by IFRS 1), arising from the
translation of the financial statements of foreign operations, adjusted for exchange differences arising on intragroup monetary items, that,
in substance, form part of the entity’s net investment in a foreign operation.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
relatedto forecast hedged transactions.
Dividends to shareholders
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved.
2022 2021
£m £m
Year ended 30 September 2020
– Final dividend paid February 2021 at 46.14p per ordinary share — 40.0
Year ended 30 September 2021
– Interim dividend paid July 2021 at 13.42p per ordinary share — 11.6
– Final dividend paid February 2022 at 46.14p per ordinary share 40.0 —
– Special dividend paid February 2022 at 50.00p per ordinary share 43.5 —
Year ended 30 September 2022
– Interim dividend paid June 2022 at 13.42p per ordinary share 11.7 —
95.2 51.6
A final dividend in respect of 2022 of £40.1m (46.14p per ordinary share) has been recommended by the Directors for approval at the
Annual General Meeting in February 2023. These financial statements do not reflect these dividends.
Notes to the financial statements continued
FINANCIAL STATEMENTS
181
Annual Report 2022 Victrex plc
23. Related party transactions
Identity of related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and so are only
disclosed for the Company’s financial statements.
Company
2022 2021
Note £m £m
Trading transactions with subsidiaries
Administrative expenses paid on Company’s behalf by subsidiaries 0.4 0.5
Amounts receivable from subsidiaries 14 191.9 152.7
Financing transactions with subsidiaries
Dividends received from subsidiaries 132.8 5.7
Cash transfers received from subsidiaries 144.5 5.7
Cash transfers made to subsidiaries 191.9 152.7
The Group’s retirement benefit plans are related parties and the Group’s and Company’s transactions with them are disclosed in note 17.
Details of transactions during the year relating to the Company’s investments in subsidiaries can be found in note 11.
Bond 3D High Performance Technology BV (‘Bond’), in which the Group has a 24.5% shareholding (FY 2021: 24.5%), is an associated
company. The Group’s transactions with Bond in the year comprises the sale of material to Bond of £33,000, the additional tranches of
convertible loans made to Bond, and the share of loss recognised as set out in note 11.
Transactions with key management personnel
The key management of the Group and Company are those people having authority and responsibility for planning, directing and
controlling the activities of the Group and consist of the Board of Directors.
Compensation of key management personnel is shown in the table below:
2022 2021
£m £m
Short-term employment benefits 2.5 3.0
Post-employment benefits 0.2 0.2
Share-based payment benefits 0.5 —
3.2 3.2
More detailed information concerning Directors’ remuneration, including non-cash benefits and contributions to post-employment defined
benefit plans, is given in the Directors’ remuneration report on pages 104 to 127.
Directors of the Company control 0.05% of the voting shares of the Company, details of which are given on page 122.
Details of Directors’ indemnities are given on page 129.
24. Exchange rates
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operated (the ‘functional currency’). The consolidated financial statements are presented in Sterling,
which is the Company’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing on the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation to balance sheet date
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when
deferred in equity as qualifying cash flow hedges. In addition, where an exchange difference arises on an intragroup monetary item that,
in substance, forms part of the entity’s net investment in a foreign operation, these differences are recognised in other comprehensive
income in the consolidated financial statements and accumulated in equity until the disposal of the foreign operation.
Group companies
The results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that have
afunctional currency different from the presentation currency are translated into the presentation currency as follows:
u
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
u
income and expenses for each income statement are translated at weighted average exchange rates; and
u
all resulting exchange differences, from 1 October 2004, are recognised as a separate component of equity.
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
182
24. Exchange rates continued
Foreign currency translation continued
The most significant Sterling exchange rates used in the financial statements under the Group’s accounting policies are:
2022 2021
Average spot Closing Average spot Closing
US Dollar 1.30 1.10 1.36 1.34
Euro 1.16 1.13 1.14 1.18
The average exchange rates in the above table are the weighted average spot rates applied to foreign currency transactions, excluding the
impact of foreign currency contracts. Any gains and losses on foreign currency contracts, where net hedging has been applied for cash flow
hedges, have been separately disclosed in the income statement as required, in accordance with IFRS 9.
25. Alternative performance measures
This section includes a reconciliation of certain Alternative performance measures (‘APMs’) to the most directly reconcilable line items in
the financial statements. The presentation of APMs should not be considered in isolation or as a substitute for related financial measures
prepared in accordance with IFRS. The APMs presented in this report may differ from similarly titled measures used by other companies.
Where one APM is derived from another APM, a cross reference to the relevant APM has been included, which then provides the
reconciliation to the most directly reconcilable line items.
The 10 APMs below have been calculated on a consistent basis from prior year. Following an internal review, the following metrics
presented as APMs in the prior year do not meet the definition of an APM, but are internal ratios/metrics, and have therefore
been removed:
u
New product sales as a percentage of Group sales;
u
Research & Development expenditure as a percentage of Group sales; and
u
Project-based Research & Development spend on sustainable products as a percentage of Project-based Research & Development spend.
All three of these internal ratios are still included within the Strategic report, and are defined accordingly within this section.
APM 1 Operating profit before exceptional items (referred to as underlying operating profit) is based on operating profit before the
impact of exceptional items. This metric is used by the Board to assess the underlying performance of the business excluding
items that are, in aggregate, material in size and/or unusual or infrequent in nature. Exceptional items for 2022 is a charge of
£7.9m (FY 2021: credit of £0.8m) relating to the implementation of SaaS ERP system (FY 2021: relating to restructuring costs),
further details of which are disclosed in note 3.
2022 2021
£m £m
Operating profit 88.5 93.4
Exceptional items 7.9 (0.8)
Underlying operating profit 96.4 92.6
APM 2 Profit before exceptional items and tax (referred to as underlying profit before tax) is based on profit before tax (‘PBT’) before
the impact of exceptional items. This metric is used by the Board to assess the underlying performance of the business excluding
items that are, in aggregate, material in size and/or unusual or infrequent in nature. Exceptional items for 2022 is a charge of
£7.9m (FY 2021: credit of £0.8m) relating to the implementation of SaaS ERP system (FY 2021: relating to restructuring costs),
further details of which are disclosed in note 3.
2022 2021
£m £m
Profit before tax 87.7 92.5
Exceptional items 7.9 (0.8)
Underlying profit before tax 95.6 91.7
APM 3 Constant currency metrics are used by the Board to assess the year on year underlying performance of the business excluding
the impact of foreign currency rates, which by nature can be volatile. Constant currency metrics are reached by applying current
year (FY 2022) weighted average spot rates to prior year (FY 2021) transactions. Gains and losses on foreign currency net hedging
are shown separately in the income statement and are excluded from the constant currency calculation.
2022 2021
Group £m £m % change
At reported currency 341.0 306.3 11%
Impact of FX retranslation — 2.5
Revenue at constant currency 341.0 308.8 10%
Notes to the financial statements continued
FINANCIAL STATEMENTS
183
Annual Report 2022 Victrex plc
2022 2021
Industrial £m £m % change
At reported currency 282.7 255.2 11%
Impact of FX retranslation — 0.3
Revenue at constant currency 282.7 255.5 11%
2022 2021
Medical £m £m % change
At reported currency 58.3 51.1 14%
Impact of FX retranslation — 2.2
Revenue at constant currency 58.3 53.3 9%
APM 4 Operating cash conversion is used by the Board to assess the business’ ability to convert operating profit to cash effectively,
excluding the impact of financing activities and non-capital expenditure related investing activities. Operating cash conversion is
underlying operating profit, depreciation and amortisation, working capital movements and capital expenditure/operating profit
before exceptional items.
