VICTREX PLC

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Transcript : Victrex plc, Q3 2022 Interim Management Statement Call, Jul 07, 2022

07/07/2022 | 09:30

Presentation Operator Message
Operator (Operator)

Good day, ladies and gentlemen, and welcome to the Victrex Q3 IMS conference call hosted by Chief Executive, Jakob Sigurdsson. [Operator Instructions] I'd like to remind everyone that this call is being recorded. I will now hand over to Jakob Sigurdsson to open the presentation. Please go ahead, sir.

Presenter Speech
Jakob Sigurdsson (Executives)

Thank you very much, and good morning, everybody, and welcome to Victrex's call for the Q3 interim management statement, which covers the period from the 1st of April through the 30th of June 2022. I'm Jakob Sigurdsson, I'm the CEO of Victrex. I'm pleased to have Andrew Hanson as well on this call, our IR Director; as well as Mike Ward, our Finance Director.

Additionally, with us on the call today is Ian Melling, who is our new CFO, and who just joined us earlier this week. Ian will not be answering questions at this stage given that he's only 4 days in the role, but he will be meeting with many of you later in the year, and we're really pleased to have him on board, particularly as we look to build on our good progress in Medical and aim to make Medical greater part of our mid- to long-term revenues.

I will first turn to the highlights of today's announcement, and I will cover the financial detail and followed by the outlook. We will then open up the call for Q&A towards the end.

So if we turn to the highlights, really pleased to say that Q3 has seen continuing strong growth with group revenues up 16% and group volume up 10%.

And in fact, it has been a record quarter for Victrex and continue to expect that this will be a record year for the company as it relates to volumes. And we note that the analyst consensus is currently showing just over 4,600 tonnes for FY 2022.

Importantly, we remain on track for full year expectations and our guidance is unchanged. As a reminder, you can see the analyst consensus on our website. PBT, pre-exceptional for FY '22 is sort of listed there, around GBP 95.4 million.

If we look at revenue and volume. So Q3 Group revenue was up 16% to GBP 93.4 million. Q3 2021 was GBP 80.7. Q3 Group volume was up 10% to 1,323 tonnes; Q3 2021 were 1,202 tonnes.

On a year-to-date basis, group revenue of GBP 253.5 million is 9% ahead of the prior year. 2021 year-to-date at GBP 231.6 million, with year-to-date Group volume of 3,586 tonnes, being 9% ahead of the prior year, where for the same period last year, we saw 3,289 tonnes.

A brief word on inflation, recovery and pricing before we look at the end market performance. I'd like to say a few words on that. Firstly, in Q3, we started to see benefits from price increases to help us set what is an unprecedented increase in energy and raw material costs in the first 9 months of the year. If you recall, what we talked about at the half year results back in May, customers have been seeing price increases within contract and this has been across all our end markets.

The timing of contract renewals meant that there has been a lack in recovering cost inflation via price increases. But it's good to see that this is coming through now. The second half is starting to see the run rate effect of price increases with full annualized effect of this coming through in FY 2023.

We're also mindful of the ongoing inflationary environment and we'll react accordingly should we need to.

It is worth noting that pricing improved across end markets compared to Q2 and the blended average selling price was up 2% versus the previous quarter and up 5% on the prior year, which includes the effect of currency, but despite mix and temporary impact of the China lockdowns that we saw late in the second quarter and extending into the third quarter. And that particularly had an impact on our Medical business in Q3.

Growth in Q3 was driven primarily by value-added resellers and electronics as well. Other industrials also had a strong performance. We continue to expect the benefit of price increases to come through during the remainder of the second half.

If we now turn to our end markets, value-added resellers, Electronics and Energy and Industrial continue to be the main growth drivers with double-digit improvement in Q3. Growth was held slightly back by Automotive, where performance continues to be variable, reflecting the ongoing semiconductor chip shortages in this industry. And obviously, the impact of the Ukraine crisis.

In Aerospace, [indiscernible] increases from the major manufacturers towards the end of 2022, and that should support continued recovery.

