Good morning, ladies and gentlemen, and welcome to the Victrex Year End Results Meeting. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Victrex plc, Jakob Sigurðsson, to open the presentation. Please go ahead, sir.
So, good morning, everyone, and welcome to Victrex's Full Year Results Presentation for 2023. I'm Jakob Sigurðsson, CEO, and I'm joined here today with Ian Melling, our CFO, and we are also having Andrew Hanson, our IR director, in the room. So before we start, just a bit of housekeeping, just so everyone is clear on the format. The slide presentation is on our website at victrexplc.com, under the Investors tab, and by clicking on Reports and Presentations. We will call out the slide numbers as we go through the presentation. While this is an in-person event in London, we also have a conference call.
We will have a Q&A at the end, and I will open the Q&A up for questions from the room first, and then questions from the audience on the call subsequently. So if we now move to slide three, the key messages. I think it's fair to say that 2023 has been a very challenging year, not just for Victrex, but for the wider chemical industry as a whole. Some might say that it's been one of the toughest on record, no doubt about that. With average revenue declines in the industry over 20% across global chemicals in the last 12 months. Our sales volume down 24%, but revenue down 10%, which demonstrates our balanced portfolio, I would say.
But, there are several points to highlight at the start of this meeting. Firstly, we did deliver PBT in line with, revised guidance we gave back in June, and, Ian will cover the details of that shortly. Secondly, we are very well placed for a recovery with, strong macro drivers, differentiation, and a well-invested asset base. We haven't seen that recovery yet, but note several favorable end market indicators for 2024. Thirdly, we have confidence in our delivery, both in the core business and our mega programs. These in turn, will support cash flow improvements and our ability to invest in a targeted way and also deliver good shareholder returns. I'll come back to our confidence about delivery when I cover our new growth targets later in the presentation. Moving on to slide four and the highlights.
Ian will cover the financial details shortly, but overall, I want to bracket our performance in three sections and link that to how we're well placed to benefit from a macro recovery. Firstly, our core business saw obvious end market weakness during the year, particularly within our sustainable solutions, formerly industrial. We saw a weakness in electronics, in energy and industrial, and in Value-Added Resellers, VARs. And VARs itself saw volumes declining 39%, all but from a record last year. So this was clearly a significant drop-off in demand. But the core is robust when we consider the broader, more balanced range of applications that we have now, which strengthen us for the uptick when it happens. History has shown that post-recessions, Victrex recovers in a very sharp way. One other point on the core is pricing.
We delivered strong average selling prices, up 18%, and these are primarily in structural contract increases as we come out of the downturn. While we see a mixed change, we still expect to see robust price. Secondly, in our mega programs, we deliver key technical and commercial milestones. I'll come back to them later in the presentation and how we're prioritizing investment in five key programs as gear grows and gains adoption, enabling us to focus on the five programs that still need investment to drive commercialization. Let me be clear, the rate of commercialization is increasing within our mega program portfolio. Some programs faster than others, some slower than we would like, but the milestones are moving the right way towards commercial inflection point.
Finally, we have a strong balance sheet with a well-invested asset base and appropriate capacity in place to meet demand for the years ahead, enabling us to assure large customers as they work with us on high volume projects like aerospace, like in Magma and flexible pipe, and in e-mobility, of our ability to supply them with the required quantities once new technology is adopted. Our balance sheet has supported us through these tough times, and even if cash is slightly lower than we're used to see, it's important to note that our investment in capital expenditures and capabilities will start to moderate now, so the opportunity of cash flow improvement starts here. Ian will now cover the financial detail for FY 2023 before I come back to cover some commercial highlights, our growth targets, and our outlook. Over to you, Ian.
Thank you, Jakob. Good morning, everyone. Firstly, I'd like to reiterate the key messages which Jakob touched on. Namely, that we delivered PBT in line with the revised expectations we set out in June this year. We are well placed for recovery once the macroeconomic environment improves, even if several end markets remain challenging right now, and we have confidence in our delivery. We will cover how we intend to return to growth alongside new medium-term targets later in the presentation. As the CFO, despite the very challenging year we faced, it's pleasing to see that we retain a very healthy financial profile with a robust balance sheet. This continues to serve us well in tough periods like 2023.
FY 2023 was a challenging year for cash as we built inventory, but we remain cash generative and have prioritized investment for growth in very targeted areas through these tough times, alongside being disciplined on costs. I do believe this will serve us well for the medium to long term, as we take advantage of our significant capacity to facilitate future growth. Turning to slide six and the income statement. At a revenue level, we reported full year revenue of GBP 307 million, down 10% on the prior year, or 13% in constant currency. Sales volume was down much more at 24% to 3,598 tons, which was only slightly ahead of the COVID-impacted period of FY 2020. This illustrates the challenging year we and other chemical companies faced.
The end markets most impacted this year were in VAR, which was down 39%, energy and industrial, down 23%, and electronics, also down 23%. Jacob will cover the performance of our end markets later, but destocking and weak demand remain the key drivers here after a record period in FY 2022 for VAR, in particular. Pleasingly, medical delivered a record performance driven by a broader range of applications, with revenue up 12%. A summary of our divisional income statements are shown in the appendix on slide 36. A brief word on Q4 performance. It was at the lower end of our expectations, delivering 839 tons in Q4, with revenue of GBP 72.6 million, broadly similar to Q3.
As we note in our outlook statement, we have yet to see a recovery, and whilst our Q1 is typically seasonally weak, it's worth noting that electronics, energy and industrial, and VAR continue to weigh on performance. Fiscal Q1 has started softly and is tracking to be lower than fiscal Q4 2023, though we note that market indicators point towards some improvements as we move through 2024. Moving on to gross profit, which was 7% lower than the prior year at GBP 162.6 million. This is after the effect of the loss on currency contracts of GBP 7.6 million. We saw a more favorable sales mix during the year, as well as lower energy costs, even if raw materials remained relatively high.
While the increase in energy and material costs was lower than our original guidance of up to GBP 20 million, there were increases, mainly in raw materials, a significant proportion of which remained in inventory. We were pleased to see energy costs reducing as the year went on, though we remain mindful of the potential for volatility. Raw materials have started to ease and should benefit us more in 2024. The other key item impacting gross profit was our fixed costs, as our assets were underutilized. We had signaled that we would overproduce versus sales volume this year, with many raw material stocks also in need of rebuild after the pandemic, as well as needing inventory to cover our U.K. asset shutdowns as we upgrade those facilities.
Whilst our sales volume was just under 3,600 tons, our production volume was closer to 4,200 tons, still 9% lower than the prior year production. This meant we saw an under absorption impact of approximately GBP 3 million. Our focus is to improve our operating leverage over the coming years and increase our asset utilization, supporting gross margin and returns, but we are likely to see higher underutilization in FY 2024 as we commence the unwind of inventory. Gross margin was up 180 basis points to 53%, supported by favorable price, sales mix, and currency, but offset by lower asset utilization. Turning to overheads. Overheads for the year were up 5% versus FY 2022, at GBP 82.6 million, with targeted innovation spend primarily in medical, some China costs, and wage inflation.