2022 2021
£m £m
Underlying operating profit (APM 1) 96.4 92.6
Depreciation, amortisation and loss on disposal 24.0 22.7
Change in working capital (27.5) 19.6
Capital expenditure (45.5) (41.9)
Operating cash flow 47.4 93.0
Operating cash conversion 49% 100%
APM 5 Available cash is used to enable the Board to understand the true cash position of the business when determining the use of
cash under the capital allocation policy. Available cash is cash and cash equivalents plus other financial assets (cash invested
in term deposits greater than three months in duration) less cash ring-fenced in the Group’s Chinese subsidiaries which is
committed to capital expansion and therefore not available to the wider Group. This is calculated as:
2022 2021
£m £m
Cash and cash equivalents 58.7 74.9
Cash ring-fenced in Chinese subsidiaries (2.8) (12.5)
Other financial assets 10.1 37.5
Available cash 66.0 99.9
APM 6 Underlying EPS is earnings per share based on profit after tax but before exceptional items divided by the weighted average
number of shares in issue. This metric is used by the Board to assess the underlying performance of the business excluding items
that are, in aggregate, material in size and/or unusual or infrequent in nature.
2022 2021
£m £m
Profit after tax attributable to owners of the Company 76.2 73.2
Exceptional items 7.9 (0.8)
Tax on exceptional items (1.5) —
Profit after tax before exceptional items net of tax 82.6 72.4
Weighted average number of shares 86,897,353 86,704,789
Underlying EPS (pence) 95.0 83.4
APM 7 Underlying dividend cover is used by the Board to measure the affordability and sustainability of the regular dividend.
Underlying dividend cover is underlying earnings per share/total dividend per share. This excludes special dividends.
2022 2021
p p
Underlying earnings per share (APM 6) 95.0 83.4
Total dividend per share 59.56 59.56
Underlying dividend cover (times) 1.6 1.4
25. Alternative performance measures continued
APM 3 Constant currency metrics continued
FINANCIAL STATEMENTS
Victrex plc Annual Report 2022
184
25. Alternative performance measures continued
APM 8 Return on capital employed (‘ROCE’) is used by the Board to assess the return on investment at a Group level. ROCE is profit
after tax/total equity attributable to shareholders at the year end.
2022 2021
£m £m
Profit after tax 75.5 72.8
Total equity 490.6 511.7
ROCE % 15% 14%
APM 9 Return on sales is used by the Board to assess the overall profitability of the Group. It measures underlying profit before
taxation as a percentage of total sales.
2022 2021
£m £m
Underlying profit before tax (APM 2) 95.6 91.7
Total sales 341.0 306.3
Return on sales % 28% 30%
APM 10 Operating overheads is made up of sales, marketing and administrative expenses before exceptional items. This metric is used
by the Board to assess the underlying performance of the business excluding items that are, in aggregate, material in size and/or
unusual or infrequent in nature.
2022 2021
£m £m
Sales, marketing and administrative expenses 86.0 71.9
Exceptional items (7.9) 0.8
Operating overheads 78.1 72.7
26. Commitments
Capital expenditure authorised and contracted for which has not been provided for in the financial statements amounted to £16m
(FY2021: £6m) in the Group and £nil (FY 2021: £nil) in the Company.
At 30 September 2022, the Group and another investor in Bond, LaLune, have an agreed programme of further investments during
FY2023 for a further €3.0m, subject to Bond achieving pre-determined development milestones. See also note 11.
Notes to the financial statements continued
SHAREHOLDER INFORMATION
185
Annual Report 2022 Victrex plc
2018 2019 2020 2021 2022
£m £m £m £m £m
Results
Revenue 326.0 294.0 266.0 306.3 341.0
Profit before tax 127.5 104.7 63.5 92.5 87.7
Balance sheet
Property, plant, equipment and intangible assets 281.0 288.2 300.1 330.5 367.4
Investments 4.5 16.2 20.3 24.1 20.5
Inventories 69.3 92.2 98.5 70.3 86.8
Net cash 71.2 72.5 73.1 74.9 58.7
Other financial assets 73.2 0.3 — 37.5 10.1
Trade receivables and other assets 51.1 57.7 50.0 63.8 83.2
Retirement benefit asset 13.5 9.1 7.5 14.2 14.9
Retirement benefit obligation — — — (1.9) (2.7)
Borrowings — — — (5.9) (22.5)
Trade payables and other liabilities (73.9) (74.6) (68.5) (95.8) (125.8)
Equity shareholders’ funds 489.9 461.6 481.0 511.7 490.6
Cash flow
Net cash flow from operating activities 129.0 80.1 69.4 127.1 80.0
Capital expenditure (9.9) (22.7) (24.9) (41.9) (45.5)
(Deposit)/withdrawal of cash invested for greater than three months (73.2) 72.9 0.3 (37.5) 27. 4
Other investing activities — (11.8) (4.9) (3.8) 1.9
Proceeds from non-controlling interest — — — 5.6 —
Bank borrowings received — — — — 14.5
Dividends and other financing items (95.1) (118.1) (38.7) (47.3) (96.9)
Net (decrease)/increase in cash and cash equivalents
(49.2) 0.4 1.2 2.2 (18.6)
Ratios
Earnings per ordinary share – basic 128.8p 107.2p 62.6p 84.3p 87.6p
Full-year dividend per ordinary share 59.56p 59.56p 46.14p 59.56p 59.56p
Special dividend per ordinary share 82.68p — — 50.00p —
Return on capital employed (‘ROCE’) 23% 20% 11% 14% 15%
Sales volume
Tonnes 4,407 3,751 3,492 4,373 4,727
Five-year financial summary
for the year ended 30 September and as at 30 September
SHAREHOLDER INFORMATION
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186
This Annual Report contains ‘forward-looking statements’ in relation to the future financial and operating performance and outlook of
Victrex, as well as other future events and their potential effects on Victrex. Generally, the words ‘will’, ‘may’, ‘should’, ‘continue’, ‘believes’,
‘targets’, ‘plans’, ‘expects’, ‘estimates’, ‘aims’, ‘intends’, ‘anticipates’, or similar expressions or negatives thereof identify forward-looking
statements. Forward-looking statements include statements relating to the following: expected developments in our product portfolio,
expected revenues in our businesses, expected margins, expected trends, expected growth in our business (including our mega-programmes),
expected operating costs savings, expected future cash generation, expected future tax rates, expected future orders and increase in market
share, expected timing of product releases and expected timing of product development milestones, expected incorporation of our products
into those of our customers, adoption of new technologies, the expectation of volume shipments of our products, expected product markets
and their expansion or contraction, opportunities in our industry and our ability to take advantage of those opportunities, the potential success
to be derived from strategic partnerships, potential acquisitions, the effect of our financial performance on our share price, the impact of
government regulation, expected performance against adverse economic conditions, and other expectations and beliefs of our management.
Actual results and developments could differ materially from those expressed or implied by these forward-looking statements as a result
ofnumerous risks and uncertainties. These factors include, but are not limited to:
u
Victrex’s ability to ensure development and timely delivery of new products or solutions in accordance with the requirements of customers;
u
any change in demand for consumer products due to challenging and uncertain economic conditions;
u
increased expenses associated with new product introductions or required capital investment;
u
risks relating to forecasting demand for and market acceptance of Victrex’s products and timing for the introduction of products that
useVictrex’s own products;
u
declines in the average selling prices of Victrex’s products;
u
cancellation of existing orders or the failure to secure new orders;
u
difficulties related to distributors which support the supply of our products to customers;
u
Victrex’s ability to secure sufficient capacity from the third parties and strategic partners that manufacture raw materials or product
onourbehalf;
u
Victrex’s ability to develop, acquire and protect intellectual property and other commercially sensitive information;
u
the chemical industry and several of those sectors in which we supply;
u
the potential for disruption in the supply of raw materials due to changes in business conditions, natural disasters, terrorist activities,
publichealth concerns or other factors;
u
Victrex’s ability to attract and retain key personnel, including engineers and technical personnel;
u
the difficulty in predicting future results; and
u
other risks and uncertainties discussed in this Annual Report, including, without limitation, under the heading ‘Principal risks’ on
pages36 to 40.