Within Medical, as I've already noted, despite a temporary headwind from COVID-19 lockdowns in China during the earlier part of Q3, we saw solid growth with performance being broad-based across Asia Pacific and the U.S. Medical piece of our business, which also improved during -- versus Q2 actually.

We also secured our first regulatory clearance in China for PEEK-OPTIMA HA Enhanced for spine to further support our commercialization efforts over there.

Maintaining our strong core business is our primary objective. But as you know, we have a very attractive and differentiated growth pipeline, large skew of products, which are sustainable and bring environmental and societal benefits as a part of our polymer and part strategy. These are mega programs and we continue to deliver good milestones on our pathway to greater commercial revenues. And if I touch on a couple of things there, we've made further strong progress in PEEK Knee clinical trials, with 22 patients having now received implants, 6 of them passing the 12-month stage with no intervention.

We're also closing in on a partner agreement with a top 5 Knee company.

On Trauma, our partner In2Bones have secured a 510(k) regulatory approval in the U.S. for Trauma plates based on our PEEK composite materials. And on e-mobility, following the recent new business wins, we are partnering with Jaguar Land Rover into other industry players in academia as a part of an innovation program to support work on materials for E-mobility applications in the U.K.

A quick word on our financial position. As you know, Victrex has a highly cash-generated business model with our cash position supporting the high CapEx this year, principally in our China manufacturing facilities with our new PEEK polymer facility to set to start commissioning during our final quarter of the year.

Cash at the year-end of -- at the end of Q3 was GBP 50 million, which excludes GBP 3.6 million cash ringfenced in China for that particular investment. CapEx for the year is now expected to be slightly lower than our previously -- the previous guidance would have indicated at approximately GBP 50 million, reflecting some expenditure phased into FY 2023. And we also have ERP system investment risk under accounting rules, has to be treated as an expense rather than being capitalized.

So this covers the main points of the announcement. So before we turn to Q&A, I'll have a few points on the outlook.

In summary, we're seeing a healthy core business right now with growth in new applications and further milestones in our Mega programs. We're also starting to see the benefits of price increases to help recover the unprecedented increase in energy and raw material costs. For the final financial quarter, our historic run rates typically see a slight step down during the final quarter. Our order book is still very robust. And overall, this is expected to be a record year of volume for Victrex.

However, we are mindful of uncertainty in the global economic outlook, and we do retain some counts in our outlook, particularly in end markets like Auto, which have been variable.

Overall, for FY 2022 as a whole, we remain on track for delivering full year expectations and our guidance is unchanged.

So at this point, I think it's appropriate to turn to Q&A.

Question and Answer Operator Message
Operator (Operator)

[Operator Instructions]

And our first question is coming from Alex Stewart.

Question
Alex Stewart (Analysts)

On the price increases that you're pushing through, could you give us some idea of what proportion of your contracts have reset at a higher price, just a rough gauge. Is it 10% or 60%?

And perhaps associated with that, are there any markets where you're seeing more or less resistance to those price increases? Would be very helpful.

Answer
Jakob Sigurdsson (Executives)

Yes, happy to do that. I think we are now probably through close to a significant majority of our contracts as it relates to price increases. There are sectors that tend to have longer-term price contracts than others, and that sort of prevails mainly to the Medical side. But I think we're through. I would say the lion's share of our contracts in terms of price increases. And on some, we may have gone more than once and sufficient to say, we're ready to go again towards the end of the year, should there be a need to do so.

As it relates to resistance to price increases, well I've yet to meet a customer that receives price increase with any pleasure.

But I don't think I can say that there is any difference in terms of the reactions to price increases by sector, if you wish. Sure enough price increases have been going through the industry for most polymer families to a different degree, depending on the nature of the technologies. But I don't think I can see any sort of patterns or symptoms across sectors as it relates to relative resistance to that.

Question and Answer Operator Message
Operator (Operator)

And the next question is coming from Andrew Stott.

