Risks, Trends, Factors and Uncertainties

Victrex’s business and share price may be affected by a number of risks, trends, factors and uncertainties, not all of which are in our control.

The specific principal risks, trends, factors and uncertainties (which could impact the Group’s revenues, profits and reputation) and relevant mitigating factors, as currently identified by Victrex’s risk management process, are described below. However, other risks may also adversely affect the Group.

Accordingly, actual results may differ materially from anticipated results because of a variety of risk factors, including: changes in exchange rates; changes in global, political, economic, business, competitive and market forces; changes in raw material pricing and availability; changes to legislation and tax rates; future business combinations or disposals; relations with customers and customer credit risk; events affecting international security, including global health issues and terrorism; changes in regulatory environment and the outcome of litigation.

The Board is responsible for determining the strategic approach to risk, setting the risk appetite and establishing the structure for risk management. It is recognised that the Group’s strategic objectives can only be achieved if risks are taken and managed effectively. Below are those risks considered to be principal to delivering our strategy and specific to the nature of our business, although there are other risks which may occur and impact on the Group’s performance.

Principal 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.

Risk Area	Risk Description	Risk Description
SAFETY, HEALTH AND ENVIRONMENT	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.	We employ a dedicated, Safety, Health and Environment (‘SHE’) department to assist line management and to provide expert guidance. We have policies and procedures to efficiently, safely and compliantly manage all our operations; protect the safety and health of our employees, contractors and visitors; and both manage our environmental responsibility and continually improve our resource efficiency. As our manufacturing facilities are regulated, we are subject to close review, for example by the Environment Agency and the Health and Safety Executive.
CORE BUSINESS GROWTH	Whilst we continue to drive growth in our core business, the environment in which we operate is associated with a number of competitive risks. One of these competitive risks arises from pricing pressure and the second from the introduction of new competitor capacity and/or new competing materials. Failure to address these risks could significantly impact our ability to achieve growth in our core business.	We aim to address price pressure by being focused on cost efficiency and continuous improvement in our operations, by having an appropriate pricing policy and by offering a strong value proposition as a solutions company - unique chemistry, specification of products with end-users, quality and technical service. We seek to address new industry capacity in polymers by differentiating our business, with our offering now comprising semi-finished and finished products. These ‘downstream’ products offer future growth potential to help offset competitive pressure in core polymer material sales. We keep abreast of technological changes to materials and potential threats to PEEK and PAEK polymers by developing new grades with differing properties, as well as creating new markets for PEEK/PAEK polymers.
RECRUITMENT AND RETENTION OF THE RIGHT PEOPLE	Our success depends on recruiting and retaining the right people in all areas of our business. Victrex relies heavily on the skills, experience and competence of our people to comply with internal procedures and external regulations, to drive business in existing and new markets, to deliver our strategy, to operate our manufacturing assets safely and with a strong regard to the environment and to successfully execute our downstream strategy.	We have strategies in place (collectively our “People Strategy”) to attract and retain the best talent, provide opportunities for personal development, encourage diversity and recognise and reward excellence. The People Strategy is discussed at Board, ELT and functional levels. Our employees have clear objectives and development plans, aligned to our strategy, and participate in formal and informal training programmes and reviews to assess their performance and effectiveness. We have succession plans in place for key roles and develop our future leaders so that we are able to promote internally as well as bringing in new talent from the outside. Where necessary, we will supplement the skills of our own employees with those of third parties in order to deliver our downstream strategy. We operate an equal opportunities policy and regard this as a commitment to make both full use of the talents and resources of all our employees.
FOREIGN CURRENCY RISK	The Group exports the majority of its product out of the UK, but has a significant Sterling cost base. Fluctuations in exchange rates between Sterling and US Dollar, Euro and Yen could cause profit and balance sheet volatility.	The Group adopts a hedging policy to mitigate short-term currency risk. Currency movement can have either a positive or a negative impact on the Group. The Currency Policy is managed by a dedicated Currency Committee. The Committee regularly assesses whether the impact of major events, like the UK’s Referendum on EU membership, requires any modification to that Policy.