The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.
Neither Victrex nor any other person undertakes any obligation to update or revise publicly any of the forward-looking statements set out
herein, whether as a result of new information, future events or otherwise, except to the extent legally required.
Cautionary note regarding forward-looking statements
SHAREHOLDER INFORMATION
187
Annual Report 2022 Victrex plc
Notice is hereby given that the 30th Annual General Meeting (‘AGM’) of the members of Victrex plc (the ‘Company’) will be held at 11am
on Friday 10 February 2023, at the offices of J.P. Morgan, 1 John Carpenter Street, London EC4Y 0JP, to transact the business set out
below. Resolutions 1 to 18 will be proposed as Ordinary Resolutions and Resolutions 19 to 22 will be proposed as Special Resolutions.
Ordinary Resolutions
1. To receive the Company’s audited financial statements and the Auditors’ and Directors’ reports for the year ended 30 September 2022.
2. To approve the Directors’ remuneration report (other than the part containing the Directors’ remuneration policy) in the form set out
in the Annual Report and Accounts for the year ended 30 September 2022.
3. To approve the Directors’ remuneration policy (contained in the Directors’ remuneration report) in the form set out in the Annual
Report and Accounts for the year ended 30 September 2022.
4. To declare a final dividend of 46.14p per ordinary share in respect of the year ended 30 September 2022.
5. To elect Ian Melling as a Director of the Company.
6. To re-elect Vivienne Cox as a Director of the Company.
7. To re-elect Jane Toogood as a Director of the Company.
8. To re-elect Janet Ashdown as a Director of the Company.
9. To re-elect Brendan Connolly as a Director of the Company.
10. To re-elect David Thomas as a Director of the Company.
11. To re-elect Ros Rivaz as a Director of the Company.
12. To re-elect Jakob Sigurdsson as a Director of the Company.
13. To re-elect Martin Court as a Director of the Company.
14. That:
a) the rules of the Victrex plc Share Incentive Plan and related trust deed, in the form produced to the meeting and initialled by
the Chair of the meeting for the purposes of identification (the ‘SIP’), and the principal terms of which are summarised in the
Appendix to this Notice of AGM, are approved; and
b) the Directors of the Company are authorised to:
i) adopt the SIP and do all acts and things which they may, in their absolute discretion, consider necessary or desirable to
establish and give effect to the SIP, including making any changes to the rules and/or trust deed of the SIP necessary or
desirable in order to ensure that the Directors can make a valid declaration to HM Revenue & Customs that the SIP satisfies the
requirements of Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003; and
ii) adopt further plans based on the SIP but (where required) modified to take account of local tax, exchange control or securities
law in overseas territories, provided that any shares made available under such further plans are treated as counting against
any limits on individual or overall participation in the SIP.
15. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company until the conclusion of the next AGM of the Company at which
accounts are laid before the meeting.
16. To authorise the Audit Committee, acting for and on behalf of the Board, to set the auditors’ remuneration.
17. That, in accordance with sections 366 and 367 of the Companies Act 2006, the Company and all companies that are subsidiaries
of the Company at any time during the period for which this resolution has effect are authorised, in aggregate, during the period
beginning with the date of the passing of this resolution and ending on the conclusion of the next AGM of the Company (unless such
authority is previously renewed, varied or revoked by the Company in a general meeting), to:
a) make political donations to political parties and/or independent election candidates not exceeding £12,500 in total;
b) make political donations to political organisations other than political parties not exceeding £12,500 in total; and
c) incur political expenditure not exceeding £12,500 in total,
provided that the authorised sums referred to in paragraphs (a), (b) and (c) above may be comprised of one or more amounts in
different currencies which, for the purposes of calculating that authorised sum, shall be converted into Pounds Sterling at such rate
asthe Board in its absolute discretion may determine to be appropriate.
For the purposes of this resolution the terms ‘political donation’, ‘political parties’, ‘independent election candidates’, ‘political
organisations’ and ‘political expenditure’ shall have the meanings given by sections 363 to 365 of the Companies Act 2006.
Notice of Annual General Meeting
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Victrex plc Annual Report 2022
188
Ordinary Resolutions continued
18. That the Directors are generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 to exercise
all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into,
shares in the Company:
a) up to an aggregate nominal amount of £289,989 (such amount to be reduced by the aggregate nominal amount of any equity
securities allotted or rights granted under paragraph (b) below in excess of such sum); and
b) comprising equity securities (as defined in section 560(1) of the Companies Act 2006), up to an aggregate nominal amount of
£579,978 (such amount to be reduced by the aggregate nominal amount of shares allotted or rights granted under paragraph (a)
above) in connection with a rights issue (as defined in the Listing Rules published by the Financial Conduct Authority):
i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
ii) to holders of other equity securities or as required by the rights of those securities as the Directors otherwise consider necessary,
and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or
appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under
the laws of, any territory or the requirement of any regulatory body or stock exchange or any other matter, provided that this
authority shall expire at the close of business on 29 March 2024 or, if earlier, at the conclusion of the Company’s next AGM, save
that the Company may make any offers and enter into agreements before such expiry which would, or might, require shares to be
allotted or rights to be granted after the authority expires and the Directors may allot shares or grant rights under any such offer
or agreement as if the authority had not expired. All authorities vested in the Directors on the date of this Notice of AGM to allot
shares or to grant rights that remain unexercised at the commencement of this meeting are revoked.
Special Resolutions
19. That, conditional upon Resolution 18 in this Notice of AGM being passed, the Directors are empowered to allot equity securities
(asdefined in section 560(1) of the Companies Act 2006) for cash under the authority given by that resolution (or by way of a sale
of treasury shares), as if section 561 of the Companies Act 2006 did not apply to such allotment or sale, provided that such power
islimited to:
a) the allotment of equity securities and/or sale of treasury shares in connection with an offer of, or invitation to apply for, equity
securities (but in the case of the authority granted under paragraph (b) of Resolution 18, by way of a rights issue only):
i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
ii) to holders of other equity securities, as required by the rights of those securities, or as the Directors otherwise consider necessary,
and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or
appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under
the laws of, any territory or the requirement of any regulatory body or stock exchange or any other matter; and
b) the allotment of equity securities and/or sale of treasury shares (otherwise than under paragraph (a) above) up to a maximum
aggregate nominal amount of £43,498.
Such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 18 in
this Notice of AGM, save that the Company may make offers, and enter into agreements, before such expiry which would, or might,
require equity securities to be allotted (and/or treasury shares to be sold) after the power expires and the Directors may allot equity
securities (and/or sell treasury shares) under any such offer or agreement as if the power had not expired.
20. That, conditional upon Resolution 18 in this Notice of AGM being passed and in addition to the power contained in Resolution 19,
the Directors are empowered to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash under the
authority given by Resolution 18 (or by way of a sale of treasury shares), as if section 561 of the Companies Act 2006 did not apply
tosuch allotment or sale, provided that such power is:
a) limited to the allotment of equity securities and/or sale of treasury shares up to a maximum aggregate nominal amount
of£43,498; and
b) used only for the purposes of financing (or refinancing, if the power is to be used within six months after the original transaction)
a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the
Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date
ofthis Notice of AGM.
Such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 18 in
this Notice of AGM, save that the Company may make offers, and enter into agreements, before such expiry, which would, or might,
require equity securities to be allotted (and/or treasury shares to be sold) after the power expires and the Directors may allot equity
securities (and/or sell treasury shares) under any such offer or agreement as if the power had not expired.