In fact, if we take the 5% increase, the majority of this was driven by R&D spend, which increased to GBP 18.6 million, so nearly GBP 3 million more than FY 2022. We now do disclose separately R&D on the face of the income statement, and we still expect R&D to be around 5%-6% of sales every year, with an emphasis on medical and progressing our sustainable products. In the second half, we saw a reduction in overheads of 14%, with strong cost discipline and the absence of a bonus accrual. No bonus was paid to employees or executives in respect of FY 2023. We are focusing on much more limited increases to operating overheads in FY 2024 and going forward.
I'll come back to this later, but it does mean we are seeking to drive better operating leverage after a period of investment, both in assets and people. Our underlying profit before tax came in at GBP 80 million, down 16% or 18% in constant currency. This was in line at the lower end of our guidance, as I've already mentioned. Reported PBT was down 17% at GBP 72.5 million, which reflects the GBP 7.5 million exceptional item incurred for our ERP system. Substantially, all of this investment will be complete by the end of FY 2024. We expect the total investment for the ERP system to be around GBP 20 million, as signaled previously. SaaS accounting rules mean we have to treat this as an expense rather than it being capitalized.
One item I do want to flag is our effective tax rate of 15.9%, which was higher than last year's 13.9% level. This is higher due to the increase in U.K. corporation tax rates and a lower proportion of profits being eligible for the patent box rate. This lower proportion is primarily a result of the lower overall profit figure. Our midterm guidance for an effective tax rate has slightly increased to approximately 13%-17%. This is subject to global taxation developments, which we continue to monitor. Earnings per share declined by 18% to GBP 0.777 per share on an underlying basis, and by 19% to GBP 0.709 per share on a reported basis.
Turning finally to our dividend, the board is pleased to propose a final dividend of GBP 0.4614 per share, giving total dividends of GBP 0.5956 per share for the year. Despite the tough year and some ongoing end market weakness, we're seeing in the first few months of FY 2024, as noted in our outlook statement, we are well-placed for recovery when the macro environment improves. Moving on to slide seven, and the underlying PBT movements. The main driver on profitability during the year was the weaker volume environment, which is shown on the chart, reducing PBT by GBP 24.7 million. As I will come on to in a later slide, sales mix was more favorable year-on-year, which benefited margin.
This is mainly the effect of lower VAR and other sustainable solution end markets, with a good growth in aerospace and obviously, a record medical performance. Average selling price was up 18% as we recovered energy and raw material inflation, mostly through structural price increases. This benefited us by GBP 10.4 million. The impact of lower asset utilization was reflected in a GBP 2.9 million impact to the P&L. We saw 9% lower production compared to the prior year, as I've mentioned. We continue to have some remaining underrecovered fixed costs, primarily in our downstream assets, manufacturing product forms and parts, where we have invested in capability. And we're focused on reducing those and consequently supporting our return on capital over the coming years.
With profits declining, we had no accrual for our bonus schemes, which benefited us by GBP 5 million. Wage inflation meant a GBP 3.6 million pound increase compared to the prior year, with some specific targeted payments in certain employee grades to reflect the cost of living. In terms of targeted investment, this includes some start-up costs to support our China investments, which will transfer to COGS once the facility ramps up in early 2024, and innovation spend in medical acceleration with our commitment to a new facility in Leeds to underpin our trauma and knee programs for our customers. This results in the creation of 25 new roles, and we've recruited an excellent team, many from top-tier medical device manufacturers. Finally, we saw a GBP 3.4 million benefit from currency at underlying PBT level, resulting in an underlying PBT of GBP 80 million.
Moving on to slide eight, price and margin. Our full-year average selling price was GBP 85/kg , some 18% better than last year as we saw price increases coming through. ASP in constant currency at FY 2022 rates was GBP 83/kg , an increase of 15%. As already mentioned, sales mix was favorable, with medical strong and a strong performance in aerospace, too. In the second half, our ASP was GBP 88/kg , up 5% sequentially versus H1. We've demonstrated good discipline with delivering these price increases, and the focus for us now is to maintain pricing as we move through FY 2024. It's worth noting that structural price increases form the majority of the price increase mechanism for us. Surcharge pricing was less than GBP 1 million, though it did broaden our options in recovering energy and raw material inflation.
A quick word on ASP guidance for FY 2024. While we have yet to see a recovery in several of our sustainable solutions end markets, an anticipated normalization within electronics, energy, and industrial and VAR would see sales mix soften slightly. Although we are still expecting full year ASP to be comfortably above GBP 80/kg, with the first half likely to be higher than the second. Turning to slide nine on gross margin, we can see on the chart the main drivers on our gross margin during the year. Price was the key driver for us, helping improve gross margin by 180 basis points, with sales mix also helping by 90 basis points. Operating leverage was the bigger drag on gross margin, with a 90 basis point impact, more weighted to the second half.
As we think about gross margin going forward, asset utilization and the start-up of China will be a drag in FY 2024, which will more than offset any benefit from reducing input costs. FY 2024 gross margin is therefore likely to fall to around FY 2022 levels. But in the medium term, there is significant benefit from improved asset utilization and leverage, including in China, as our business there grows. This supports our goal of margins in the mid to high 50%s even though energy costs are unlikely to return to historic levels, and decarbonizing will also have a cost. Moving to slide 10 on inventory. Obviously, an unusually high inventory level at the year-end, which reflects the fact that recovery did not come through in the second half. It's worth noting.
Though the key factors in how inventory increased to the GBP 134.5 million level at year-end. Firstly, we had already signaled we needed to rebuild safety stocks post-pandemic, many of which had reduced to unsustainable levels. Secondly, our U.K. asset improvement program meant ensuring enough inventory as we shut plants down for extended maintenance and upgrading. The third factor is the cost of inventory, due to lower manufactured volumes and all of the costs, including raw material inflation. We will be unwinding inventory over the next two years as the U.K. asset improvement program concludes, with inventory set to move towards GBP 100 million. Why GBP 100 million? Well, our portfolio is now bigger and broader than historically, with more assets, both polymer and downstream facilities like composites and also our medical manufacturing.
Some input costs, notably energy and wages, remain higher than historical levels. Strategically, it will be important to hold slightly more inventory than we did historically, to ensure we are prepared for growth, meet the needs of our customers, as well as manage more complex supply chains. On slide 11, we cover currency. The impact of currency hedging is shown on the face of the P&L, in line with IFRS 9. Note that the offsetting currency impacts on underlying trading are embedded in the other lines, most significantly, revenue. We saw a GBP 3 million tailwind at PBT level during FY 2023, mostly in the first half. This was largely the impact of weakening sterling in the prior year. The loss on forward contracts was GBP 7.6 million, compared to a GBP 2.8 million loss in FY 2022.
