BRINGING TRANSFORMATIONAL & SUSTAINABLE SOLUTIONS THAT ADDRESS WORLD MATERIAL CHALLENGESEVERY DAY Victrex plc Annual Report 2022 ## ENABLING ## ENVIRONMENTAL & ## SOCIETAL BENEFITS ### VICTREX PLC ANNUAL REPORT 2022 ## WHO WE ARE: WE BRING ## TRANSFORMATIONAL & SUSTAINABLE ## SOLUTIONS THAT ADDRESS WORLD ## MATERIAL CHALLENGES EVERY DAY ### Victrex is an innovative world leader inhighe world leader in high ### performance polymer solutions,focusedce polymer solutions, focused ### onthe strategic maon the strategic markets of Automotive, ### Aerospace, Energy & Industrial, Electronics ### and Medical. Every day, millions of people ### rely on sustainable products and applications ### which contain our polymers and materials, ### from smartphones, aeroplanes and carstotphones, aeroplanes and cars to ### energy production and medical devices. ### With over 40years’ experience, we developWith over 40 years’ experience, we develop ### world leading solutions in PEEK andPK and PAEK ### based polymers, and selected semi-finished ### and finished parts which shape future ### performance for our customers and ### markets, enable environmental and ### societal benefits, anddrive vals, and drive value ### for our shareholders. Visit www.victrexplc.com orscan with your QR codereader to visit ourGroup website ### Record revenue & volume; solid underlying PBT growth, STRATEGICREPORT ### despite cost headwinds & currency 1 Highlights 2 Victrex at a glance FINANCIAL HIGHLIGHTS 4 2030 Sustainability Vision | Group sales volume | Group revenue £m | Underlying profit | | | | --- | --- | --- | --- | --- | | | | | 1 | 6 Chair’s statement | | tonnes | | before tax | £m | | 8 Our investment case ## 4,727 +8% 341.0 +11% 95.6 +4% 10 Our markets and megatrends 22 4,727 22 341.0 22 95.6 12 Our business model 14 Strategy 21 4,373 21 306.3 21 91.7 16 Overview of strategy 20 3,492 20 266.0 20 75.5 20 Stakeholder engagement 24 Strategy and key performance indicators Reported profit Reported earnings Dividend per share p 26 Financial review beforetax £m pershare p (regular & special dividends) 30 Chief Commercial Officer’s report ## 87.7 -5% 87.6 +4% 59.56 flat (regular) 34 Risk 41 Going concern and viability statement 22 87.7 59.56 22 87.6 22 44 Sustainability report 21 92.5 21 84.3 21 59.56 50.00 CORPORATEGOVERNANCE 20 63.5 20 62.6 20 46.14 76 Introduction from the Chair Regular dividend 78 Board of Directors Special dividend 80 Statement of corporate governance 94 Nominations Committee report HIGHLIGHTS: 97 Audit Committee report Strong core growth; revenue up 11%, volume up 8% & better pricing 104 Directors’ remuneration report u Double-digit growth in Electronics, Energy & Industrial, Value Added Resellers (‘VAR’) 128 Directors’ report – other u Aerospace improving; Semiconductor challenges impacting Automotive statutoryinformation u Continued progress in Medical, revenue +14% 132 Statement of Directors’ responsibilities u Improved pricing in H2 (H2 2022: ASP up 4% vs H1 & FY 2022 ASP up 3%) in respect of the Annual Report and the financial statements Solid underlying PBT growth, up 4% & 12% in constant currency, 133 Independent auditors’ report to the offset by cost inflation members of Victrex plc u Underlying profit before tax (‘PBT’) up 4% at £95.6m & up 12% in constant currency u Reported PBT £87.7m, reflecting year one ERP investment (exceptional items of £7.9m) Gross profit up 6% to £174.5m, despite significantly higher cost of manufacture FINANCIAL STATEMENTS u u Gross margin impacted by lag in inflation recovery & currency, despite efficiency gains 140 Consolidated income statement u Continuing action to mitigate inflation 141 Consolidated statement ofcomprehensiveincome Strong progress in ‘mega-programme’ growth pipeline 142 Balance sheets Medical: 143 Cash flow statements u PEEK Knee clinical trial well progressed, 30 implants & 12 patients >12 months New development relationship with top five Knee company Aesculap 144 Consolidated statement u ofchangesinequity u First implants for In2Bones Trauma plates based on Victrex™ PEEK 145 Company statement Industrial: ofchangesinequity u New business wins in E-mobility 146 Notes to the financial statements u 1st prototype parts in Aerospace Structures; potential for 10-fold PEEK content increase u Continuing support to TechnipFMC for Magma, with new scale-up facility in Brazil SHAREHOLDER INFORMATION Further progress on ESG: enabling environmental & societal benefits 185 Five-year financial summary u 100% renewable electricity at all UK sites Initial Scope 3 assessment completed, with opportunities identified 186 Cautionary note regarding u # forward-looking statements u Sustainable products represent 48% of Group revenues 187 Notice of Annual GeneralMeeting Solid cash generation underpins growth investment & returns 192 Explanatory notes 1 u FY 2022 available cash of £66.0m*, post-payment of FY 2021 special dividend 197 Appendix to Notice of u Commissioning underway for new PEEK facility in China AnnualGeneralMeeting u Final dividend of 46.14p/share; total FY 2022 dividends 59.56p/share 199 Financial calendar 1 Alternative performance measures are defined in note 25. 200 Advisors * Excludes £2.8m of cash ring-fenced in the Group’s Chinese subsidiaries and includes £10.1min95-daynoticedeposit accounts. # Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace (supporting CO 2 reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g.windand renewable energy applications) and Electronics (supporting energy efficiency, e.g.home appliances). Volumes from Oil & Gas are excluded, as are Value Added Resellers volumescurrently, due to the lack of full clarity on exact end-market destinations. Annual Report 2022 Victrex plc 1 STRATEGIC REPORT ## Victrex at a glance ## OUR ## STRATEGIC To bring ## ROADMAP transformational and sustainable solutions that address world material challenges every day  Read more on page 12 ## PURPOSE ## STRATEGIC IMPERATIVES Drive Differentiate Create and deliver Driving results Underpin Working together Passion  Read more Doing the right thing on page 18 Innovation Continuously improving Performance Focusing on our customers  Read more on page 72  Read more on page 90 ## VALUES BEHAVIOURS ## A SUSTAINABLE BUSINESS Our sustainable products Maximise resource efficiency Enhance inclusion and diversity, provideclear environmental acrossthe value chain supportlocal communities and andsocietal benefits inspire STEM based careers  Read more on page 44  Read more on page 44  Read more on page 44 ## CULTURE Safety, Service for Delivering sustainability & Innovation customers with speed accountability 2 Victrex plc Annual Report 2022 STRATEGIC REPORT ## OUR STRATEGY: POLYMER & PARTS ### Victrex’s strategy is based on Polymer & Parts. We have a strong core polymer business, based ### on PEEK & PAEK polymers, which have formed the basis of Victrex’s business since its foundation ### in 1993. Alongside our core polymer business, we seek to grow new revenue streams through ### adeveloping portfolio of product forms and parts (our mega-programmes). Across our portfolio, ### our sustainable products enable environmental & societal benefits for our customers and the ### planet (see page 10). With UK headquarters and technical support facilities across the world, ### wehave global reach for our customers. ## 4,727 ## 48% ## 1,000+ c.5%–6% ## tonnes of our employees of sales invested revenues from Record sales volume ## globally # inR&D sustainable products and revenue in FY 2022 ### Victrex solutions are found across a range of applications and end markets. ### Aerospace Energy & Industrial ## 20,000+ 75m+ aircraft flying with Victrexsolutions VICTREX™ PEEK seal rings in use today ### Automotive ## 100m+ machines operate using Victrex solutions ## 500m+ VICTREX™ PEEK applications in cars ### Electronics Medical ## 4bn+ 15m+ mobile devices using Aptiv™ film implanted medical devices TM using VICTREX PEEK Note: Source data available on request. # Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace (supporting CO 2 reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and renewable energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are Value Added Resellers volumes currently, due to the lack of full clarity on exact end market destinations. Sustainable products currently represent 48% of Group revenues. ## The Group targets 5–6% of Group revenues to be spent on R&D expenditure being a leading indicator of the Group’s ability to innovate into new applications, supporting future growth. Annual Report 2022 Victrex plc 3 STRATEGIC REPORT ## 2030 Sustainability Vision ## HOW OUR PRODUCTS ENABLE ## ENVIRONMENTAL & SOCIETAL BENEFITS ### Supporting CO reduction, improving energy efficiency and better patient outcomes 2 ### arejustsome of the benefits our products bring, with approximately half of our revenues # ### nowcoming from sustainable products . ### Electronics ### Automotive ## 40% lighter ## 80,000 tonnes ### 80,000 tonne annual CO saving in Europe Supporting improved energy efficiency 2 ### for selected applications* inhomeappliance devices ### Medical ## 25% improved ## brain function ### Aerospace TM ### Using PEEK-OPTIMA Natural in CMF skull plates ### vsmetal*** ## CO saving ## 2 ### Our annual sales to Aerospace support ## Enhanced ### CO savings 3x Victrex’s annual 2 ### Scope 1 & 2 emissions** ## unionrate ### Using carbon fibre PEEK trauma plate vs 85% union ### rate for steel plates**** * Based on European annual mileage for passenger cars using selected applications including vacuum pumps. ** Based on 10kg of PEEK replacement for metal, IATA carbon reduction & climate change 2018. *** 25% improved brain function based onpaperby Zhang Q, Yuan Y, Li X, et al, World Neurosurgeon 2018. **** Data on file, refers to Trauma outcomes in high risk patients using PEEK carbon fibre trauma plates vs metal. # Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace (supporting CO 2 reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and renewable energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are ValueAdded Resellers volumes currently, due to the lack of full clarity on exact end market destinations. Sustainable products currently represent 48%of Group revenues. 4 Victrex plc Annual Report 2022 STRATEGIC REPORT ## OUR OPTIONS ## TOWARDS NET ZERO ### In 2020, we established our Net Zero aspiration for 2030 ### for our own operations (Scope 1 & 2 emissions). Potential future Continuous Renewable Alternative Alternative Carbon Residual emissions Improvement electricity fuels for technologies offsetting emissions (with no programmes heating intervention) e) 2 Annual GHG emissions (tonnes of CO ### OPTIONS TO SUPPORT CARBON REDUCTION  Sustainability report Pages 44 to 74 | | With a Continuous Improvement (‘CI’) team in | | A key focus area will be the use ofalternative | | --- | --- | --- | --- | | | place, we continue to assess opportunities across | | process technology or alternative fuels to reduce | | 1. | our resource efficiency area that haven’t already | 3. | GHG emissions. For example, wehave been | | | been implemented. These include in recycling, | | lobbying for the opportunity to gain access to | | Improvement | energy usage, waste and water. Several | Alternative | hydrogen through proposed grids within the UK, | | programmes | improvement programmes have already delivered | fuels & | including those planned in the North West of | | | ongoing benefits, with examples including our | | England, close to our main polymer | ### technologies | water usage per unit of revenue decreasing by | manufacturing centre, and we are | | --- | --- | | 5% in the prior five years and waste per unit of | alsoconsidering greater electrification of our | | revenue decreasing by 48% since we first set | manufacturing assets. We have increased the | | reduction goals back in 2013. | capital required in our capital expenditure plans | to support process change or alternative fuel use (whilst noting the increased operating expense of alternative fuels). We are also allocating Victrex has made strong progress, with an asmall but growing proportion of R&D aspiration of using 100% renewable electricity investment in support of alternative processes. ## 2. from all of our global sites by the end of 2024. Currently, 100% of electricity for our UK sites is ### Renewable from renewable sources, with 97% globally. This ### electricity is partly in the form of Renewable Certificates, with our own solar generation, which we have the opportunity to expand. We note that with the current significant inflation in energy costs, | and the premium already existing in the market | | Whilst Victrex will consider the opportunities | | --- | --- | --- | | for renewable procured electricity, the cost to | | from carbon offsetting, we currently view this | | Victrex of continuing to purchase renewable | 4. | asa very small part of our pathway, with the | | energy will only increase on a medium-term | | biggest potential for change coming from | | view. Our energy usage is approximately 50/50 | Carbon | alternative fuels & technologies. | between gas and electricity for UK sites, with ### offsetting annual energy usage (globally) of 171,362MWh in FY 2022. Annual Report 2022 Victrex plc 5 STRATEGIC REPORT ## Chair’s statement A record year for Revenue from sustainable revenue &volume products by 2030 ## +11% +8% >70% ### Revenue Sales volume (from c.50% today) ### Our purpose is to bring transformational and sustainable solutions ### to the performance challenges faced by our customers, and our ### products increasingly come with environmental, technical or medical ### benefits. I believe this makes Victrex well placed for the future. Dr Vivienne Cox DBE Chair ## ENABLING ENVIRONMENTAL ## & SOCIETAL BENEFITS | Introduction | Safety is fundamental | emissions. Weare working on options to | | --- | --- | --- | | It is a great privilege to have been appointed | Across Victrex, safety is fundamental to | achieve that aspiration – in our UK | | in February 2022 to succeed Larry Pentz as | everything we do. I am pleased to report | manufacturing sites we use100% | | your Chair and with a strong purpose and | another year of progress – following a | renewable electricity, and are working with | | sustainability at the heart of our business | reduction in recordable injuries during the | other industries around the option of | | model – including products which enable | prior year – and we continue to be aligned | hydrogen for our plants. We continue to | | environmental and societal benefits for our | to US Occupational Safety & Health | examine capital investment opportunities | | customers, and clear long-term goals to | Administration (‘OSHA’) based metrics, with | that will allow us to reduce our emissions | | minimise our use of resources – I look | our recordable injury frequency rate (‘RIFR’) | over time. | | forward to updating shareholders on our | improving to 0.2 (FY 2021: 0.7), better | | We have again increased the disclosures in progress over the coming years. thanthe OSHA industry average of 1.4. our Sustainability report (pages 44 to 74), Ouraspiration is for a zero accidents, Our innovative culture and our strategy including our TCFD disclosure, a better zeroincidents culture, with a number of ofPolymer & Parts – with a core polymer understanding of our Scope 3 emissions and employee campaigns supporting this goal. business, complemented by our parts the ‘full’ carbon footprint of our products. business to either prove new opportunities Pleasingly, we have also gained further ### Sustainability accreditations, with an improved A rating or sell into medical applications – puts us Most of the products that PEEK polymer goes from MSCI – one of the benchmarks for ESG ina good position for the years ahead. into are replacing metal and we work across ratings – and are included in FTSE Russell’s Wehave a strong and diverse portfolio of end markets and with customers to deliver Green Revenues Index for sustainable growth opportunities; the key will be how performance benefits against incumbent products. Apple has also included us in we accelerate delivery, particularly in end materials. These include lightweighting, itsClean Energy Supplierprogramme. markets such as Medical. Recognising this, improved heat resistance or mechanical we are investing to increase the proportion strength, faster processing and better ### of revenues from high value Medical Strategy energy efficiency. Our products enable applications, supporting earnings stability. Our Polymer & Parts strategy differentiates environmental & societal benefits, with one Alongside this, we will continue to develop us from our competitors. Over 80% of example being if all new or replacement our core business to generate revenue growth. Group revenue comes from the sale of single aisle planes were built using 50% | Most of our parts-based ‘mega-programmes’ | | | corepolymer materials, with a differentiated | | --- | --- | --- | --- | | | PEEK composites, 53 million tonnes of CO | 2 | | | are at an early stage of commercialisation, | | | offering which is built on much more than | could be saved over the next 15 years. but offer significant potential going forward. having the capability to manufacture. In Medical, our products support better Withstrong technical service, application I would like to thank Larry for supporting a patient outcomes in Spine, Trauma, development and regulatory capabilities, smooth transition. Victrex is a unique and Arthroscopy and emerging applications wehave high levels of innovation to support highly innovative Group, with a global and suchas Cardio (artificial heart) and Knee. our customers. Every year, we invest 5–6% talented workforce. Our financial position Sustainable products are nearly 50% of of revenue in Research & Development. remains strong, with high levels of cash Group revenues, close to our 2025 goal Moving downstream into new finished and generation and sector leading returns, (withan additional goal of 70% of revenues semi-finished products (‘parts’) is allowing allowing us to invest to supportgrowth. from sustainable products by 2030). us to move into new end user applications. We currently have seven mega-programmes, In 2020, we set out our sustainability goals which support development of new markets for the 10 years to 2030, including an for our polymers, for example our PEEK aspiration ofNet Zero for our Scope 1 & 2 Knee opportunity, where we estimate there 6 Victrex plc Annual Report 2022 ### is an addressable market of around $1bn, Dividends Victrex also seeks to inspire the next STRATEGIC REPORT | andwhere we are making good progress | With the recent high levels of capital | generation of employees and has | | --- | --- | --- | | through clinical trials. We also secured a | expenditure expected to peak during FY | long-standing support for Science, | | new collaboration with Aesculap, a top five | 2023, we have been engaging with | Technology, Engineering & Maths (‘STEM’) | | Knee company. We are also investing in | shareholders to assess feedback on | subjects, including working with schools in | | China, with a new PEEK manufacturing | incremental shareholder returns, whether | the UK and seeking to build this programme | | facility, supporting geographic growth. | that bethrough special dividends or share | at global level. The aim is to help those | | | buybacks. We anticipate implementing an | considering careers built on science and | Delivery of our strategy will create value for updated capital allocation policy during the innovation and we now have 52 STEM our customers and shareholders alike, and, year and our intention will be to continue Ambassadors. We also have a long-standing indoing so, enable environmental & societal growing the regular dividend, whilst apprenticeship programme, with 63 benefits from our sustainable products. maintaining dividend cover around 2x, apprentices currently supporting us in alongside the potential for incremental avariety ofroles. ### Results shareholder returns. | Following the solid recovery post-pandemic | | | All of our stakeholders remain important | | --- | --- | --- | --- | | that the Group delivered in FY 2021, I am | For FY 2022, with basic earnings per share | | tous, from customers, to investors, to | | pleased to report a record year for revenue | up 4%, the Group is proposing to maintain | | suppliers and, of course, local communities | | and volume, with Group revenue of £341.0m | the final dividend at 46.14p/share (FY 2021: | | wherever we operate. Employee volunteering | | up 11% on the prior year (FY 2021: £306.3m) | 46.14p/share). Total regular dividends for the | | is embedded in our culture, with 4,784 | | and Group volume of 4,727 tonnes up 8% | year will be 59.56p/share (FY 2021: 59.56p/ | | employee hours supporting local communities | | (FY 2021: 4,373 tonnes), underlining the | share). Dividend cover is at 1.5x (FY 2021: | | this year (FY 2021: 3,559 hours), putting us | | | | 1 | well on track for our target of 10,000 hours | | strong demand for applications using our | 1.4x), with underlying dividend cover | at | | | high performance materials, across a diverse | 1.6x (FY 2021: 1.4x). No special dividend | | by 2030. Investment in our employees is also | | set of end markets. Whilst reported profit | was declared for FY 2022. | | important, with support for external awards | | before tax (PBT) was down due to exceptional | | | and additional qualifications. A number of | | items relating to our new ERP system, | | | networks in support of our DE&I agenda are | ### Governance and the Board underlying PBT was up 4% to £95.6m also working well, including a Gender Governance is strong across the Group. (FY2021: £91.7m), impacted by the higher Engagement Network (‘GEN’) and Strategic During the year, we formed the Corporate cost of manufacture, as the significant and Inclusion Group (‘SIG’), with further detail Responsibility Committee (‘CRC’), chaired unprecedented energy and raw material on pages 44 to 74 of the byJane Toogood, who brings a wealth of inflation impacted our business. Underlying Sustainabilityreport. experience in sustainability. This Committee PBT was up 12% in constant currency, will have oversight of our sustainability goals Brendan Connolly acts as our Workforce 1 withunderlying EPS up 14% to 95.0p and progress towards them. It will also have Engagement Non-executive Director and (FY2021: 83.4p). a focus on Diversity, Equity & Inclusion hasbeen active in engaging with employees | | (‘DE&I’). We are targeting 40% of the | across our global locations during the year. | | --- | --- | --- | | Investment for growth | leadership group to be female by 2030. | A summary of his work is shown on pages | | We continue to invest to underpin our | There has been good progress this year to | 92 and 93. Overall, our values of Passion, | | future growth, whether that is in Research | 19% (from 10% last year), but more needs | Innovation and Performance and our highly | | &Development capability, in downstream | to be done. | innovative culture have helped us as an | | manufacturing facilities, or in partnerships | | organisation through recent years, with | It has been a privilege to Chair the Board and alliances to drive forward our growth resilience and optimism for the years ahead. during the year. We have a talented and opportunities. At the end of FY 2022, Our culture ofinnovation, service for diverse team, with 44% of Directors being wecommenced commissioning of a new customers and delivering with speed female, including our Senior Independent PEEK manufacturing facility in China, which underpinned by safety and accountability Director. In July, Ian Melling joined the Board will underpin our future growth in that iscentral to our ability to commercialise as our Chief Financial Officer (‘CFO’), to region and is aligned to the Made in China ourfuture opportunities and sustain succeed Richard Armitage. Ian joins from 2025 initiative by the Chinese government. Victrexinto the future. Smith & Nephew, the medical devices The facility is expected to deliver commercial company, and we are delighted he has product towards the end of FY 2023, ### joined the Company. Outlook eventually having 1,500 tonnes of PEEK Overall, we have seen a steady start to the andPAEK nameplate capacity, expanding year and are focused on modest revenue ### People, stakeholders, our portfolioof grades and complementing and profit growth. This includes the benefit ### our sales and technical centre presence that values&culture from pricing, an improved sales mix and already exists within China. This investment On behalf of the Board I would like to thank currency tailwinds. We will also see further formed the bulk of our capital expenditure each and every one of Victrex’s employees investment in our long-term growth for the year of £45.5m (FY 2021: £41.9m). for their continued contribution. After a programmes, as they progress towards challenging period with the pandemic, we greater commercialisation. saw a full Return to Site during FY 2022, ### Solid cash generation with all of our global locations now active, Victrex continues to operate a highly balanced by our flexible working policy. cash-generative business model, which Dr Vivienne Cox DBE With a good trading performance again, supports investment for growth and Chair ouremployees will share in our All-Employee appropriate returns to shareholders. With 6 December 2022 Bonus Scheme, an important tool in retention agood trading performance, yet higher andrecruitment. Reflecting the current cost capital expenditure, the Group’s available of living challenges, we have also provided closing cash balance reached £66.0m this targeted support to our employees. | year (FY 2021: £99.9m). Operating cash | | 1 Alternative performance measures are defined | | --- | --- | --- | | | 1 | in note 25. | | conversion | was 49% (FY2021: 100%). | | Annual Report 2022 Victrex plc 7 STRATEGIC REPORT ## Our investment case ## OUR LONG-TERM ## GROWTHCREDENTIALS ### By enabling environmental & societal benefits for our customers and the planet, ### we arealigned to global megatrends, which in turn support our long-term ### growth opportunities, underpinned by our strong financial position. ### An innovative world leader: Sustainable product goals ### building the PEEK/PAEK market ## No.1 >70% ### PEEK expert Group revenue from sustainable products with ### environmental and societal benefits by 2030 ### (from 48% today)  Read more online www.victrexplc.com  Financial review Pages 26 to 29 ### Proportion of project-based R&D investment Strong pipeline of medium to ### to support sustainable products long-termgrowth opportunities ## 89% 7 ### (proportion of project-based R&D expenditure mega-programmes ### tosupport sustainable products as a proportion 2 ### oftheGroup’s project-based R&D expenditure )  Our markets and megatrends Pages 10 and 11  Our markets and megatrends Pages 10 and 11 ### Sector leading returns Highly cash-generative ### businessmodel ## c.17% £66.0m 1 ### 5-year average return on capital available cash 1 ### employed(‘ROCE’)  Our business model Pages 12 and 13  Financial review Pages 26 to 29 1 Alternative performance measures are defined in note 25. 2 From FY2023 we will measure against total R&D expenditure. 