Notice of Annual General Meeting continued
SHAREHOLDER INFORMATION
189
Annual Report 2022 Victrex plc
Special Resolutions continued
21. That the Company is authorised generally and unconditionally pursuant to section 701 of the Companies Act 2006 to make one or
more market purchases (as defined in section 693(4) of the Companies Act 2006) of its ordinary shares in the capital of the Company
(‘Ordinary Shares’), provided that:
a) the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 86,996,699;
b) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be an amount equal to the higher of:
i) 5% above the average market value of an Ordinary Share for the five business days immediately preceding the day on which
that Ordinary Share is contracted to be purchased; and
ii) the higher of the price of the last independent trade and the highest current independent bid for an Ordinary Share on the
trading venue where the purchase is carried out at the relevant time;
c) the minimum price (exclusive of expenses) which may be paid for an Ordinary Share is its nominal value; and
d) such authority shall expire at the close of business on 29 March 2024 or, if earlier, at the conclusion of the Company’s next AGM,
but so that the Company may before such authority expires enter into a contract under which a purchase of Ordinary Shares
may be completed or executed wholly or partly after the authority expires and the Company may purchase Ordinary Shares in
pursuance of such contract as if the authority had not expired.
22. That a general meeting of the Company, other than an AGM, may be called on not less than 14 clear days’ notice.
By order of the Board
Jane Brisley
Company Secretary
6 December 2022
Registered office:
Victrex Technology Centre
Hillhouse International
Thornton Cleveleys
Lancashire FY5 4QD
Registered in England and Wales 2793780
SHAREHOLDER INFORMATION
Victrex plc Annual Report 2022
190
Notes
1. A member who is entitled to attend and vote at the AGM is entitled to appoint another person, or two or more persons in respect
ofdifferent shares held by him/her, as his/her proxy to exercise all or any of his/her rights to attend, speak and vote at the meeting.
Aproxy need not be a member of the Company.
2. To be entitled to attend and vote at the AGM (and for the purposes of determining the number of votes that may be cast), a member
must be registered in the Register of Members of the Company as the holder of ordinary shares at the close of business on Wednesday
8 February 2023 at 6.30pm (or, in the event of any adjournment, at the close of business on the day two business days prior to the
adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights
ofany person to attend and vote at the AGM.
3. A member wishing to attend and vote at the AGM in person should arrive prior to the time fixed for its commencement. A member that
is a corporation can only attend and vote at the meeting in person through one or more representatives appointed in accordance with
section 323 of the Companies Act 2006. Any such representative should bring to the meeting written evidence of his or her appointment,
such as a certified copy of a Board resolution of, or a letter from, the corporation concerned confirming the appointment. Any member
wishing to vote at the AGM without attending in person or (in the case of a corporation) through its duly appointed representative
must appoint a proxy to do so. Members, appointed representatives and proxies are requested not to attend the meeting if they have
tested positive for COVID-19 or if they are displaying symptoms of COVID-19.
4. A hard copy form of proxy (‘Form of Proxy’) which may be used to appoint a proxy and give instructions accompanies this Notice.
To be valid, a Form of Proxy must be delivered to the Company’s Registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West
Sussex BN99 6DA, so as to be received by no later than 11am on Wednesday 8 February 2023. Alternatively, members may appoint
a proxy online by following the instructions in note 5 below. Members who hold their shares in uncertificated form may also use ‘the
CREST voting service’ to appoint a proxy electronically as explained in notes 6 to 8 below. The return of a completed Form of Proxy,
an electronic proxy appointment instruction or any CREST Proxy Instruction will not prevent a member attending the AGM and voting
in person if he/she wishes to do so. Any power of attorney or other authority under which an appointment of proxy is signed or
authenticated (or a notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 of that power or
authority) must, unless previously registered with the Company, be received at the relevant address specified in these notes for receipt
of such proxy appointment by the latest time indicated for receipt of such proxy appointment.
5. Members who prefer to register the appointment of their proxy electronically via the internet can do so through Equiniti’s website
at www.sharevote.co.uk. Full details of the procedure are given on the website. The Voting ID, Task ID and Shareholder Reference
Number printed on the Form of Proxy will be required in order to use this electronic proxy appointment system. Alternatively, members
who have already registered with Equiniti’s online portfolio service, Shareview, can appoint their proxy electronically by logging on
to their portfolio at www.shareview.co.uk and clicking on the ‘Vote Online’ link. The on-screen instructions give details of how to
complete and submit a proxy appointment. A proxy appointment made electronically will not be valid if sent to any address other
thanthose provided or if received after 11am on Wednesday 8 February 2023.
6. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using
the procedures described in the CREST Manual available via www.euroclear.com. CREST personal members or other CREST sponsored
members, and those CREST members who have appointed (a) service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
7. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST
Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & International Limited’s specifications, and must
contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it
constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order
to be valid, be transmitted so as to be received by the issuer’s agent Equiniti (ID RA19) by 11am on Wednesday 8 February 2023. For
this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST
Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
8. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & International
Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will,
therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take
(or,if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure
that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted
bymeans of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors
or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the
CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a)
ofthe Uncertificated Securities Regulations 2001 (as amended).
Notice of Annual General Meeting continued
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191
Annual Report 2022 Victrex plc
Notes continued
9. Any person to whom this Notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a ‘Nominated Person’) may, under an agreement between him/her and the member by whom he/she was
nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no
such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions
to the member as to the exercise of voting rights.
The statement of the rights of members in relation to the appointment of proxies in note 1 above does not apply to Nominated
Persons. Such rights can only be exercised by members of the Company.
10. As at 25 November 2022 (being the latest practicable date prior to the publication of this document) the Company’s issued share
capital consisted of 86,996,699 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at
25November 2022 were 86,996,699. There were no shares in treasury as at that date.
11. Under section 527 of the Companies Act 2006, members meeting the threshold requirements set out in that section have the right
torequire the Company to publish on a website a statement setting out any matter relating to:
a) the audit of the Company’s financial statements (including the Auditors’ report and the conduct of the audit) that are to be laid
before the AGM; or
b) any circumstance connected with auditors of the Company ceasing to hold office since the previous meeting at which annual
reports were laid in accordance with section 437 of the Companies Act 2006.
The Company may not require the members requesting any such website publication to pay its expenses in complying with sections
527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the
Companies Act 2006, it must forward the statement to the Company’s auditors not later than the time when it makes the statement
available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been
required under section 527 of the Companies Act 2006 to publish on a website.
12. Each member attending the AGM has the right to ask questions relating to the business of the meeting which, in accordance with
section 319A of the Companies Act 2006 and subject to some exceptions, the Company must cause to be answered. Members who wish
to ask questions relating to the business of the meeting can do so by sending them in advance of the meeting to ir@victrex.com.
A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.victrexplc.com.
13. All resolutions in this Notice will be put to vote on a poll at the AGM, as permitted by the Company’s Articles of Association. On a poll,
each member has one vote for every share held, which results in a more accurate reflection of the view of members.
14. Personal data provided by members at or in relation to the AGM (including, for example, names, contact details, votes and Shareholder
Reference Numbers) will be processed in line with the Company’s privacy policy, which can be accessed here: www.victrex.com/en/privacy-policy.
15. Except as provided above, members who have general queries about the meeting should email the General Counsel & Company
Secretary at cosec@victrex.com or ir@victrex.com (no other methods of communication will be accepted). A member may not use any
electronic address provided in either this Notice of AGM or any related documents (including the Form of Proxy) to communicate with
the Company for any purpose other than those expressly stated.