Question
Andrew Stott (Analysts)

Andrew Stott, UBS. Thanks for the commentary so far. I just wanted to tackle a couple of smaller items, balance sheet and cash flow-wise. I think you said back in May, you thought that your inventory requirement would be somewhere between GBP 70 million and GBP 80 million. Does that still hold? I was just thinking of given what's going on with all the discussions on gas embargo risks. Do you want to actually build more inventory now in order to cope or are you fairly relaxed on that side of things? So that's the first question.

And the second one is much more straightforward. CapEx, GBP 50 million, not GBP 60 million. Do we just push the ten into the delta into FY '23? And can you remind me of what that would mean for FY '23 CapEx?

Answer
Jakob Sigurdsson (Executives)

Yes. So on the numbers specifically, I'll ask Mike to cover those. As it relates to strategy, Andrew, I think we have -- through COVID downturn, through COVID upturn, one of our key principles has been to ensure that we never leave our customers high and dry. We're well aware of what it means for them to have material to be able to be making critical parts and to meet their obligations. So we have sort of flexed the inventory policy to deal with that. And I think that's very much a part of our strategy going forward as well.

We will not let our customers sit high and dry, and we will flex our balance sheet to be able to cope with that. And that -- as we alluded to, I believe, in May, will probably lead to a slight inventory increase, both on raw materials and fine goods as we end this year compared to where we ended last year. And I think -- but that's probably an implication that we will see in global supply chains, definitely in the near future as many industries have been burned by all kinds of logistical and supply chain issues in recent quarters.

I'll let Mike comment on the number specifically, but the strategy for us is clear [indiscernible] our customers.

Question
Andrew Stott (Analysts)

Yes. And Jakob, sorry, just to be a bit more direct. Is there anything that concerns you about your ability to source raw materials in a gas embargo scenario? Or are you relaxed on that?

Answer
Jakob Sigurdsson (Executives)

We'll never relaxed. It was a good man who said, "Only the paranoid survive." I think it was Andy Grove. So you have always to be prepared and allowing a certain flexibility to react. And as soon as you start to relax, well, guess what, that's a recipe for not such a good outcome. But the -- it's fair to say, Alex -- Andrew, sorry, there is a number of things that need to be juggled in supply chains today. And I think we're actually doing it very well. But we're clearly mindful of all the potential curveball that could be coming our way and taking mitigating actions towards that, but there's never a time to relax.

Question
Andrew Stott (Analysts)

All right. But you haven't received any sort of red flags from suppliers at this stage?

Answer
Jakob Sigurdsson (Executives)

No.

Answer
Michael Ward (Executives)

Okay. Yes. So numbers-wise, Andrew, as Jakob said, we'd look to maintain a bit of it both sort of quantity wise and also acknowledging the inflationary price impact on the current value of inventory as well. We are likely to be at the top end of the range you noted, if not slightly higher by the end of the year.

I think on CapEx -- you also talked about CapEx in terms of guidance, we talked about sort of GBP 50 million for this year and probably [ GBP 70 million ] for next year in terms of how it phases at the moment.

That's right. And obviously, with some of the larger projects, you get lumpier payments that may see the shift between the years as we saw the last year, but across the 2 years, I think that's a reasonable guidance level.

Question and Answer Operator Message
Operator (Operator)

The next question is coming from Kevin Fogarty.

Question
Kevin Fogarty (Analysts)

It's Kevin Fogarty here from Numis. Just a couple of questions, if I could. Just back on the price increases, I think you previously sort of guided in terms of the kind of cost recovery you'd need. I think you guided a kind of price increase of 3% to 5% is kind of what you need. I mean it appears you're sort of tracking on that level given Q3, albeit some of that would reflect an FX, net impact in Q3. But I just wondered, the situation obviously remains reasonably volatile in terms of the cost backdrop. Has anything changed in terms of your assessment of the level of price increase you think you'll need going forward. So that's sort of first question, I guess.

And then just secondly, in terms of the kind of strategic progress you're pointing to in Knees and kind of imminent signing of a new partner there. I just wondered, does that sort of bring just kind of scale benefits, I guess, in these as you roll forward? And is it sort of complementary to what you've got already in need in terms of relationships. Just wondered if you could add a bit more color on that, please.