8 Victrex plc Annual Report 2022 STRATEGIC REPORT ## DELIVERING OUR ## GROWTHOPPORTUNITIES ### Developed in the Victrex’s high performance polymers are found ### 1970s under ICI, PEEK across a number of end markets & applications ### & PAEK polymers ### offer a unique ### combination of ### properties, including ### lightweighting. From Victrex’s foundations in1993 and less than 40 employees and £25m revenue, ## we have grown to a 1,000+ 40,000 ## to 10,000 employee global business, with feet above the sea… annual revenues now >£300m. feet below PEEK is found in many mission- critical applications, replacing metal and helping to bring environmental & societal benefits, including supporting CO 2 reduction and clinical benefit. The success of Victrex today, and into the future, is applying our sustainable products to different end markets and enabling long-term performance benefits for our customers and society. | 1. | | 2. | | 3. | | 4. | | | --- | --- | --- | --- | --- | --- | --- | --- | | Sustainable | | High levels | | Global capability | | Medical acceleration | | | products bringing | | ofinnovation | | | | opportunity | | | | | | | | u Over 1,000 employees | | | | environmental & | | | | | globally | | | | | | | u A culture of innovation, | | | | u Increase proportion of Medical | | societal benefits | | | with5–6% of Group | | | | as a % of Group revenue | | | | | | | u Manufacturing & technical | | | | | | | revenueinvested in Research | | | | (potential for >1/3 of Group | | | u Aspiration of Net Zero | | | | centres in UK, US, China | | | | | | | &Development | | | | revenue from Medical) | | | Carbon emissions in our own | | | | andJapan | | | operations (Scope 1 & 2), u A strong & growing core u Leverage our IP & clinical u Partnerships with global with an additional Scope 3 business of existing and data to further expand academia, particularly in aspiration anticipated, in line newapplications (polymer keyMedical partnerships theUK with our SBTi commitment &product forms) u Investment in innovation u Sales & customer service u Sustainable products support u A long-term growth pipeline andcapability environmental & societal centres in UK, US, Europe of seven potentially benefits across our end andAsia Expand revenue from u game-changing mega- markets, including CO 2 PEEKinnew clinical programmes (parts) including reduction in Aerospace applications including PEEK Knee and E-mobility, &Automotive, with Ortho(Knee & Trauma), with new business wins in c.60%weight saving vs Cardio (artificial heart) metalapplications, and E-mobility during FY 2022, andDrug Delivery devices clinical benefit in many and initial revenues from Medicaldevices prototype Aerospace Composite parts for the aircraft of tomorrow Annual Report 2022 Victrex plc 9 STRATEGIC REPORT ## Our markets and megatrends ## SIZEABLE AND SUSTAINABLE ## GROWTHOPPORTUNITIES ### With long-term megatrends in our favour and sustainable products, we have ### astrong and diverse mix of growth opportunities across our key markets. END MARKETS MARKET OPPORTUNITY MEGATRENDS CONSEQUENCES OUR CHALLENGES AND OPPORTUNITIES ### Fly lighter Weight, cost reduction Lightweight metal replacement new passenger and u Lighter weight and CO reduction trends andfuel efficiency u VICTREX™ PEEK helps Aerospace lightweighting 2 | | freight aircraft by 2040 | withmore efficient manufacturing using | | viametal replacement and is a key part of driving | | --- | --- | --- | --- | --- | | 39,000 | | | u Weight, cost reduction and improved | | | | | PEEK, PAEK and composites mean fuel | | improved fuel efficiency and reduced emissions. | fuel efficiency are primary strategic saving– a strategic imperative for the Source: Airbus. drivers for the Aerospace industry. Our composite materials can also provide more u Aerospace industry. efficient manufacturing. u Opportunities to support reduction of OEM backlogs through more efficient processing. ## Aerospace ### CO reduction, durability Emissions reduction Lightweight metal replacement 2 | | PEEK/car average (increase from current 10g | andelectrification | | | designchallenges | | u VICTREX™ PEEK enables lightweighting and | | --- | --- | --- | --- | --- | --- | --- | --- | | | over long term (Victrex internal aspiration)) | | | | | | reliability via metal replacement in a range of | | >100g | | | Fuel efficiency, CO | reduction, safety and | | u Energy efficiency, comfort, heat | | | | | | u | 2 | | | | applications, particularly powertrain. reliability improvements resulting from resistance and durability are primary consumer and regulatory trends. Transition strategic imperatives forthe u ABS braking systems, gears and transmission systems from internal combustion engines (‘ICE’) to Automotiveindustry. are key application areas. New business wins in next electric vehicles (‘EVs’) as electrification is generation EVs support medium-term growth mandated in many regions. opportunities, including wire coatings, battery applications and e-motor. ## Automotive ### Thinner, smaller, smarter Energy and thermal High durability, thinfilmtechnology INDUSTRIALMEDICAL | | internet of tomorrow devices by 2025 | The need for instant access to | managementbenefits | | Victrex materials, such as PEEK resin, PEEK blends | | --- | --- | --- | --- | --- | --- | | | | u | | | u | | | | communication and information onthe | | | and our Aptiv™ acoustic film technology create | | 21bn+ | | | | u Increased functionality and | | | | | move is driving trends for mobile devices. | | | design opportunities by virtue of their durability in | miniaturisation create challenges for today’s thinner, smaller, smarter mobile devices. Source: Norton. mobile device performance as well as PEEK also has long-standing application in materials that can handle energy and ## Electronics Semiconductor processing. thermal management. | | | Energy transition | | Increased performance | | Traditional and new energy | | | --- | --- | --- | --- | --- | --- | --- | --- | | | global increase every year in | | u Increasing demand for and depletion of | requirements | | | u Oil & Gas operations are enabled using VICTREX™ | | | annual energy needs by 2040 | | existing resources drive exploration into | | | | PEEK based solutions in exploration and production | | 1% | | | | | u Deeper, hotter, higher pressure and | | | | | | | uncharted territory, as well as the | | | | tooling, pumps and valves. Significant opportunity | chemically aggressive wells must TM energytransition and opportunities for Magma composite pipe (based on VICTREX Source: IEA. betapped to reach new reserves, inrenewable energy. PEEK and composite tape) to reduce installation requiring more durable materials. costs through lightweight pipe solution. u More efficient manufacturing processes u Renewable energy applications create more data and connectivity u Emerging opportunities in wind, carbon capture requiremore demanding materials requirements in Industrial end markets. &storage (composite pipe) and hydrogen. todeliver performance. u Tailored solutions for Industrial markets, including u Evaluation of higher performance ## Energy & VICTREX™ PEEK FG, a food grade polymer. materials in manufacturing, including ## Industrial inthe food industry. | | | Ageing global population | | Better patient outcomes | | High performance solutions | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Vision to treat a patient with Invibio | | u People are living longer and have a strong | | u Extended life expectancy and long-term | providing societal benefits | | | | solutions every 15–20 seconds by 2027 | | desire to maintain their quality oflife and | | demand for new solutions in core | | | | 15–20 | | | | | | | u Invibio provides solutions for the Medical market | | | | | activity levelsin their later years, requiring | | markets, such as Spine and Arthroscopy. | | | | | (Victrex internal aspiration) | | | | | | that can be used in a minimally invasive manner, | | | | | better patient outcomes. | | Increasing alternatives being sought to | | | helping to enhance clinical benefits. With over metal in markets such as Knee, Trauma 15million patients having PEEK medical implants, and Dental. our solutions are in early commercialisation for Dental, Trauma and Knee (clinical trial), with ## Medical emerging areas such as Cardio and Drug Delivery. 10 Victrex plc Annual Report 2022 Visit www.victrexplc.com to seehow we are STRATEGIC REPORT shaping future performance in our markets END MARKETS MARKET OPPORTUNITY MEGATRENDS CONSEQUENCES OUR CHALLENGES AND OPPORTUNITIES | | Fly lighter | | | Weight, cost reduction | | Lightweight metal replacement | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | u Lighter weight and CO | 2 reduction trends | andfuel efficiency | | | u VICTREX™ PEEK helps Aerospace lightweighting | | | | withmore efficient manufacturing using | | | | | viametal replacement and is a key part of driving | | 39,000 | | | | | u Weight, cost reduction and improved | | | | | | PEEK, PAEK and composites mean fuel | | | | | improved fuel efficiency and reduced emissions. | fuel efficiency are primary strategic saving– a strategic imperative for the Source: Airbus. drivers for the Aerospace industry. Our composite materials can also provide more u Aerospace industry. efficient manufacturing. u Opportunities to support reduction of OEM backlogs through more efficient processing. ## Aerospace ### CO reduction, durability Emissions reduction Lightweight metal replacement 2 ### andelectrification designchallenges u VICTREX™ PEEK enables lightweighting and reliability via metal replacement in a range of ## >100g Fuel efficiency, CO reduction, safety and u Energy efficiency, comfort, heat u 2 applications, particularly powertrain. reliability improvements resulting from resistance and durability are primary consumer and regulatory trends. Transition strategic imperatives forthe u ABS braking systems, gears and transmission systems from internal combustion engines (‘ICE’) to Automotiveindustry. are key application areas. New business wins in next electric vehicles (‘EVs’) as electrification is generation EVs support medium-term growth mandated in many regions. opportunities, including wire coatings, battery applications and e-motor. ## Automotive | | Thinner, smaller, smarter | | Energy and thermal | | High durability, thinfilmtechnology | | | --- | --- | --- | --- | --- | --- | --- | | | | u The need for instant access to | managementbenefits | | | u Victrex materials, such as PEEK resin, PEEK blends | | | | communication and information onthe | | | | and our Aptiv™ acoustic film technology create | | 21bn+ | | | | u Increased functionality and | | | | | | move is driving trends for mobile devices. | | | | design opportunities by virtue of their durability in | miniaturisation create challenges for today’s thinner, smaller, smarter mobile devices. Source: Norton. mobile device performance as well as PEEK also has long-standing application in materials that can handle energy and ## Electronics Semiconductor processing. thermal management. | | Energy transition | | Increased performance | | Traditional and new energy | | | --- | --- | --- | --- | --- | --- | --- | | | | u Increasing demand for and depletion of | requirements | | | u Oil & Gas operations are enabled using VICTREX™ | | | | existing resources drive exploration into | | | | PEEK based solutions in exploration and production | | 1% | | | | u Deeper, hotter, higher pressure and | | | | | | uncharted territory, as well as the | | | | tooling, pumps and valves. Significant opportunity | chemically aggressive wells must TM energytransition and opportunities for Magma composite pipe (based on VICTREX Source: IEA. betapped to reach new reserves, inrenewable energy. PEEK and composite tape) to reduce installation requiring more durable materials. costs through lightweight pipe solution. u More efficient manufacturing processes u Renewable energy applications create more data and connectivity u Emerging opportunities in wind, carbon capture requiremore demanding materials requirements in Industrial end markets. &storage (composite pipe) and hydrogen. todeliver performance. u Tailored solutions for Industrial markets, including u Evaluation of higher performance ## Energy & VICTREX™ PEEK FG, a food grade polymer. materials in manufacturing, including ## Industrial inthe food industry. | | Ageing global population | | Better patient outcomes | | High performance solutions | | | --- | --- | --- | --- | --- | --- | --- | | | | u People are living longer and have a strong | | u Extended life expectancy and long-term | providing societal benefits | | | | | desire to maintain their quality oflife and | | demand for new solutions in core | | | | 15–20 | | | | | | u Invibio provides solutions for the Medical market | | | | activity levelsin their later years, requiring | | markets, such as Spine and Arthroscopy. | | | that can be used in a minimally invasive manner, better patient outcomes. Increasing alternatives being sought to helping to enhance clinical benefits. With over metal in markets such as Knee, Trauma 15million patients having PEEK medical implants, and Dental. our solutions are in early commercialisation for Dental, Trauma and Knee (clinical trial), with ## Medical emerging areas such as Cardio and Drug Delivery. Annual Report 2022 Victrex plc 11 STRATEGIC REPORT ## HOW WE CREATE VALUE ## Our business model ## FROM OUR POLYMER ## &PARTS STRATEGY ### WHO WE ARE WHAT WE DO Victrex was formed in 1993 following a management buy-out ### from ICI, with our main PEEK & 1. A sustainable business model PAEK polymers having their roots in the 1970s when the product was developed. Today. we partner with customers in 40 countries, We enable environmental & societal benefits for our customers and with a culture of innovation being theplanet. Oursustainable products offer a unique combination part of everything we do. Every ofproperties, supporting CO 2 reduction in Aerospace & Automotive day, millions of people rely on through lightweighting and faster processing, and with over 15 million applications which contain our PEEK implants in medical devices, we also support improved patient sustainable products and outcomes. With our 2030 ESG goals, including Carbon Net Zero in materials, from smartphones, Scope 1 & 2, weseek to minimise our use of resources, with the aeroplanes and cars, to energy opportunity to utilise process change or alternative fuels to support production and medical devices. our environmentalgoals. ### 2. Align to global megatrends We identify megatrends such as CO 2 reduction or health benefits, where our polymers can offer a performance advantage vs metal or incumbent materials. We identify andunderstand customer needs, targeting industries andapplications with opportunities for significant growth ### Shaping future performance andattractive returns. Our Polymer & Parts strategy sees usdevelop and manufacture a range of high performance PAEK & PEEK polymers which offer sustainable performance benefits, typically replacing metal in applications, many ### 3. Innovation of which are ‘mission-critical’. Our sustainable products offer benefits such as lightweighting, recyclability, durability, chemical resistance, faster Our culture is built on continual innovation, with a focus processing and enhanced clinical solely onPEEK/PAEK and the high performance materials outcomes, with a focus on bringing area,beyondsimply manufacturing polymers. We have a environmental & societal benefits in high level of technical capability, with investment in Research everything we do. &Development representingc.5–6% of revenue, and we work withacademia and partners to bring new and enhanced products toour customers and our end markets. ### Key to strategy Drive core business ### UN Sustainable Development Goals (‘SDGs’) Differentiate through innovation Our Business Model and Sustainability Strategy is aligned to Create and deliver the UN’s Sustainable Development Goals 2030, including a future value Carbon Net Zero goal for Scope 1 & 2 emissions, and an expected Scope 3 goal to come, ensuring alignment with Underpin through the Science Based Targets initiative (‘SBTi’). safety, sustainability and capability ## A SUSTAINABLE BUSINESS ## WITHSUSTAINABLE PRODUCTS 12 Victrex plc Annual Report 2022 STRATEGIC REPORT ### SUPPORTED BY HOW WE CREATE VALUE | 4. Manufacturing differentiation | OUR PEOPLE | For customers | | --- | --- | --- | | | &CAPABILITY | By partnering with customers in the | | | Over 1,000 talented | development of new applications, we | | | employees wake up every | bring superior products that deliver | | Our Polymer & Parts strategy and unique | | long-term performance benefits vs | day focusing on PEEK and manufacturing process (Type 1 PEEK) differentiates incumbent materials. partnering with us from competitors, with >200 patents in place or customers to bring  Read more on pages 9 to 11 pending, and know-how helping us to manufacture environmental & societal the widest range of PEEK grades, including Type 2 benefits through our PEEK. Safety is our highest priority, with efficient and sustainable products. ### well-invested assets. For employees Investing in skills, apprenticeships and ### We have invested in downstream manufacturing OUR SUPPLIERS training brings significant opportunity capability, to make selected ‘parts’ within ### & PARTNERS for development as part of our Polymer Automotive, Aerospace, Energy & Industrial and We are the only PEEK & Parts strategy. Performance-based Medical, underpinning the opportunity for our manufacturer with reward drives a strong retention rate. ‘mega-programmes’, each of which offers the upstream integration into potential of >£50m peak revenue opportunity.  Read more on pages 66 to 71 key raw materials, supporting security of supply for customers. ### For investors Continued innovation and delivering ### 5. Capital, cost and cash generation performance benefits for our customers drive strong returns and cash generation to invest and support shareholder returns. Our strong financial profile enables us to invest in  Read more on page 8 capital expenditure or in support of our Polymer & Parts strategy. Cost efficiency is key, with a focus on operating efficiency, supporting margin and returns. ### With high value products, we seek to retain a strong For communities financial position, generating cash to support further Engagement with our local communities investment and shareholder returns. enables us to partner on a wide range of social responsibility programmes.  Read more on pages 66 to 71 ### 6. Sales, marketing and ### For society & the planet ### technical service Our purpose is to bring transformational & sustainable solutions, with products which can support environmental Our Sales & Technical Service teams ensure we can or societal benefits. support customers with validation and certification in critical applications. We have strong regulatory &  Read more on pages 20 and 21 quality teams, partnering with customers or processors in development of new applications, helping to drive adoption of our materials. Annual Report 2022 Victrex plc 13 STRATEGIC REPORT ## Strategy ## POLYMER ### 3. Create and deliver… u Selected product forms (semi-finished) u Downstream manufacturing u Pipes, film andcomposites ### 1. Drive core business | u PEEK & PAEK polymers | | --- | | u Application development | | u No.1 upstream | manufacturing capacity of7,150 tonnes (nameplatecapacity) u Cost efficiency u Sustainability & productivity ### 2. Differentiate ### through innovation u Core application development pipeline u Invent and develop newgrades u Increasedifferentiation ## A SUSTAINABLE BUSINESS 14 Victrex plc Annual Report 2022 ## & PARTS STRATEGIC REPORT ### AEROSPACE ### …future value u Selected parts (semi-finished and finished) ### AUTOMOTIVE u Downstream manufacturing 1 u Deliver mega-programmes u Polymer to parts ### MEDICAL ### ENERGY & INDUSTRIAL ### ELECTRONICS ### 4. Underpin u Safety, health and wellbeing u Sustainable business with sustainable products u Talent strategy u Strong financial position 1 Pipeline programmes offering >£50mannual revenue potential inpeak sales year. ## WITH SUSTAINABLE PRODUCTS Annual Report 2022 Victrex plc 15 STRATEGIC REPORT ## Overview of strategy Align with our purpose: grow revenues Potential of of over 1/3 of revenues from sustainableproducts from Medical in 10 years ## 70% >1/ 3 (target of 70% sustainable products revenue by 2030) (current Medical revenue <20% of Group revenue) ### With our products aligned to long-term megatrends of CO 2 ### reduction, energy efficiency and improving patient outcomes, ### weare enabling environmental & societal benefits for our ### customers and the planet, and creating long-term growth ### opportunities forour business. Jakob Sigurdsson Chief Executive Officer ## POLYMER & PARTS: THE RIGHT ## STRATEGYTO ENABLE ENVIRONMENTAL ## &SOCIETAL BENEFITS | Dear shareholders, | Progress in FY 2022 | Metal replacement remains the majority | | | --- | --- | --- | --- | | With sustainability at the heart of our | With a record year for revenue and volume, | ofour addressable market. As the highest | | | business model and long-standing | Victrex is starting to reap the fruits of our | performing polymer available, PEEK offers | | | credentials through our products which | Polymer & Parts strategy and the innovation | opportunities for CO | 2 reduction with lighter | | offer up to 60% lightweighting compared | over recent years that has yielded a strong and | parts, biocompatibility, faster manufacturing, | | | tometal, faster and more energy efficient | growing core business, together with further | durability, waste reduction, recyclability, | | | processing, or products which support | commercialisation in our mega-programmes. | dielectric properties, chemical and wear | | | enhanced patient outcomes, we are closely | | resistance or other performance benefits. | | Whilst we face current challenges of aligned with enabling and supporting the unprecedented energy and raw material In summary, Polymer & Parts is about environmental & societal needs of our inflation, the Group remains well positioned catalysing adoption of PAEK/PEEK and customers into the future. Our recent carbon to grow over the medium to longer term, related technology, and capturing increased footprint assessment – our Lifecycle Analysis with a number of key attributes, including value from each application opportunity, for TM of Victrex PEEK – also has favourable our high levels of innovation, our technical example not only by supplying polymer, but indicators against the average for PEEK support to customers, an unrivalled range by developing selected product forms and manufacturers, supporting our credentials. | | | | ofpolymer grades, and our desire to move | parts which can replace metal and offer | | --- | --- | --- | --- | --- | | Only recently, through our 2030 Sustainability | | | downstream in selected end markets | atotal solution to our customers. | | Vision and goals, have we started to see a | | | (Polymer & Parts), to capture greater revenue | | | greater recognition and understanding of | | | and margin streams, as well as further | Long-term opportunities | | the role our products can play in the society | | | differentiating our business from competitors. | Whilst we can celebrate FY 2022 with | | of the future. With new business in electric | | | All of our activities are underpinned by | recordrevenue and volume, we do need | | vehicles, the potential for over 100g/PEEK | | | safety, which is fundamental to Victrex | tofocus onmid-term improvement to our | | per vehicle compared to 10g average today | | | andour highest priority. | margin and returns. That is one of the | | is real. In Aerospace, our products are | | | | reasons why we are focusing on how we | | replacing metal, helping to support fuel | | | Our strategy: Polymer & Parts | can potentially accelerate adoption of our | | efficiency and CO | | 2 reduction, with annual | Moving into manufacturing selected ‘parts’ | Medical opportunities, particularly those | | sales to Aerospace helping save three times | | | is a way to deliver a proof of concept and | in‘parts’ such as Trauma and Knee, the | | the CO | 2 produced in our own operations. | | develop markets and applications which | former of which is gaining good early | | Our solutions in Medical are also proven | | | drive greater adoption of PEEK polymer | commercialisation and the latter making | | tobring clinical benefits. Our goal is to | | | technology. As we note in our purpose, | good progress in clinical trials. Medical could | | increase the proportion of revenues from | | | sustainability is embedded in our business | potentially be over onethird of revenues in | | sustainable solutions (products which enable | | | model, and is not just how we seek to | 10 years (from <20% today), reflected by | | environmental & societal benefits, including | | | reduce our own carbon footprint, it is | significant addressable markets, with Knee | | Medical), to over 50% of revenues by 2025 | | | focused on how our high performance | alone being a potentially $1bn opportunity. | | and 70% by 2030, from under 50% today. | | | polymers can have a positive impact on | This and our other mega-programmes | | | | | thereduction of environmental footprint | (seven in total) offer the opportunity of at | | | | | inany given industry, and bring patient | least £50m+ revenue in their peak sales year | | | | | benefits as they relate to our medical products. | and the potential to change the profile of | | 16 | Victrex plc Annual Report 2022 | | | | ### the Group over the longer term, whilst ‘parts’ making up the remainder, with the Safety, values & culture STRATEGIC REPORT growing our core polymer business, opportunity to grow the latter over the The safety, health and wellbeing of our including geographic expansion, with yearsahead. employees is fundamental to our success thenew manufacturing facility in China and remains our highest priority. Having We are also differentiated not only in our duetobe operational inFY2023. aligned to the US Occupational Safety & polymer manufacturing process, but by Health Administration (‘OSHA’) criteria last Whilst the delivery of our range of growth being backward integrated into key year, we were pleased to deliver further opportunities requires high levels of monomers, where we expect to invest in our improvement in our safety performance. Our innovation, I am pleased that after five years UK monomer assets over the medium term, recordable injury rate of 0.2 (FY 2021: 0.7) is as Chief Executive, we have not only grown to enable us to provide security of supply now at a record low and remains better than our revenues and application areas within our toour customers. Finally, a new facility in the OSHA industry average of 1.4. Our SHE core business, but have started to gain good China, focused on Type 2 PEEK to extend strategy is for a zero accidents and zero early commercialisation for many of our our range of polymer grades, enables us to incidents culture and it has been very clear mega-programmes which are parts-based underpin the significant growth available in to me that our values of Passion, Innovation applications that Victrex will either manufacture that region over the longer term. and Performance have helped us as or partner to deliver. In short, our core Investment to differentiate our strategy individuals, as a team and as an organisation. business remains strong, helping bridge continues, particularly in innovation, towards greater commercialisation ofour Our culture is built on innovation and including Research & Development (‘R&D’), mega-programmes in parts. collaboration. It was therefore good to see where we are investing approximately 5–6% afull Return to Site in FY 2022 across our Beyond our Medical programmes, progress of revenues every year – well ahead of global locations – supported by our Global this year also included support for the Magma manycompetitors – including the majority Flexible Working policy. Our flexibility opportunity in Energy, where Victrex has ofproject-based R&D being for enables us to build and further enhance intellectual property for manufacturing sustainableproducts. ourglobal talent base, yielding us a high composite pipe and tape, rather than just performing team that has service for ### supplying polymer. Our main customer in Sustainability customers and delivering with speed and this area, TechnipFMC, is gearing up a new Within our own manufacturing operations, asense of urgency as key pillars in facility in Brazil to tap into deep water oil & we have been assessing the options towards commercialising our future growth gas where PEEK will not only make materials Net Zero (Scope 1 & 2 emissions), which opportunities. Diversity, Equity & Inclusion lighter and with lower carbon footprint, but includes alternative process technology, (‘DE&I’) is also a key focus for us, with willoffer the potential of more efficient fuels or further electrification, with long-term goals across this area. | deployment costs. We also secured new | approximately 50/50 gas and electricity | | | --- | --- | --- | | business wins in E-mobility within | usage in our UK assets. | Wherever we operate, the resilience | | Automotive, whilst in Aerospace, Airbus | | ofVictrex’s team is a huge asset for our | During the year we were accredited by exhibited its first large scale demonstrator business and delivering our strategy. Apple as part of its Clean Energy Supplier parts that our materials are embedded in, Wealsoensure a strong consideration programme, whilst we saw improvement in offering lightweight and CO 2 reducing forstakeholders, through community our recognition by ESG rating agencies. solutions for next generation aircraft. volunteering, with over 4,784 employee MSCI, one of the leading rating agencies, hours committed to local communities rated Victrex as A. We also continue to be ### Differentiation vs competitors during theyear. accredited by FTSE Russell’s Green Revenues Whilst Victrex’s unique manufacturing Index for our sustainable products, whilst ### process (Type 1 PEEK) and our backward Moving forward with our strategy 100% of our UK electricity needs are now integration into key monomers demonstrates Overall, our progress continues in our from renewable sources. the unique properties of our products, we Polymer & Parts strategy, not just through continue to strive to further differentiate our arecord year for our core polymer business, ### Delivering for shareholders business. We are doing this in several ways. but with several ‘green shoots’ turning into Victrex has a history of investing to underpin Firstly, in our core polymer business, technical commercial revenues for our emerging parts future growth and whilst growth investment service to customers as well as the broadest business. Although a number of areas need remains the priority, our strong financial range of polymer grades keeps us well to improve, including margin and operating position and highly cash-generative business placed across end markets. Secondly, our efficiency, our 1,000+ employees continue model offers opportunities for good returns emerging parts business offers significant towake up every day focused on making over the coming years. This includes both opportunities to deliver future end market adifference to our customers and our regular dividends and also the opportunity requirements in specific applications, markets through PEEK and PAEK, and of additional returns, whether special typically where no supply chain or capability enabling environmental & societal benefits dividends or share buybacks – which we are exists, but where there is an opportunity through our products and strong currently engaging with shareholders on. tosolve a problem for our customers. sustainability credentials. Our cash position also supports our ability Moving ‘downstream’ into manufacturing The Strategic report on pages 1 to 74 was toinvest, with £66.0m available cash at selected parts increases risk – particularly in approved by the Board and signed on its theend of FY 2022, despite a high capital the likes of Medical – but we seek to address behalf by the Chief Executive Officer. expenditure year focused on completion this through enhanced skills and capability, ofour China PEEK facility. protecting our intellectual property (‘IP’) | through patents or know-how, or in | Jakob Sigurdsson | | --- | --- | | regulatory support and our contracting | Chief Executive Officer | | terms. We are also working with partners | 6 December 2022 | and enhancing quality control, which will help to de-risk these opportunities. At the end of FY 2022, nearly 80% ofrevenue was from polymer, with ‘product forms’ and Annual Report 2022 Victrex plc 17 STRATEGIC REPORT ## Overview of strategy continued ## OUR STRATEGIC IMPERATIVES ## 1 2 ## DRIVE DIFFERENTIATE CORE BUSINESS THROUGH INNOVATION u Execute on key growth programmes in five u Market-led innovation strategicmarkets u Investment in R&D u Drive growth in emerging geographies u Move further downstream: new applications, new forms, u Continuous improvement, cost efficiency & sustainability new materials and new product launches at the core of everything we do Strategic highlights in 2022 Strategic highlights in 2022 u FY revenue growth of 11% and volume growth +8% u 5% of sales invested in R&D including 89% of project-based R&D supporting sustainable products (to be measured u 48% of Group revenue from sustainable products which against total R&D expenditure from FY 2023) enable environmental & societal benefits u Prototype revenue for Aerospace Structural Composites, u Medical revenues up 14%, greater commercialisation of supplying Airbus several areas: Drug Delivery, Cardio u Support for TechnipFMC in scale up of