SHAREHOLDER INFORMATION
Victrex plc Annual Report 2022
192
Resolution 1 – Annual Report and Accounts
The Companies Act 2006 requires the directors of a public company to lay its annual report and accounts before the company in general
meeting. The Annual Report and Accounts comprises the audited financial statements, the Auditors’ report, the Strategic report, the
Directors’ report and the Directors’ remuneration report. In accordance with best practice, the Company proposes a resolution on its
Annual Report and Accounts for the year ended 30 September 2022 (the ‘Annual Report 2022’). This Ordinary Resolution will provide
members with the opportunity to ask questions on the contents of the Annual Report 2022.
Resolution 2 – Approval of the Directors’ remuneration report
In accordance with the Companies Act 2006, the Company proposes an Ordinary Resolution to approve the Directors’ remuneration report
for the financial year ended 30 September 2022. The Directors’ remuneration report is set out on pages 104 to 127 of the Annual Report
2022 and, for the purposes of this resolution, does not include the parts of the Directors’ remuneration report containing the Directors’
remuneration policy which is set out on pages 107 to 111. The vote on this resolution is advisory only and the Directors’ entitlement
toremuneration is not conditional on its being passed.
Resolution 3 – Approval of the Directors’ remuneration policy
The Companies Act 2006 requires the Company to obtain shareholder approval of its Directors’ remuneration policy at least every three
years unless there is a change in the approved policy within the three-year period. The Directors’ remuneration policy was last approved
by shareholders at the 2020 Annual General Meeting. The Company is therefore seeking shareholder approval of a new policy at this
year’s AGM. The proposed Directors’ remuneration policy can be found on pages 107 to 111 of the Annual Report 2022. It sets out the
Company’s future policy on Directors’ remuneration. If this resolution is approved, the Directors’ remuneration policy will be effective from
the conclusion of the AGM. Resolution 3 is a binding shareholder vote and therefore, once the Directors’ remuneration policy is approved,
the Company will not be able to make a remuneration payment to a current or future Director, or a payment for loss of office to a current
or past Director, unless that payment is consistent with the policy or an amendment to the policy authorising the Company to make such
a payment has been approved by a resolution of the shareholders. If Resolution 3 is not passed, the remuneration policy approved at the
2020 Annual General Meeting will continue in effect.
Resolution 4 – Declaration of final dividend
A final dividend of 46.14p per ordinary share has been recommended by the Directors for the year ended 30 September 2022. In
accordance with the requirements of HM Revenue & Customs, all dividends are declared and paid net of income tax at the standard rate.
Ifapproved, the final dividend will be paid on 17 February 2023 to shareholders on the register at the close of business on 20 January 2023.
Resolutions 5 to 13 – Election and re-election of Directors
Resolutions 5 to 13 relate to the election and re-election of the Company’s Directors. The Company’s Articles of Association require a
Director (determined by the Board to be a Director as at the date of this Notice) who has been appointed by the Board since the last AGM
(and who is willing to continue as a Director) to stand for election by the shareholders at the next AGM. Ian Melling was appointed as a
Director by the Board with effect from 4 July 2022. Accordingly, he stands for election by shareholders for the first time at the AGM.
In accordance with the provisions of the UK Corporate Governance Code and as permitted by the Company’s Articles of Association, the
Board has decided that all of the other Directors of the Company as at the date of this Notice will seek re-election by shareholders.
The Chair confirms that, following formal evaluation (as referred to on page 90 of the Annual Report 2022), each Director standing for
election or re-election continues to contribute effectively to the Board and to demonstrate commitment to the role (including commitment
of time for Board and Board Committee meetings).
The biographical details, skills and experience of each Director standing for election or re-election are set out below:
Dr Vivienne Cox DBE, Non-executive Chair
Vivienne Cox was appointed to the Board on 1 December 2021, becoming Chair on 11 February 2022, and has a wealth of experience in
executive and non-executive roles over more than 40 years, with a particular focus on sustainability, innovation and alternative energy.
Vivienne was appointed Commander of the Order of the British Empire (‘CBE’) in 2016 for services to the economy and sustainability and
was made a Dame Commander of the Order of the British Empire (‘DBE’) in the 2022 New Year Honours List for services to sustainability,
diversity and inclusion in business. Vivienne holds an MA (Honours) in chemistry from Oxford University, an MBA from INSEAD and
honorary doctorates from the University of Hull and the University of Hertfordshire.
Vivienne’s previous non-executive roles include serving on the boards of Eurotunnel plc, BG Group plc and Rio Tinto plc, as senior
independent director of Pearson plc, as chair of Vallourec SA and as the lead non-executive director for the UK Department for International
Development. She also chaired Climate Change Capital, a private asset management and advisory group developing solutions for climate
change and resource depletion. Until recently she was a non-executive director of GSK as well as GSK’s workforce engagement director.
Vivienne is currently a non-executive director of Haleon plc, Stena AB in Sweden and Venterra Group plc (a non-listed company), chair of
the Rosalind Franklin Institute and deputy chair of the Saïd Business School in Oxford. Vivienne’s extensive board, corporate governance and
sector experience, as well as her leadership in and passion for sustainability and diversity matters, enables strong leadership of the Board.
Explanatory notes
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193
Annual Report 2022 Victrex plc
Resolutions 5 to 13 – Election and re-election of Directors continued
Ms Jane Toogood, Non-executive Director
Jane Toogood was appointed to the Board in September 2015. Jane has a wealth of experience across a number of business management,
senior commercial and business development roles within the global chemical industry and holds an MA in natural sciences (chemistry) from
the University of Oxford and a Fellow of the Royal Society of Chemistry.
Jane held senior roles at Borealis, ICI and Uniqema. She was non-executive director of NHS Harrogate and District Foundation Trust.
Jane is the chief executive of Catalyst Technologies at Johnson Matthey Plc and during the year was appointed as the UKgovernment’s first
Hydrogen Champion.
She brings strategic and industry expertise and insights drawing on her extensive international experience across multiple sectors.
Janeisacurrent senior executive leading growth and transformation in a portfolio of businesses to meet future market demands including
decarbonisation, the energy transition and deployment of hydrogen and circularity.
Ms Janet Ashdown, Non-executive Director
Janet Ashdown was appointed to the Board as a Non-executive Director in February 2018.
She has over 30 years’ experience in the international energy sector working across the value chain from customer facing through
tomanufacturing in increasingly senior roles with an additional 10+ years as a non-executive director.
Janet had a distinguished career working for BP plc for 30 years where her last role was head of the UK fuels business unit. She was
CEO of Harvest Energy, an international private equity backed business, from 2010 to 2012. She was non-executive director at SIG Plc,
CoventryBuilding Society and Marshalls plc.
Janet is a non-executive director, chair of the remuneration committee and chair of the sustainability committee of RHI Magnesita NV,
issenior independent director and chair of the environment safety and security committee of the Nuclear Decommissioning Authority
andisalso a non-executive director of Stolt-Nielsen Norway AS.
Janet contributes her extensive international executive and non-executive experience having served on remuneration committees across
different sectors for over 10 years and being a chair for five years.
Mr Brendan Connolly, Non-executive Director
Brendan Connolly was appointed to the Board as a Non-executive Director in February 2018.
Brendan has over 35 years’ experience in the international oil & gas industry serving in a number of senior executive roles. Until June 2013,
Brendan was a senior executive at Intertek Group plc and had previously been chief executive officer of Moody International (acquired
by Intertek in 2011). Prior to Moody, he was managing director of Atos Origin UK, and spent more than 25 years of his career with
Schlumberger in senior international roles over three continents.
Brendan is senior independent director and chair of the remuneration committee of Synthomer plc, a non-executive director of
PepcoGroup N.V. and also an independent director on the board of Applus Services, S.A. as well as a member of its Environment,
Socialand Governance Committee and the Appointments and Compensations Committee. He is also on a private equity board.