We hedged the dollar and euro, though it's worth noting some unhedged Asian currencies are growing in importance as our growth moves faster in those regions, and we keep our hedging policies under review in respect of these currencies. Against the dollar, our effective rate was GBP 1.3 for FY 2023. This is GBP 1.38 in FY 2022, including the effect of hedging, and against the euro, the effective rate was GBP 1.17, slightly stronger than the FY 2022 at GBP 1.14. If we look into FY 2024, given some strengthening of sterling and a current USD effective rate of around GBP 1.24, based on a spot rate of GBP 1.27, we do see a headwind to PBT at current spot rates.
With our hedging, though, we would expect to offset that headwind during the year, noting, as always, that currency rates remain volatile. Moving to slide 12 and cash, we're concluding a period of investment in capacity and capability, specifically in our China facilities and our U.K. asset improvement program. Add to this the weaker trading performance and higher inventory. Free cash flow is not where we'd like it to be. However, we do expect to see cash flow, cash flow improve from here on in, as we moderate investment and increase asset utilization, with our robust balance sheet supporting us through these challenging times.
Looking at the main movements, although capital expenditure at GBP 38.5 million was slightly lower compared to FY 2022's GBP 45.5 million, we saw a higher working capital outflow with much higher inventory on a weaker trading performance, meaning the operating cash conversion fell to 18%. Free cash flow was materially lower than the prior year, at GBP 3.2 million. We are focused on getting back to Victrex's excellent record of cash generation and see an opportunity to do so as CapEx comes down, we reduce inventories, and once trading starts to improve. Our working capital movement of GBP 48.9 million was nearly all driven by the inventory increase of GBP 47.7 million.
Our net tax outflow was GBP 2 million, versus GBP 10.6 million in the prior year, and total dividends paid of GBP 51.8 million , reflects the final dividend from FY 2022 and the interim dividend from FY 2023. The prior year number of GBP 95.2 million includes the FY 2021 special dividend. The net cash flow movement was GBP 34.3 million negative, resulting in a closing net cash position of GBP 33.5 million as of the 30th of September. Available cash was GBP 30.1 million , which reflects some cash ring-fence in China as we conclude our major capacity investments there. Finally, as we note in the announcement, we have renewed our U.K. banking facilities, increasing the level of facilities to GBP 60 million , GBP 40 million committed, and GBP 20 million accordion. The facility expires in October 2026.
On to slide 13 and CapEx. We're concluding what's been a major investment phase over the past three years, investing in assets, in people, and capability. This will position us well for the upturn, as the slide shows. We see CapEx coming down to a more modest 8%-10% of revenue, which also reflects some ESG projects that we will need to start investing in to support our decarbonization. For FY 2024, we are guiding to CapEx of around GBP 30 million-GBP 35 million as we conclude China and our U.K. asset improvement program. The benefit from these projects is that we have well-invested assets and significant capacity for the coming years to support our growth programs. Remember that our engagement with major customers includes discussion on our capacity, particularly in high volume opportunities like aerospace, automotive, and e-mobility, and Magma.
As a result of the U.K. assets improvement program, we will have increased our nameplate capacity to over 8,000 tons, with increased batch sizes and faster cycle times through the plant. This positions us well for the future. Briefly covering China on slide 14, we have invested in polymer and also compounding facilities in China, specifically for China, for China and a portfolio extension as we manufacture more Type 2 product there. Commissioning is concluding. We have produced our first batches of PEEK, and we are ready to start supporting sales from the facility in early 2024. We do not expect a material contribution to the top line in FY 2024. Moving on to slide 15, my final slide. Clearly, FY 2023 was a challenging year for Victrex and the wider chemical industry. The trading environment remains challenging in several end markets.
However, I do want to signal our priorities and the key influences over the next couple of years on our financial position, so we can retain the inherent resilience and strength which Victrex is well known for. Firstly, while it's not shown here, and as Jakob will cover, pricing should remain robust, although mix is expected to soften once end markets and sustainable solutions improve. On COGS, input costs are trending favorably in FY 2024, but will take time to flow through inventory. China will be a drag on our gross margin, as I've already indicated. Asset utilization will be a headwind in FY 2024, as we reduce inventory levels and complete the upgrades we've mentioned. On operating overheads, we signaled in today's announcement that we are expecting more modest SG&A investment going forward.
We've gone through a phase of people and capability investment to support our growth programs. Now, it's about leveraging that and also retaining the strong cost discipline. So we're focused on a lom to mid-single digit overhead increase, including wage inflation and bonus. R&D investment will remain strong and a focus, particularly in medical and the innovation there. We're also very clear that we want to enhance our commercial delivery, delivering on our significant pipeline of opportunities. Finally, on cash flow, inventory unwind will support cash improvement going forward. CapEx will come down to 8%-10% of revenue. We do continue to explore M&A options, particularly in the adjacencies aligned to catalyzing greater adoption of PEEK. And finally, shareholder returns. We have a good track record of paying dividends. Our regular dividend will grow once cover returns to around 2 x.
It's currently at 1.3 x. Special dividends remain an option for excess cash return, and we engaged with shareholders this year and confirmed that buybacks are now an option for us, though we'd expect these to be more modest cash returns given share liquidity, probably less than GBP 25 million. We have no buyback plans, given our current cash position, but it is an option we would be able to consider subject to valuation going forward. So in summary, clearly a challenging year, but actions being taken and good opportunities to improve our financial performance in the coming years. Thank you. With that, I'll hand back to Jakob.
Thanks, Ian, and turning to our slide 17. On our Sustainable Solutions business, it's worth reminding everyone that we repositioned this business after Martin Court retired. We now have two managing directors, one for Sustainable Solutions and one for medical. This will help us double down on our growth, and more pertinently, sustainable solutions more accurately reflects what our products do with technical, environmental, and performance benefits, whether that be supporting CO2 reduction, energy efficiency, or other performance advantages. This supports our proposition with our customers. Firstly, on automotive, this is an industry that has been challenged with semiconductor chip and supply issues, over the last two years, two to three years, in fact, but which is seemingly turning the corner.
We know that the latest S&P data forecasting a 1%-3% increase in car sales for 2024 to around 88 million cars. We also notice an uptick in the run rate in automotive in the past couple of months on our side. This is still some way off the 96 million cars that were produced in 2018, so there's still plenty of pent-up demand to come through yet. Flat volumes for the year, largely as a result of the drag from destocking, but revenues up 9%, which reflects solid pricing. On PEEK Gears, I do want to highlight this area because it will now be overseen as a part of our core business.
Gears is already down the adoption pathway, and so good, good growth during the year, reaching GBP 6 million in revenue versus GBP 4 million revenue in FY 2022. We're able to now prioritize investment elsewhere as it progresses in adoption, which is likely to be steadier growth trajectory versus some of our other mega programs. Turning to aerospace, volumes are up 20%, strong performance. We're getting good traction on broadening our applications, particularly leveraging our AE250 polymer and composite tape platform, that in the industry, you will hear referenced as low melt PEEK, of which we are the only technology provider. We're also benefiting from industry recovery, and remember that industry forecasts put aerospace at 97% of pre-COVID traffic levels now, and build rates are increasing.