Brazil facility forcomposite pipe programme ## A SUSTAINABLE BUSINESS ## WITHSUSTAINABLE PRODUCTS 18 Victrex plc Annual Report 2022 STRATEGIC REPORT ## 3 4 ## UNDERPIN ## CREATE & DELIVER THROUGH SAFETY, FUTURE VALUE SUSTAINABILITY ANDCAPABILITY u Strong new product pipeline u Safety, health and wellbeing u M&A/JVs and partnerships u Sustainable business with sustainable products; embedclimate change agenda u Downstream manufacturing capability u Talent strategy u Drive adoption: ‘burden of proof’ Strategic highlights in 2022 Strategic highlights in 2022 u Strong progress in clinical trial for PEEK Knee; 30 patients u OSHA recordable injury rate 0.2 (down 71% from implanted, including 12 patients post-12-month stage; 0.7&86% lower than OSHA industry average of 1.4) firstTrauma plate implants as part of In2Bones partnership u 4,784 employee hours supporting local communities u E-mobility: new business wins for next generation electric u Progress in Sustainability Strategy including 100% vehicle applications renewable electricity at all UK sites u Commissioning commenced for new China PEEK manufacturing facility Annual Report 2022 Victrex plc 19 STRATEGIC REPORT ## Stakeholder engagement ## KEY STAKEHOLDERS ## ANDHOWWEENGAGE STAKEHOLDER FOCUS AREAS HOW WE ENGAGE ENGAGEMENT OUTCOMES ### Why we engage Employees u Safety focus u Zero accidents & zero incidents safety campaigns u Improving safety performance since FY 2020 With sustainable products, we enable Innovative culture and employee survey 63 employees on Victrex apprenticeships u u environmental & societal benefits for our Sustainability embedded in our businessmodel u Global staff briefings (quarterly) 890 Professional Development Awards & 60 CEO Awards stakeholders, as well as offering recyclability u u and‘Keepintouch’sessions | through our polymers, and minimising | u Highly motivated and talented employees | | u Establishment of DE&I workshops and forums, including Gender | | --- | --- | --- | --- | | resources through own operations (reflected | | u ‘Ask Jakob’ and other intranet forums | Engagement Network & Strategic Inclusion Group | | | u High retention rate and appropriatereward | | | | in our Carbon Net Zero (Scope 1 & 2 | | u Development and succession planning | Pay rises and cost of living support (targeted employee grades) | | | u High level of share ownership | | u | | emissions) aspiration by 2030). As a | | Performance-based reward | | | | | u | u Annual roadshow for Workforce Engagement Non-executive Director | | | u Diversity, Equity & Inclusion (‘DE&I’) agenda | | | sustainable business with sustainable u STEM activities supporting tomorrow’s talent delivered to understand ‘employee voice’ products, our purpose is to bring u All-Employee Bonus and Share Ownership Schemes transformational and sustainable solutions that address world material challenges every Customers u Solutions-driven culture u New applications across end markets u >85% On Time In Full (‘OTIF’) delivery through FY 2022 day. We place and consider the needs of all u Sustainable products supporting CO 2 reduction u Direct Sales and On Demand teams u Further growth in non-Spine Medical and investment to prioritise our stakeholders – internal and external – Quality and regulatory support Build strategic relationships Medicalacceleration u u high on our daily agenda, listening to and Technical service offering Quality and Regulatory teams u Cost recovery and price increases ongoing understanding the interests and concerns of u u all our global stakeholder groups, as wellas u Collaboration across the supply chain u Supply and development contracts u Start of commissioning for China manufacturing facility and seeking todeliver sustainable value for them. additionalinvestment in capability to support customers u Price increases to reflect cost inflation u Through sales teams and at VMT level This is assessed every year by the Board, Build-up of China commercialisationplan asappropriate u whether that be our employees, our customers, Investors u A clear and understandable Polymer &Parts strategy u Financial calendar events u Return to face-to-face investor roadshows, 200+ meetings hosted our investors, suppliers, regulators and Enhanced ESG agenda and additional Proactive investor relations function (virtualand face to face) government, and our communities. For u u investors and shareholders, we have a long-termgoals ESG strategy feedback and enhanced materials u Roadshows in UK, US, Canada and Europe u proactive annual plan of engagement, u Alignment with shareholder interests u Attendance at five major investor conferences u Global roadshows whether that be through our financial u Capital allocation policy and understanding AGM, site visits and conferences u Increasing globalisation of investor base; North American shareholding u calendar activity, investor roadshows, our ofdividend/buyback preferences now >30% u Enhanced investor website AGM, site visits or investor conferences. u Retain sector leading returns u Increase in ethical investment funds and greater ESG dialogue Reflecting our increasingly diverse shareholder withshareholders base (with approaching 50% of share ownership outside the UK, including nearly Security of supply Supply chain risk management Dual sourcing increase ### Suppliers u u u one third in North America), we actively u Renewable electricity sourcing now 100% u Regular supplier engagement programme (annually) u Improved performance of third-party manufacturers engage with investors in the UK,Europe, forUKsites and 97% globally Handbook of standards and ethical audits Long-term agreements on raw materials u u theUS and Canada. We continue to be | | u Global supply chain | Business continuity planning | Agreed charter on supplier management framework | | --- | --- | --- | --- | | collaborative with all stakeholder groups | | u | u | | including customers, investors, employees, | u Fast lead times | Payment on time, typically c.30 days | Robust risk management of critical suppliers | | | | u | u | | suppliers and regulators, listening to | u Compliance and quality | Increased oversight by Audit Committee for supplier | | u feedback and being open tochange. Reliability and flexibility risk including human rights u | Communities | u Sustainability agenda | u Increasing engagement with customers and suppliers | | u >97% of electricity from renewable sources & 100% for all UK sites | | --- | --- | --- | --- | --- | | | Sustainable solutions: environmental benefits | to address sustainability in the supply chain | | (including our own solar generation) | | andenvironment | u | | | | | | Resource efficiency: maximise resources | u Solutions for supporting CO | 2 reduction | u Improved scoring across ESG benchmarks e.g. EcoVadis Gold, MSCI | u Waste impact and improvement plans ‘A’rating, FTSERussell Green Revenues Index & Apple Clean Energy u Social responsibility: inspire future talent u Supplierprogramme | u STEM Ambassadors, schools and colleges | | | --- | --- | | | u Clear and measurable sustainability goals | | u Business in the Community | | | | u Significant support for global communities including 4,784 employee | hourscommitted | Regulators | u Safety agenda | u Via industry regulators, e.g. HSE | u Improved SHE performance including reduction in OSHA recordable | | --- | --- | --- | --- | | | Employee welfare | Public health organisations | injuryrate to 0.2 (industry average 1.4) | | andgovernment | u | u | | | | Product quality | Certified bodies and trade organisations | u Differentiated products including new polymer grades | | | u | u | | | | Innovation | Cross-industry collaborations | u 3D printing alliances and government funded projects | | | u | u | | | | Sustainability agenda | Environment Agency and NGOs | u Waste per unit of revenue 48% lower since 2013 and water usage per | | | u | u | | unit of revenue 5% lower since 2018 20 Victrex plc Annual Report 2022 ### Key to strategy Drive core business  Strategy and KPIs Pages 24 and 25 Differentiate through STRATEGIC REPORT innovation Create and deliver future value Underpin through safety, sustainability and capability STAKEHOLDER FOCUS AREAS HOW WE ENGAGE ENGAGEMENT OUTCOMES | Employees | u Safety focus | u Zero accidents & zero incidents safety campaigns | u Improving safety performance since FY 2020 | | --- | --- | --- | --- | | | Innovative culture | and employee survey | 63 employees on Victrex apprenticeships | | | u | | u | | | Sustainability embedded in our businessmodel | u Global staff briefings (quarterly) | 890 Professional Development Awards & 60 CEO Awards | | | u | | u | and‘Keepintouch’sessions | | u Highly motivated and talented employees | | | u Establishment of DE&I workshops and forums, including Gender | | --- | --- | --- | --- | --- | | | | | u ‘Ask Jakob’ and other intranet forums | Engagement Network & Strategic Inclusion Group | | | u High retention rate and appropriatereward | | | | | | | | u Development and succession planning | Pay rises and cost of living support (targeted employee grades) | | | u High level of share ownership | | | u | | | | | u Performance-based reward | Annual roadshow for Workforce Engagement Non-executive Director | | | u Diversity, Equity & Inclusion (‘DE&I’) agenda | | | u | | | | | u STEM activities supporting tomorrow’s talent | delivered to understand ‘employee voice’ | | | | | u All-Employee Bonus and Share Ownership Schemes | | | Customers | u Solutions-driven culture | | u New applications across end markets | u >85% On Time In Full (‘OTIF’) delivery through FY 2022 | | | u Sustainable products supporting CO | 2 reduction | u Direct Sales and On Demand teams | u Further growth in non-Spine Medical and investment to prioritise | | | Quality and regulatory support | | Build strategic relationships | Medicalacceleration | | | u | | u | | | | Technical service offering | | Quality and Regulatory teams | u Cost recovery and price increases ongoing | | | u | | u | | | | u Collaboration across the supply chain | | u Supply and development contracts | u Start of commissioning for China manufacturing facility and | additionalinvestment in capability to support customers u Price increases to reflect cost inflation u Through sales teams and at VMT level Build-up of China commercialisationplan asappropriate u | Investors | u A clear and understandable Polymer &Parts strategy | u Financial calendar events | | u Return to face-to-face investor roadshows, 200+ meetings hosted | | --- | --- | --- | --- | --- | | | Enhanced ESG agenda and additional | Proactive investor relations function | | (virtualand face to face) | | | u | u | | | | | long-termgoals | | ESG strategy feedback and enhanced materials | u Roadshows in UK, US, Canada and Europe | u u Alignment with shareholder interests Global roadshows u Attendance at five major investor conferences u u Capital allocation policy and understanding AGM, site visits and conferences u Increasing globalisation of investor base; North American shareholding u | ofdividend/buyback preferences | | now >30% | | --- | --- | --- | | | u Enhanced investor website | | | u Retain sector leading returns | | u Increase in ethical investment funds and greater ESG dialogue | withshareholders | Suppliers | u Security of supply | | u Supply chain risk management | u Dual sourcing increase | | --- | --- | --- | --- | --- | | | | u Renewable electricity sourcing now 100% | u Regular supplier engagement programme (annually) | u Improved performance of third-party manufacturers | | | | forUKsites and 97% globally | Handbook of standards and ethical audits | Long-term agreements on raw materials | | | | | u | u | | | u Global supply chain | | Business continuity planning | Agreed charter on supplier management framework | | | | | u | u | | | u Fast lead times | | Payment on time, typically c.30 days | Robust risk management of critical suppliers | | | | | u | u | | | u Compliance and quality | | Increased oversight by Audit Committee for supplier | | u | | u Reliability and flexibility | risk including human rights | | | | --- | --- | --- | --- | --- | | Communities | u Sustainability agenda | u Increasing engagement with customers and suppliers | | u >97% of electricity from renewable sources & 100% for all UK sites | | | Sustainable solutions: environmental benefits | to address sustainability in the supply chain | | (including our own solar generation) | | andenvironment | u | | | | | | Resource efficiency: maximise resources | u Solutions for supporting CO | 2 reduction | u Improved scoring across ESG benchmarks e.g. EcoVadis Gold, MSCI | u Waste impact and improvement plans ‘A’rating, FTSERussell Green Revenues Index & Apple Clean Energy u Social responsibility: inspire future talent u Supplierprogramme | u STEM Ambassadors, schools and colleges | | | --- | --- | | | u Clear and measurable sustainability goals | | u Business in the Community | | | | u Significant support for global communities including 4,784 employee | hourscommitted | Regulators | u Safety agenda | u Via industry regulators, e.g. HSE | u Improved SHE performance including reduction in OSHA recordable | | --- | --- | --- | --- | | | Employee welfare | Public health organisations | injuryrate to 0.2 (industry average 1.4) | | andgovernment | u | u | | | | Product quality | Certified bodies and trade organisations | u Differentiated products including new polymer grades | | | u | u | | | | Innovation | Cross-industry collaborations | u 3D printing alliances and government funded projects | | | u | u | | | | Sustainability agenda | Environment Agency and NGOs | u Waste per unit of revenue 48% lower since 2013 and water usage per | | | u | u | | unit of revenue 5% lower since 2018 Annual Report 2022 Victrex plc 21 STRATEGIC REPORT Stakeholder engagement continued # HOW THE BOARD CONSIDERS & ENGAGES WITH STAKEHOLDERS ## Statement by the Directors in performance of their statutory duties in accordance with section 172(1) of the Companies Act 2006 During the year ended 30 September 2022, the Board of Victrex plc believes, as individuals and collectively, that it has acted in a way it considers, in good faith, would most likely promote the success of the Company for the benefit of its members as a whole, by having regard, among other matters, to the: - → likely long-term consequences of any decision, including financial & reputational, further detail is shown on pages 80 to 91; - → interests of the Company's employees: how we engage with employees is part of our Workforce Engagement Non-executive Director role, further detail is shown on pages 92 and 93; - → need to foster the Company's relationships with its customers, suppliers and others; - → impact of the Company's operations on the community and the environment, engagement with local communities and our focus on the environment are shown in the Sustainability report starting on page 44; - → desirability of the Company maintaining its reputation for high standards of business conduct; and - → need to act fairly as between members of the Company. The Board considers the interests of a range of stakeholders impacted by our business and recognises that valuable stakeholder engagement underpins our ability to achieve our purpose and strategic aims. Key stakeholder relationships are regularly reviewed, including how we engage with them and whether any improvements can be made. Further detail is on page 91 of the Corporate governance report. The relevance of each stakeholder group will depend on the particular matter requiring Board decision. All decisions we make will unfortunately not benefit all stakeholders; by taking a consistent approach to decision making and being guided by our purpose and our strategic aims, we hope that our decisions are understandable for details on how the Board operates and makes decisions, please see pages 80 to 89 of the Corporate governance report. The matters we have discussed and debated during the year are set out on pages 87 and 88 of the Corporate governance report. To provide shareholders with a better understanding of how we engage with stakeholders, we provide selected examples of how the Directors have had regard to the interests of stakeholders and the matters set out in section 172 of the Companies Act 2006 in their decision making. ### Inflation recovery With the unprecedented increase in energy and raw material costs during FY 2022 – and further inflationary costs for FY 2023 – the Group faced a difficult challenge in ensuring that significant cost inflation could be recovered, whilst balancing the often conflicting interests of key stakeholders. The Chief Executive Officer and Chief Financial Officer provided regular updates to the Board on how the Group was progressing with its inflation recovery programme, which was principally two-fold: 1. through price recovery from customers; and 2. efficiency within the business. With inflation not seen at these levels for 40 years, consideration for all of our stakeholders was key, particularly given the need to maintain and grow customer relationships whilst balancing the need to invest within our business and maintain appropriate pricing, as well as meeting expectations of investors. There was also the consideration of our own wage inflation and being able to recover our own costs to ensure retention and investment in our people. Overall, price recovery was delivered at a run-rate level in H2 2022, ahead of annualised recovery in FY 2023. - → The Board oversaw the need to maintain price discipline and appropriate pricing that enabled the Group to recover its costs, and continue investing in people, technical service, innovation and support for customer programmes. - → Consideration was required to balance the pass-through of unprecedented energy and raw material costs from suppliers, and how these could be passed on to customers in the most efficient way, whilst noting often long-standing customer relationships and no automatic price pass-through mechanisms within most existing contracts. - → Supplier management to mitigate impact of inflation through effective procurement. - → A range of mechanisms were considered, options which remain on the table as we face ongoing inflationary costs through FY 2023, primarily UK energy costs which impact our main manufacturing facilities, as well as the knock-on effect to raw material costs. - → Consideration was also made for contract renewal timings, meaning a 'lag' was seen in some cases, between agreement of a price increase and implementation. - → Despite the inflationary costs seen from the Group's suppliers, Victrex has continued to support smaller suppliers by paying within agreed terms, which are typically 30 days or less and better than the industry average. Overall, the Group achieved its aim, with careful consideration of all stakeholders, whilst ensuring price pass-through could be implemented as quickly and effectively as possible. With ongoing significant inflationary effects into FY 2023, the Board will also consider learnings on how future price recovery could be implemented, as required. 12 Victrex plc Annual Report 2022 STRATEGIC REPORT ### Sustainability: ### alternative fuels & technologies ## Helping the world ## transition to Net Zero With positive feedback on our 2030 goals (aligned to the ### Investment to prioritise Medical UN Sustainable Development Goals 2030), the Board has With over 15 million patient implants with PEEK since we assessed stakeholder feedback and the actions required commercialised our Medical business, we have a strong track todeliver them. Beyond R&D investment to support our record of supporting the medical device industry. Our Medical sustainable solutions (products which support environmental division has continued to diversify, with growth in non-Spine & societal benefits), we have included sustainability within applications such as Trauma and Arthroscopy, and emerging our capital expenditure plans. segments such as Cardio and DrugDelivery. Victrex has made good progress this year in building The high value, high gross margin profile of our Medical division stakeholder networks to consider the best option for our is reflective of the investment we have made over many years in pathway. Alternative fuels or technologies are likely to have capability, in data and in know-how for manufacturing. Yet the biggest impact on reducing our CO 2 emissions from Medical revenues remain less than 20% of Group revenues, ourown UK manufacturing facilities over time, but will be despite the potential for them to become over one third of contingent on access to new energy sources or technologies: Group revenues on a 10 year view. The Board therefore u creation of stakeholder networks with partners, other considered the opportunity to prioritise investment in Medical, organisations and interested parties was a priority and and in particular the Trauma plate and Knee mega-programmes, continues to be so. Over the course of the year, Victrex a strategic priority, to help, where possible, drive acceleration of has joined the Lancashire Low Carbon Hub, worked Medical revenues in what is typically a less cyclical industry, with local MPs and the Chemical Industry Association thereby potentially supporting earnings stability. and held dialogue with UK government to underline u Board considerations focused on both the investment theneed for access to alternative fuels; required but also the long-term benefits of prioritising u hydrogen remains one of the options being considered, Medical investment over other mega-programmes. and ongoing engagement with stakeholders in the u Consideration was given to the timing profile of North West of England and broader has been a key prioritising Medical investment, noting that adoption in plank of progressing our chosen pathway; Medical would remain a slower ramp-up than other u alternative technology or process change is also a Industrial-based mega-programmes, due to the typically consideration. Victrex has engaged with academia to longer certification and qualification process. assess the potential of alternative processes which could u Consideration was given to our employees through minimise or reduce CO 2 emissions, noting that whilst the targeting talent pools and capability within another Group’s emissions are small in relative terms vs other regionof the UK, with the creation of a new Product Chemical companies, the multiple stages of PEEK Development Centre in Leeds, away from our main manufacturing bring higher carbon intensity; and Hillhouse location. u our stakeholder engagement with suppliers, customers, u With strong progress on the PEEK Knee clinical trial, and regulators and local communities continues – being partnerships established in Trauma, the Board considered vocal on our need for access to alternative fuels is one the needs of key customers and potential customers, example, with Victrex seeking to be proactive in all of inbeing able to be in a position to support early itsstakeholder engagement. commercialisation and ramp-up, thereby supporting ourstrategic goal of increasing the proportion of Grouprevenue coming from Medical. Annual Report 2022 Victrex plc 23 23 STRATEGIC REPORT ## Strategy and key performance indicators ### DRIVE CORE BUSINESS 1 How we performed in FY 2022 Revenue growth % Return on sales % u Further improvement in end markets, revenue +11% and volume +8% ## 28% u Strong growth in Electronics, ## 11% Energy& Industrial and VAR u Good progress on cost inflationrecovery 15 39 12 36 11 | Focus for FY 2023 | | | | | 30 | | | --- | --- | --- | --- | --- | --- | --- | | | | | | 28 | | 28 | | | u Good revenue growth in FY 2023 | | | | | | | | u Cost and further price recovery | | | | | | | | | (10) | (10) | | | | actions in place 18 22 20 2119 18 19 20 21 22 u Improved on time in full (‘OTIF’) delivery >95% Definition Definition u Focus on mid-term margin The year on year percentage change in Profit before tax and exceptionals improvement total revenue for the Group, in live asa percentage of total sales. currency. | Link to risks | 3 7 8 | | Why it’s important | | --- | --- | --- | --- | | | | Why it’s important | Return on sales assesses the overall | | | | Revenue growth is the measure chosen | profitability of the Group. The | | | | to reflect the structural growth | measure reflects our discipline in | | | | opportunities for PEEK across our | seeking growth opportunities which | | | | markets, with above-market growth | maintain our sector leading returns. | being the medium-term focus. ### DIFFERENTIATE THROUGH INNOVATION How we performed in FY 2022 R&D spend £m New products as a u Strong investment in R&D at 5% % ofGroup sales % ofrevenue u Growing prototype revenue for ## £15.7m Aerospace Structural Composites, ## 6% | | first parts for Airbus | 5% of Group revenue | | | | | | --- | --- | --- | --- | --- | --- | --- | | Focus for FY 2023 | | | | | | 6 | | | u Grow new product sales above 6% | | 17.4 | 18.0 | 5 | | 16.7 | | 15.5 | 15.7 | | | | | --- | --- | --- | --- | --- | --- | | ofrevenues | | | 4 | 4 | 4 | | u Deliver Medical acceleration | | | | | | milestones; new UK centre ofexcellence | | | 18 | 19 | 20 | 21 | 22 | | 18 | 19 | 20 | 21 | 22 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | u Regulatory progress for Porous PEEK | | | | | | | | | | | | | | | Definition | | | | | | Definition | | | | | | | u Support TechnipFMC on establishing | | | | | | | | | | | | | | | The total Research & Development | | | | | | Proportion of Group sales generated | | | | | | new Brazil manufacturing facility spend that the Group has incurred. from mega-programmes, new differentiated polymers and other Link to risks 6 7 Why it’s important pipeline products that were not sold Research & Development spend before FY 2014. at5–6% of sales underpins ourability to innovate into new Why it’s important applications, supporting our New product sales (Vitality Index) futuregrowth. isa measure of how successful we are in driving adoption of our new product pipeline. 1 Alternative performance measures are defined in note 25. 24 Victrex plc Annual Report 2022 Key to KPIs Remuneration Non-financial Linked to bonus Linked to Long Term Incentive  Principal risks Financial KPI KPI objectives Plan (’LTIP’) objectives Pages 34 to 40 ### CREATE & DELIVER FUTURE VALUE STRATEGIC REPORT How we performed in FY 2022 Pipeline Reported earnings u Strong progress in clinical trial for mega-programmes per share p PEEK Knee; 12 patients post-12-month stage; First PEEK Trauma plate implants through In2Bones partnership | | 7 | | | | | 87.6p | | --- | --- | --- | --- | --- | --- | --- | | u E-mobility: new business wins for next | | | | | | | | generation electric vehicle applications | | 7 | 7 | | | | | | | | | 7 | 7 | | 6 u PEEK Gears revenue >£4m 128.8 107.2 | u Commissioning commenced for new | | | | | | | | | 84.3 | 87.6 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | China PEEK manufacturing facility | | | | | | | | 62.6 | | | | u Earnings per share (reported) up 4% | | | | | | | | | | | | | 18 | 19 | 20 | 21 | 22 | 18 | 19 | 20 | 21 | 22 | Focus for FY 2023 PEEK Knee patient recruitment Definition Definition u | completed; establish platform | Number of pipeline projects offering | Profit after tax divided by the basic | | --- | --- | --- | | towards commercialisation | >£50m annual revenue potential in | weighted average number of shares. | | | peak sales years as communicated | This includes the impact of | | u Further Aerospace partnerships to | | | | | from FY 2015 onwards. | exceptional items. | increase commercialisation of composite parts Why it’s important Why it’s important Our new product pipeline is key to Earnings per share measures the u Establish partnerships for Trauma and differentiating our business, and overallprofitability of the Group focus on meaningful revenue >£1m supporting new revenue and anddemonstrates how we convert China facilities in beneficial production marginstreams. our top-line revenue opportunities u and launch commercial offering into profitable growth for ourshareholders. u Grow earnings per share Link to risks 7 8 ### UNDERPIN THROUGH SAFETY, SUSTAINABILITY AND CAPABILITY How we performed in FY 2022 OSHA recordable Hours worked in u 0.2 OSHA recordable injury frequency injuryrate the community rate (71% reduction vs FY 2021 and 85% lower than OSHA industry average) u Over 30% of revenues defined as ## 0.2 4,784 ‘green’ by FTSE Russell, Gold Sustainability rating from EcoVadis, inclusion in Apple Clean Energy 1.3 Supplier programme and further 1.2 4,784 1.0 progress on sustainability agenda 1,600+ 3,559 0.7 u 100% of electricity sourced from 1,000+ 0.2 2,570 renewables for UK sites, 97% globally | Focus for FY 2023 | | | 18 | 19 | 20 | 21 | 22 | | 21 | 222018 19 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | u Zero accidents and zero incidents | | | | | | | | | | | | culture, further SHE improvement | Definition | | | | | | Definition | | | | | | US Occupational Safety and Health | | | | | | Total number of hours that Victrex | | | | | u Options for pathway to Net Zero | | | | | | | | | | | | | Administration (‘OSHA’) is the industry | | | | | | employees have volunteered in | | | (Scope 1 & 2) assessed and standard for recordable injuries. The community activities. consideration of Scope 3 injury rate is based on total number of emissionsaspiration Why it’s important recordable injuries x 200,000/total Our social responsibility strategy is Establish Lifecycle Analysis for number of hours worked (employee and u key to giving something back to the keyproducts contractor). Victrex continues to be better communities where we operate, and than the industry standard after adopting to supporting our talent strategy in this reporting for FY 2020. Link to risks 1 2 4 5 6 recruiting the employees of tomorrow. Why it’s important A safe and sustainable business is the highest priority for Victrex. Annual Report 2022 Victrex plc 25 STRATEGIC REPORT ## Financial review Group revenue Cash ## £341.0m £66.0m (available cash) ## +11% vs FY 2021 -34% vs FY 2021 ### Our focus is to catalyse adoption of our high performance ### polymers that can haveapositive impactonthe reduction ### After a strong top-line performance in 2022, we are ### ofenvironmental footprint, andbring patientbenefit ### mindful of the uncertain macro-economic outlook, ### for our medical products. ### but are focused on revenue & profit growth overall. Jakob Sigurdsson Ian Melling Chief Executive Officer Chief Financial Officer ## RECORD REVENUE & VOLUME – ## SIGNIFICANT LONG-TERM ## GROWTHOPPORTUNITIES | Introduction from the CFO | Operating review | Q4 revenue & volume | | --- | --- | --- | | It is a privilege to serve as Chief Financial | Strong growth in Group revenue, up 11%; | Q4 revenue of £87.6m (Q4 2021: £74.4m) | | Officer and the attractions of Victrex prior | a range of sustainable products | was 18% ahead of the prior year, whilst Q4 | | tomy appointment are as clear now as they | Group revenue was up 11% at £341.0m | sales volume of 1,140 tonnes saw 5% growth | | werethen. We have a purpose to bring | (FY2021: £306.3m), which was driven by | on the prior year (Q4 2021: 1,085 tonnes). | | transformational & sustainable solutions and | astrong performance in most of our | The stronger revenue performance in the | | enable environmental & societal benefits for | Industrial end markets and further | quarter reflects the benefit of price increases | | our customers; an innovative and can-do culture; | improvement in Medical. | and an improved sales mix, offset by some | | and a strong financial profile which supports | | normalisation in VAR volumes. | 1 In constant currency Group revenue was both investment and shareholder returns. 