With extensive executive and non-executive experience, Brendan brings operational, commercial and strategic expertise and insights; his
role as the designated Non-executive Director for Workforce Engagement enhances the Board’s understanding of the views of employees
and the culture of the Company.
Mr David Thomas, Non-executive Director
David Thomas was appointed to the Board in May 2018 and chairs the Audit Committee.
David was chief financial officer at Invensys plc from 2011 until his retirement in 2014, having held senior roles across the business since
2002. Prior to joining Invensys, he was a senior partner at Ernst & Young, specialising in long-term industrial contracting businesses, and
isaformer member of the Auditing Practices Board. David is senior independent director and chair of the audit committee at Dialight plc.
David contributes his expertise in finance and his understanding of the investment community and regulators as both a Board member
andChair of the Audit Committee, as well as his industry knowledge to enhance the risk lens for Board decision making.
Dr Ros Rivaz, Senior Independent Director
Ros Rivaz was appointed as a Non-executive Director and the Senior Independent Director with effect from 1 May 2020.
Ros holds a Bachelor of Science (Honours) degree in chemistry and an honorary doctorate from Southampton University and has
deep international experience in the areas of supply chain management, logistics, manufacturing, IT, procurement and systems in the
engineering, manufacturing and chemicals industries. Ros’ executive career spans nearly 30 years. She held senior executive roles at Exxon
Chemical Corporation, Tate & Lyle, ICI, Diageo and Premier Foods. Ros served as global chief operating officer for Smith & Nephew from
2011 to 2014. Ros was non-executive director at ConvaTec plc, RPC Group plc, Boparan Holdings Limited, Rexam plc and CEVA Logistics AG.
Ros is currently senior independent director, employee engagement director and chair of the remuneration committee of Computacenter
plc. She is lead independent director of Aperam SA. She is chair of the Nuclear Decommissioning Authority and non-executive director
ofthe Ministry of Defence Equipment and Support board.
Ros’ strong track record as both a non-executive and executive across a range of listed companies, particularly in the medical industry,
isinstrumental in driving growth and supporting the Chair in her role as Senior Independent Director.
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194
Resolutions 5 to 13 – Election and re-election of Directors continued
Mr Jakob Sigurdsson, Chief Executive Officer
Jakob Sigurdsson was appointed to the Board in October 2017 and is the Company’s Chief Executive Officer. Jakob has more than 20 years’
experience in large multinational companies, both listed and private, including nine years with Rohm & Haas (now part of Dow Chemical) in
the US. He was chief executive at Alfesca, Promens and ViS.
Jakob holds a BSc in chemistry from the University of Iceland and a MBA from Northwestern University in the US. His executive
responsibilities have spanned marketing, supply chain, business development, strategy and M&A, with particular emphasis on growth in
new or developing markets. Jakob is non-executive director of Coats Group plc. Jakob brings his diverse and international background in
chemicals coupled with wider business, executive and non-executive experience to inspire and lead the Group.
Dr Martin Court, Chief Commercial Officer
Martin Court was appointed to the Board as an Executive Director in April 2015. He joined Victrex in February 2013 as Managing Director
of Invibio, from Cytec Industries where he served as VP in-process separation and VP R&D, previously having held senior leadership roles at
UCB S.A. and ICI.
Martin is an INSEAD alumnus and holds a doctorate in the field of surface chemistry and fracture mechanics and a BSc (Eng) in mineral
technology from the Imperial College of Science and Technology. He has broad international experience in strategy, innovation-driven growth and
organisational change in high performance materials and chemical industries, having held both senior commercial and technical leadership roles.
Martin’s significant diverse international experience and focus on value creation and achieving business growth through innovation and
geographic expansion enable him to drive Victrex’s commercial and innovation strategies ensuring an appropriate balance between
disruptive and non-disruptive change. He is a non-executive director at James Cropper plc.
Mr Ian Melling, Chief Financial Officer
Ian Melling was appointed to the Board with effect from 4 July 2022 and is the Chief Financial Officer.
Ian is a Chartered Accountant and holds a first class master’s degree in chemistry from Oxford University in the UK. Most recently Ian held
the role of senior vice-president, corporate finance and R&D for Smith & Nephew plc, the medical technology company, having served as
interim chief financial officer during 2020. Ian has worked in a number of senior finance roles in the UK and internationally for Smith &
Nephew, including those with divisional and functional responsibility, having joined the Group in 2006. He was senior vice-president group
finance for five years until October 2021. Ian started his career and qualified as a Chartered Accountant at Deloitte LLP. Ian is a member of
the UK Endorsement Board Preparer Advisory Group.
Ian contributes his significant financial experience as well as his background in the medical Device sector which is relevant to the Company’s
growth plans.
Resolution 14 – Approval of the rules of the Victrex plc Share Incentive Plan and related trust deed
Resolution 14 is to authorise the re-adoption of the rules of the Victrex plc Share Incentive Plan (‘SIP’) (formerly known as the Victrex plc
All-Employee Share Ownership Scheme) and the related trust deed. The SIP is an all-employee share incentive plan, which takes advantage
of the tax beneficial status of share incentive plans which comply with Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003.
Participation will be open to all employees of participating companies. The SIP was originally adopted in 2003 (as the Victrex plc All-Employee
Share Ownership Scheme), and was last approved by shareholders on 5 February 2013, with such approval expiring on 4 April 2023.
The provisions of the rules of the SIP and related trust deed are substantially the same as the existing rules and trust deed, subject to
amendments to take into account changes to the relevant legislation and HMRC practice.
The rules of the SIP and related trust deed will be available for inspection at the place of the AGM for at least 15 minutes before, and
during, the meeting and on the National Storage Mechanism from the date this document is sent to shareholders.
Summary of the principal terms of the SIP is set out in the Appendix to the Notice of AGM that follows these Explanatory Notes.
Resolutions 15 and 16 – Re-appointment and remuneration of the auditors
At each meeting at which the Annual Report and Accounts are laid, the Company is required under the Companies Act 2006 to appoint
auditors to serve until the next such meeting. PricewaterhouseCoopers LLP (‘PwC’) have indicated their willingness to continue as the
Company’s auditors. The Audit Committee has recommended to the Board, and the Board now proposes to shareholders, that PwC be
re-appointed as the Company’s auditors. The Audit Committee has confirmed to the Board that its recommendation is free from third-party
influence and that no restrictive contractual provisions have been imposed on the Company limiting its choice of auditors. Resolution 15,
therefore, proposes PwC’s re-appointment as auditors to hold office until the Company’s next AGM at which its accounts are laid before
shareholders. Resolution 16 authorises the Audit Committee to set the auditors’ remuneration. Under the Competition and Markets Authority’s
Statutory Audit Services Order, the Audit Committee has specific responsibility for negotiating and agreeing the statutory audit fee for and
on behalf of the Board. Details of the remuneration paid to the auditors during the last financial year and details of how the effectiveness
and independence of the auditors are monitored and assessed can be found on pages 151 and 97 to 103 of the Annual Report 2022.
Explanatory notes continued
SHAREHOLDER INFORMATION
195
Annual Report 2022 Victrex plc
Resolution 17 – Political donations and expenditure
Subject to limited exceptions, Part 14 of the Companies Act 2006 imposes restrictions on companies making political donations to any
political party or other political organisation or to any independent election candidate or incurring political expenditure unless they have
been authorised to do so at a general meeting.
It has always been the Company’s policy that it does not make political donations nor incur political expenditure either directly or through
any subsidiary. This remains the case. Nevertheless, the Companies Act 2006 includes broad and ambiguous definitions of the terms
‘political donations’ and ‘political expenditure’ which may apply to some normal business activities which would not generally be considered
to be political in nature.