Victrex solutions are well spread across wide bodies and narrow bodies, and one key point this year is on merging sales with COMAC as their C919 model starts to build up. Our AE250 polymer and composite tape continues to support our programs and composites, not just with large OEMs like Airbus, but with a broader range of OEMs and tier companies now. Moving to energy and industrial, clearly a challenging market for us this year with CapEx investments and maintenance projects being pushed out in industries, and volumes down 23% for us as a consequence. PMI data remains particularly weak for general industrial machinery, robotics, and capital goods. In energy, however, PEEK is used in all kinds of pumps and valves, so durability, chemical resistance, and strength deliver a performance benefit.
We're also getting some new business in the new and renewable energy space, including wind, as we diversify this business. Electronics volumes were down 23%, as the cyclical impact of semicon and smart devices took hold. We still have a strong range of application in this space, across semicon, smart devices, and home appliances, and other areas. While this end market was challenging, we know some of the favorable indicators for 2024. For example, WSTS forecasting 12%-13% growth in semicon next year. And finally, on Value-Added Resellers, we continue to have a strong relationship with our stock shape producers and compounders. Remember that last year was a record year in VARS, but the bullwhip effect of peaks and troughs in demand came through this year as demand slowed down and destocking took hold.
So a tough year in VARs, with volumes down 39%, and a big part of that is also correlated with the downturn in electronics, electronics being a big sector for the value-added resellers. We are collaborating closely with our VARs to assess supply and inventory positions, current demand, and forecasting, and we are well placed to support them in their recovery when it comes through. Slide 18 on e-mobility. I'm really pleased to see the progress here. PEEK is being used now in electric vehicle applications around batteries and wire coatings, where PEEK is replacing enamels, so there's no solvents needed in the process, as an example. And the process is much more efficient than the coating processes that are currently in use.
in and above, also the performance properties that PEEK brings in terms of heat resistance and durability, dielectric properties, and dimensional stability, being key parts of our performance advantage with our XPI polymer range. This mega program is showing the fastest growth of all of our mega programs right now and delivered GBP 6 million in revenues this year, and is progressing nicely towards the GBP 10 million in annual sales. We have continued to assess the potential content in an 800 V EV, which we see as more than 200 gm, conservatively. Most 800 V motors will be a single motor. Some will have dual motors, so, clearly a sizable opportunity here. Remember, some applications will carry across from the ICE cars, such as braking systems, transmissions, and bearings, as an example.
But EVs offer us a net benefit as it relates to a PEEK content, and I think that's worth keeping in mind, that that transition works in our favor. And it's also very pleasing to see a strategic partnership with a major wire coater, Well Ascent, serving well-known American, European, and Chinese brands. We expect to have some more news flow in this area as the next year progresses. Slide 19 on Magma. Remember that all of the news flow regarding Brazil and the Libra field is down to TechnipFMC. Hybrid flexible pipe is based on Victrex PEEK, Victrex composite tape, tape, and also a pipe extrusion knowhow. The proposition is 50% lighter than steel flexible pipe and water, with strong chemical resistance , permeability resistance, and durability benefits as well.
The proposition also focuses on lower installation costs, given the significant weight saving, requiring less complex offshore activity. This year has seen a collaboration between Petrobras, TechnipFMC, and ourselves, including recent meetings hosted by Victrex at our facilities, to progress the final phase of qualification. As I said before, obviously, the news flow from this opportunity comes from Technip, as I've said before. Technip has shown substantial commitment to this program, including ongoing development of a new pipe facility that will produce pipes based on our extrusion know-how. It's also worth pointing out some facts about the Brazilian opportunity, and I'll take the opportunity here to do that. Recently, there was a sell-side analyst note that both Technip and ourselves commented on, that was a bit misleading.
It related to Subsea 7, picking up one field, the work based on rigid steel pipe. That contract was based on a requirement for rigid steel pipe, and flexible pipe or hybrid flexible pipe was never specified. HFP is still in the qualification process, and all parties are making progress as on the qualification program, and as it was not complete, it clearly couldn't be a part of the bid. But that field was one year worth of what TechnipFMC are going after, as an example. So it puts in context the size of the opportunity that awaits us for HFP, and notably so, this is not just about new fields, it's also about replacement opportunities, because stress corrosion cracking continues to be a challenge for both existing and future pre-salt fields, and is a significant consideration in pipe technology choice.
Hybrid flexible pipe is seen as a key solution to the issue. Slide 20 on medical. We have a summary of our medical business performance during the year, which was a record, you know, great performance. Revenues up 12% to GBP 65.2 million. Good growth in all regions, with Asia particularly strong. I want to just cover a few strategic points on medical. Firstly, over several years, we have been deliberately broadening the application areas for PEEK in medical, primarily in non-spine, as spine matured. Non-spine, as you can see from the chart, is now the majority of our medical revenues at 54%. While spine has become mature, with Asia growth being offset by the U.S., we have good opportunity with porous PEEK, and we seek FDA approval in the current year with an alternative solution. In non-spine, we still have a huge amount of opportunity.
For example, in cardio, over 250,000 patients are now benefited from PEEK in artificial heart pumps, heart pumps, where we also have a total artificial heart using PEEK and an expected uptick in implants within this area to close to 500 per year. CMF and skull plates using PEEK saw 38% growth during the year. This is now an GBP 11 million business for us and a great progress, and the very first 3D printed PEEK-OPTIMA CMF implant was just approved in China through the green channel. The clinical evidence for PEEK in medical continues to grow, and that supports our opportunity for medical revenues to be more than 30% of the group total by 2032. We set that goal last year.
This year, we also added a midterm goal to double medical revenues in five years from the core, from new applications, and the mega programs. With a stronger medical base, I do believe that sets Victrex up for greater earning stability, as well as supporting margins over the years ahead. Turning to slide 21 on trauma. Last year, we partnered with In2Bones, now a part of CONMED, to supply our PEEK-based composite trauma plates. Remember, the clinical evidence for PEEK-based trauma plates is strong, with a union rate in excess of 90% compared to titanium-based plates. We saw a union rate with a bone of 75%, including an 8% complication rate. The know-how and IP is with Victrex, and we are pleased to have supplied over 3,000 plates this financial year.
You can see one on the slide with the foot and ankle plate as an example. Demand exceeded expectation, and we're ready to build revenues over GBP 1 million and progress towards GBP 10 million over the next two to three years. It's also worth noting that beyond the U.S., we have broader customer opportunities in Asia now. On slide 22, about knee. Really strong progress on the clinical trial, 46 patient implants, and 10 after two years with no intervention or clinical concerns to date. Last year, we updated investors that we were partnering with Aesculap, part of B. Braun Group, a top five knee company. We also have some ongoing discussions with other top 10 knee companies as the interest grows in this opportunity with the progress of clinical trials. PEEK knee is our largest mega program by PEEK year revenue opportunity.