10% up on the prior year. Strong growth in Industrial & further In my six months with the Group, I have been progress in Medical Our measure of sustainable products, primarily hugely impressed by the talent and capability Our Industrial division reported revenues of for end markets which enable environmental | of our people. The challenge for Victrex is | | | £282.7m, 11% up on the prior year (FY 2021: | | --- | --- | --- | --- | | | benefit (CO | 2 reduction), energy efficiency and | | | toconvert delivery of what are undoubtedly | | | £255.2m) and 11% up in constant currency, | improving patient outcomes, was stable at 48% significant growth opportunities, both with growth being driven by Electronics, of Group revenues (FY 2021: 49%) despite inourcore business and our seven Energy & Industrial and VAR. Within Transport, adrop in Automotive revenues. Sustainable ‘mega-programmes’, and grasp our current Automotive sales volume was down 2%, products are defined as those which offer a challenge of margin and return on capital asa result of the current challenges in quantifiable environmental or societal benefits. improvement. These will be my priorities for Semiconductor impacting the Automotive These are primarily in Automotive, Aerospace | FY 2023 and beyond, and with my recent | | | industry, although we note industry forecasts | | --- | --- | --- | --- | | | (supporting CO | 2 reduction) and Medical, with | | | background at Smith & Nephew, we also | | | suggesting car production rates will improve | some applications in Energy and Industrial and have a real opportunity to support the into 2023. In Aerospace, we saw good Electronics (e.g. wind energy applications, or Medical area of our business with prioritised revenue growth – volumes were up 2% – those which support energy efficiency), with investment over the coming years. Our goal thanks to an improved sales mix and greater Oil & Gas excluded, as is VAR currently. | isfor Medical revenues to be a greater | | commercialisation of our composite business, | | --- | --- | --- | | proportion of Group revenues over the | FY sales volume up 8% | including for next generation aircraft. We also | | next10 years, potentially up to one third. | Group sales volume of 4,727 tonnes was 8% | note recent build rate increases by both of the | | | up on the prior year (FY 2021: 4,373 tonnes), | key Aerospace manufacturers, which should | Finally, whilst we retain a strong financial driven by a strong performance across support continued improvement into FY 2023. position and healthy cash generation, we anumber of end markets, principally areengaging with shareholders to assess Medical revenues were £58.3m, up 14% Electronics, Energy & Industrial and VAR, | opinions on our capital allocation policy, | | onthe prior year (FY 2021: £51.1m) and 9% | | | --- | --- | --- | --- | | | offset by ongoing weakness in Automotive. | | 1 | | inparticular the relative benefits of share | | ahead in constant currency | . We saw strong | | buybacks and special dividends. Although | | growth (revenues +40%) in Asia, despite | | | growth investment will remain the priority, at | | lockdowns during the second half in China. | | | a time where our capital expenditure is set to | | Within Spine, which saw 2% growth in | | | ease after the current capacity investments, | | revenue, we are also moving closer to US | | | we will focus on the opportunities to create | | FDAsubmission for Porous PEEK spinal cage, | | | further shareholdervalue. | | supported by our investment in Bond 3D. | | 1 Alternative performance measures are defined in note 25. 26 Victrex plc Annual Report 2022 OurPEEK-OPTIMA™ HA Enhanced product Good progress in mega-programme the world’s first large scale PEEK test parts. STRATEGIC REPORT | continues to see steady commercial traction, | milestones | Development and commercialisation of | | --- | --- | --- | | with an increased range of applications | FY 2022 saw us deliver a number of key | thermoplastic composites in Aerospace | | beyond Spine. Our non-Spine business also | milestones in our portfolio of mega- | continues to offer a sizeable opportunity, | | continues to see good growth, particularly in | programmes (seven mega-programmes in | across larger primary and secondary | | | total) as we progress towards greater | Aerospace structures, such as wings and | Trauma, Cardio and Drug Delivery. Non-Spine commercialisation. Whilst individual timelines fuselage parts. Aerospace Structures builds now represents 50% of Medical revenues remain subject to change, the long-term on Victrex’s Aerospace Loaded Brackets (FY2021: 45%). TM | | prospects in each programme continue to be | programme, with our AE | | 250 composites | | --- | --- | --- | --- | --- | | ASP improvement in H2 2022, reflecting | attractive and with the technical proposition | grade being integral to both of these | | | | price increases and currency | proven in each programme, our focus is on | opportunities. A number of significant | | | | Our average selling price (‘ASP’) of £72.1/kg | commercial adoption. Highlights include | demonstrator parts were exhibited during | | | | was up 3% compared to FY 2021 (FY 2021: | good progress in PEEK Gears, prototype | the year at the JEC Composites show in | | | | £70.0/kg), with H2 2022 ASP of £73.4/kg | revenue for our Aerospace Composites | Paris, including large engine housing | | | | being 4% ahead of the first half of 2022 | programme and ongoing revenues in support | applications and wing ribs, all based on | | | | | | | TM | TM | | | of qualification pipes for TechnipFMC | Victrex | PEEK and our AE | 250 composite | (H12022: £70.7/kg), as we saw the benefit (Magma). tape. These opportunities could materially ofprice increases to customers kicking in. increase PEEK content in next generation Wealso saw some benefit from currency at FY 2022 also saw particularly good progress aircraft – potentially 10-fold – which are the revenue level in the second half, as Sterling in Medical – where the PEEK Knee clinical trial planned for later this decade. | weakened. Sales mix in FY 2022 was similar | saw strong progress, and we saw a 510(k) | | | --- | --- | --- | | tothe prior year, with the Industrial-based end | regulatory approval for PEEK composite | Within PEEK Gears, which now have several | | markets of Electronics, Energy & Industrial | Trauma plates in the US and patient | initial contracts ‘on the road’ following a first | | andVAR driving much of the growth. | implants. In Aerospace, we saw the first large | supply agreement in 2018, we improved on | | | scale PEEK demonstrator parts delivered as | last year’s milestone of delivering meaningful | In line with previous guidance, we expect to part of our Airbus development programme, revenue of >£1m. This year overall PEEK Gear see the annualised benefit of price increases and in Automotive, we secured new business revenue, which includes both parts during FY 2023, with additional inflation wins in E-mobility. manufactured by Victrex and polymer resin recovery actions in progress, to reflect the Our PEEK Knee programme has now seen based PEEK Gear sales, totalled over £4m. A unprecedented further increases in energy and 30 patients having implants, including 12 number of PEEK Gear programmes involve raw material inflation, leading to a significantly who have successfully passed the primary manufacturing by our partners, but with the higher cost of manufacture. Price pass-through end point of 12-month clinical stage, with know-how and intellectual property (‘IP’) led reflected the additional costs borne by Victrex no remedial intervention required. Together by Victrex. PEEK Gears continue to have alongside our investment in technical service with our development partner Maxx application uses across both traditional and innovation, whilst balancing long-term Orthopaedics, we are preparing for an internal combustion engines (‘ICEs’) and customer relationships, particularly customers additional trial site in the US. We will also electric vehicles (‘EVs’). who we have and continue to build a pipeline beworking with Aesculap (a top five Knee of opportunities with. As a material solutions FY 2022 saw us secure new business company) in a development programme business, the necessity of passing through tosupport the route to commercialisation. winsfor our next generation E-mobility non-structural costs led us to broaden the programme and better than expected Knee remains potentially the most significant mechanisms for passing through cost inflation, progress. This mega-programme focuses of our mega-programmes, with an addressable which includes surcharge pricing. Whilst a onapplications across electric vehicles, in market of approximately $1bn, utilising PEEK typical timing lag occurs between price particular for high voltage next generation over Cobalt Chrome. | increases being agreed and contract renewals, | | programmes (800 volt batteries and | | --- | --- | --- | | we will continue to strengthen our options for | Our Trauma pipeline continues to build, | applications). Business wins include an | | passing through cost inflation. | following the agreement with US based | Aptiv™ film based opportunity. PEEK will | | | In2Bones for composite plates and a 510(k) | beused in specific applications where | Cost inflation for FY 2023, based on current regulatory approval within the US. We also durability, heat resistance and lightweighting energy and raw material prices, could be at a secured our first Asia customer product are all key. We have also increased our similar year on year level as FY 2022, at around launch and are finalising development development programmes as we move £20m, although we welcome the benefit of collaborations to support launches in China. closer to greater commercialisation. the UK government’s energy price cap for The first patient implants through our In2Bones Ourassessment of the potential PEEK business, which will provide some protection partnership for PEEK based trauma plates content per vehicle is more than 100g during the first half. have now been completed. (fromapproximately 10g today), as we Core business application pipeline In our Aerospace Loaded Brackets focuson the high performance needs Our core business application pipeline is programme, additional orders for composite ofnext generation electric vehicles. agood indicator of the health of our core parts, reflecting megatrends aligned As part of our Magma composite pipe business as we work with Original Equipment tolightweighting, CO 2 reduction and fasterprocessing, offer a good mid-term programme for the energy industry, Manufacturers (‘OEMs’) and Tier 1 suppliers opportunity, supported by ongoing TechnipFMC is seeking to accelerate the todevelop new applications for PEEK. Our recoveryin this end market. significant opportunities for thermoplastic Mature Annualised Revenue (which could composite pipe in deepwater fields in Brazil. occur only if all targets convert) within the We are also working on new partner Victrex continues to work in close collaboration core application pipeline is £294m (FY 2021: collaborations via our US composite with TechnipFMC as a strategic supply £325m), which reflects conversion of previous partsfacility, with Aerospace OEMs and partner, with multi-year supply agreements pipeline targets, as well as some refinement of Tier1 companies. in place and industry qualifications based on the growth opportunities we are progressing. In our ‘Aerospace Structures’ programme, Victrex™ PEEK and our composite tape which links to our development alliance with (Victrex supplies both the polymer resin and Airbus as part of their Clean Sky II programme, composite tape and holds the intellectual we are now delivering prototype revenue via Annual Report 2022 Victrex plc 27 STRATEGIC REPORT ## Financial review continued ### Operating review continued Remain focused on gross by an Executive Currency Committee which Good progress in mega-programme approves all transactions and monitors the ### marginimprovement milestones continued policy’s effectiveness. With our hedging Full year Group gross margin of 51.2% was property for extrusion of the PEEK pipe). programme for FY 2023 largely covered, at lower than the prior year (FY 2021: 54.0%), TechnipFMC is currently focusing on more than 80%, average contracted rates for with good progress in operating efficiency manufacturing scale up in Brazil, with a new FY 2023 are 1.30 against the US Dollar and being offset by the unprecedented energy pipe extrusion facility in Brazil under 1.16 against the Euro. Current rates imply a costinflation, which spiked in the second half. construction, to support bid programmes further modest tailwind in FY 2024. Progress in our gross margin above a mid 50% | which have now been submitted and are | level was therefore impacted by the lag | | | --- | --- | --- | | awaiting outcomes. FY 2023 will see support | inrecovery of cost inflation through price | Cost focus for operating | | for TechnipFMC’s preparations and we | increases, as well asother efficiency | | ### overheads | expect to see continued development | programmes. Currency alsoimpacted | | 1 | | --- | --- | --- | --- | | | | Operating overheads | , which excludes | | revenues during the year as qualification | grossmargin. | | | exceptional items of £7.9m, increased to pipes progress – extruded by Victrex – £78.1m (FY 2021: £72.7m) primarily driven For the medium term, we remain focused through the supply chain. byhigher innovation investment and costs onimproving our gross margin, with further associated with our pre-start up phase of our Innovation investment opportunities to enhance operating efficiency China manufacturing investments, offset by Our culture of innovation and to support (primarily driven by asset utilisation). Key aslightly lower bonus pool compared to the application development means we continue drivers of margin improvement include the prior year. Excluding exceptional items and | to invest behind our growth programmes. | | full benefit of our price recovery programme, | | | --- | --- | --- | --- | | | 1 | | bonus, overheads increased by 12%. | | R&D investment represented 5% of revenues | | continued asset utilisation improvement – | | | and, at £15.7m, was slightly above the prior | | including commercialisation of our China | | Our Group All-Employee Bonus Scheme is year (FY 2021: £15.5m). Of R&D investment facilities, which will be an incremental impact based on a budget-based target, with a cap focused on individual projects, approximately on margin in FY 2023 as we move through in place. Last year, we also introduced ESG 89% of this is now aligned to programmes commissioning – and sales mix. We are also goals into executive remuneration targets. supporting sustainable products. Going mindful of the potential costs associated For FY 2023, with wage inflation and some forward, we expect to focus primarily on our withdelivering our sustainability goals. targeted innovation spend, we envisage at total investment in sustainable products or Werecently saw phase 1 of our UK least a high single-digit percentage increase programmes as a proportion of total R&D debottlenecking programme completed, inoperating overheads, with innovation investment (rather than project-based which should support enhanced operating investment including our NPD facility in Leeds investment). For FY 2023, we will see a efficiency over the medium term. for Medical. We will also have incremental modest investment in a New Product costs for our new China manufacturing Development (‘NPD’) Centre in Leeds, UK, ### Gains & losses on foreign investments through the commissioning phase. tosupport new roles and capability as part ### currencynet hedging From FY2023, the Group’s All-Employee ofour Medical Acceleration programme. Fair value gains and losses on foreign currency Bonus &Share Schemes will start to – in the contracts, where net hedging is applied on case oflong-term share programmes – reflect ### Gross profit 6% ahead despite cash flow hedges, are required to be incentive targets put in place from FY 2020, ### higher cost of manufacture separately disclosed on the face of the Income with subsequent good growth post the Our Polymer & Parts strategy seeks to Statement. In FY 2022, a loss of £2.8m pandemic. Market-based share schemes delivercontinued growth in our core polymer (FY2021: gain of £4.9m) has been issued prior to the pandemic have largely business, as well as drive an increasing recognised accordingly, largely from failed tovest. contribution from our mega-programmes contracts where the deal rate obtained (parts). We have the opportunity to gain (placed up to 12 months in advance in ### Underlying PBT up 4% and up additional revenue and profit streams over accordance with the Group’s hedging policy) ### 12% in constant currency, offset the medium to long term from selling a was unfavourable to the average exchange ### semi-finished or finished component or part, by lag in cost inflation recovery rate prevailing at the date of the related despite the higher unit cost of manufacture Reported PBT reduced by 5% reflecting hedged transactions, following the and slightly lower gross margin percentage exceptional items of £7.9m (FY 2021: credit of devaluation of Sterling during H2 2022. inselected parts compared to polymer. £0.8m), representing the cost of implementing a new ERP software system. In previous years ### Gross profit was 6% ahead at £174.5m Currency headwind these costs would have been capitalised but (FY2021: £165.3m), offset by the higher FY 2022 saw a currency headwind of are now expensed in line with IFRIC guidance. overall cost of manufacture driven by higher approximately £7m at PBT level, reflecting the The implementation will be completed in energy and raw material costs. strengthening of Sterling in the prior year 2024, with an anticipated total expensed cost when hedging was put in place. At this early We made good progress during the year of approximately £15m–£20m. This will offer stage, currency for FY 2023 is tracking as a onoperating efficiency and asset utilisation, us greater digitalisation across functions, modest tailwind of £4m–£6m at PBT level, with production volume being much closer supporting process efficiency and ongoing driven by weaker Sterling against the US tosales volume (compared to FY 2021 where relationships with customers and suppliers. Dollar and Euro, although we note ongoing sales volume saw a significant draw-down of volatility in currency markets. Underlying PBT of £95.6m was up 4% on the inventory). Underabsorbed fixed costs continue prior year (FY 2021: £91.7m), offset by currency to reduce, with lower utilisation now being Our hedging policy seeks to substantially and the timing lag from inflation recovery. primarily in our newer downstream protect our cash flows from currency volatility Underlying PBT in constant currency was manufacturing assets (parts, rather than on a rolling 12-month basis. The policy up12%. ourmain polymer plants). requires that at least 80% of our US Dollar and Euro cash flow exposure is hedged for the first six months, then at least 75% for the second six months of any 12-month period. The implementation of the policy is overseen 28 Victrex plc Annual Report 2022 ### Earnings per share up 4% Thescheme retains sufficient liquid investments representing cash which was held on 95-day STRATEGIC REPORT | Basic earnings per share (‘EPS’) of 87.6p was | to be able to respond to further LDI cash | deposit (FY 2021: £37.5m). In February 2022 | | --- | --- | --- | | 4% up on the prior year (FY 2021: 84.3p per | requirements should they be required, with | we paid the 2021 full year final dividend of | | share), reflecting the impact of exceptional | management continuing to work closely with | 46.14p/share and a 50p/share special dividend | | items on reported PBT. Underlying EPS was | the trustee. The use of LDIs as a hedge to | at a cash cost of £83.5m combined. For | | up 14% at 95.0p (FY 2021: 83.4p). | interest rate risk has worked effectively through | ourChina manufacturing facilities, we also | | | to 30 September 2022, with the gross assets | have a RMB400m borrowing facility (£45m | | | and liabilities of the scheme reducing by | equivalent) in China in support of our | ### Taxation approximately £30m each with the UK net investments there, of which RMB123m Victrex continues to benefit from the reduced asset increasing by £0.7m to £14.9m. The (£15.7m at closing rates) was drawn down at tax rate on profits taxed under the UK medium-term target of reaching a buyout 30 September 2022 (30 September 2021: n/a). government’s Patent Box scheme, which position remains, and we expect to continue incentivises innovation and consequently ### making an annual voluntary contribution, Dividends highly skilled Research & Development jobs where required, of £1m to the scheme to Reflecting the Group’s strong trading within the UK. For FY 2022, the effective tax support this goal. performance in FY 2022, whilst balancing the rate was 13.9%, lower than the prior year | (FY2021: 21.3%), which is primarily a result | | uncertain macro-economic outlook over the | | --- | --- | --- | | of the remeasurement of UK deferred tax | Investment in capacity | coming months, the Board is proposing a final | | balances from 19% to 25% in FY 2021, | andgrowth | dividend of 46.14p/share (FY 2021: 46.14p/ | | reflecting the increase in the substantively | Growth investment remains the priority, with | share), giving total dividends for the year of | | enacted UK Corporation Tax rate applicable | cash capital investment of £45.5m (FY 2021: | 59.56p/share. The closing available cash | | from 1 April 2023. Taxation paid was £10.6m | £41.9m), of which a significant proportion was | balance of £66.0m was below the threshold | | (FY2021: £8.6m). Whilst the UK corporation | to support our China manufacturing | to pay a special dividend. | | tax rate is currently 19%, because of the | investments, which will provide additional | | | availability of the reduced rate on profits | capability to support customers in China. For | Capital allocation update: | | taxed under Patent Box, our mid-term | our UK assets, we also commenced a multi-year | | ### specialdividends & buybacks guidance at this stage remains for an investment to support efficiency improvement Whilst growth investment remains the priority, effective tax rate of approximately 12–15%, and gain incremental capacity. We anticipate we are engaging with shareholders as part of subject to global taxation developments, this will be approximately £15m in total, with this results cycle, to gauge opinion on the which continue to be monitored. year 1 now completed. Year 2 has now opportunity for return options including share | | commenced and we anticipate a further £10m | buybacks and special dividends within our | | --- | --- | --- | | Strong balance sheet | spread over the next three financial years | capital allocation policy. With capital | | With our strong balance sheet, we | included within the annual capital budget. | expenditure set to reduce after FY 2023, | | underpinour ability to invest and support | | subject to no additional opportunities | Following these investments, and subject to security of supply for customers. Net assets tosupport growth, the medium-term no material large scale capacity investment for at 30 September 2022 totalled £490.6m opportunity for incremental returns to several years, our annual capital expenditure (FY2021: £511.7m). shareholders remains attractive. guidance is based on approximately 8–10% ofsales. This also reflects some in-built | Inventory increased onraw | investment to support process change aligned | Outlook | | --- | --- | --- | | material build and costinflation | to our ESG goals (for example being able to | Several end markets are yet to fully recover | | With the significant sales inventory unwind | access alternative fuels and adjustments | from the effects of the pandemic and we | | during FY 2021, this year has focused on | needed to our manufacturing process). | continue to see good growth opportunities | | ensuring raw material inventories reached | | across the Group. However, we are mindful | Capital expenditure for FY 2023 is expected safety stock levels, to support security of of the uncertain macro-economic outlook to be similar to FY 2022, at approximately supply for customers. Total closing inventory for 2023 and some signs that VAR volumes £45m–£50m. | was £86.8m (FY 2021: £70.3m), including the | | are edging down slightly to more normalised | | --- | --- | --- | | impact of higher energy and raw material | | levels. This means the opportunity to | | | Healthy cash generation | improve on last year’s record Group volume | costs. In FY 2023 reflecting further recovery of The Group’s business model and focus is likely to be challenging. We also face raw material and finished goods stocks, as onthe high performance materials area further and significant year on year energy well as inventory build to support us through continues to support good cash generation. and raw material inflation this year, although shutdowns associated with the UK Cash generated from operations was £90.7m additional pricing actions are in progress, debottlenecking programme, we anticipate a (FY 2021: £135.5m), giving an operating with a timing lag. total inventory position well in excess of 1 cash conversion of 49% (FY 2021: 100%). £100m. These items, in addition to the higher Overall, we have seen a steady start to the Inventory has increased compared to the unit cost of manufacture, are expected to be year and are focused on modest revenue and prior year period, reflecting recovery of the key drivers of inventory movement. profit growth. This includes the benefit from inventory from much lower levels in the pricing, an improved sales mix and currency pandemic, as previously communicated. ### Pensions tailwinds. We will also see further investment Inaddition, trade and other receivables Our UK defined benefit (‘DB’) pension scheme in our long-term growth programmes, as they havealso increased due to a stronger closed to future accrual in 2016. The investment progress towards greater commercialisation. salesperformance in FY 2022. strategy, like many companies, has been to | hedge interest and inflation risk using Liability | Cash and other financial assets at | | | --- | --- | --- | | Driven Instruments (‘LDIs’). As gilt yields have | 30September 2022 was £68.8m (FY 2021: | Ian Melling | | risen, the pension scheme has faced cash calls | £112.4m). This includes £2.8m ring-fenced | Chief Financial Officer | | from the LDI manager which have been met | in our China subsidiaries (FY 2021: £12.5m) | 6 December 2022 | | using existing resources within the scheme. | and other financial assets of £10.1m, | | 1 Alternative performance measures are defined in note 25. Annual Report 2022 Victrex plc 29 STRATEGIC REPORT ## Chief Commercial Officer’s report Industrial revenue Industrial gross profit | £282.7m | £124.8m | | --- | --- | | +11% vs FY 2021 | +4% vs FY 2021 | | +11%* vs FY 2021 | +10%* vs FY 2021 | * Constant currency. ### Our divisional performance was strong, with ### attractive long-term growth opportunities. Martin Court Chief Commercial Officer Divisional performance is reported through Gas (‘LNG’) and some assessment of Industrial and Medical, although we applications in hydrogen. ## INDUSTRIAL continue to provide an end market-based General Industrial focuses on applications summary of our performance and growth across fluid handling, food contact materials opportunities. Within Industrial, we have and manufacturing robotics. PEEK’s unique theend markets of Energy & Industrial, combination of properties has enabled us Value Added Resellers (‘VAR’), Transport tocapitalise on the application growth in (Automotive & Aerospace) and Electronics. thisend market and metal replacement | The Chief Commercial Officer oversees the | opportunity, helping drive volume growth of | | --- | --- | | Industrial business, including the Industrial- | 4% for the Industrial proportion of Energy & | | based mega-programmes. A summary of | Industrial, compared to the prior year. Several | | allthe mega-programmes, and the strong | applications in this area are also part of our | | progress made during the year, is covered | sustainable products. | earlier in this report. ### Value Added Resellers (‘VAR’) The Industrial division saw record revenue of VAR shows a similar alignment to our £282.7m (FY 2021: £255.2m), up 11% on the Industrial end markets, with the exception prior year, with double-digit growth across of Aerospace, where sales volumes are Electronics, Energy & Industrial and VAR. largely direct to OEMs or tier suppliers. VAR Revenue in constant currency was up11%. is often a good barometer of the general Despite improved asset utilisation and health of the supply chain, with VAR operating efficiency, a softer sales mix, the customers processing high volumes of impact of foreign currency exchange and PEEKinto stock shapes, or compounds. unprecedented energy and raw material In FY 2021, VAR saw a strong recovery, inflation meant that gross margin was down assupply chains restocked following the 280bps to 44.1% (FY 2021: 46.9%). impact of the COVID-19 pandemic. Despite a challenging comparative, VAR saw 12% ### Energy & Industrial growth in volume as several end markets This segment is driven by volumes for oil & continued to improve. Sales volume was gasand new energy applications, including 2,122 tonnes (FY 2021: 1,900 tonnes), with renewables, and a wide range of applications the tailwind of good growth in end markets across General Industrial. Energy & Industrial including Electronics and Energy & Industrial saw sales volume of 830 tonnes, which was supporting VAR volume. up 9% on the prior year (FY 2021: 760 tonnes), with Energy up 19% overall, driven ### Transport (Automotive byglobal activity levels and higher capital | investment for exploration and processing. | &Aerospace) | | | --- | --- | --- | | Victrex™ PEEK has a long-standing track | Victrex continues to have a strong | | | record of durability and performance benefit | alignmentto the CO | 2 reduction megatrend, | | in many demanding applications, where the | with our materials offering lightweighting, | | | reliability of PEEK can mean less intervention | durability, comfort, dielectric properties and | | | or downtime, thereby supporting efficiency | heat resistance. As well as long-standing core | | | ofoperation. More recently, the introduction | business within Automotive & Aerospace | | | of cryogenic grades of PEEK – being able to | across a range of application areas, we | | | withstand extreme temperatures – has helped | alsomade good progress in our Transport | | | to further broaden the portfolio, with new | related mega-programmes of PEEKGears, | | | application opportunities in Liquefied Natural | E-mobility, Aerospace Loaded Brackets | | andAerospace Structures. 