As in previous years, the Board considers that it would be prudent to obtain shareholder approval to make donations to political parties,
political organisations and independent election candidates and to incur political expenditure up to the limit specified in the resolution.
As iscommon practice among many UK public companies, this authority is sought as a precautionary measure to guard against any
inadvertent breach of the statutory restrictions by the Company or its subsidiaries. The Board confirms that it has no intention of making
any political donations, incurring political expenditure nor entering into party political activities.
Resolution 18 – Authority to allot shares
The Directors currently have a general authority to allot shares or grant rights to subscribe for or to convert any securities into shares in
the Company. This authority is, however, due to expire at the conclusion of the AGM. Accordingly, the Board would like to seek a new
authority to provide the Directors with the flexibility to allot new shares and grant rights up until the Company’s next AGM within the limits
prescribed by The Investment Association.
The Investment Association’s guidelines on directors’ allotment authority state that the Association’s members will regard as routine any
proposal at a general meeting to seek a general authority to allot an amount up to two thirds of the existing share capital, provided that
any amount in excess of one third of the existing share capital is applied to fully pre-emptive rights issues only. Accordingly, the proposed
authority in Resolution 18 will allow the Directors to allot ordinary shares in the Company (‘Ordinary Shares’) or grant rights to subscribe for
or convert any securities into Ordinary Shares in any circumstances up to a maximum nominal amount of approximately, but not exceeding,
one third of the issued share capital as at 25 November 2022 (being the latest practicable date before the publication of this Notice). In
addition, it will allow the Directors to allot (or grant rights over) new Ordinary Shares, in the case of a rights issue only, up to an additional
maximum nominal amount of approximately, but not exceeding, one third of the Company’s existing issued share capital.
The Directors have no current intention of exercising this authority; however, the Board considers it prudent to maintain the flexibility that
it provides to enable the Directors to respond to any appropriate opportunities that may arise. If passed, this authority will expire at the
close of business on 29 March 2024 or, if earlier, at the conclusion of the Company’s next AGM. The Company held no treasury shares
asat25November 2022.
Resolutions 19 and 20 – Power to allot a limited number of shares other than to existing shareholders
Under the Companies Act 2006, when shares are issued for cash, they normally have to be offered first to existing shareholders in proportion
to their current shareholding. Section 570 of the Companies Act 2006, however, permits the disapplication of such pre-emption rights.
Resolution 19, which is proposed as a special resolution, will enable the Directors to allot shares for cash and/or sell treasury shares free
from statutory pre-emption rights: (i) in connection with a rights issue, open offer or other pre-emptive offer; and (ii) otherwise than in
connection with any such offer, up to a nominal amount of £43,498 representing approximately 5% of the issued Ordinary Share capital as
at 25 November 2022 (the latest practicable date before the publication of this Notice). The Directors have no current intention of exercising
this power and confirm their intention that not more than 7.5% of the issued Ordinary Share capital will be allotted or treasury shares sold
for cash on a non-pre-emptive basis in any rolling three-year period, other than with prior consultation with shareholders or in connection
with an acquisition or specified capital investment as referred to below.
Resolution 20 is in addition to Resolution 19 and will also be proposed as a special resolution. Within the limits supported by the
Statement of Principles, Resolution 20 will enable the Directors to allot shares for cash and/or sell shares out of treasury free from statutory
pre-emption rights up to a further nominal amount of £43,498, representing approximately 5% of the issued Ordinary Share capital as at
25November 2022 (the latest practicable date before the publication of this Notice) in connection with an acquisition or a specified capital
investment only. The Board confirms that it will only allot shares or sell shares out of treasury pursuant to this power where the relevant
acquisition or specified capital investment is announced contemporaneously with the allotment, or has taken place in the preceding six-
month period and is disclosed in the announcement of the allotment. The Directors have no current intention of exercising this power. If
it is used, the Company will publish details of its use in its next Annual Report and Accounts and as required by the Pre-Emption Group’s
Statement of Principles.
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196
Resolution 21 – Authority to purchase own shares
In certain circumstances, it might be advantageous to the Company to purchase its own shares. Resolution 21 will be proposed as a special
resolution. If passed, it will authorise the Company to make market purchases of its own ordinary shares up until the close of business on
29 March 2024 or, if earlier, the conclusion of the Company’s next AGM, subject to specific conditions relating to price and volume.
The proposed resolution specifies the maximum number of shares which may be acquired (approximately 10% of the Company’s issued
Ordinary Share capital as at 25 November 2022 (the latest practicable date before the publication of this Notice)) and the maximum and
minimum prices at which shares may be bought.
The Directors intend to use the authority only if, in light of market conditions prevailing at the time, they believe that the effect of such
purchase would result in an increase in earnings per share and would be in the best interests of the Company and its shareholders generally.
Other investment opportunities, appropriate gearing levels and the overall position of the Company will be taken into account in reaching
such a decision. Any shares purchased in this way will either be cancelled and the number of shares in issue will be reduced accordingly, or
be held as treasury shares depending on which course of action is considered by the Directors to be in the best interests of the shareholders
at that time. Shares held as treasury shares can in the future be cancelled, resold or used to provide shares for employee share schemes. The
Company currently has no Ordinary Shares in treasury.
As at 25 November 2022, options over a total of 1,092,842 Ordinary Shares were outstanding and not exercised. That number of Ordinary
Shares represented 1.26% of the Company’s issued Ordinary Share capital at 25 November 2022. It would represent 1.4% of the issued
Ordinary Share capital at that date if the authority to buy the Company’s own shares given at the previous AGM and the authority now
being sought by Resolution 21 were to be fully used.
Resolution 22 – Authority to hold general meetings (other than Annual General Meetings)
on 14 clear days’ notice
This Special Resolution renews an authority given at last year’s AGM and is required as a result of section 307A of the Companies Act
2006. The Company is currently able to call general meetings (other than an AGM) on not less than 14 clear days’ notice and would like
to maintain this ability. In order to do so, the Company’s shareholders must approve the calling of such meetings on not less than 14 clear
days’ notice. Resolution 22 seeks such approval. If given, the approval will be effective until the Company’s next AGM, when it is intended
that a similar resolution will be proposed.
The shorter notice period would not be used as a matter of routine for such meetings, but only where the flexibility is merited by the
business of the meeting and is thought to be to the advantage of shareholders as a whole.
Recommendation
The Directors consider that all the proposed resolutions set out in the Notice of AGM are in the best interests of the Company and of its
shareholders as a whole and they unanimously recommend that you vote in favour of them, as they intend to do so in respect of their own
shares (save in respect of those matters in which they are interested).
Explanatory notes continued
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197
Annual Report 2022 Victrex plc
Appendix to Notice of Annual General Meeting
Summary of the principal terms of the Victrex plc Share Incentive Plan (‘SIP’)
General
The SIP is a share incentive plan designed to take advantage of the tax beneficial status of share incentive plans which comply with
Schedule2 to the Income Tax (Earnings and Pensions) Act 2003 (‘Schedule 2’).
The SIP shall be administered by the Board of Directors of the Company (‘Board’) or a duly authorised committee of the Board.
Eligibility
All employees of the Company and participating subsidiaries who have been employed for a minimum period (not exceeding the period
specified from time to time in Schedule 2) and who otherwise satisfy the eligibility requirements in Schedule 2 are entitled to participate
inthe SIP.
How the SIP may be operated
The Board can operate the SIP in a number of ways. It can:
u
make an award of ‘free shares’; and/or
u
give employees the opportunity to invest in ‘partnership shares’; and/or
u
make an award of ‘matching shares’ to those employees who have invested in ‘partnership shares’ (free shares, partnership shares
andmatching shares – together ‘Plan Shares’); and/or
u
require or allow employees to re-invest any dividends paid on their Plan Shares in further ordinary shares (‘Dividend Shares’).