Answer
Jakob Sigurdsson (Executives)

Yes. Thanks, Kevin. Really good question. I think price increases going forward. I mean this is quite a dynamic there. And I think with what we have in the pipelines, we are well covered in terms of what we wanted to recover from the existing increases. Now that being said, as I think I stated in my outlook question, we're ready for further price increases should we need to. .

And I think that is probably something that businesses in general have to get used to. I think we might see inflationary pressures of various nature be with us for quite a while. Even if many are expecting that would be sort of -- or this sort of being a transitionary sort of inflation peak that we're going over right now.

I think given the many things that we are seeing around global economies, we and other businesses are well advised to prepare ourselves for an environment that could be characterized by inflation and inflation spikes for -- as a more regular thing in years to come than we've seen probably in the last 20 years.

So that implies we're going to be implementing greater flexibility in terms of how we contract our business, how we do our contracts to allow us to cope more rapidly with things that have actually in the past 10 to 15 years has been relatively stable, but I think we can expect being much more volatile going forward.

Now on the Knee side, this is and will be, I think, a significant validation point for us. And if you look at sort of major disruptive technologies in almost any kind of industry it's really the market leaders that embrace them from the outset. And there's a variety of reasons for that and it's been meters of literature written on it as well.

So this will be a major, I think, strategic validation for our concept. And I think we'll lead up -- we'll lead to a significant ramp-up in terms of our development activities as well to develop in tandem with our partners a specific line of Knees, if you wish, that meets their detailed requirements.

So that, I think, is the key thing. And the main driver here is the desire to be able to move towards metal string Knees, but also Knees, are likely to cause a lot less bone erosion than materials that have a higher modulus actually can result in. So this is a significant strategic milestone for us and a validation point, it will lead to a ramp-up in customer design specific activity.

And I think it also has the potential to bring up some of the material revenues for this opportunity for us as well, even if they're probably out there in the 2026, '27 time frame. But I think it's really, really acts as a strong validation of what we've been driving for a number of years right now.

Question and Answer Operator Message
Operator (Operator)

The next question is coming from Chetan Udeshi.

Question
Chetan Udeshi (Analysts)

Chetan from JPMorgan. I had a couple of questions. First, on price increase. I'm curious if you can provide us a like-for-like increase or if you sort of take into account or actually disregard any FX and mix benefits, if you were to say, on the -- of the same product, same currency basis. What was the price increase -- sorry price increase achieved already in Q3? That was the first question.

The second question is, given all the progress around Knee and Trauma like what -- when are we -- are we still talking about any material revenue in this sort of part of the business pipeline still more into '24, '25? Or is it sort of moving more into 2023.

And sorry, if I can squish one more. It's very interesting to see 10% volumes on a base of last year, which was quite high already. I was wondering if you usually have any visibility into how much of that is actually going into new applications versus older application. What I'm trying to get to is, again, especially with PAR, we've already seen that in the past. There's always this cycle of restocking, destocking, et cetera. I'm just trying to assess how much of this might be real versus just stocking benefit in the chain, et cetera.

Answer
Jakob Sigurdsson (Executives)

Yes. So let me start with the second and the third one. I'll leave Mike to comment on the pricing one.

So on Trauma. Trauma is clearly earlier in the cycle. So I think we'll start to see very meaningful revenue from Trauma in 2024 and potentially mid-single digits, and I'd say potentially in 2023, if everything goes according to plan. So Trauma is a bit ahead of the curve there. Me -- with the new contract, with the new JDA, we will start to see sort of qualification volumes going through, but that will only be, let's say, a few hundred Knees, let's say, a year for the next probably 2 or 3 years.

And we shouldn't expect to see commercial revenues there until probably 2026, 2027. So it's still a monotone to run here, but I think we've shown that we have the resilience to run that. And with this validation, as I spoke to before, of signing a JDA with 1 of the top 5 and that gives us even greater resilience and motivation to continue that run.

On this perennial question around growth and how it's comprised, you're absolutely right. This is an impressive growth on what was not an unsubstantial volume last year. And I think it shows the value of the core here.