30 Victrex plc Annual Report 2022 Automotive continued to suffer from the STRATEGIC REPORT well-publicised shortage of Semiconductor chips, with volume being down 2% compared to the prior year. Latest market indicators suggest some improvement into 2023, including IHS which forecasts 3% growth in car production to 85 million cars. Whilst Aerospace volume was only up 2%, we saw much stronger revenue growth of 21%, driven by an improved sales mix as TM Aptiv film made further progress. Long-term trends remain supportive, with OEM forecast build rates and the trend towards faster processing and lightweight materials supporting increased content of PEEK (Airbus forecasts 39,000 new or replacement planes by 2040). Build rates have recently increased on models including the Airbus A320neo and Boeing 737 Max, both of which have Victrex™ PEEK content. We also note the recent indications of COMAC’s C919 production plan in China, where we have qualifications. A PEEK Gear component Overall Transport sales volume fell by 1% to913 tonnes (FY 2021: 926 tonnes), with Aerospace up 2% and Automotive down 2%. indicators, as recent build rate increases on Home appliances has been an area of TM | Automotive | key models containing Victrex | PEEK start | growth in recent years and our impeller | | --- | --- | --- | --- | | In Automotive, core applications include | to kick in and the industry continues to | | application business in high end brands | | braking systems, bushings & bearings and | recover from the effects of the pandemic. | | arealso performing well across a number | | transmission equipment, with increasing | | | ofproduct areas, including vacuum cleaners | | | With the lightweighting and CO | 2 reduction | | | opportunities in electric vehicles, supporting | | | and hairdryers. These applications, with | trend, long-term opportunities remain a growing E-mobility business. lighter materials and enhanced durability, strong. Our Loaded Brackets and Aerospace also offer the opportunity for improved Pleasingly, in PEEK Gears, we saw further Structures mega-programmes both grew energy efficiency. TM progress in FY 2022. Victrex HPG PEEK revenues over the period, with Loaded canoffer a 50% performance and noise Brackets exceeding £2m revenue for the ### Regional trends & Ukraine/ | vibration and harshness (‘NVH’) benefit | | fullyear as the use of composites and | | | --- | --- | --- | --- | | compared to metal gears, as well as | | differentiated products remain in demand. | Russia exposure | | contributing to the trend for minimising | | We have also benefited from some retrofit | With the lifting of many COVID-19 restrictions | | CO | emissions through weight & inertia | opportunities for composite parts, using our | much later in the US, we saw further strength | 2 | | TM | | in this region coming through in the second | | --- | --- | --- | --- | | reduction, and quicker manufacturing | AE 250 low-melt PEEK grade, which | | | | compared to metal. A typical PEEK Gear | supports faster and simpler processing. | | half. Conversely, the impact of some further | | offers the potential of approximately | | | lockdowns in China meant Asia-Pacific | | | The ability to support CO | 2 reduction | | | 20grams per application. | | | growth was lower. More recently, Europe | through PEEK materials which are typically saw more volatility in the second half, though Within the growing E-mobility sector, we 60% lighter than metals also remains strong, the strength of VAR in Europe drove good saw new business wins during the year, with our assessment that over 53 million growth for the year as a whole. TM | including those which utilise our Aptiv | tonnes of CO | 2 could be saved over the | | | --- | --- | --- | --- | | film. Applications include wire coatings and | next15 years if all new single aisle planes | | Overall by region, Europe was up 5%, | | e-motor applications, where PEEK’s inert | were produced with over 50% PEEK | | at2,554 tonnes (FY 2021: 2,432 tonnes), | | nature, high strength, durability and ability | composite content. | | reflecting further improvement in VAR, | | to process faster offer key performance | | | withNorth America up 18% at 952 tonnes | | benefits. Our focus remains on the next | | | (FY 2021: 807 tonnes), principally driven by | ### Electronics generation of high voltage (800 volt) VAR and Energy & Industrial. Asia-Pacific was With a buoyant global Semiconductor sector, vehicles, where the stringent performance up 8% at 1,221 tonnes (FY 2021: 1,134 tonnes), demand for materials used in Semiconductor requirements make the choice of material driven by continued growth in Electronics manufacturing was strong. Volumes grew even more critical. and VAR. 10% at 662 tonnes (FY 2021: 602 tonnes). Aerospace Prior to the Ukraine conflict, Victrex had no Victrex has a broad range of PEEK applications Aerospace volumes were up 2% reflecting active sales to Ukraine, with Russia and Belarus in this end market, including Semiconductor, some recovery in the first half, with a softer sales negligible. Victrex has no employees, the internet of 5G applications, cloud second half as the supply chain was assets or supply chain within these countries computing and core applications like CMP restocked. Revenue was ahead, driven and no direct raw material purchases. rings and other extended application areas. bysales mix and a greater share from Our Aptiv™ film business and small space composite materials and applications using acoustic applications showed good growth TM Aptiv film. The opportunity in FY 2023 this year and we continue to see a positive looks supportive based on industry outlook for this end market into FY 2023, albeit with absolute growth rates expected to be lower. Annual Report 2022 Victrex plc 31 STRATEGIC REPORT STRATEGIC REPORT ## Chief Commercial Officer’s report continued Medical revenue Medical gross profit | £58.3m | £49.7m | | --- | --- | | +14% vs FY 2021 | +9% vs FY 2021 | | +9%* vs FY 2021 | +10%* vs FY 2021 | * Constant currency. ### Our Medical business continues to diversify, with continued ### good growth in non-Spine and geographically. Martin Court Chief Commercial Officer ### Regional trends & Ukraine/ mega-programmes, and the strong progress made during the year, is covered earlier in ### Russia exposure continued ## MEDICAL this report. Revenue in Medical was up 14% at £58.3m (FY 2021: £51.1m) as elective surgeries ### returned in greater numbers. Medical strategy Our Medical aspirations are for our solutions In constant currency, Medical revenue was to treat a patient every 15–20 seconds by up 9%. Gross profit was £49.7m (FY 2021: 2027 (from approximately 25–30 seconds £45.6m) and gross margin was down slightly now) and the Group is seeking to prioritise at 85.2% (FY 2021: 89.2%) primarily reflecting investment in Medical, with the aim of a slightly adverse sales mix as we saw faster driving an increased proportion of revenue growth in Non-Spine. Overall Medical from this division over the next 10 years, volume (implantable and non-implantable) potentially up to one third of Group revenues. was up 8%, driven by implantable, with | non-implantable slightly ahead, despite | During the year we commenced investment | | --- | --- | | thetougher year on year comparison for | in a New Product Development Centre of | | business gained in COVID-19 related | Excellence in Leeds, UK, part of our focus on | | applications. Geographically, Asia-Pacific | how we can drive adoption more | | revenues were up 40% year on year, with | meaningfully in this area. This is located | | Medical revenues in the US up 6% and | close to academia who we already have | | Europe up 11%. | strong links with, together with new | partners. We already have Medical The Chief Commercial Officer oversees the manufacturing capability and innovation for Medical business, including the Medical-based our parts businesses – Trauma and Knee – mega-programmes. A summary of all the and this new Centre will work to scale up We are seeking to grow the proportion of revenues from Medical 32 Victrex plc Annual Report 2022 STRATEGIC REPORT Our PEEK Knee manufacturing involves significant know-how our opportunities. Additionally, the benefit innovate and develop new products for ### Mega-programmes of our solutions lies in the data and we are Spine, usage of 3D printed titanium cages As noted elsewhere in this report, our PEEK seeking to utilise this in an improved way continues to rise, especially in the US. Knee programme saw significant progress, with global medical device manufacturers. Volume-based procurement in China with a total of 30 implants as part of the This will be one of the key overhead couldalso impact revenues in Spine, clinical trial. 12 patients have successfully investment items in FY 2023, as we build whichvalidates our goal of further passed the 12-month follow upphase additional capability and skills in this area, growingour non-Spine business. withno remedial requirements. Aspart with approximately 25 new roles. Whilst We also continue to focus on non-Spine ofthe clinical trial with our partner Maxx wehave made good progress in being able areas such as Cranio Maxillo Facial (‘CMF’), Orthopaedics, trial sites are now operating to address what medical device customers Arthroscopy & Sports Medicine and Drug in Belgium, India and Italy, with aUS trial require, we will need to continue developing Delivery devices, as well as emerging or site also anticipated in FY 2023. new products to enable a full suite of incremental opportunities in Cardio, where solutions. Anexample is in Knee where In Trauma, beyond our trauma PEEK is now used in applications within thePEEK Knee is progressing through a mega-programme, our data shows good anartificial heart. Non-Spine overall now clinical trial, yet opportunities within a indicators on the union rate for PEEK based represents 50% of divisional revenues. cementless knee replacement arebecoming plates compared to metal plates (data on Spineis our historic end market which, more in focus. file, based on Trauma plates in high risk whilst it has become more mature in patients). Our solutions for CMF continue to recentyears, is one we continue to diversify see strong growth, particularly in Asia, with ### Spine and non-Spine through focusing on emerging geographies a well-regarded study showing better brain Whilst Spine remains 50% of divisional and new innovative products. Our premium function using PEEK in CMF plates compared revenue and saw 2% revenue growth, TM and differentiated PEEK-OPTIMA HA to metal (25% improved brain function theimportance of next generation Spine Enhanced product (‘POHAE’) – to drive next based on paper by Zhang Q, Yuan Y, Li X, products will be key in maintaining PEEK’s generation Spine procedures – is one part etal, World Neurosurgeon 2018). position in this segment, including the ofour strategy to grow our Medical opportunity for Porous PEEK, where a spinal business, with annualised revenues being cage can support bone-in growth as well above £1m and good opportunities globally, Martin Court asbone-on growth. Whilst we continue to and in Asia particularly. Chief Commercial Officer 6 December 2022 Annual Report 2022 Victrex plc 33 STRATEGIC REPORT ## Risk ## RISK MANAGEMENT ### Risk management is embedded in Victrex’s culture, ### ensuringthatweassessrisks as part of delivering our strategy. ### 1. RISK AGENDA ### 2. RISK ASSESSMENT 3. RISK RESPONSE 4. RISK GOVERNANCE ### Analysis and recording of risks ### RISK AGENDA Our business areas and functional teams are responsible for the ## 1. Why do we undertake riskmanagement? dayto day management and reporting of risks. They identify risks including new and emerging issues, escalating where required and ensuring risks are managed appropriately. The causes and potential ### Risk objectives consequences of each risk are recorded in risk registers. Each risk is The Board is responsible for determining the Company’s risk evaluated based on its likelihood of occurrence and severity of appetite in delivering Victrex’s strategy as set out on pages 14 and impact on strategy, profit, regulatory compliance, reputation and/or 15. Victrex undertakes risk management with the objective of people. Risks are evaluated at both a gross and net level. This facilitating better decision making, resilience and sustainability in approach allows the consistent identification and evaluation of risks order to continually improve the performance of our business. and identifies the current mitigations and any further activities required to bring the risk to a tolerable level. This is particularly important as the business continues to move downstream into semi-finished and finished products, further expands We operate a three lines of defence risk assurance model: geographically and supports market adoption and building demand 1st line of defence: The day to day operational risk management, for the mega-programmes, alongside growing ourcore business. including the systems and processes established to ensure internal We believe that Victrex is well placed to meet the demands of controls are in place and effective. theincreasingly prominent ESG agenda but must also consider 2nd line of defence: Monitoring and Compliance activities which therisks and costs associated with stricter emissions targets, advise and oversee first-line controls and risk management lifecycleand otherrequirements. processes, primarily through Group functions that are at least one step removed from first-line management. ### Risk strategy The Board is responsible for ensuring the effective operation of 3rd line of defence: Independent business assurance provided by theGroup’s risk management framework and for ensuring risk both third parties and the Group Internal Audit team over the first management activities are embedded in Victrex’s processes. and second lines of defence. TheBoard is also responsible for ensuring that appropriate and proportionate resources are allocated to risk management activities. ### RISK RESPONSE ## 3. ### RISK ASSESSMENT ## 2. How do we assess andrecordrisks? The risk registers and profiles are regularly reviewed, to keep them up to date and relevant to our strategy. When assessing risk, management considers in detail: For each risk, we decide whether to eliminate the exposure, mitigate u external factors, including legal, regulatory and environmental, it through further controls, transfer it (e.g. through insurance) or social and governance (‘ESG’) factors arising from the tolerate any residual risk. environment in which we operate; and We continually challenge the efficiency and effectiveness of existing u internal factors arising from the nature of our business, internal internal controls and seek to continually improve our risk controls and processes. management framework. The risk profile ensures that risk reduction activity is captured and managed, with oversight provided by the Risk and Compliance team. 34 Victrex plc Annual Report 2022 When a significant new risk arises where a response is required u the Victrex bi-monthly Risk and Compliance review meeting STRATEGIC REPORT inatimely manner such as COVID-19, raw material challenges or provides oversight for the risks, controls and assurance activity inflation, a dedicated working group is established to ensure that across the business including Legal, Regulatory, SHE, Quality, appropriately robust oversight and management are applied and Security and Internal Audit. The group comprises the CEO, CFO, mitigations implemented. CCO, COO alongside a number of other senior leaders; We use insurance as a mitigation tool in our response to several risks u as appropriate, significant incidents, issues and new risks and are and potential financial impacts that can result. We regularly review reported into the Board via the relevant Executive Director; and and update the types and limits of our insurance coverage, ensuring u risk management is also an integral aspect of Group function that they are aligned to external obligations, insurance product governance, including through the Safety, Health and developments and changes to our corporate risk profile. The insurance Environment Steering and Quality Steering Committees, both programme and levels of cover are reviewed annually by the Board. meeting quarterly, and the ESG Steering Group, which meets twice a year. ### RISK GOVERNANCE ### Emerging risks ## 4. How do we evaluate and provide assurance The Board has identified and assessed emerging risks as part of ### over our management of risks? theestablished risk management and strategic planning processes. The key emerging risk areas identified were: The following processes are in place to provide effective u raw materials – including potential longer-term issues with their riskgovernance: continued availability, for example through climate-related u the Board is responsible for approving the risk management impacts – has been evaluated as an area to be closely monitored; policy and determining the nature and extent of the risks it is u new legal and regulatory aspects – resulting from the changing willing to take in achieving its strategic objectives. The Board business footprint, complexity and evolving regulatory considers the continued effectiveness of risk management environment; and processes, controls and culture, changes to principal risks and their management, and the quality of our public reporting u future of end markets – redirecting focus and resources to process. Twice yearly, the Board carries out a comprehensive sustainable end markets and products with environmental review of the principal risks; &societal benefits in line with global megatrends. u the Audit Committee responsibilities include reviewing the These emerging risks have been recorded and will be continually Company’s risk management systems to provide assurance of monitored through the ongoing Corporate Risk Management operational effectiveness, compliance with laws, regulations process so that their potential impact can be further understood andcontracts; and mitigated. They will also be considered as an integral part ofthestrategic planning process. u the Risk & Compliance function supports the Audit Committee in its review of the effectiveness of the system of internal control, ### Climate-related risks and opportunities as do the external auditors on matters identified during the We support the recommendations of the Task Force on course of their statutory audit work; Climate-related Financial Disclosures (‘TCFD’) and have made u the Group’s Internal Audit function provides independent and significant progress over the last year assessing and defining our objective 3rd line assurance to the Victrex plc Audit Committee climate-related risks and opportunities (see pages 52 to 57). Dueto on the adequacy and effectiveness of our risk management the longer-term nature of climate-related risks it has not been andkey internal control processes within the business. considered to be a principal risk in its own right at this time. There Acomprehensive ‘audit universe’ document defines the range of are, however, clear links to existing principal risks such as Supply potential audit activities and the internal audit plan provides the Chain and Strategy Execution. As such, climate-related risks and schedule of audit work that covers specific risks, core processes opportunities have been a key feature of the FY 2022 strategic (cyclical), key programmes and geographic regions. Both are planning process and will continue to be reviewed and developed approved by the Audit Committee, at least annually; bythe Corporate Responsibility Committee (formed in FY 2022). u the Executive Risk Management Committee, chaired by the Chief ### Financial Officer, reviews the corporate risk register at leasthalf COVID-19 Pandemic risk yearly to ensure it remains appropriate and effective. During the The COVID-19 risk has reduced further over the last year with the year feedback from these reviews is provided directly to the continued progress of vaccination programmes and general relaxation Audit Committee and the Board by the Director of Risk of local restrictions in most of our operating geographies, with the &Compliance. The Executive Risk Management Committee exception of China which retains significant local and national comprises: the Executive Directors (CEO, CFO and CCO), controls. As such it is no longer deemed to be a principal risk. ChiefOperating Officer, Group HR Director, General Counsel COVID-19 control procedures and physical controls, where required, &Company Secretary and Director of Risk & Compliance. Risk remain in place. In geographies where these controls are no longer management subcommittees and Warranty Committees provide needed, or where restrictions have been relaxed significantly, our further governance for specific business areas or programmes procedures remain on ‘standby’ should they be required once more where they are deemed necessary; for example, Transport for this or other potential pandemics. Although the risk is deemed (Automotive and Aerospace) and Medical are covered due to to be low at this time, the potential remains for seasonal spikes and current business activity. These meetings and key risks are new variants that could escalate the risk once more. As a result, the briefed into both the bi-monthly Risk and Compliance meeting situation continues to be closely monitored. and the Executive Risk Management Committee (at least half yearly) via their respective Chairs, who are all Executive Risk Overall, we are not expecting to see any significant damage Management Committee members; toourgrowth prospects as the impact of the pandemic has nowdiminished. Annual Report 2022 Victrex plc 35 STRATEGIC REPORT ## Risk continued ## MANAGING OUR RISKS ### The Group’s strategic objectives can only ### SAFETY, HEALTH ANDENVIRONMENT ### be achieved if certain risks are taken and ### managed effectively. We have listed 1 Primary link to strategy Link to climate change ### below the most significant risks that may ### affect our business, although there are ### other risks that may occur and impact Risk area and description ### theGroup’s performance. Delivery of our strategy is dependent on us conducting our business safely. Given the nature of our various manufacturing facilities, a significant operational disruption could adversely affect the safety of people on or close to our sites. Disruption could also impact our ability Key to strategy tomake and supply products. The environment in which Victrex operates is subject to numerous Create legislative and regulatory requirements. A failure to comply could Drive &deliver adversely impact the local environment, our employees, our manufacturing capability, or the attractiveness of our business or products to various stakeholders. Differentiate Underpin In addition, climate change poses a number of risks to the business. Minimising our environmental impact and ensuring future business sustainability as we transition to a low-carbon economy are Risk heatmap fundamentalobjectives. High | | | 4 | 3 | | | | --- | --- | --- | --- | --- | --- | | | | | | 8 | Mitigation | | 1 | 5 | | | | | | | | 2 7 | | | Safety, Health and Environment (‘SHE’) remains our number one priority. | We have policies and procedures to manage our operations; protect the safety and health of our employees, contractors and visitors; and manage 6 our environmental responsibility by reducing emissions to continually Impact improve our resource efficiency. To further strengthen our SHE culture we have implemented several new programmes including the launch of our ‘Golden Rules’ initiative and the Leadership Engagement ‘toolkit’, which have both improved our awareness of, and conversations around, our SHE related behaviours. Significant focus has been placed on process safety hazards and control Low procedures in FY 2022. We have partnered with external leaders to provide additional independent assessment and assurance of relevant Low Likelihood High plants andprocesses. Any events that do occur are investigated to determine root causes and remedial actions are put in place to prevent re-occurrence. SHE software 1. SAFETY, HEALTH & ENVIRONMENT across all global assets has been upgraded and improved over the last 2. RECRUITMENT AND RETENTION OF THE RIGHT PEOPLE year to further support this. Additional detail of the SHE performance and progress made in the year 3. SUPPLY CHAIN is contained in the Sustainability report on page 65. 4. NETWORK AND IT SYSTEMS & SECURITY 5. PRODUCT LIABILITY 6. LEGAL AND REGULATORY COMPLIANCE, ETHICS ANDCONTRACTS 7. STRATEGY EXECUTION Change 8. GEO-POLITICAL AND MACRO-ECONOMIC ENVIRONMENT (NEW) No change Note: Following the latest Board Risk Management Review, Business Viability statement links Growthand COVID-19 Pandemic have been removed as principal risks. The COVID-19 Pandemic risk has been retained in the corporate risk register and Risk considered will continue to be monitored and reviewed through the risk management process. The Business Growth risk has been realigned, now sitting under the Risk focused on in sensitivity analysis Strategy Execution risk. In addition, the Geo-political and macro-economic environment has now been established as a new principal risk. 36 Victrex plc Annual Report 2022 STRATEGIC REPORT ### RECRUITMENT AND RETENTION SUPPLY CHAIN ### OFTHERIGHTPEOPLE 32 Primary link to strategy Link to climate change Primary link to strategy Link to climate change Risk area and description Risk area and description Our success depends on our ability to recruit and retain the right people. Failure to maintain a secure supply of high quality products to our Victrex relies on the skills, knowledge, experience and competence of our customers globally could lead to loss of earnings and damage to people in order to drive business growth and successfully execute our reputation. This could be caused by, for example, incapacity of our downstream strategy. production facilities, quality failure or restricted access to raw material supplies or transport links potentially leading to insufficient levels of Due to the nature of our business, there is an inherent requirement for inventory and/or manufacturing capacity. highly skilled employees (for example in areas of polymer chemistry, R&D and process engineering) and the specific end market related Whilst the COVID-19 risk has reduced significantly at a Group level, competencies needed (for example in Medical and Aerospace parts China’s zero-tolerance approach and the resulting control measures, manufacturing).Volatility in the recruitment market continues to pose a including lockdowns and restrictions, still have the potential to impact challenge. Our ability to recruit and retain talent is affected by numerous ouractivities in the region. factors including: pay and benefits, culture, sustainability credentials, the In addition, climate change poses several specific supply related risks nature of the working environment, regional employment levels and toVictrex and our suppliers, including: potential asset or production changing workforce behaviours. disruptions due to rising sea levels and increasingly harsh weather In the post-COVID-19 recruitment market, there is a far greater eventsor cost impacts due to changes in carbon taxation and increased expectation for flexible working arrangements and less dependency on energy costs. location-based roles. Mitigation Mitigation Enhancing workforce planning has been a key area of development. Our policy is to keep capacity ahead of demand by continually investing Digitalisation of recruitment and applying a future-skills perspective has inour supply chain so that our customers can be confident that we can been progressed via related tools, processes and the graduate meet their requirements today and in the future. programme, which has recently been established. Increases in demand are anticipated by and consistent supply is Our headcount and recruitment approval process has been streamlined maintained through a robust integrated business planning (‘IBP’) process toenable faster pace of change and more flexibility. for which we have been awarded Class A Standard. We have also targeted priority learning and development programmes Strategic supplier sourcing, development and performance management across all levels – investing in people as an attraction and retention tool. are our key mitigations for the quality and security of supply of key raw materials. We have continued to focus on the breadth and resilience of We have succession plans in place for key roles and develop our future our supplier base in response to the current and future uncertainties, leaders so that we are able to promote internally as a retention lever, particularly those associated with energy availability and energy related aswell as bringing in new talent from the outside where required. cost impacts including supplier assessments and regular audits. We also We have enhanced our Diversity and Inclusion, and flexible working consider alignment with our Modern Slavery policy