If you consider that around 15% of patients are metal hypersensitive, this presents a clear entering opportunity for PEEK. But it's not just this opportunity for metal-free solution that is characterizing this opportunity. Light weighting, durability, and the prospect of reduced bone erosion also support alternatives like PEEK. There remains a path to follow, but the opportunity for commercial PEEK knee in the next two to three years is a genuine prospect. Slide 23, mega programs again. Our normal bar chart showing the estimated time to the GBP 10 million revenue is in the appendix of the pack on Slide 34, together with the next set of milestones for reference. I'd like to cover some key points on how we're streamlining our mega program portfolio and how we see that enabling us to enhance commercialization.
Firstly, gears, as I said, is continuing to grow, but, gears is now on the penetration pathway right now. It needs limited investment as we can manufacture the part, or the part can be made elsewhere through a third party. All of the IP and know-how in gears remains with Victrex. The overall revenue opportunity for gears sits slightly below GBP 50 million, so it doesn't define as a mega program, despite it being on the pathway to good growth. Prioritizing our investment in a game-changing program is the right way forward for us. Secondly, aerospace, having the teams driving the two aerospace programs combined across the larger structural parts and the smaller composite parts, will help us technically and commercially with obvious operational synergies.
Thirdly, because it's a portfolio, we have programs assessed regularly, and the portfolio size is not significantly changed overall, despite gears graduating into the core business. Finally, commercial inflection points are closing in on several programs, particularly e-mobility and trauma, and Magma in that group as well, and I will cover what that means for our growth story shortly. Slide 24 on ESG. As a part of our people, planet, and product pillars, we submitted our decarbonization targets for SBTi in September across Scope 1, 2, and 3 emissions. We're aligned to net zero 2050, with an interim goal by 2032, with emissions reductions equating to around 4% per year annualized. A challenging goal, but a clear commitment to decarbonization, and we'll be sharing more detail in our forthcoming annual report.
On slide 25, what I'd like to do now is spend a couple of slides on how we're well-placed for the next phase of growth. If we consider that the last two years have been somewhat challenging, to say the least, all the way from COVID and the global downturn, followed by a sharp uptick in supply chain challenges, into a sharp demand decline, cost inflation, and destocking, the chemical industry has faced. Through all of that, Victrex has continued to invest in people, in assets, and in capabilities. We have stayed the course, investing over GBP 50 million in China, GBP 50 million in our U.K. asset upgrade program, and nearly GBP 19 million this year in R&D and innovation. Medical being the incremental spend here, as Ian talked about before. But the investment phase is now set to moderate.
As you heard from Ian, we're expecting much more limited increases in our SG&A going forward, and we have a well-invested asset base with over 8,000 tons of global capacity. So we're entering a new phase of growth. Volume leverage and asset utilization offer us an upside. Our core business indicators in our pipeline of applications and our new products coming to market remain robust. And with our mega program set to increase commercialization, this will help us drive results, enabling even stronger financial profile, profile for Victrex, and supporting good returns for shareholders. Going to slide 26 on growth targets.
As a consequence of our assessment of the macro drivers for PEEK, whether that be CO2 reduction, patient outcomes or energy efficiency or any other performance benefit, plus the macro recovery when that happens, alongside new and differentiated applications, we are basing our five-year growth targets on 5%-7% CAGR for revenues. It's important to stress that with better operating leverage and overhead investment moderating, we see the opportunity for profit to grow above this level. If we then layer on the opportunity for mega programs, we see line of sight to 8%-10% growth CAGR over the next five years. Again, PBT should have the opportunity to grow faster than this. These form the basis of our growth targets looking forward.
As I said, our investment phase is moderating, our milestones achievement is increasing, and we're well placed to deliver growth at these levels over the medium term, even if growth is challenging right now. But we've stayed the course over a tough cycle, we have streamlined the portfolio, and we have clear indicators on the trajectory of commercialization. So with mega programs at GBP 11 million revenues right now, and this excludes the GBP 6 million for gears, we are setting out the goal of GBP 25 million-GBP 35 million revenues for 2025. On slide 27, building on our growth targets, the obvious question is: How will we deliver them, and why is PEEK so well placed?
So whether it's in automotive and the opportunity of growing from 10 gm on average in a car today, to over 200 gm as a content in a single electric motor, or medical, with less than 5,000 of our Victrex parts produced today, it's an opportunity to over 100,000 parts in five years. It's clear that the building blocks to support those growth targets are in place. I've also referenced Magma in this context, and with the progress that we're seeing there on the qualification, got every reason to believe that that will be a substantial part of our business within this time frame.
This remains about delivery, and we're confident that we have the innovation, the assets, the commercial setup to do that, having invested in it over the toughest of times, leading the market in PEEK, and being the company that creates applications, catalyzes adoptions, and captures new revenues accordingly. Finally, I'd like to cover the outlook. You know, as always, providing an outlook in our seasonally weakest quarter is always a challenge. And an even greater challenge when we're seeing a soft start of the year and several end markets with tough macroeconomic outlook, and frankly, nobody in the chemical industry pretending to be able to predict the end of the trough.
But we have focused hard on market indicators and what our customers are seeing to indicate that we are expecting good revenue and PBT growth for the year, but this is obviously subject to some macroeconomic, economic improvement. On volumes, we see the potential for double-digit growth, but we do see the weighting of that towards the second half of the year. Certainly, we're not expecting growth in Q1, and the year-on-year comparative is tough in the first quarter after a solid first quarter last year, even if the market indicators point to improvements during 2024. So overall, we're well placed for recovery and good growth, and that is our base assumption. But we have clearly yet to see macroeconomic recovery right now, even if several end markets, automotive, aerospace, and medical, are well positioned.
Our usual end market outlook slide is in the appendix, and we're happy to cover any more specific questions, on the specific industries as we go into, Q&A. So with that, I'll wrap up and hand over to Q&A, from the room first, and I would ask, the persons in the room to actually state their name and the company that they represent for the benefits of those on the call, and, clearly those on the call to do the same. Thank you.
Hi there, Sam Perry from UBS. So in the outlook, you talk about volumes having the potential for double-digit growth. Just trying to pry a bit more on whether that's actually what you expect, trying to sort of square that with the expectation for a tough Q1. I think if you annualize volumes from this quarter, it'd be down 16% versus that target. So yeah, just your comments on that would be?
Yeah. So I think there's a couple of pieces to that answer. So the first one is, I think, you know, to a large extent, I believe in the industry, having spoken with customers, looking at the various reports that help us assess that, it looks like the inventory correction that has been taking place has lastly run its course. Point number one. I think that would apply to all sectors, really. Point number two is, when you look at the individual sectors that we serve, and we've seen the aerospace and the growth trajectory there, we're expecting that to continue. We see the growth that we've enjoyed in medical, we're expecting that to continue.