BUSINESS CONTINUITY OF SUPPLY CHAIN	It is essential to ensure continuity of supply and service to our customers and that we can operate even if a significant event did occur. Failure to maintain a secure supply of high quality products to our customers by, for example, an unexpected upsurge in demand or delays in the implementation of major capital expenditure programmes, could lead to a capacity shortage or insufficient inventory and loss of earnings.	It is our policy to keep capacity ahead of demand by continual investment in our supply chain so that our customers can be confident that we can meet their requirements today and in the future. Our sales and operations planning process, together with our stocks of finished goods, which are held in a number of locations worldwide, is intended to enable us to maintain supplies to our customers during any short-term disruption. Additionally we work with our key suppliers to maintain appropriate stocks of key raw materials. We have business continuity plans in place that are regularly reviewed to ensure their continued effectiveness.
NETWORK AND IT SYSTEMS AND SECURITY	A significant failure or interruption in our IT networks and systems could have a detrimental impact on our business. Cyber attacks are becoming more frequent and could result in denial of service or data theft. Data security is very important to us, as failure to appropriately process, store or share information could result in the loss of IP or the loss of data, whether it be our data, or that of our employees or customers.	We continue to review and invest where appropriate in the development and maintenance of our IT infrastructure, systems and processes and information security. Implementation of our new ERP system commenced during FY 2016 and completed its roll-out in FY17. We operate a firewall, antivirus software, 3rd party penetration testing and monitor any attempted breaches and take action where necessary to ensure our infrastructure remains robust and appropriate. We have in place recovery plans and business continuity plans, which are regularly reviewed and tested.
PRODUCT LIABILITY	We sell into highly demanding end use applications and regulated markets. Any failure to supply our products in accordance with the specification could lead to loss of business which would impact revenue and give rise to a potential product liability claim.	Victrex PEEK polymer is manufactured within a quality management system approved to ISO 9001:2015. Invibio PEEK-OPTIMA polymer is additionally manufactured within a quality management system approved to ISO 13485:2016, a system of good manufacturing practice often used by the pharmaceutical industry and by medical device manufacturers. VICTREX pipes and UD tapes for the aerospace market are manufactured within a quality management system approved to AS9100 RevD. We have also attained ISO 17025:2005 General Requirements for Competence of Testing and Calibration Laboratories certification. All of our products are supplied to an agreed specification. Supply terms are used to mitigate the risk where practicable and in addition the Group maintains appropriate levels of product liability insurance.
ETHICS AND REGULATORY COMPLIANCE	Changes in regulatory requirements can provide an opportunity for further differentiation. Any failure to comply with ethical and regulatory standards has the potential to significantly affect our ability to deliver our business strategy.	We continue to invest where appropriate in our Legal and compliance teams, including the Quality teams and the Safety Health and Environment team, supplemented by external resources as necessary, to ensure that we have access to the right resources. The new Medical Devices Regulations provides an opportunity for further differentiation which we will be looking to optimise in the coming financial year. Our Code of Conduct policies are reviewed regularly and compliance against them is monitored and reported to the Audit Committee. Training is provided to support the policies. Commercial contracts and our pricing strategy are reviewed by our legal and Product Management teams. The UK vote to leave the EU (BREXIT) has not had a direct material impact on the Group’s performance in the current reporting period. Our central team is in place to review and assess the impact as more information becomes available and we are engaged with trade associations who are in contact with government.
FUTURE BUSINESS GROWTH	Exposure to changes and events such as increased competition and competitor capacity, external global economic conditions, or political environment, may impact the Group’s performance and its ability to achieve its strategic objectives. Continued innovation, beyond polymer manufacturing, will help us move downstream, further differentiating our business but with the potential to increase risk.	Whilst we continue to monitor and review competitive intelligence, our focus remains on further differentiating our business by developing new growth platforms and continuing to move downstream beyond polymer manufacturing, into semi-finished products and components and leveraging our know-how and protectable IP. Delivery of our mega-programmes is influenced by a number of external factors, however our portfolio and product management processes are designed to identify, quantify and when possible mitigate these uncertainties. Through our portfolio steering committee we regularly review and monitor the projects that will enable us to move downstream to ensure that any increased risks are being addressed. Whilst growth is impacted by a number of factors outside the Group’s control, the diverse nature of its markets, customers and the territories in which it operates, together with appropriate contingency planning, helps to mitigate the impact on the business of such changes and events.