and human rights policies over the last year. We have set targets and comprehensive action policies within our supplier review process. plans to ensure we continually increase the diversity of our workforce. In our own operations, we have reviewed the possible contingencies for Weregard this as a commitment to make full use of the talents and energy interruptions affecting our manufacturing sites, including the use resources available. of alternative fuel sources. As our employees have returned to our sites following COVID-19, we have made full use of our flexible working policies to provide the best working environment for our existing employees and expand our reach when recruiting externally. Change Change No change No change Viability statement links Viability statement links Risk considered Risk considered Risk focused on in sensitivity analysis Annual Report 2022 Victrex plc 37 STRATEGIC REPORT ## Risk continued Create Key to strategy Drive Differentiate Underpin &deliver ### NETWORK AND IT SYSTEMS & SECURITY PRODUCT LIABILITY 54 Primary link to strategy Link to climate change Primary link to strategy Link to climate change Risk area and description Risk area and description Targeted cyber attack could result in the theft, manipulation or Selling into highly demanding end-use applications and regulated markets destruction of confidential and sensitive information and severely disrupt such as Medical and Aerospace means a failure to supply in accordance business operations. with the agreed specification has the potential to lead to consumer harm or a potential product liability claim. This could result in fines or damages Significant failure or interruption to our IT systems or services could lead being payable and could in turn lead to a loss of business and to business process disruption. reputational damage. The increase in homeworking could lead to an increased risk of breach orloss of key services. Mitigation Mitigation Victrex operates a Global Information Security Management System, Robust regulatory standards and accredited quality management systems aligned to ISO 27001 and NIST, to provide a multi-layered approach are in place relevant to our markets, including Medical Devices, tosecurity and control. Automotive and Aerospace. We have continued to make enhancements to the control framework and As the business continues to move downstream into semi-finished and layers of defence, including: using best of breed Extended Detection and finished products we are dealing with increasingly onerous and complex Response (‘XDR’) and Security Incident and Event Management (‘SIEM’) liabilities. As a result, we have established Warranty Committees which technologies, along with next generation firewalls and Network Access provide additional governance over our key programme activity in the Control (‘NAC’). Automotive and Aerospace sectors. Core networks have been improved to introduce a global Software We continue to utilise external experts to support with complex contract Defined (‘SD’) LAN and WAN. matters, where required. Independent external experts are regularly engaged to conduct We use supply contract terms and conditions to limit exposure, which assessments, including penetration testing, cyber health and awareness includes agreed specifications and manufacturing to defined standards along with ongoing certification to Cyber Essentials Plus. We also have a and processes. In addition, the Group maintains appropriate levels of Global Incident Response plan, supported by third-party experts, for crisis product liability insurance. response within both IT and OT networks. A robust Management of Change process is used to ensure that supply Our recently expanded internal Security Operations Centre and team and quality are consistent and any change in use is appropriatelyvalidated. provide round the clock detection and response capabilities. In the past year we have strengthened several product regulatory control We continuously review the latest threats and trends in cyber and IT procedures and the governance arrangements by further expanding the security to ensure our protection is current and effective. To support this Regulatory and Product Stewardship team including establishing we have implemented additional mandatory training which is applicable specialists in key markets such as China. to all users. These measures have been further enhanced to improve protection during a period of extensive homeworking. Change Change No change No change Viability statement links Viability statement links Risk considered Risk considered Risk focused on in sensitivity analysis 38 Victrex plc Annual Report 2022 STRATEGIC REPORT ### LEGAL AND REGULATORY COMPLIANCE, STRATEGY EXECUTION ### ETHICS AND CONTRACTS 6 7 Primary link to strategy Link to climate change Primary link to strategy Link to climate change Risk area and description Risk area and description We are required to adhere to all applicable laws, regulations and ethical Our future business growth is dependent on the effective implementation standards including those covering: of our strategy. u anti-bribery and corruption; This risk considers the potential failure to execute the strategy effectively and generate value. Key elements include: maintaining the health of our u exports and sanctions; core business, generating innovation-based growth, including the u competition; increasing importance of parts in addition to polymer, and protecting andmanaging intellectual property. u data protection; and Successfully managing the climate-related risks (and opportunities) u human rights, modern slavery and labour. summarised in the TCFD section (pages 52 and 57, including the end Any failure to comply with contractual commitments and ethical and market risks associated with internal combustion engine transportation regulatory compliance standards has the potential to result in loss of and Oil & Gas, remain fundamental to the successful execution of the earnings, civil or criminal legal exposure, or reputational damage, and business strategy. could affect our ability to achieve the business strategy. Our future opportunities in a number of markets, and activity in new geographies, for example into China, will bring new regulatory challenges and contractual requirements to meet. Mitigation Mitigation Compliance policies, procedures and training are in place for key The Group has a well-established and clear business strategy which is regulatory compliance risks. subject to a robust annual review process to ensure its continued effectiveness. The Board monitors progress in implementing the strategy Our Code of Conduct is in place, which is regularly reviewed, and at each Board meeting. mandatory training is provided. Over the last year these areas have been reviewed and refreshed. Compliance is monitored and reported to the Our UK manufacturing improvement plans have continued and will be Executive Risk Management Committee. delivered over the coming years which will strengthen the security of supply to our customers. We continue to use internal and external subject matter experts to support risk identification, set standards and policies and provide advice We continue to offer a strong value proposition as a solutions company and training. Over the last year an external party has been engaged to – unique chemistry, specification of products with end users, quality and review and advise on our risk and legal framework across the business. technical service, the performance and sustainability benefits of our products and the ability to develop new applications. Commercial contracts and our pricing strategy are reviewed by our Legaland Product Management teams. We monitor technological changes to materials and potential challenges for PEEK and PAEK polymers by developing new grades with differing As our business activities expand, for instance into China, appropriate properties, as well as creating new markets for PEEK/PAEK polymers. policies and procedures are being put in place to manage the associated regulatory requirements. A Project Management team is in place to manage each innovation programme as a clearly defined project. Governance is achieved through We have a dedicated Regulatory team in place which has been further a Portfolio Steering Committee which tracks milestone achievement. strengthened over the last year, including additional resource in China. As our intellectual property (‘IP’) is critical to the delivery of our strategy, robust protective controls are in place, which are supported by our dedicated IP team. Specific emphasis has been placed on our approach to IP management in China over the year, as we continue to develop our activity in the region. Change Change No change No change Viability statement links Viability statement links Risk considered Risk considered Risk focused on in sensitivity analysis Risk focused on in sensitivity analysis Annual Report 2022 Victrex plc 39 STRATEGIC REPORT ## Risk continued Create Key to strategy Drive Differentiate Underpin &deliver ### GEO-POLITICAL AND MACRO-ECONOMIC ### ENVIRONMENT (NEW) 8 Primary link to strategy Link to climate change Risk area and description We serve over 40 countries globally, operating in numerous geographies across a range of markets which can be affected by political and/or economic changes or uncertainties. Risks related to the geo-political and macro-economic conditions have increased over the year primarily as a result of the ongoing war in Ukraine and both China’s economic outlook and its ‘zero-tolerance’ approach toCOVID-19. International tensions with China may create additional challenges in doing business there. Uncertainty in global economic outlook including inflation, potential changes in carbon taxation, energy prices and impacts on aspects such asinterest rates and exchange rates have the potential to affect our profitability including end customer demand, cost pressures, competitive dynamics and other factors. This external environment has the potential to impact a number of other principal risks and the delivery of our strategic objectives. Mitigation A key mitigation is close monitoring of the geo-political and macro-economic conditions and reacting accordingly through the business strategy process. Our range of markets and geographic spread help to mitigate political and economic change. Threats from low cost (regional) competitors are being addressed through our strategy in China. Development of PEEK production capability in China has continued and remains on track for commissioning in FY 2023. Uncertainty in supply chains is being addressed by accelerating supply resilience activity around dual/multiple sourcing of key raw materials. Maintaining UK production of key raw materials ensures we are not solely reliant on international routes. Reducing the impact of potential regional changes to carbon-based taxation is being mitigated through the business carbon reduction plan, which includes transitioning to greener energy and targeting manufacturing processes to reduce absolute energy usage. We use foreign exchange hedging to delay the impact of changes inexchange rates. We consider longer-term options to address geo-political and macro-economic factors as part of the strategic review process. Change This risk is a new principal risk separating the external factors from the previous Business Growth risk. The risk has increased in the year due tofactors noted above. Viability statement links Risk considered Risk focused on in sensitivity analysis 40 Victrex plc Annual Report 2022 Going concern and viability statement # Going concern The Directors have performed a robust going concern assessment including a detailed review of the business' 24-month rolling forecast and consideration of the principal risks faced by the Group and the Company, as detailed on pages 34 to 40. This assessment has paid particular attention to the impact of the ongoing global economic challenges on the aforementioned forecasts. The Company maintains a strong balance sheet providing assurance to key stakeholders, including customers, suppliers and employees. The combined cash and other financial assets balance at 30 September 2022 was £68.8m, having reduced from £112.4m at 30 September 2021 following payment of the regular and special dividends of £83.5m in February 2022. Of the £68.8m, £2.8m is held in the Group's subsidiaries in China for the sole purpose of funding the construction of our new manufacturing facilities. Of the remaining £66.0m, approximately 80% is held in the UK where the Company incurs the majority of its expenditure and 85% is held in instant access accounts. The Group has drawn debt of £15.7m in its Chinese subsidiaries (with a total facility of c.£40m available until December 2026) and has unutilised UK banking facilities of £40m through to October 2024, of which £20m is committed and immediately available and £20m is available subject to lender approval. The 24-month rolling forecast is derived from the Company's Integrated Business Planning (IBP) process which runs monthly. Each area of the business provides revised forecasts which consider a number of external data sources, triangulating with customer conversations, trends in market and country indices as well as forward-looking industry forecasts. For example, forecast aircraft build rates from the two major manufacturers for Aerospace, World Semiconductor Trade Statistics Semiconductor market forecasts for Electronics through to 2024 and Needham and IQVIA forecasts for Medical procedures. The assessment of going concern included conducting scenario analysis on the aforementioned forecast which, given current economic forecasts, focused on the Group's ability to sustain a period of falling demand, whether caused by a pandemic, geo-political event(s) or other global economic challenges. In assessing the severity of the scenario analysis, the scale of the impact experienced during previous economic downturns has been used, including the differing impacts on Industrial versus Medical segments. Using the IBP data and reference points from previous downturns management has created two scenarios to model the effect of reductions to revenue at regional/market level and aggregated levels on the Company's profits and cash generation through to January 2024. The impact of climate change and the Group's Net Zero 2030 goal for its own operations (Scope 1 & 2 emissions) has been considered as part of this assessment. Any impact on revenue over the shorter going concern period, either positive or negative, is likely to be insignificant, with the greater risk being that of higher carbon taxes. The current elevated price of gas and electricity included in the 24-month forecast, reflecting current supply side uncertainty, and the government focus on limiting the impact of the current economic slowdown means that additional carbon taxes over the going concern period are considered unlikely, and therefore no additional costs have been included in either the base forecast or the scenarios noted below. Scenario 1 – the global economy contracts with sales volumes reducing by 30% from the level seen over the past 12 months, to approximately 280 tonnes per month, from January 2023 for a period of six months (to mirror the length of the most recent downturn in 2020) before a partial recovery to c.330 tonnes per month for the remainder of the going concern period. Medical revenue remains unchanged from the past 12 months' run rate, with the economic situation historically having minimal impact on this segment. Scenario 2 – in line with scenario 1, c.280 tonnes per month from January 2023, but, the economic contraction lasts for a full 12 months, i.e. throughout the going concern period. This would give an annual volume of c.3,300 tonnes, a level not seen since 2013. Prior to COVID-19, the last recession was the financial crisis in 2008 and 2009 which lasted approximately 12 months. In this scenario Medical revenue is reduced by 10% during the second six months to reflect a limited impact from a longer lasting slowdown. The Group considers scenario 2 to be a severe but plausible scenario. Before any mitigating actions the sensitised cash flows show the Company has significantly reduced cash headroom. Under scenario 2 there is minimal cash generation through the going concern period and there is potential that the committed facility would be required to manage intra-month cash flows. However, the Company has a number of mitigating actions which are readily available in order to generate significant headroom. These include: - use of committed facility – £20m could be drawn at short notice. Conversations with our banking partner indicate that the £20m accordion could also be readily accessed. The covenants of the facility have been successfully tested under each of the scenarios; - deferral of capital expenditure – the base case capital investment over the next 12 months is approximately £50m as major projects are completed in China and the UK. This could be reduced significantly by limiting expenditure to essential projects, deferring all other projects later into 2024, with the exception of completing the manufacturing facilities in China which will continue as planned; - reduction in discretionary overheads – costs would be limited to prioritise and support customer related activity; and - deferral/conciliation of dividends – the dividend payable in June 2023 could be deferred or cancelled. The Company's intention is to continue payment of dividends where cash reserves facilitate but it remains a key lever in downside scenario mitigation. Reverse stress testing was performed to identify the level that sales would need to drop by in order for the Group to run out of cash by the end of the going concern assessment period. Sales volumes would need to consistently drop materially below the low point in scenario 2 which is not considered plausible. As a result of this detailed assessment and with reference to the Company's strong balance sheet, existing committed facilities and the cash preserving levers at the Company's disposal, but also acknowledging the current economic uncertainty as a number of global economies close to/in recession and the war in Ukraine continues, the Board has concluded that the Company has sufficient liquidity to meet its obligations when they fall due for a period of at least 12 months after the date of this report. For this reason, they continue to adopt the going concern basis for preparing the financial statements. STRATEGIC REPORT Annual Report 2022 Victree plc 41 STRATEGIC REPORT ## Going concern and viability statement continued ### Viability statement 3. Assessment of viability 1. Assessment of prospects To make their assessment of viability, the Directors have tested a The Directors have assessed the Group’s longer-term prospects, number of additional scenarios on the base case position of the primarily with reference to the results of the Board-approved five-year strategic plan. These scenarios encompass key trading five-year strategic plan. This is driven by the Group’s business model assumptions combined with the potential impact of crystallisation (detailed on pages 12 to 13) and strategy (detailed on pages 14 to ofone or more of the principal risks over the five-year period. 19), which are fundamental to understanding the future direction of Whilsteach of the principal risks has a potential impact, the scenario the business, while factoring in the Group’s principal risks (detailed analysis has been focused on those considered to have the most on pages 34 to 40) and the potential opportunities and risks of significant financial impact, primarily to the revenue growth of the climate change (detailed on pages 52 to 57). The Directors continue Group. The risks have been assessed for their potential impact on to consider the ongoing challenges to the global economy and the the Group’s business model, future trading and funding structure. uncertainty this creates, particularly in the early years of the strategic The continuing progress in the mega-programmes is forecast to plan. The Directors have also considered the Group’s ability to have a material impact on the Group’s revenue over the strategic generate cash and maintain a strong financial position throughout period. The business case behind each of these programmes the economic cycle, including the level of available cash at remains robust, and in most cases is enhanced by the global 30September 2022. ambition to reduce carbon emissions and increased desire for wider The strategic planning process is undertaken annually, and includes societal benefits from the Medical industry. Limited delays to the analyses of profit performance (including our core business and new mega-programmes did arise during the pandemic but progress on product pipeline and ‘mega-programmes’), cash flow, investment milestones has accelerated in the past 12 months, as evidenced by programmes (including manufacturing capacity increases and our the Knee clinical trial programme and acquisition of Magma by acquisition pipeline) and returns to shareholders. Completion of TechnipFMC. Timing of milestone achievement and the resulting thestrategic plan is a Group wide process engaging employees impact on revenue growth remains the key variable across the throughout the business, including all senior management in their mega-programme portfolio which the Directors have incorporated respective areas. The strategy was reviewed and approved by the into scenario 3 described below. Board in May 2022 (covering the five years to September 2027). The impact on the strategy of both the Company achieving Net Zero Thestrategy is built market by market, geography by geography Carbon by 2030 for its own operations (Scope 1 & 2 emissions) and recognising the differing dynamics in each whilst also considering the wider economy achieving Net Zero Carbon over a long period the longer-term impact of the Company achieving Net Zero Carbon has been more fully assessed during 2022. The physical risks and for its own operations (Scope 1 & 2 emissions) combined with the transitional opportunities and risks have been considered in detail as wider global ambition to reduce carbon usage over varying time described in the Sustainability report on pages 1 to 74. The physical periods. The Company also operates a shorter-term rolling risks presented by climate change are not expected to have a 24-month forecast, predicated on the IBP process, which forms the material impact on the Company’s ability to manufacture product basis for the 2023 budget and key operational decisions over this over the strategy period and therefore no sensitivity has been shorter time frame. The first two years of the strategy align to the performed. At the revenue level the transitional opportunities are rolling forecast. considered to outweigh the risks over both the short and longer The Board considers five years to be an appropriate time horizon for time horizons, supporting continued revenue growth albeit the our strategic plan, being the period over which the Group actively impact of this is only likely to be material outside of the five-year focuses on its development pipeline and resulting capital investment strategy window. The primary transitional risk relates to carbon programme. As part of our longer-term considerations, to support pricing and the likely levers used by regulators and governments to capacity planning, climate change modelling and assessment of drive down use of carbon – taxation and levies. TheGroup’s projects which will take longer to reach meaningful revenue, the manufacturing and supply chain does use significant gas, electricity Group does prepare forecasts for a period of more than five years; and water whilst also generating hazardous waste. Work is ongoing however, a period greater than five years is considered too long for to reduce the use of carbon in the manufacturing process, both the strategic plan given the inherent uncertainties involved. through using green sources but also redesigning the chemical process to reduce the overall energy requirement and waste 2. Viability period generation. Acknowledging the risk to the decarbonisation ofthe The Directors have assessed the viability of the Group over the manufacturing process, primarily in respect of timing, an increased five-year period to September 2027, being the period covered by cost of operation from taxation and levies has been assumed in theGroup’s Board-approved strategic plan. scenario 4, with annual manufacturing costs increasing by £20mpa, increasing annually by inflation, from 2024. 42 Victrex plc Annual Report 2022 The downside scenarios applied to the strategic plan are as follows: STRATEGIC REPORT Scenario modelled Link to principal risk 1. General competitive pressure in the marketplace resulting in a decrease of Industrial and Geo-political and Medical revenue for both core and mega-programmes. Annual volume reduction between macro-economicenvironment 10% and 25% in each year of the strategy. Strategy execution 2. A natural or other event impairing key manufacturing assets resulting in supply disruption Supply chain for c.2 years, with associated reputational damage. Annual volume reduction of 25% for two years followed by 10%. 3. Mega-programmes not achieving all milestones set or investment/adoption is delayed, for Geo-political and example by economic conditions, therefore delaying the time to meaningful revenue (>£1m). macro-economicenvironment An average of two years’ delay to revenue growth versus the base case. Strategy execution 4. Increase to direct cost base potentially arising from: Legal and regulatory compliance, ethics and contracts a. additional regulatory compliance, environmental or otherwise; Safety, health and environment b. increase in duty and tariffs; Product liability c. product liability issues; d. increased cost of manufacturing in a lower carbon way; e. the transitional risks of moving to a lower carbon economy – increases in tax/levies on utility and/or water usage, and waste generation; or f. increase in raw material and/or other input prices. Operating costs increased by £20mpa, increasing annually by inflation, over the base case in each year of the strategy. 5. A sudden period of economic contraction (in line with scenario 2 for going concern) Geo-political and resulting in lower sales in 2023 before returning to strategy growth rates thereafter. macro-economicenvironment Annual volume reduction between 8% and 23% in each year of the strategy. Strategy execution 6. All of the above*, with an associated reduction in the overhead cost base and capital expenditure. Annual volume reduction between 20% and 40% in each year of the strategy (averaging 30% over the five years). * Where two or more scenarios impact the same revenue stream in the same period the lower outcome is taken. The scenarios tested were carefully considered by the Directors, The mitigation assessment also considered the Group’s ability factoring in the potential impact, the probability of occurrence tomanage its cost base and raise new finance and the possibility andthe effectiveness of the mitigating actions. In addition, whilst ofdelaying capital programmes and/or restricting shareholder considered implausible, a combined scenario (scenario 6) was also returns over the viability period if required. tested, which contained an aggregation of all scenarios considered. The results of this stress testing showed that the Group would be Further, to the risk mitigation plans, the Group’s two distinct able to remain solvent and maintain liquidity over the assessment segments, both with diverse geographic markets, assist in reducing period. The Group is profitable under all scenarios, including the risk of regional economic challenges and sector specific issues. scenario 6. The lowest cash balance was in scenario 6, in which the This diversity has been evidenced through the pandemic where the cash balance remains positive albeit at a level where working capital impact of and recovery from the economic slowdown differed will have to be carefully controlled or the RCF (available until 2024 between business units, with Medical Implantable particularly with covenant compliance tested under scenario 6) will be required severely impacted with the cancellation of elective surgery and a to manage intra-month flows through FY 2024 whilst maintaining prolonged period where hospitals have been focused on non-elective the regular dividend. Due to the severity and implausibility of patients, contrasting to, for example, Electronics within the scenario 6 and an outcome that may require limited use of the RCF Industrial segment, which has seen a sharp recovery as consumer this is considered akin to a reverse stress test. spending habits have changed in its favour. Geographically the 4. Viability statement impact was much lower and shorter in length across Asia where Based on the results of this detailed analysis, the Directors have a demand quickly returned to pre-pandemic levels, compared to a reasonable expectation that the Group will be able to continue in later, deeper and longer impact in US markets which only returned operation and meet its liabilities as they fall due over the five-year to pre-pandemic levels in the second half of 2021. These differing period to September 2027. This is predicated on the assumption geographical patterns have continued in 2022 with the US the thatan unforeseen event outside of the Group’s control (for example, fastest growing region, whilst Asia has been impacted by the return an event of nature or terror) does not inhibit the Group’s ability of strict COVID-19 management policies and associated lockdowns. tomanufacture for a sustained period. The strategy of partnering closely with customers to develop the right applications and our existing and growing list of specified products are also important mitigants. Annual Report 2022 Victrex plc 43 STRATEGIC REPORT ### Victrex already has a key role in enabling ## SUSTAINABILITY environmental & societal benefits for our ### customers and the planet, through products ### which support thelightweighting trend and ## REPORT ### consequently CO reduction in Aerospace 2 ### 45 Enabling environmental & societal benefits andAutomotive, and the need for clinical 47 Victrex’s options to net zero (scope 1 & 2 emissions) ### benefits in the medical industry (see page 58). 