Free shares
The Company may award free shares up to a maximum annual value specified in Schedule 2 from time to time. The current maximum
annual value is £3,600 per employee. If the Company wishes, the award of free shares can be based on the achievement of individual,
team, divisional or corporate performance measures which must be fair and objective. Otherwise, free shares must be awarded to
employees on the same terms, although awards can vary by reference to remuneration, length of service or hours worked.
Partnership shares
The Company may provide employees with the opportunity to acquire partnership shares from their gross monthly salary, up to a maximum
value specified in Schedule 2 from time to time, currently £1,800 per year. The Company may set a minimum monthly deduction which
may not be greater than £10 (or such other amount specified in Schedule 2 from time to time). Ordinary shares will be acquired on behalf
of employees within 30 days after each deduction at the market value of the ordinary shares on the date they are acquired. Alternatively,
deductions can be accumulated during any accumulation period of up to 12 months. In this case, ordinary shares will be acquired on
behalf of employees within 30 days after the end of the accumulation period, at the lower of the market value of the ordinary shares at
the beginning of the accumulation period or the date when they are acquired (or the market value of the ordinary shares at either the
beginning of the accumulation period or the end of the accumulation period).
Matching shares
The Company may award matching shares for free up to a maximum number of matching shares for each partnership share acquired by the
employee, as specified in Schedule 2 from time to time. The current maximum is two matching shares for each partnership share.
Dividend shares
The Company can either give employees the opportunity, or require employees, to re-invest any dividends paid on any of their Plan Shares
in further ordinary shares.
Trust
The SIP operates through a trust, which will acquire ordinary shares by purchase, by subscription or by the acquisition of ordinary shares
held in treasury and will hold the ordinary shares on behalf of the employees.
Holding period
Free and/or matching shares must generally be held in trust for a period specified by the Company, which must not be less than three years
nor more than five years from the date on which the shares are awarded to employees. Dividend Shares must generally be held in trust for
three years.
Cessation of employment, forfeiture of shares and non-transferability
The Company may specify that free shares and/or matching shares are forfeited if employees cease employment with a member of the
Group (other than because of certain circumstances such as death, redundancy, injury, disability, retirement, transfer of the employing
business or change of control of the employing company) within the period of up to three years from the date on which shares were
awarded. Employees can withdraw their partnership shares from the SIP at any time. The Company can stipulate that matching shares
will be subject to forfeiture if the corresponding partnership shares are withdrawn within a specified period after they are awarded, not
exceeding three years. To the extent not forfeited, Plan Shares and Dividend Shares must be withdrawn from the SIP trust if the participant
ceases employment with a member of the Group.
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198
Summary of the principal terms of the Victrex plc Share Incentive Plan (‘SIP’) continued
Limits on the issue of shares
The use of newly issued ordinary shares under the SIP is limited to 10% of the issued share capital of the Company from time to time,
taking into account ordinary shares issued or to be issued over the previous 10-year period under the SIP and any other employees’ share
plans adopted by the Company.
For the purposes of calculating this limit, ordinary shares transferred from treasury will be treated the same as newly issued ordinary shares.
Amendments to the SIP
The Board will have authority to amend the SIP, provided that no amendment to the advantage of participants or qualifying employees
may be made to provisions relating to eligibility, limits on participation and the number of new shares available under the SIP, the basis
for determining a participant’s entitlements in the event of a variation in the Company’s share capital, and the amendment provisions
themselves, without the prior approval of the shareholders in a general meeting (unless an amendment is minor and made to benefit the
administration of the SIP, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory
treatment for the Company, any participating company or for participants or qualifying employees).
Authority to operate the SIP
No invitations to participate in awards under the SIP may be issued after the 10th anniversary of its date of approval by shareholders.
Awards non-pensionable
Benefits under the SIP are not pensionable.
Appendix to Notice of Annual General Meeting continued
SHAREHOLDER INFORMATION
199
Annual Report 2022 Victrex plc
Financial calendar
Ex-dividend date 19 January 2023
Record date
1
20 January 2023
AGM 10 February 2023
Payment of final dividend 17 February 2023
Announcement of 2022 half-yearly results May 2023
Payment of interim dividend June/July 2023
1 The date by which shareholders must be recorded on the share register to receive the dividend.
SHAREHOLDER INFORMATION
Victrex plc Annual Report 2022
200
This is the Annual Report of Victrex plc for the year ended 30 September 2022.
This Annual Report has been sent to shareholders who have elected to
receive a copy. A Notice of the AGM to be held on 10 February 2023 is also
included within the report commencing on page 187.
In this Annual Report, references to ‘Victrex’, ‘the Group’, ‘the Company’,
‘we’ and ‘our’ are to Victrex plc and its subsidiaries and lines of business,
orany of them as the context may require.
References to the years 2022, 2021, 2020 and 2019 are to the financial
yearsended 30 September 2022 (for 2022), 30 September 2021 (for 2021),
30September 2020 (for 2020) and 30 September 2019 (for 2019). Unless
otherwise stated, all non-financial statistics are at 30September 2022.
This Annual Report contains forward-looking statements with respect to the
Group’s financial condition, operating results and business strategy, plans and
objectives. Please see the discussion of our principal risks and uncertainties in
the sections entitled ‘Risk management’ and ‘Principal risks’, and the section
entitled ‘Cautionary note regarding forward-looking statements’.
This Annual Report contains references to Victrex’s website. These references
are for convenience only – we are not incorporating by reference any
information posted on www.victrexplc.com.
This Annual Report has been drawn up and presented in accordance with
andin reliance upon applicable English company law and the liabilities of
theDirectors in connection with this report shall be subject to the
limitationsand restrictions provided by such law.
The Directors’ report – Strategic report has been prepared to inform the
Company’s shareholders and help them assess how the Directors have
performed their duty to promote the success of the Company for the benefit
of the Company’s shareholders as a whole. It should not be relied upon by
anyone, including the Company’s shareholders, for any other reason. The
Directors’ report – Strategic report contains a fair review of the business of
the Group and a description of the principal risks and uncertainties that the
Group faces. As a consequence, the Directors’ report – Strategic report only
focuses on material issues and facts.
This Annual Report does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any Victrex plc shares.
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Hardman Square
Manchester
M3 3EB
Broker and financial advisor
J.P. Morgan Cazenove
25 Bank Street
Floor 27
Canary Wharf
London
E14 5JP
Lawyers
Addleshaw Goddard LLP
One St Peter’s Square
Manchester
M2 3DE
Slaughter and May
One Bunhill Row
London
EC1Y 8YY
Bankers
Barclays Bank PLC
3 Hardman Street
Manchester
M3 3AX
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
BN99 6DA
Visit www.victrexplc.com or scan with your
QR code reader to visit our Group website.
Advisors
Victrex plc’s commitment to environmental issues is reflected
inthis Annual Report, which has been printed on Arena Smooth
Extra White, an FSC
®
certified material. This document was printed
by Park Communications using its environmental print technology,
which minimises the impact of printing on the environment.
Vegetable-based inks have been used and 99% of dry waste is
diverted from landfill. The printer is a CarbonNeutral
®
company.
Both the printer and the paper mill are registered to ISO 14001.
CBP016114
Victrex plc Annual Report 2022
Victrex plc
Victrex Technology Centre
Hillhouse International
Thornton Cleveleys
Lancashire
FY5 4QD
United Kingdom
Tel: +44 (0) 1253 897700
Fax: +44 (0) 1253 897701
Web: www.victrexplc.com
Victrex plc Annual Report 2022