Remember that only, let's say, 5, 7 years ago, a substantial part of our volume was attached to a single contract. That contract went away as expected. In the meantime, the business has still grown. And that void, if you wish, has been filled with a number of small niche opportunities across a number of different industries, where we have been finding new applications, small applications, niche applications that we've identified and nurtured into good business alongside with increased penetration into existing applications and grow up.

It is clear that a lot of the volume growth that we're seeing right now on the value-added reseller side is on the back of the excellent conditions in the semi-con industry and excellent -- I mean, and I'm referring to the added CapEx that is going into our industry and the great demand for chips as well. I mean fab spending was way above $100 billion last year in all corners of the world. And I think the value-added resellers, particularly stock share producers have seen the benefits of that. And we're seeing that through that.

And we also see it in our electronics business as well. So that is really fueled by good conditions in that industry.

As it relates to what inventory build and what's not, I think you're well aware of the fact, Chetan, that downstream from our value-added reseller who sometimes have a long supply chain that countries almost like a sponsor at times. Our immediate customers are still going flat out. Their sense is that there's not been much inventory correction yet, but I think everybody's belief is that we will see a point reach where things will reach a -- what can be defined as a more or a greater normal equilibrium. And we might be approaching that point.

Nonetheless, I think the growth prospects there are relatively healthy. Still being mindful of the notion out there that there might be an economic slowdown in some of the key industrial markets looming around the corner in the next 6 to 12 months.

On pricing, I'll hand it over to Mike.

Answer
Michael Ward (Executives)

Thank you, Jakob. Chetan, yes, you're right to point out that there's a number of factors at play within the year-on-year ASP numbers. As you'd expect, we're monitoring this very, very closely. And what we can say is that as the -- on the industrial side of the business, where the contracts tend to be shorter, we are seeing the benefits coming through we said there was a minimum increase of 3%. And in many cases, we're achieving more than that and seeing the benefit from that increasingly month-on-month.

Medical is where there's longer contracts. It's taking slightly longer to come through. That's only where we've renegotiated then the benefits of that is coming through an earnings forecast to come through on a progressive basis over the next 18 months or so in the Medical business.

So we're not kind of giving specific numbers in terms of the benefit in the quarter. But rest assured, we are seeing it on all the renewals that we have put in place already.

Question
Chetan Udeshi (Analysts)

Jakob, if I can follow up with 1 very simple question is within your Electronics business, which has actually become quite big now. Can you remind us what is the split today between semiconductor and consumer electronics and also which sort of consumer electronic devices are you most exposed to? What are you seeing size at that particular market has started to slow, if anything, even weakened year-on-year. So I'm just curious in terms of mix within electronics now.

Answer
Jakob Sigurdsson (Executives)

So semiconductor is probably getting close to half these days. And then on the appliances that we are exposed to, it is smart devices for sure. And that's where our recent developments on the film side have had a great year, actually. And we're also quite a bit in household appliances as well. You'll be well aware of vacuum cleaners, hair dryers, refrigerators and things like that, but semi-con is a substantial part of it and just short of half roughly these days.

Question and Answer Operator Message
Operator (Operator)

Next question is coming from Martin Evans.

Question
Martin Evans (Analysts)

Martin Evans, HSBC. Yes, just I guess, holding on from Chetan comments really big picture on demand Jakob because this visibility because in the past, whenever there's been a -- as you say, a sort of economic squeeze and economic slowdown, you tend to feed it or you tend to feel it very quickly. Visibility was anything from 24 hours to 1 or 2 weeks in some of your order books.

Obviously, there's a slight danger that we talk ourselves into recession and they say, I think that economists have forecast 20 of the last 5 recessions. So it may not happen. But do you think this round, and we are seeing weakness already in consumer electronics? How just the areas of construction is slowing.

So if your end markets, if your customer base begin to soften and therefore, order books weaken, do you think your portfolio is now broader or more defensive than it was before or because peak is obviously very expensive product, therefore, customers tend not to hold high inventories. And you also guarantee to deliver within 24 hours, do you think, again, the risk of a sudden shock in terms of volume data?