48 Our Sustainability Vision and goals ### Across other industries, including Electronics 50 Our achievements & accreditations in FY 2022 ### with more energy efficient applications, 51 How we are making progress in our sustainability goals ### 52 Task force on climate-related financial disclosures andother industrial endmarkets, our ### 58 Sustainable solutions: Improving the quality of life in patients applications also offer clear performance through cutting edge medical devices ### andsustainabilitybenefits. 60 Resource efficiency 65 Safety, health & environment In our own operations, Victrex has a Carbon Net Zero goal 66 Social responsibility by2030(Scope 1 & 2 emissions), with an aspiration to reduce ourenvironmental footprint by saving water, energy and waste, 72 Our Code of Conduct – doing the right thing andwecontinue to make good progress, with options beingassessed. We have been steadily gaining accreditation for our sustainability strategy, and how our products can bring environmental & societal benefits. The likes of EcoVadis and FTSE Russell already recognise usfor this, with all our revenues from Transport (Automotive & Aerospace) included in FTSE Russell’s assessment of products defined as part of its Green Revenues Index, equating to approximately 30% of our revenues on its definition. We look forward to continuing toplay our part over the years ahead. 44 Victrex plc Annual Report 2022 STRATEGIC REPORT ## ENABLING ENVIRONMENTAL ## & SOCIETAL BENEFITS ### How our products support CO reduction in society 2 Within our own assessment of how our products – our sustainable u our typical sales to Aerospace alone help support annual CO 2 savings solutions – bring environmental and societal benefits, our target is 3x our own annual CO 2 footprint (based on Scope 1 &2 emissions)*; to exceed 50% of revenues by 2025 and 70% of revenues by 2030 u even just a 10kg reduction in weight using PEEK polymer can (from <50% today). This includes products for the Medical Devices help to save 4 tonnes of CO 2 per year, per plane*; industry, where clinical benefits in terms of enhanced union rates for the likes of Trauma plates, improved brain function using PEEK based u based on the Aerospace industry’s forecast of plane build over Cranio Maxillo Facial (‘CMF’) skull plates, or patient satisfaction from the next 15 years, if all single aisle planes were built from over alternatives to metal are supporting surgeons globally. Today, over 50% PEEK composites, a 53 million tonne CO 2 saving could be 15 million PEEK implants are in patients’ bodies, mostly in Spine, but realised (over a 15-year period and based on an average weight increasingly in applications for Arthroscopy, Dental, Cardio and saving of 60%)**; Trauma. FY 2022 saw great progress in the clinical trial for a PEEK u in Electronics, a typical 40% weight saving in home Knee, with 30 patients now having a PEEK Knee implanted, and 12 appliance applications supports the opportunity of improved patients beyond 12 months, with no clinical intervention, supporting energyefficiency**; and the potential for commercialisation and a product which could offer clear societal benefits compared to existing metal-based solutions. u finally, in the Medical Devices industry, higher union rates using PEEK composite-based Trauma plates have been achieved, As examples of how our products bring environmental compared to metal-based solutions**. andsocietalbenefits: u applications in Aerospace and Automotive using PEEK polymer * IATA carbon reduction and climate change 2018. typically offer 60–70% weight reduction compared to metal ** Data on file. equivalents**. We also have applications tailored for the next generation of electric vehicles (‘EVs’), with new business wins through FY 2022 and a potential of over 100g of PEEK per vehicle, compared to approximately 10g today; Annual Report 2022 Victrex plc 45 STRATEGIC REPORT ## Sustainability report continued ### As a purpose led organisation, our global employees have ### a real motivation to enable environmental & societal ### benefits for our customers and the planet – through our ### sustainable products supporting CO reduction, energy 2 ### efficiency, or clinical benefit in Medical – as well as how ### we can minimise our own use of resources. Jakob Sigurdsson Chief Executive Officer ### Introduction from the u Resource efficiency: energy usage will community activity is focused on the next continue, in the short term, to be driven generation, including continued support ### Chief Executive Officer – by production volumes, as will water. of Science, Technology, Engineering and ### Jakob Sigurdsson However, pleasingly, we note that our Mathematics (‘STEM’) learning in UK A key focus area during 2022 has been carbon intensity decreased by 4% this year. schools, with a plan to globalise this assessing the most appropriate route for Waste to landfill increased this year due programme, including in China. Through delivery of our 2030 goals. This includes to higher production and waste stored supporting STEM activities in schools, theassessment of alternative fuels and up during the COVID-19 pandemic. aswell as supporting 63 apprentices technologies, including potential full Wehave increased how we measure thisyear – 17% of whom are female – electrification (compared to roughly energy, waste and water usage within wecommitted 4,784 hours to local 50/50gas & electricity usage) and access our business and expect to add some communities in FY 2022, with a tohydrogen as a fuel source, given that further quantification over the years cumulative target of 10,000 hours by theuse of alternative fuels or process ahead. Finally, we made great progress 2030. Overall, our 2030 goals build on technology change will be contingent on this year in completing a full Lifecycle our previous targets set back in 2013, how we could get to Net Zero (Scope 1 & 2 Analysis of our key products, so we several of which we have now completed. emissions) in our own operations. Through cantrack PEEK’s carbon footprint from the coming years, we expect to be in a Further detail on our accreditations is shown ‘cradle to gate’, noting that the multiple better position to have firmed up the options on page 50, and although we do not production processes typically mean on how we deliver our goals. The formation specifically seek recognition for our PEEK has a higher carbon intensity of our Corporate Responsibility Committee sustainability performance, we saw perkgthan other polymers, even if (‘CRC’) this year will also oversee our goals additional progress with an A rating from theperformance properties are higher. and long-term aspirations. MSCI; continuation within the FTSE Russell This means we will, from FY 2023, be Green Revenues Index, reflecting our sales Our 2030 Sustainability Vision continues reporting on all relevant Scope 3 emissions into Transport markets, where our tobe focused on three main areas: (indirect emissions from formulation of lightweight materials support the trend of and transport of goods that are supplied u Sustainable solutions: how our sustainable CO 2 reduction; and Apple recognising our to us, prior to manufacture). Whilst peer products enable environmental & societal Sustainability Vision and commitments in its data is difficult to fully track, our own benefits, for example in supporting the Clean Energy Supplier programme. Finally, internal assessment, and the fact we are reduction of CO 2 in Aerospace and 100% of our UK electricity is now from using 100% renewable electricity in our Automotive markets, including in electric renewable sources. own UK operations, suggests Victrex™ vehicle applications, as well as offering PEEK has a favourable sustainability At a personal level, I remain hugely recyclability potential and energy efficiency profile against competitor products. passionate about sustainability and what our in Electronics. This area also includes Victrex™ PEEK is also more favourable products can do to help the environment Medical, where over 15 million implanted than the industry average for PEEK and society. In a world where CO 2 reduction, devices are using PEEK-OPTIMA™ as a manufacturing’s global warming electrification and lightweighting are in replacement for metal, offering clinical potential, based on GaBi materials focus, or in Medical, where performance benefit in Spine, Trauma and Arthroscopy, data;and benefits to patients matter, Victrex can play with growing commercialisation or a key part in supporting our customers, development in Cardio (Artificial Heart), u Social responsibility: Victrex has a long differentiating our business and ultimately Drug Delivery and Knee; track record of supporting local bringing tangible benefits to society communities where we operate. Safety andtheenvironment. and wellbeing goals will seek to achieve aculture with zero accidents and zero I look forward to further progress being incidents, together with enhanced delivered in the years ahead. Diversity, Equity & Inclusion (‘DE&I’) goals. Indeed, our progress here has been | good, with a target of 40% of females in | Jakob Sigurdsson | | --- | --- | | leadership roles by 2030. In FY 2022 we | Chief Executive Officer | | saw an improvement up to 19%, from | 6 December 2022 | 10% in the prior year. Much of our 46 Victrex plc Annual Report 2022 STRATEGIC REPORT ## VICTREX’S OPTIONS TO NET ZERO ## (SCOPE 1 & 2 EMISSIONS) ### Our Net Zero aspiration for Scope 1 & 2 emissions is centred ### onreducing climate impacts from our own operations. | A 2030 vision | Fulfilling our goals | | --- | --- | | Our Net Zero goal by 2030 (for Scope 1 & | Any minority, remaining balance will | | 2 emissions) was set in 2020 and is | befrom validated, ethical sources. | significant and ambitious. It intentionally focuses and invests to help reduce our carbon footprint (based on 2019 manufacturing footprint). 100% global renewable Carbon abatement electricityby2024 (where opportunities the market exists) Continuously improve Ethical carbon offsetting emission & waste reductions Multi-fuel & green backed combustion processes Annual Report 2022 Victrex plc 47 STRATEGIC REPORT ## Sustainability report continued ## OUR SUSTAINABILITY ## VISION AND GOALS ### Our 2030 Sustainability Vision was set out in 2020, covering a 10-year period with specific ### goals and milestones, which we intend to add to as appropriate. Our goals are also aligned ### with the UN’s Sustainable Development Goals (‘SDGs’), and these are shown below. ### SDGs Sustainability pillars ## SUSTAINABLE ## SOLUTIONS AND ## RESOURCE EFFICIENCY ### Our sustainable products support ### CO reduction, as well as offering 2 ### recyclability, whilst we focus on ### minimising resources (energy, ### waste and water) ## SOCIAL ## RESPONSIBILITY ### Further inspire our employees and ### communities to positively impact ### sustainability development 48 Victrex plc Annual Report 2022 STRATEGIC REPORT ## OUR KEY IMPERATIVES: u Goal of Carbon Net Zero (Scope 1 & 2 emissions) u Increase revenues from our sustainable products whichbring environmental and societal benefits u Minimise resources (energy, waste and water) usedinour own operations u Enhance our Diversity, Equity & Inclusion (‘DE&I’) agenda ### 2030 goals Milestone targets ### u Goal of Net Zero Carbon emissions u Victrex using 100% renewable 2 ### for Scope 1 & 2 electricity by 2024 1 ### by 2030 in our own operations | | u Increase % revenue from recycled | | --- | --- | | u Increase recycling rates of PEEK/PAEK | products or materials in the supply chain | | inthe supply chain | (by 2025) | | u Increase revenue from our sustainable | u Exceed 70% of Group revenue from | | products with positive environmental and | sustainable products with environmental | | societal benefits (currently 48%) | and societal benefits by 2030 (and exceed | ### 50% by 2025) ### u Sustained reduction in resources carbon ### intensity, waste and water usage by2030 u Commitment to a science-based 3 ### emissions target | u Deliver zero accidents and zero | u Improved safety metrics, | | --- | --- | | incidents culture | based onOSHA standard | | u Grow global STEM programme | u STEM Ambassadors in every region | | u Increase community activity across | u Commit >500 employee hours to global | | ourglobal locations | community activity annually | | u Focus on supporting gender Diversity, | u Embed inclusion and diversity across | | Equity & Inclusion | global employee base |  Read more on pages 44 to 74 1 Scope 1 & 2 emissions and science-based target. Goal based on 2019 manufacturing footprint. 2 For all countries where the market exists. 3 Includes quantifying all relevant Scope 3 emissions in our supply chain and establishing a reduction target, based on 2019 manufacturing footprint. Annual Report 2022 Victrex plc 49 STRATEGIC REPORT Sustainability report continued # OUR ACHIEVEMENTS AND ACCREDITATIONS IN FY 2022 **Science Based Targets Initiative (SBTI)** – Victrex committed to SBTI during FY 2022 as part of its 2030 Carbon Net Zero goal, with full submission due to be completed in FY 2023, covering all Scopes in line with 1.5°C emissions scenarios of SBTI. ![img-0.jpeg](img-0.jpeg) **FTSE Russell** – Part of FTSE Russell Green Revenues Index – over 30% of Victrex revenues defined as coming from sustainable solutions. **EcoVadis** – EcoVadis is one of the leading organisations assessing the sustainability strategies of global companies. In FY 2022, Victrex was again awarded a Gold rating, meaning we are in the top 6% of companies assessed, out of more than 4,000 companies. **MSCI** – MSCI is one of the leading organisations ranking listed companies for their sustainability performance. We saw an improvement to A rating (from BB) in 2022. **SEDEX Member** – Committed to an ethical and sustainable supply chain. Sedex Member **Apple Clean Energy Supplier programme** – We have been accredited by Apple on its Clean Energy Supplier programme, with 100% renewable electricity supply in the UK and a goal to have 100% globally by 2024. ![img-1.jpeg](img-1.jpeg) **CDP** – Victrex has seen further improvement from the Carbon Disclosure Project (CDP), with a ranking of B- in 2021, and evidence of sustained improvement since our original D score in 2013. **Financial Times Climate Leaders** – Victrex was named by the Financial Times as one of Europe’s climate leaders, one of only 400 European companies selected from around 4,000 companies. **Community Focus** – Victrex has long-standing partnerships with the Science Industry Partnership, supporting the engineers and scientists of tomorrow; STEM learning, as part of our global STEM programme, supporting careers in Science, Technology, Engineering & Maths; and Business in the Community, where we support a range of local activities in the UK, with over 4,784 employee hours committed to volunteering in FY 2022 alone. 58 Victrex plc Annual Report 2022 STRATEGIC REPORT ## HOW WE ARE MAKING PROGRESS ## INOURSUSTAINABILITY GOALS In 2013, Victrex started on its sustainability journey, with a 10-year As part of our sustainability strategy, we are also investing a plan through to 2023 (timed to mark the 30th anniversary of Victrex’s largeproportion of our Research & Development expenditure formation), during which time we have delivered on several key insustainable products. Annually, approximately 89% of our milestones, including improved water usage and waste reduction. project-based R&D investment is aligned to sustainable products or The Board is pleased with progress so far, but would like to see programmes. These include all of our Aerospace mega-programmes, continued focus on challenging long-term sustainability goals. our programmes supporting high performance materials in E-mobility and Automotive Gears, and all of our Medical mega-programmes Our 2030 goals are now our primary focus, aligned to the UN which underpin clinical benefits, for example in addressing improved Sustainable Development Goals 2030. Thisyear, we have added patient outcomes in Trauma, Dental and Knee. We also have selected further measures over the medium and long term, as well as applications in Energy & Industrial and Electronics which are committing to SBTias part of our science-based target. sustainable, e.g. wind energy. 2022 progress or new | Area of focus Progress 2013–2022 2030 goals Milestone targets | | | | | milestone target | | | --- | --- | --- | --- | --- | --- | --- | | Sustainable | u >2 million tonnes | | u Increase recycling | u Increase % revenue from | | u Project completed and | | solutions | ofCO | 2 saved in | rates in the | recycled products or materials | | partnership proposed | | | Aerospaceapplications | | supplychain | by 2025 | | with VAR customer | toenable a recycling u Proportion of revenue u Increase revenue u Exceed 70% of Group revenue route for PEEK in the | from sustainable | | fromour sustainable | from sustainable products by | | | --- | --- | --- | --- | --- | | | # | | | supply chain | | products | now 48%, | products with positive | 2030 (andexceed 50% of | | | reflecting growth | | environmental and | Grouprevenue by 2025) | u R&D investment in | | inTransport and Medical | | societal benefits | | sustainable products | | applications since 2013 | | (currently c.50%) | | equates to 89% of | project-based R&D u Societal benefits  Read more investment (measured through improved onpage 58 as a % of total R&D patient outcomes in investment from Medical: >15 million FY2023) patients implanted using PEEK-OPTIMA™ | Resource efficiency | u >97% renewable | u Goal of Net Zero | u 100% renewable backed | u Completion of Lifecycle | | --- | --- | --- | --- | --- | | | electricity globally and | Carbon emissions | electricity by 2024 (globally | Analysis & Scope 3 | | | 100% in theUK | by2030 in our own | where the market exists) | emissions inventory | operations (Scope 1 u Sustained reduction in u Commitment to SBTi by end of u Achieved 100% of UK &2 emissions & water and waste per 2021 and submission in 2023 renewable electricity science-based target) | tonne (reduction in | | for UK sites | | --- | --- | --- | | waste per £m revenue | u Sustained reduction | | | by 48% since 2013) | in resources (carbon, | |  Read more waste and water) per onpages 60 unit/tonne by 2030 to64 | Social responsibility | u Improved OSHA | u Deliver zero | u Continually improving safety | u Further improvement in | | --- | --- | --- | --- | --- | | | standard in FY 2022 of | accidentsand zero | metrics based on OSHA standard | SHE performance with | | | 0.2 (FY2021: 0.7 & | incidents culture | | an RIFR of 0.2 (85% | | | | | u >2,500 contacts with young | | | | industry standard of 1.4) | | | lower than industry | | | | u Increase community | people by Victrex employees by | | standard of 1.4) | u Over 10,000 employee | activity across our | 2030 and STEM Ambassadors in | | | --- | --- | --- | --- | | hours spent supporting | global locations | everyregion | u 4,784 employee hours | | community activity | | | supporting local | | | u Grow global | u Cumulative employee hours | | | since2013 | | | communities during | | | STEMprogramme | supporting local communities | | FY2022 |  Read more | u 45 global STEM | | >10,000 hours (2020–2030) | | | --- | --- | --- | --- | --- | | | | u Focus on supporting | | | | onpages 66 | Ambassadors in place | | | u Further progress on | | | | Diversity, Equity & | u Embed Diversity, Equity | | | to 71 | | | | Diversity, Equity & | | | | Inclusion (‘DE&I’) | &Inclusion across the | | Inclusion goals: FY 2022: agenda employee base: 40% of females 19% of females in in leadership group (top two leadership group grades) by 2030 (FY 2021 (upfrom10% in FY 2021) baseline: 10%) # Sustainable products are defined as those which offer a quantifiable environmental or societal benefits. These are primarily in Automotive, Aerospace (supporting CO 2 reduction) and Medical (supporting improved patient outcomes). Some applications are also in Energy & Industrial (e.g. wind and renewable energy applications) and Electronics (supporting energy efficiency, e.g. home appliances). Volumes from Oil & Gas are excluded, as are Value Added Resellers volumes currently, due to the lack of full clarity on exact end market destinations. This definition followed review by an external assurance organisation and the Board, with ongoing review by the Corporate Responsibility Committee (‘CRC’). Annual Report 2022 Victrex plc 51 STRATEGIC REPORT Sustainability report continued # TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ## Overview Victrex welcomes the introduction of the Task Force on Climate-related Financial Disclosures (TCFD) and recognises the impetus this will provide for companies and stakeholders to understand relevant climate-related opportunities and risks and to also ensure appropriate risk mitigation processes are in place. The Annual Report 2022 represents Victrex's first year of full TCFD disclosures. Victrex recognises the impact it has on the environment, both in a positive way and negative impacts from our use of resources. On the positive side sustainability is embedded in Victrex's purpose – bringing transformational & sustainable solutions which address the world's material challenges, every day – our mega-programmes and other targeted growth areas are closely aligned to products supporting CO₂ reduction, for example in Aerospace, Automotive and Energy & Industrial end markets. This is underpinned by targeting our investment in Research & Development/innovation which is increasingly focused on sustainable products. Our goal of being Carbon Net Zero by 2030 (Scope 1 & 2 emissions) also recognises the environmental impact of our manufacturing processes which create emissions, utilise water and generate waste. Our CO₂ metrics are included on pages 61 to 63 with our path to lower emissions included on page 5. We continue to research and invest in new technology aimed at minimising use of resources and significantly reducing our own operational carbon footprint. As part of our commitment to sustainability, we seek to exceed 50% of Group revenue from products with positive environmental and societal benefits by 2025 and exceed 70% by 2030. We recognise the challenging nature of these targets, but this reflects our commitment to supporting a lower carbon economy and providing greater societal benefits to an increasing proportion of the population. In delivering our targets we are working closely with customers, forming partnerships with companies that share our ambition and goals. Our sustainability strategy has gained a number of accreditations, as set out on page 50. Our sustainability strategy is also aligned directly to the UN Sustainable Development Goals 2030 and as part of our Carbon Net Zero goal (for our Scope 1 & 2 emissions), we have committed to SBTi, the Science Board Targets initiative. TCFD has provided a useful framework for the Company to assess its climate change approach against and supported a full breadth of consideration which has been supplemented by external support with the appropriate expertise to challenge and provide guidance in evolving the strategy and approach to climate change. We recognise that developments and focus on climate change have progressed significantly in the past two years, with the 2021 United Nations Conference on Climate Change (COP26) emphasising the need for governments and businesses to play key roles in moving from ambition to action if climate change is to be controlled, and will continue to do so. Management receives regular input from multiple stakeholders, as we keep our approach under review, supported by the Corporate Responsibility Committee. Engagement in our climate change strategy has been particularly strong amongst our employees, with not only commitment to supporting current workstreams but increasing levels of idea generation coming from all areas of the business, including energy saving measures, recycling and a #Payyourpart campaign. ## Statement on TCFD We set out below our climate-related financial disclosures. These comply with LR 9.8.6R by incorporating climate-related financial disclosures consistent with the TCFD recommendations, specifically under the four TCFD pillars and eleven recommendations. Whilst consistent with the recommendations the Company recognises that the level of granularity provided will increase over time as the Company matures and embeds its climate change processes and approach and sets more interim targets to track progress against its Net Zero 2030 target. Significant progress has been made in the past year, including the establishment of a specific Board Committee, the Corporate Responsibility Committee, obtaining physical risk assessments and performing scenario analysis. The below table is presented to demonstrate compliance and support where the specific disclosures are included in the Annual Report and Accounts where it is not within this section. It also sets out the future actions the Company is taking which will support more detailed disclosure in future years. In making the above statement of compliance the Board has considered materiality and whether the incorporated disclosures provide sufficient detail to enable stakeholders to assess the Group's exposure to and approach to addressing climate-related issues. This includes an assessment of the level of exposure the Group has to climate-related risks and opportunities taking into account our products and manufacturing processes. Specifically on the financial disclosures incorporated in the financial statements (see note 1 for details) a materiality level consistent with that used for other financial statement disclosures, and with the level used by the external auditors, has been used, which for the current year is £4.7m. The Board has considered the TCFD additional guidance (2021 TCFD Annex) in preparing the disclosures, including the sector specific guidance with the Company, as a chemical manufacturer, coming under the Materials and Buildings sector. The Company has included the sector specific disclosures, principally the potential impacts of stricter constraints on emissions and the related impact on costs as well as the opportunities for its products to reduce carbon emissions, with a specific metric (and target) included to measure this. The emphasis of the additional guidance is to provide more granular and explicit disclosures which as stated above is aligned with the Company's objectives for future years. Evidence of this progress will be seen in the Annual Report 2023. The Board is supported by the Audit Committee in assessing the level of consistency of disclosure with the requirements of TCFD. Further details on the role of the Audit Committee are included on page 97. ## TCFD: oversight & governance of our climate-related risks & opportunities ### Victrex Board The Board reviewed and approved the Group's 2030 ESG goals and has oversight of how these will be embedded and reported, whilst ensuring sustainability remains at the core of our purpose, values and strategy. ### Corporate Responsibility Committee ("CRC") As read in FY 2022, the CRC oversees the Group's conduct with regard to its corporate societal obligations and commitments. This includes overseeing and reviewing the development and execution of the 2030 sustainability strategy and commitments including progress towards targets. ### Victrex Management Team ("VMT") The VMT embeds sustainability strategy target reviews into the regular performance reviews they undertake with their respective teams. ### Sustainability workstreams Head of Sustainability & ESG 1. Sustainable solutions 2. Resource efficiency 3. Social responsibility 4. Safety, health & wellbeing ![img-2.jpeg](img-2.jpeg) ### Summary of key focus areas Further details Recommendation Response Future actions (where relevant) ### Governance | a. Describe the Board’s | | The Victrex Board is responsible for reviewing and guiding | The Board and the Corporate | The key performance | STRATEGIC REPORT | | --- | --- | --- | --- | --- | --- | | | oversight of climate- | strategy, with sustainability embedded into our purpose and our | Responsibility Committee will | indicators and | | | | related risks and | Polymer & Parts strategy. Board oversight is led by the Corporate | continue to challenge how the | milestone targets are | | | | opportunities | Responsibility Committee (‘CRC’), which was established during | proposed 2030 goals and plans | shown on page 51. | | | | | FY 2022, meets quarterly and is chaired by a Non-executive | areembedded, whilst ensuring | | | Further information Director. The CRC reviews progress against 2030 goals and action sustainability remains at the core on the roles and plans to deliver these. It also assesses ongoing environmental ofour purpose, values and strategy. responsibilities of the performance against key performance indicators. The CRC has Board and CRC are overseen the process for identifying and assessing risks and included on page 85. opportunities associated with climate change. The Chair of the CRC provides the Board with an update at each Board meeting. The Board members’ experience of climate change is included in their biographies starting on pages 78 and 79. | b. Describe management’s | | The VMT (chaired by the CEO) is responsible for reviewing and | The VMT will review and propose | | --- | --- | --- | --- | | | role in assessing and | guiding major plans of action to achieve the sustainability | necessary actions in support of our | | | managing climate- | strategy, including required capital investment and investment | 2030 goals, for example options | | | related risks | inR&D supporting sustainable products. The VMT embeds | towards our Carbon Net Zero (Scope | | | andopportunities | sustainability strategy target reviews into the regular performance | 1 & 2 emissions) goal, which include | | | | reviews they undertake with their respective teams. | alternative fuels and processes. | ### Strategy | a. Describe the | | Climate change related risks and opportunities have been | | Climate-related risks and opportunities | | | | Risks and | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | climate-related risks | identified including those involving our products and solutions | | are reviewed on a regular basis by the | | | | opportunities, both | | | and opportunities | benefiting society (for example in quantified weight saving and | | CRC. Further | locations, those which | | | physical and | | | theorganisation has | CO | 2 reduction in Aerospace & Automotive), the cost of carbon | are smaller and | have a much lower | | | transitional, are | | | identified over the | intensity through taxation from our operations and the potential | | impact on current and medium-term | | | | presented on pages | | | short, medium | increase in the