Automotive was flat in volumes last year, but we're seeing a pickup in run rates there, both on part on the behalf of the regular business, and clearly we're seeing some impact from the mega program contributions to that as well, on wire coatings and other things around battery applications. On electronics, that's probably the one that we're suffering during this year, where we might expect the greatest recovery, and that's on back of the assumptions that we see around chip manufacturing picking up again in 2024, where it was down double digits, mid double digits, probably, in 2023. Forecasted to be up about the same amount next year.
A part of electronics as well is mobile phone revenues and sales, which are down between 4% and 5% this year, expecting to grow at approximately the same rate next year. So you will see a positive contribution from electronics in the growth trajectory for next year, probably kicking in really from, let's say, the end of the first calendar quarter or so. This will also have an impact on the Value-Added Resellers, and as I indicated in my opening remarks, these are somewhat correlated because the VARs do have a substantial amount of their volumes going into that channel. So that will support a little bit of a recovery there as well. But on the VAR side, I think the inventory correction having taken place will probably be the biggest contributor to recovery on that side.
I think the biggest unknown yet is in energy and industrial. And that's where, as I said, companies have been really focused on cost conservation, pushing out maintenance projects, pushing out new CapEx projects. And I'm not sure, you know, when that's gonna be picking up again, and it probably takes an interest rate reduction, you know, in Europe and in the U.S. in particular, for that market to start picking up. Now, I notice that many analysts on the financial side are starting to pick or price in actually rate reductions in the various geographies, you know, from, let's say, the end of the first quarter or the second quarter next year and have started to sort of bracket that.
Whether the signal of that being about to happen is enough for stimulating CapEx demand there, I'm not sure, so that remains a question mark for us. But I think aero, auto, medical, a significant improvement on the electronic side, that forms the foundation of the thesis for us to say we're expecting volumes to return.
Thanks. And then I think in your opening remarks, you spoke about end market indicators improving. Is that through conversations with your customers and them saying that they are thinking about ordering more, or is that actually coming through in volumes?
We're not seeing it in volumes right now. It's much more in conversations with them as it relates to their specific requirements and specific demand profiles, but also looking at macroeconomic, economic indicators, the build rate for planes, the forecasted build rate for cars, the fact that electronics is forecasted to start growing again, particularly in semicon and handheld devices. It's those indicators that we are basing our assumptions on. It's a mixture of both publicly available data and private conversations with customers.
Thank you.
Hi, David Farrell from Jefferies. A couple of questions from me. In your presentation, you've got a lot of new targets in there, and also got the consolidation of the mega projects. You've got a renaming of the industrials division. How much of that is driven by the change of kind of commercial director into two MDs? And how much of that is kind of a reflection of investors trying to push you for a bit more kind of clarity on the business?
Well, first of all, you know, we look at it as our duty to provide as much clarity as we can get, so, but this change is not driven by that. No, I think, you know, with Martin's retirement, and we're gonna miss Martin, I will say that, and we thank him for his contributions. He's had a, you know, a fantastic set of 10 years with the company and contribute to a great degree in terms of its innovation agenda and the outcomes that we have seen in recent times. But it was an opportunity for us to sharpen the focus on both of these. So we decided that the growth opportunities in both of these areas are so significant that they deserve a more intense commercial focus.
And that's why we had to substitute Martin with two people, which obviously said a lot about Martin's capacity as well. But we wanted to make sure that we double down on the opportunities for growth. And if you look at, you know, what we have on the Sustainable Solution side, the progress on e-mobility, the structural aerospace bracket, Magma, along with all the other incremental small opportunities that constitute the core and we continue to nurture, this requires really innate focus and commercial drive. So that's why we've got a very seasoned and experienced individual to head that, with long-standing experience in performance polymers and highly engineered plastics. Actually worked for one of the VARs in the past and a number of other companies that are of relevance in this context, so we feel very fortunate to have landed Michael Koch.
And then on the medical side, if you look at what's about to happen there, where we expect to double our medical business in, in the five years timeframe on the back of increased penetration of existing applications, new applications that are coming up, and then particularly in the back of trauma in the early years and later in the horizon on knee, that's a significant scale of activity that requires in-depth focus, and that's why we, that's why we decided to split these two to make sure that they get proper attention. And sustainable solution is really sort of reflecting what our products do on the industrial side. We are an enabler for our customer and their customers to look for more, I would say, environmentally friendly solutions through light weighting and through other technology benefits.
Okay, thanks. And then my second question is around China. Can't help but notice that kind of commercial startup seems to have been pushed out from late 2023 into early 2024. Can you just kind of explain what's happened since May and the first volumes produced? Kind of the acceptance from the customers, any kind of issues that you faced, please? Yeah.
So two explanations to that. On one hand, we were a little bit late with the back end of our processes, and, we needed to solve some challenges around that. Secondly, our customers have been a little bit late as well in terms of setting up their manufacturing facilities. So we are now having essentially solved our technical challenges towards the end of the process, them having a fixed date now for their facilities to be operational. We are working on basically getting and qualifying what we are now producing on a regular basis for an ISO qualification for that to be able to be commercialized by the end of the second financial quarter.
Yes, thanks.
Hi, morning, it's Riya Kotecha from Bank of America. I've got three questions, please. First, can you talk about inventory management in FY 2024, 2025, and what that means for Victrex production volumes, given inventories increased by more than 50% year-on-year, and seems to be tracking ahead of your expectations. And if I strip out the price component from the ASP, the volume build looks in excess of 30%. So should we expect asset underutilization for the next two years? And then how do you think about the gross margin recovery beyond just 2024? My second question is on the working capital needs of the China plant. Do you think that plant needs extra inventory to support the ramp up?
My third question is on the moving parts of PBT into 2024, in light of gross margin erosion back to 2022 levels of 50%-51%, continued labor and SG&A inflation, but then offset by potential to recover volumes versus 2023. Are you comfortable with growing PBT back to the £85 million-£90 million level, given this margin headwind?
Good. Okay, let me make a start on that, Riya. Thank you. So, in terms of inventory management, yeah, a little bit higher than we were hoping for, mainly due to lower sales in the last quarter. But we have flagged that inventory would go up to the end of the year, and that's really for three reasons. One was, you know, from the start of the year, we talked about the recovery of raw material inventories, which were low at the start of the year. We needed to build ahead of some U.K. shutdowns that we've got going on right now in terms of improving our U.K. plant. And then the third piece on volumes was the shortfall of sales in the last part of the year. So we are focused on it.
Clearly, we're gonna see some underutilization this year, and that's led to the gross margin guidance you mentioned for this year. Going into next year, it will depend on the sales recovery, the speed and the scale of the volume recovery, but I would expect to see it better in 2025 than in 2024. So I would expect to see us on the track to improvement in 2025 in terms of gross margin based on asset utilization. We'll also start to see the benefit of lower raw material pricing start to flow through the inventory number as we go into 2025 as well.