Answer
Jakob Sigurdsson (Executives)

Yes. Thanks, Martin. I mean it's kind of a curious situation in the markets today because on one hand, you see a certain upside in our cover there based on certain market indicators in the various sectors. But yet everybody is obviously worried about the impact of rate increases, interest rate increases, and the general inflation around the patch and the ultimate impact that might have on the consumer and they're buying patterns.

We are still cyclical business. Our portfolio, even if it is changing and even if I can see a significant change in the portfolio mix from the mid- to longer term on the back of Medical programs, whereby, we'll see a significantly different Victrex 10 years from now than we see actually at the moment. We are still a cyclical business, although we're doing a lot of things to reduce that cyclicality. But face the fact, we are still a cyclical business.

However, when you look at some of the indicators around, for instance, Auto, Aero and let's take electronics as well and Medical, you might be led to believe that there was still a certain upside there. And how on earth could I say that? Well, if you look out, the forecast for this year is just around GBP 80.4 million to be produced, which is flat year-on-year compared to 2021. And compared to passenger cars were back in 2018, they were at GBP 96 million. We all know that there is a significant backlog for new cars in all the major markets of this world. And the market is forecasted to grow between 8% and 9% in 2023.

So there appears to be an upside there still, but who knows what happens if rising interest rates and inflation start to significantly impact the backlogs. But it's difficult to see Auto gets much worse than this given where it's coming from and where it has been.

And then if you look at Aero, it's been sort of growing slowly from the trough of -- for around sort of early 2021, mid-2021. We're seeing airbus talking about being at close to 90% of pre-COVID built rates for their single-aisle planes by the end of this calendar year. Boeing is a little bit behind sort of working through their inventories of the MAXs in particular. But I think it's a reasonable assumption that we will see at least a better year there next year than we've seen this year and certainly than the year that we saw in 2021.

And then on electronics, and I touched on it briefly before. semi-con has been growing nicely this year, nothing 16-plus percent in 2022 forecasted. And next year, in excess of 5%. So that will bode well for electronics business.

And then look at smart devices within electronics. Yes, it's been actually 3 consecutive quarters of decline in smartphones. But I think the overall outlook there is expecting a recovery in 2023 as well. And we also know that on our side, the Medical piece, then we're not fully at pre-COVID levels, and we have been impacted by all kinds of different kinds of challenges as of late, the lockdown in China being the last one. So I think there's there should be an upside in Medical also.

So it's this dichotomy view where there are certain indicators in these markets that are looking very favorable. But at the same time, everybody seems to be quite concerned about the looming recession. And then to your point, you can easily talk yourself into it. I mean, in our case, we're just preparing the ship for being able to deal with that should it happen. And I think the ship is well prepared to actually sale if the model is like that.

Sorry, it was a bit of a long-winded answer, Martin, but I think it gives you a flavor for the dichotomy situation right now where business is very strong, certain indicators are very favorable, but everybody is worried about the impact of a potential recession.

Question
Martin Evans (Analysts)

Sure. That's very clear. Just in terms then roughly, I know it's difficult across the business. In terms of visibility, your order books that you can see ahead. Are you sort of -- have you got predicted revenue up until what? Looking at the end of August, possibly or even into September now? Or is it not that far advanced?

Answer
Jakob Sigurdsson (Executives)

Yes. I mean, what's happened, I think, through COVID, a number of the things that we have been working on with our customers is that our visibility is slightly longer. So we will have probably a higher volume on our books at the start of the month than we've ever had before. And the same thing applies to the length of it, but not seeing really further out in September and September order book is maybe currently at 1/3 of what we would expect the outturn for that month to be a that's higher than it used to be a few quarters ago.

Question and Answer Operator Message
Operator (Operator)

The next one is coming from David Farrell.

Question
David Richard Farrell (Analysts)

It's David Farrell from Jefferies. Apologies I had a few phone issues and cut out a few times. So if these questions have already been asked. I'll follow up later.