So in terms of 2025, I think there is opportunity for improvement, and still in the medium term, I think mid to high 50%s on gross margin is realistic, once we get through this underutilization period. In terms of China, yeah, you've seen that we're talking about reducing inventory towards around GBP 100 million over two years. Part of the reason that'll take two years is there will be a small buildup in China. It shouldn't be too significant, because we are close to our raw material suppliers in China, so we don't need to hold a lot of raw materials in China. But inevitably, we've got both polymer and compounding facilities in China. Now, there will be some inventory associated with that. And then your last question on PBT.
Listen, I think you've got all the parts right in terms of how you described it. I would say we're confident that we can grow PBT this year, subject to the recovery in the second half. That, you know, does depend on the macroeconomic factors. So, you know, we need to see that volume recovery in the second half clearly. It's gonna be a bit of an inverse of last year, where the first half was stronger and the second half weaker. We're gonna see a stronger second half this year, subject to recovery, and that's where you'll see the profit growth.
Thanks. I have two follow-up questions, if you don't mind. So my first follow-up is on VAR. Where do you see steady state or normalized VAR volumes? Obviously, this division has seen a big step up in growth over 2021-2022, to about 1,900-2,000 tons, which seems to have coincided with a broader period of restocking. So is the expectation that that recovers to 2,000 or more like 1,400-1,500, which is closer to the 2018-2019 period?
I think, you know, using imprecise math, but if you look at the areas under the curve on the upside and the downside, and then you put that in the context of the historical profile as well, you're probably gonna end up somewhere in the middle there as a run rate or as a, I would say, as a base, if you wish. And then historically, this has sort of grown in line with GDP, more or less. So I think that's a fair base assumption when you're looking at that.
Thanks. My last one is on EVs. On slide 18, you said that you're now seeing a doubling of the PEEK potential to 200 gm. Just wondering, where is that increase coming from? What new components are you seeing that helps you get there?
Two different things that we need to be aware of here. I think when the automotive strategy was put forward, you know, quite a while ago, it was bracketed in the sense of saying the content, the average content in PEEK today is 8 gm per vehicle. And we're simply taking our volume of PEEK that went into the automotive industry, dividing it by the total number of cars produced globally. To, portray the opportunity at the time, there was an upper range calculated in the same way, saying that assuming a certain transition into the electric vehicle world, the opportunity would grow from where it is at 8 gm per car in the past, up to 100 gm per car in the future.
I think that average number and terminology absolutely holds, and, you know, we are well above probably 10 gm, you know, these days. What we mean by the 200 gm opportunity is to be specific about what the content would be on, roughly on average, in an electric motor, in a single electric motor right now. And if you look at what it takes to coat a wire in an 800 V motor, you are more or less around 200 gm per car. So that's, that's sort of the benchmarking figure that I think, you know, we should be using going forward. And then clearly, there will be a transition of some of the elements that we have in the ICE world into the EV world as well, you know, such as in braking parts, in actuators, and in some other kind of applications.
Plus, added to this would be opportunities associated with battery applications. But what we wanted to give an insight into is, you know, how many grams of PEEK go into an electric motor that is operating in the 800 V environment, and that's the 200 gm figure. But I think the total opportunity per vehicle is greater than that. But this should be helpful for benchmarking and making projections.
Morning, Kevin Fogarty from Numis. Two questions, if I could. The first is related to the medium-term target and specifically the contribution from the mega programs. I just wondered, is there anything you're seeing specifically, I guess, from, from customers that gives you that higher confidence of the mega programs delivering? Clearly, you know, they've always had a sort of medium-term potential, but now you're kind of framing it, I guess.
Yes.
So the confidence in that. And then secondly, in terms of capital allocation, you've talked about share buybacks and alternative uses of capital. Historically, you've had a reasonably mechanical process, in terms of special divs and to drive that. I just wondered how we should think about the thought process of where cash needs to get to, and maybe the thoughts around share buybacks over special divs.
Take the second one first?
Sure, can do. So yeah, just think about capital allocation. So we have had the, like you say, the mechanical process in the past. I think we've said for a special dividend, we still have that same scale. So if we have the same amount of cash that we talked about previously, for, you know, then we will return that amount of cash, likely using the special dividend. If we find ourself in a place where, you know, we're in between, we've got more cash than we need, but not enough for a special dividend, I think that's where the buybacks will come into effect. We can't really return the scale of cash that we can with the special dividend using a buyback, just given the liquidity in our stock.
So the buybacks will be used for more kind of opportunistic items in between, you know, opportunistic times in between, where we have some excess cash, where we see the right share price, then we'll, you know, we'll look to use buybacks in those kind of windows.
Okay.
On the first one, so we've bracketed sort of in the next two years' timeframe, so through FY 2025 and then the five-year target, and then we've made some comments on where we could see this in 10 years. If I speak about the near term, Kevin, then the near-term guidance is really based on our S&OP numbers, so integrated business planning process, which identify targets with customers on a timeline, which is basically factored into our whole operational planning, really. That's where e-mobility and trauma, in particular, in these next couple of years will have an impact, where there's a clear, sort of very tangible pathway towards growth.
It's on the back of these that we received, you know, the GBP 11 million revenue in the financial year that just passed, and we're expecting that to grow somewhere to GBP 25 million-GBP 35 million in that two-year timeframe. That'll be mainly on back of e-mobility and trauma. Magma will potentially contribute to that. It depends a little bit on how capital investment and setting up facilities in Brazil ultimately will go. But to then bracket that Magma opportunity, and I'll take the opportunity to do that. If we look at that, that field that was bid for metal pipes just recently, and intended for being bid on metal pipes recently, that was 70 km. A 16-inch pipe, hybrid flexible pipe, has around 8 tons of PEEK in it.
So I think that helps you bracket the size of opportunity once once that's commercial. And I want to take the opportunity to highlight as well, that within Magma, it is not just about new fields, it's a platform approach where probably the fastest and most logical pathway will be through maintenance projects and substitutions in the short term, you know, followed probably by specific fields in the longer term. So e-mobility and trauma in the short term, and then as we move out to the five-year horizon, Magma, structural aerospace and knee. And as we said, we're expecting to see a commercial knee on the market in the next tw o to three years and hopefully some good news flows as well from additional medical device companies signing up for the current year.
Great. That's helpful. Thank you.
Thank you. So if no further questions from the audience here, I think we'll switch it over to, to audience on the line, and if they could make sure to introduce themselves as well, that would be terrific.
Of course, sir. Thank you. Ladies and gentlemen, if you are dialed into the call and would like to ask a question, please press star and then one now. If you would like to remove yourself from the question queue, please press star and then two. Again, if you would like to ask a question, please press star and then one now. The first question we have comes from Aron Ceccarelli from Berenberg. Please go ahead.
Hello. You can hear me?
Yes, we can.