But two for me. Firstly, just in terms of the oil and gas Mega programs. I think there was a kind of major qualification process going on with Petrobras for rises this year. Can you give us an update on that?

And then my second question it's great to see kind of the progress being made in the Medical part of the business. Can you just remind us how important is the revenue mix between Medical and everything else and getting back to the 60% gross margins, please?

Answer
Jakob Sigurdsson (Executives)

Yes. Good morning, David. Happy to shed light on that. So on the Magma program, you are right. We are now in a phase that is characterized by 2 things, I would say, on one hand, qualification of various kinds of pipes, with various kinds of fittings and what have you. So that's ongoing right now, and that's a source of -- sort of relatively small but healthy volume at Magma.

The second piece there is clearly the preparation for Technip and our cells helping them with that to set up facilities in Brazil to be able to make the pipe on site. And that means both investing in facilities to exclude the pipe and facilities to laser well, the UD tape onto the pipe and then armor it as well post those processing steps. And I should point out, we are not investing in those capabilities, but we are assisting technique in so doing.

So that's the status of that, and we're expecting commercial revenue based on plans with Technip in the calendar year 2024.

In the meantime, we will see moderate revenues in single digits low single digits for both PEEK, polymer and UD tape that goes into making qualification pipes.

On the Medical side. Medical mix right now is lower than it has been in the recent past. And it's simply explained by the fact that industrial markets have recovered faster and stronger, and there's been a greater impact from COVID on elective surgeries mainly than there has been on industrial markets overall and potentially on some other Medical applications. So we're not really at pre-COVID levels yet even if we're approaching them.

So I think in the short term, we shouldn't expect Medical mix to improve. I think there's every reason to believe that. And as I alluded to in our comments before, it is our vision that in the medium to long term, Medical will be a much higher mix when you look at Victrex, mainly on the back of the opportunity that we see not just around our core business but also around the significant opportunities that are associated with both our technology in Trauma and in Knee in particular. Both of these are the opportunity to significantly change the pace of Victrex as we look to the next 5 to 10 years.

Question
David Richard Farrell (Analysts)

Sorry, just kind of follow on that. Is it possible to get back to the 60% gross margins with the revenue mix as it is now? Or do you need to see that mix actually change towards Medical?

Answer
Jakob Sigurdsson (Executives)

Well, I think there's a number of things that will happen here, but the answer is yes. We are aiming to get up to the mid-50s, mid- to high 50s, I should say, so close to 60%. And that is possible without a major impact from any of the mega programs, absolutely.

Question and Answer Operator Message
Operator (Operator)

There are no further questions in the queue. [Operator Instructions] There are no further questions on the conference line. I will hand now hand over to Jakob Sigurdsson for closing remarks.

Answer
Jakob Sigurdsson (Executives)

Excellent. So thanks, everybody, for attending the call and listening in, and thanks for your outstanding questions as well.

So in summary, we've got a very healthy core business with good growth in new applications and also further penetration into existing applications. And also some significant milestones that have been reached in our Mega programs and will be reached in the coming quarters as well further validating the value of that portfolio.

We're starting to see the benefit from the price increases, and you've seen them coming through in the numbers, and we'll see more of it as we go through the fourth quarter helping us recover the input inflation. I've discussed, very mindful of the uncertainty in the economic outlook. But the key thing here is what are you going to do about it and how are you going to action it should that happen as opposed to worrying about it. And I think we're well prepared to tackle that where that to happen.

Overall, let's keep in mind that we're coming off a record quarter here for Victrex. We're expecting it to be a record year for the company as well, and we are on track for full year expectations.

We will update you again at our full year results presentation, which will take place on the 6th of December.

In the meantime, stay well, and enjoy the summer, wherever you may be. Take care.

Question and Answer Operator Message
Operator (Operator)

Thank you so much, Jakob. Thank you, everyone. That marks the end of your conference call for today. You may now disconnect. Thank you very much for joining us and enjoy the rest of your day.

Answer
Jakob Sigurdsson (Executives)

Thank you.

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18/01
13/01
12/01
06/12