Hello. Hi. Yes, this is Aron Ceccarelli with, with Berenberg. I had three questions, actually. The first one is on the, midterm guidance. If I take the midpoint of your core growth at 6%, and if I take the midpoint of your guidance, including, Magma, so including the, mega programs of 9%, the delta on a cumulative basis on five years is around GBP 168 million, which translates on a GBP 34 million per annum. Considering the opportunities you mentioned just a moment ago, like Magma, structural, space, knee, but also e-mobility, it doesn't sound very demanding. So can you maybe unpack a little bit the assumption you, you made behind, this target, firstly? The second question is on pricing.
I think you have been a little bit slow on pricing at the beginning of the inflationary period, 2022. Pricing finally started to come through in 2023. So I was wondering how you see the opportunities for further price increase into 2024, in an environment where inflation starts to recede. And my final question was on Magma. It sounds a very reasonable product as an alternative also to metal, but are there any other potential products that can compete with PEEK here, which might have a much cheaper price? Thank you.
Let me just go to the first one.
Yep, yep.
I mean, yeah, so I'm following your math there, and I would say, you know, it's in line with our plans, right? We put that guidance out because that's what aligns with our plans internally. You'd probably expect us to take a little bit of a haircut from a best case scenario in giving guidance like this, and that's what we've done. So I think, you know, at the top end, including the mega programs, 10% growth, you know, would be a great result, and we, you know, we're driving towards that. We do think the mega programs will absolutely are contributing and will continue to contribute.
As Jakob talked about, it's really about trauma and e-mobility in the short term, with Magma and aerospace coming behind, and then knee probably the furthest away, but the biggest opportunity. So, I think there's a good balance across the mega program portfolio to drive that growth over a number of years. And that's informed the guidance that we've put out today. On the price increases in 2024, Jakob, do you want to comment on that one?
Yeah, I think, you know, with price increases going into 2024, I think, you know, we are seeing selling prices being comfortably, or rather, selling prices being comfortably above GBP 80 for the year. I don't think there is a scope for further increases if that was what you asked for right now, you know, given, you know, what's been happening on raw material prices in particular and, to some extent on energy. We shouldn't forget, though, that there has been inflationary pressures from salaries and the like. So I'm not necessarily expecting, you know, price increases going into 2024, given sort of the current situation of the key parameters that will be the determinants for that.
Then, you know, on Magma, you know, from what we gather and from the symptoms that we see from the parties that are working on this, I think it is clear that hybrid flexible pipe, based on PEEK, is by far the most advanced solution. And it is a solution to the issue at hand, which is stress corrosion cracking. And it is a solution that other materials, you know, apparently have not been able to able to solve. Now, that being said, you should never be complacent. You always need to be looking around, and only the paranoid survive. But from what we see, you know, I think, you know, we clearly have the front runner here in this solution, and we see that from all the technical results and comparators.
I think judging by the behaviors of the people involved, you know, that would substantiate that perception.
I might just add on pricing, Jakob. I do think we've learned over the last year or two some good pricing disciplines, and those will continue around making sure that people pay a higher price if they order a smaller quantity, or they're breaking up quantities, and that's costing us more in freight costs, for example. So we have, we've driven a lot of pricing discipline, particularly through the smaller tail of our customers, and I think, you know, we'll absolutely look to continue that into the coming years.
Aron, did this address your questions? I'm not sure we heard all of them clearly, but do you want to expand on them?
Yeah, yeah, that's fine. No, no, that's fine. Thank you very much.
Thank you.
Thank you.
Thank you. The next question we have comes from Martin Evans of HSBC. Please go ahead.
Yeah, morning. Thank you. Obviously, there's a lot of excitement about the longer term with all these new targets again. But can we just revert to this year, the year to September 2024, and the fact that you said you've already referred to a number of headwinds which you and other companies are facing. You also said your first quarter, I think was down on Q1 last year. The second quarter is only a few days away. So, you sort of implied you're happy with the consensus, or I think somebody mentioned GBP 85-GBP90. I think the consensus on your website is GBP 89, so that's 10% growth.
Surely, is there not a risk that you're in the same position as you were, I think it was this year or maybe even last year, or both, where you have to come back to the market again, sort of blaming the macro? Because it does put huge pressure on your second half to grow very strongly if you want to grow for the year as a whole, given the way the year has started, or am I missing something? Are you sufficiently confident about the order book for your second half that you think it'll more than offset the weak first three months of the year? Thanks.
Yeah, I think, we've been quite clear on the fact that, you know, we're not basing the growth year-over-year on performance in the first and the second quarter. As I said before, you know, aero is continuing on a growth trajectory. Medical is continuing on a good growth trajectory. Automotive is picking up run rates as well, and from what we're hearing from both the semicon side and the electronics side, as it relates to their outlook during the year. And when that demand will sort of show up at our end, that sort of informs our budget and our outlook for the second half of the year, resulting in the current guidance. But it is subject to these things happening and I think we've got a high confidence level in that right now.
We were not expecting a strong first quarter. We're not expecting a strong second quarter, but we would assume that we will start to see signs or further signs of the recovery as we progress into the next calendar year, Martin, and that underpins our guidance today.
Okay, thanks.
Absolutely.
Just another. Just a very quick follow-up just on China, because you've been talking about China for many years. You've been investing strategically, and you're approaching the end of the heavy CapEx in China, which must be a relief for you. Just remind us, how much money do you actually make? What's the profit coming out of China?
So we don't break out the profit specifically, but to put it in context for you right now, you know, if we look at the Sustainable Solution side, we have quadrupled our business in China since 2018, as an example, and that's volume-wise. On the medical side, we have actually done the same. So we have, that's going a little bit, that reference point is going a little bit further back. So for the medical piece, from mid-year 2017 through this year, we have quadrupled our business in China, revenue-wise. And the reference point that I mentioned on the sustainable solution side was volume-based. So we've quadrupled our volumes since mid-2018, roughly. So significant growth there and a lot of growth opportunities in the pipeline that, you know, we're building this infrastructure to support.
Okay, thank you very much.
Thank you.
Thank you, sir. There are no further questions on the conference line. I will now hand over to the management team for closing remarks.
So thank you all for, for coming today. I think, clearly, ourselves and the chemical industry have been through a tough time. We are not completely through it yet, although there's some small positive indicators in sight. I think we've got to keep in context the fact that we have stayed the course over what has been a tough period. We've invested in assets, people, and capabilities to meet demand when it picks up, but not just when regular demand picks up, also to meet the demands from the mega programs we've been nurturing for a substantial amount of time. We're now prepared and can speak with conviction to our customers, who very often source from us as a single supplier for some of the key technologies. And we can speak with conviction to them about our ability to meet demand, and that's key.
It takes conviction and good support from both shareholders and the board and the employees as well, to travel a tough valley, as we've been through in the last couple of years. But, I've said it before, and I'll say it again, we're incredibly well positioned to take advantage of macroeconomic conditions changing, and being ready to supply the market with our latest technologies and the programs that we've been working on for a long time. Thank you all for attending today, and I look forward to see you or talk to you at the end of the second quarter the latest. Thank you.