cost of energy. Victrex has used the TCFD | | revenue growth, will be assessed for | | | | 55 and 56. | | | andlongterm | framework of six risks and five opportunities along with the | | physical risks before the end of 2024 | | | | | | | | related examples to support the identification process, of which | | with updates made | | to existing | | | | | | four are considered to have a high impact and likelihood. | | assessments and mitigation | | | plans as | | information and climate change modelling become more sophisticated. b. Describe the impact of The potential climate-related benefits that our products offer The impact assessment of the The impact of risks | climate-related risks | present a strong business opportunity, which is considered to | identified risks and opportunities | and opportunities is | | --- | --- | --- | --- | | and opportunities on | outweigh the climate-related risks from markets which will be | will be refreshed as part of the | presented on pages | | the organisation’s | adversely impacted by climate change. The benefits that our | annual strategy review during 2023 | 55 and 56. | | businesses, strategy and | products bring are detailed in Enabling Environmental and Societal | with the aim of maturing our | | Examples of the financial planning Benefits on page 45. Climate-related risks, both physical and models for quantifying the impact. benefits our transitional, are primarily assessed in the context of our own products bring to manufacturing operations. mitigating climate risk perspective are detailed on page45. | c. Describe the resilience | | The Group believes that its Polymer & Parts strategy is resilient | | Challenge the manufacturing | See pages 4 and 5. | | --- | --- | --- | --- | --- | --- | | | of the organisation’s | ina2°C or lower scenario, primarily through: | | process and chemistry to lower the | | | | strategy, taking into | | | overall energy usage, water usage | | | | | | u the Group’s existing products, along with its mega-programmes | | | | | consideration different | | | and waste generation. Complete | | in Transport, support applications aimed at reducing carbon climate-related the assessment of the most climate dioxide emissions and therefore assist current and future scenarios, including a sensitive and cost effective source customers meeting their own requirements to reduce 2°C or lower scenario of green energy to meet the future emissions in a 2ºC or lower scenario; and manufacturing requirements, u the strategy of the Group includes a clear goal to decarbonise replacing gas and non-green the manufacturing process as part of achieving Net Zero. This electricity currently used. will mitigate the impact of the Group’s manufacturing processes on climate change and mitigate against the likely tightening of regulatory/government restrictions and taxes to drive down the use of carbon emitting processes. ### Risk management a. Describe the During the last year we have conducted an initial climate-related risk Continue to monitor and review The risk management organisation’s processes assessment using external specialist support. This included a risk climate-related risks through the process is described for identifying and assessment workshop comprising senior management from across Corporate Risk Management on pages 34 and 35. assessing climate- the business to review climate-related risk over the short, medium and process. In addition, the CRC will related risks long-term horizons. This exercise considered both the climate-related provide oversight tothe newly physical and transition risks under three climate scenarios and the established climate-related risks actions that could be taken to mitigate them. A summary of the most including action plans and significant climate-related risks is included on pages 55 and 56. progressmade. Climate risk will continue to be part of our overall Corporate Risk Management process. Each risk is thoroughly evaluated based on the likelihood of occurrence and severity of impact. Annual Report 2022 Victrex plc 53 STRATEGIC REPORT ## Sustainability report continued ### Summary of key focus areas continued Further details Recommendation Response Future actions (where relevant) ### Risk management continued | b. Describe the | | The CRC oversees sustainability workstreams, which includes | Further develop the response plans | The building blocks | | --- | --- | --- | --- | --- | | | organisation’s processes | climate-related risks. Climate-related risks are integrated into and | for each significant climate-related | to Net Zero (Scope 1 | | | for managing | managed alongside our corporate risk processes and principal risk | risk and its interaction with the | & 2 emissions) are | | | climate-related risks | profile. Each risk has a designated risk owner who is responsible | options to Net Zero by 2030 (Scope | included on page 5. | | | | for reviewing and monitoring the risk and providing the necessary | 1 & 2 emissions) and monitor | | | | | oversight for the implementation and maintenance | progress through the CRC. | | ofappropriatemitigations. | c. Describe how processes | | Our Corporate Risk Framework (page 34) provides details of | Fully establish assurance of | See pages 55 and 56 | | --- | --- | --- | --- | --- | | | for identifying, | theprocesses used to assess and manage all risk types, including | keycontrols and actions | for the strategic | | | assessing and managing | climate-related risks. We have a well-established risk impact rating | relatedtothe newly defined | response and | | | climate-related risks are | methodology which we have used, along with support from | climate-related risks. | resilience against | | | integrated into the | external advisors, to complete initial qualitative assessments | | thespecifically | | | organisation’s overall | ofourtransitional and physical climate-related risks. | | identified risks. | riskmanagement ### Metrics & targets | a. Disclose the metrics used | | The climate-related metrics are proposed by management and | Further refinement of metrics | Victrex metrics and | | --- | --- | --- | --- | --- | | | by the organisation to | agreed by the CRC. This includes the development of milestone | including setting of interim | targets are set out | | | assess climate-related | targets on the path to Net Zero (Scope 1 & 2 emissions) by 2030. | milestone targets to monitor | on page 51. | | | risks and opportunities in | | progress towards 2030 goals, | | | | line with itsstrategy and | | including in respect of Scope 1 | | | | risk management process | | &2emissions. | | | b. Disclose Scope 1, Scope | | We calculate and track Scope 1, 2 & 3 (all Scope 3 categories | Finalisation of our Scope 3 goal is | Emissions disclosed | | | 2 and, if appropriate, | where relevant – see page 63) GHG emissions, including our | planned for FY 2023, for which we | on pages 61 to 63. | | | Scope 3 greenhouse | absolute carbon emissions, and measures ofcarbon intensity | have committed to SBTi. | | | | gas (‘GHG’) emissions | according to the GHG Protocol CorporateStandard. | | | and the relatedrisks c. Describe the targets used We have established longer-term goals with associated near-term We are committed to the SBTi to Climate-related | bythe organisation to | milestone targets related to climate change, which includes our | start the process of science-based | metrics and targets | | --- | --- | --- | --- | | manage climate-related | aspiration of Carbon Net Zero for our own operations by 2030. | targets in line with the global | are set out on | | risksand opportunities | Interim goals include our target of increasing our sustainable | accord to minimise global | page51. | | andperformance | products to over 50% of revenues by 2025 (from less than | warmingto 1.5°C. | | Executive targets againsttargets 50%today). detailed are set As set out in the Directors’ remuneration report in the Annual outon page 120 Report forthe year ended 30 September 2021, a proportion of and 127. executive remuneration will be assessed against a range of challenging carbon reduction targets. ### Climate-related risks and opportunities As noted above the Group has been through a detailed process to identify climate-related risks and opportunities. As required by TCFDthis hasincluded the two major climate-related risk categories and their six subcategories along with the five major categories ofopportunity. Analysis has been undertaken against each of the subcategories to identify the key risk/opportunity relevant to the Group, the financial impact of that, the likelihood of them arising both across a range of timelines and transition climate scenarios. The time horizons and climate scenarios used for the transitional risk assessment are detailed below with those used for physical risks included on page 57. Different climate scenarios and time horizons have been used to best represent the different drivers behind transitional and physical risks and opportunities. Time horizons: They have also been assessed through multiple transition climate scenarios: | | | | | | | 1 | | | 2 | | | | 3 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Short | Medium | Longer | | Accelerated Net | | | Mid case | | | Current policies | | | | | term | term | term | | Zero 2050 scenario | | | scenario | | | | scenario | | | | | | | | (aligned to 1.5°C) | | | (aligned to 2°C) | | | (aligned to 3°C) | | | | Considered | | Between | More than | Global Net Zero target achieved | | | Achieve global Net Zero by | | | Global Net Zero not | | | | | up to 3 years | | 3 and 10 years | 10 years | by 2050 in line with the aim of | | | 2080, requiring a progressive | | | achieved by 2100, reflecting | | | | | | | | | the Paris Agreement. This | | | ramp in policy interventions | | | lack of co-ordinated global | | | | | | | | | would require swift and decisive | | | compared with today. | | | commitments with limited | | | | | | | | | action with regard to both | | | | | | policy interventions. | | | | governments and businesses. The analysis is split into transitional and physical risks and opportunities and detailed on pages 55 and 56. 54 Victrex plc Annual Report 2022 STRATEGIC REPORT ### Transition-related risks and opportunities The Group undertook a detailed exercise to identify transition risks and opportunities for consideration. Those considered to have the largest impact are included in the table below. For some risks and opportunities the time frame of impact spans multiple time horizons; where this is the case two time frames are shown to illustrate this with the impact expected to increase as the time horizon increases. Climate-related Temperature Time frame Strategic response risk/opportunity Impact scenario ofimpact andresilience Policy Risk: The Group’s energy Current sources of energy, gas and Accelerated/ Medium Reducing the impact of carbon-based usage is disclosed on pages electricity could increase in cost Mid/Current taxes is being mitigated by both the Medium – Long | 61to 63. Increasing the pricing | significantly as the government | switch to greener energy and the | | --- | --- | --- | | of carbon emissions is a key | drives a move away from | chemistry of the manufacturing | | lever forgovernments and | hydrocarbons to green energy | process to reduce absolute energy | | regulators to reduce use | sources, with alternative sources of | usage. The Group’s strategy for | | ofhydrocarbon-based | green energy more expensive. An | reducing carbon emissions is outlined | | energysources. | illustrative impact for financial | on page 5. The approval of new capital | | | modelling purposes has been made | projects includes consideration of the | Link to principal risks: as outlined below. source of energy and an assessment of Strategy execution green energy options. Policy, market andtechnology Risk: A proportion of the Declining sales and profits as Accelerated/ Medium – Long Whilst Oil & Gas and ICE based Group’s sales go into demand falls for Company’s Mid/Current transportation will reduce significantly Long | industries expected to decline | products. Approximately 18% | over time, this is likely tovary by | | --- | --- | --- | | due to climate change (driven | ofsales currently go into Oil | geography and take many decades. | | by both government policy | &Gasand ICE related | PEEK has a continuing role to play in | | and consumer behaviours), | Automotiveapplications. | making both industries reduce their | | including Oil & Gas and | | carbon footprint in the | | internal combustion engine | | interveningperiod. | based transportation. Link to principal risks: Strategy execution/ Geo-political and macro- economic environment Opportunity: PEEK’s Delivery of the Group’s growth Accelerated/ Medium The Company continues toinvest properties play favourably in programmes, which underpin Mid/Current heavily in its mega-programmes Medium – Long | a low carbon world (see | carbon reduction, including | supporting lower carbon transportation, | | --- | --- | --- | | pages 10 and 11) providing | lightweighting of aircraft, | but also has applications in green | | opportunities to grow sales | electrification of vehicles and | energy and electronics which support | | significantly as the world | increased use of Semiconductors, | improved energy efficiency. Within | | decarbonises and | will lead to significant revenue and | Automotive, for example, the decrease | | governments introduce | profit growth and cash generation. | in the ICE business is expected to be | | policies and regulations. | | slower than the increase in the EV | business and will therefore provide an increased net benefit over the medium-term horizon. Success in this area is aligned to our target of growing revenue from sustainable products. Reputation | Risk: Key stakeholders, | Reduced interest from investors will | Accelerated/ | Short – Medium The Company has established a Net | | | --- | --- | --- | --- | --- | | including investors and | adversely impact the Company’s | Mid/Current | | Zero by 2030 target, identified key | | employees, become | share price and make raising capital | | | milestones and engaged key | | disenfranchised with the | more difficult. | | | stakeholders, including investors and | | Group’s failure to deliver its | | | | employees, in the delivery of the | Not being able to retain and attract Net Zero target. strategy. Demonstrating progress talent will adversely impact the against these milestones will retain Link to principal risks: Group’s ability to deliver the interest of key stakeholders. Recruitment and retention thestrategy. ofthe right people | Opportunity: Achieving Net | Increasing interest from ESG funds | Accelerated/ | Short – Medium Victrex has grown its position | | | --- | --- | --- | --- | --- | | Zero by 2030 presents an | may boost the Company’s share | Mid/Current | | amongst a number of dedicated ESG | | attractive proposition for key | price and could provide greater | | | funds globally. It has also broadened | | stakeholders, including | access to capital, with financial | | | its position in a number of external | | customers, investors and | institutions also providing more | | | networks or industry forums as a | | employees, with increasing | attractive access to capital for | | | leading advocate of decarbonising. | | interest in being associated | companies with green credentials. | | | | The Group has sought external with ambitious companies Attracting and retaining talent will accreditation for its approach to delivering their commitments support delivery of the Company’s climate change providing key on climatechange. strategic growth ambitions. stakeholders with assurance of its commitments to Net Zero by 2030. Annual Report 2022 Victrex plc 55 STRATEGIC REPORT ## Sustainability report continued ### Transition-related risks and opportunities continued The overall financial impact of the above risks and opportunities has been assessed. From a revenue perspective it has been concluded that climate change presents a net opportunity for the Company, with PEEK and its current and future applications playing strongly across a number of end markets where reductions in carbon emissions are a key driver for innovation. For financial planning and scenario modelling a cautious revenue neutral position has been assumed. The primary adverse financial impact will come from carbon pricing, should the Company fail to identify a cost effective green energy solution to replace gas as its primary source. The Board remains confident that this will be the case but the cost of implementing and running greener energy, based on current usage, can only be an estimate at this stage. The target is to mitigate any increase through improvements in the manufacturing process which facilitate operating at lower temperatures and producing less waste; however, this remains at early stages with cost increases likely to arise before the mitigation benefit. As a result the Group has assumed a financial downside from carbon pricing (covering both the potentially higher cost of green energy, or the cost of carbon taxes if this fails). An assumed addition cost of £20mpa (from 2024), increasing annually with inflation, has been included in financial planning, including the models used for impairment testing and the viability assessment, to address this risk. Further details on how this has impacted the preparation of the financial statements is included in the basis of preparation on page 146. ### Physical risks The Group has assessed the climate-related physical risks, both acute and chronic. The primary physical risk is that of increased severity andfrequency of extreme weather events: Climate-related risk Impact Risk Potential financial impact Physical: acute and chronic Increased frequency and severity u Disruption to production u Employee welfare could be u Loss of production resulting in ofextreme weatherevents processes and/or loss impacted by extreme weather loss of revenue (short term and/ ofinventory ranging from impact of or long term) due to being flooding through to heatwaves unable to supply with u Loss of assets and droughts making working customers seeking more u Harm to employees conditions harmful reliable alternatives u Loss of reputation for ability u Increases in the frequency and u Cost of repairing/replacing tosupply on time in full severity of flooding events could assets not covered by insurance result in damage to production u Increased cost of unavailability assets or loss of inventory of insurance The timelines associated with the physical risk are covered in the scenario analysis below. The Group’s primary operational manufacturing assets are located in the UK, with commissioning ongoing in China on additional capacity. The Group has a network of regional warehouses, all of which are leased which affords the flexibility of being able to readily relocate these within a short time frame where elevated risks exist or emerge over time. The Company’s ability to supply its customers has been and remains a key business priority. A key mitigation of this risk is the level of inventory, with targeted levels of three to four months’ cover at each warehouse. This level is kept under review depending on the risks to global supply chains and the phasing of extended plant maintenance shutdowns at any point in time as well as the volatility in demand profiles. The risk to supply from climate change is incorporated into this consideration, but at current target levels of inventory, a temporary loss of production due to extreme weather events could be absorbed without losing the ability to supply customers. The likelihood of extreme weather events impacting key locations is considered opposite in our scenario modelling. 56 Victrex plc Annual Report 2022 ![img-3.jpeg](img-3.jpeg) STRATEGIC REPORT ### 2022 climate scenario analysis modelling Climate scenario analysis ('CSA') has been performed to assist in understanding the potential impact of climate change on the future of our business which in turn will support the evolution of our strategy. The CSA was carried out using a standard methodology in line with TCRD guidance. Climate change and its impact on weather patterns may result in physical risks to the Group's assets and employees along with those of its supply chain and customers. The Group has engaged with third-party advisors to assess the exposure to the physical risk noted above. In total nine hazard types have been assessed, including flood, wind, precipitation and drought, up to 2100 in 10-year increments. The climate-related data used to underpin this assessment was the Shared Socio-environment Pathways ('SSPs'). SSPs are a function of greenhouse gas emissions, socioeconomic metrics and expected implementation of adaptation and mitigation measures. These correspond roughly to the Representative Concentration Pathways ('RCPs') of previous versions of the Intergovernmental Panel on Climate Change ('IPCC') report. Three IPCC climate change scenarios have been used, with a baseline of 2020: | Scenario | New term: 2021-2040 | | Old term: 2041-2060 | | Long term: 2061-2100 | | | --- | --- | --- | --- | --- | --- | --- | | | Best estimate | Very likely range | Best estimate | Very likely range | Best estimate | Very likely range | | SSP 1-2.6 (RCP 2.6) | 1.5°C | 1.2 to 1.8°C | 1.7°C | 1.3 to 2.2°C | 1.8°C | 1.3 to 2.4°C | | SSP 2-4.5 (RCP 4.5) | 1.5°C | 1.2 to 1.8°C | 2.0°C | 1.6 to 2.5°C | 2.7°C | 2.1 to 3.5°C | | SSP 5-8.5 (RCP 8.5) | 1.6°C | 1.3 to 1.9°C | 2.4°C | 1.9 to 3.0°C | 4.4°C | 3.3 to 5.7°C | For information relating to the forward-looking climate data, our third-party advisors used Jupiter Intelligence ClimateScore. The climate data and scenarios were used to perform an initial assessment on the Group's primary operational manufacturing sites, defined as those critical to the sustainability of our current revenue streams and those which will deliver the majority of growth over our strategic planning horizon, five years. Three sites met the criteria for inclusion in the initial assessment, all based in the United Kingdom. For each of the three sites and for each of the nine hazard types, the following outputs from the modelling were considered: - hazard level evolution – expressed qualitatively from 'low' to 'very high' hazard levels based on physical parameters for each hazard according to our external advisors; - hazard value relative increase/decrease – relative change in percentage compared to the baseline 2020 value; and - hazard value – absolute hazard value, expressed in the metric relevant to the hazard, designed to provide context to the relative increase/decrease (above), but not sufficiently detailed on which to base mitigation, i.e. design of protective structures. With reference to the SSPs-8.5 scenario (the most severe) the majority of the nine hazard types remained 'low' across each of the three sites. For those hazards which were considered 'high' or 'very high', being wind, drought and precipitation, in the majority of cases the level was consistent with the base year and the maximum increase in the hazard level to 2050 was 10% versus the base year. By 2100 the maximum increase was 25% relative to the base year which related to precipitation but that was not sufficient to increase the flood risk hazard level from that in the base year. The conclusion from the analysis of these three sites is that there is no material financial impact from the physical risks arising from climate change through the mid-term time horizon (2041-2060) nor well into the long-term time horizon (2081-2100) (under any of the temperature scenarios), neither directly in the working conditions for our employees nor the operational cost of the business nor the cost of insuring the Group's key assets. The analysis highlights a number of factors for the Company to consider in expanding, replacing and protecting its assets and providing a safe working environment for its employees at these sites. The incorporation of these into the future plans of the business will be monitored by the CRC. Further work is scheduled to widen the scope of this analysis to other manufacturing sites and also through the supply chain to our strategic suppliers, focusing on those suppliers in markets with limited participants. ### Financial statement impact The impact on the financial statements for the year ended 30 September 2022 of the aforementioned risks and opportunities from climate change has been detailed in the notes to the financial statements (see note 1 for further details). Annual Report 2022 Victree plc 97 STRATEGIC REPORT ## Sustainability report continued ## SUSTAINABLE SOLUTIONS: ## IMPROVING THE QUALITY OF LIFE IN PATIENTS ## THROUGH CUTTING EDGE MEDICAL DEVICES ### Societal benefits Expanding the range fixation solutions that promote faster 1 Victrex’s sustainability (ESG) strategy, which healing compared to other materials . ### ofapplications bringing includes a Carbon Net Zero goal by 2030 CranioMaxillo Facial (‘CMF’) is one area ### societalbenefit (Scope 1 & 2 emissions), encapsulates a PEEK has been increasingly used, and indeed Whilst solutions for the Spinal applications series of bold targets to increase the a recent brain study showed 25% better have been the bedrock of our offering, we’re | proportion ofsustainable products (to 70% | | brain function by using a PEEK implant | | | --- | --- | --- | --- | | | further expanding the range of applications | | 5 | | of revenues by 2030) – which in turn | | compared to titanium | . | within the human body where PEEK can supports CO 2 reduction, energy efficiency, deliver clinical benefit, with around 50% of ### or clinical benefits in Medical – as well as From disposable divisional revenues now in non-Spine, from minimising the use of our own resources ### Drug Delivery and Cardio (including toreusabledevices such as energy, water and waste. Inmaking applications for artificial hearts) to Trauma As the pharmaceutical industry responds strides towards meeting our purpose to and the emerging and sizeable opportunity tothe global agenda for sustainability, bring transformational and sustainable in Knee. Indeed, the addressable opportunity pharmaceutical companies are seeking products to market which address the for a PEEK Knee is around $1bn, with a innovative ways to move from disposable world’s material challenges, Victrex is clinical trial over halfway through patient devices to drug delivery platforms that are conceiving, developing and delivering recruitment and making strong progress, reusable. The next generation of reusable solutions that provide societal benefits, with over 30 patients currently implanted devices require larger volumes and more typically replacing metal-based solutions. and no clinical intervention. complex drugs, which bring a range of Inthe medical field, Victrex Polymer & Parts engineering challenges. Victrex’s family of are estimated, to date, since the early implantable and non-implantable PEEK ### Faster healing in patients 2000s, to have improved clinical outcomes 1 polymers (for example, our materials were Faster healing in patients is one of the for morethan 15 million patients, and with used in ventilators during the COVID-19 cornerstones of Victrex’s successes in the our Medical business, Invibio, accounting for pandemic) help customers to address this medical field, with PEEK-OPTIMA™ less than 20% of Victrex revenues in FY byenabling less waste inthemanufacturing polymers from Invibio demonstrating a 2022, we have a bold ambition for Medical process through theconsolidation of range of life-changing benefits when to become a larger proportion of sales over components, and byextending the implanted into the human body. PEEK- the next 10 years, potentially up to one third lifecycleof their deliveryproducts. OPTIMA™ Natural polymer was the first of the Group. medical-grade PEEK used in spinal fusion | Victrex has a rich history in enabling | surgeries, and today PEEK is the most widely | | From development to | | --- | --- | --- | --- | | customers to develop a wide range of | used biomaterial for interbody fusion. When | | commercialisation | | sustainable medical solutions that are | PEEK is put under stress or strain in the | | Ten years ago, most of our medical | | delivering life-changing outcomes to millions | body, it behaves similarly to natural human | | applications were in Spine but the emerging | | of patients worldwide. Specifically, PEEK’s | | 2 | | | | bone | , which can stimulate bone healing, | and growing non-Spine business offers a | | unique set of characteristics offers | and help to minimise stress shielding. When | | real opportunity to bring societal benefits | | performance advantages in even the most | the chemical makeup of PEEK is enriched | | inother applications. Thanks to often | | hostile environments within the human | with additives, such as Hydroxyapatite as in | | painstaking development work, certification | | body, from serious bone fracture sites to | PEEK-OPTIMA™ HA Enhanced polymer, | | and following regulatory pathways, we see | | strong stomach acids. | further benefits are seen, such as the | | real demand for sustainable and clinically | | | formation of new bone after surgery, and | | beneficial solutions for the wider | 3,4 improving the quality of bone bridging . medicalindustry, which offer significant Similarly, carbon fibre PEEK composites offer opportunities over the next decade, in exciting potential to patients undergoing theUS, Europe and increasingly Asia. surgery for orthopaedic trauma, by offering References: 1 Jo Wilson, PhD, Matthew Cantwell; Polyether Ether Ketone (PEEK) Carbon Fiber Composites May Improve Healing of Fractures Stabilized with Intramedullary Nails. (Basic Science Focus Forum, paper #4, 2014) 155. (NB: Jo Wilson and Matthew Cantwell are Victrex employees.) 2 Data on file at Invibio. Mechanical Benchmark of Carbon Fiber PEEK-OPTIMA™ Ultra-Reinforced vs Ti 6AI-4V Plates Undergoing Static and Dynamic Testing per ASTM F382-99 (2008). 3 Study evaluated the bone on growth of PEEK-OPTIMA™ Natural and PEEK-OPTIMA™ HA Enhanced in a bone defect model in sheep. Data on file at Invibio. This has not been correlated with human clinical data. 4 Study evaluated the in vivo response to PEEK-OPTIMA™ Natural, PEEK-OPTIMA™ HA Enhanced and allograft in a cervical spine fusion model in sheep. Dataon file at Invibio. This data has not been correlated with human clinical experience. 5 Zhang Q, Yuan Y, Li X, et al. A Large Multicenter Retrospective Research on Embedded Cranioplasty and Covered Cranioplasty. World Neurosurg. 2018;112:e645-e651. 58 Victrex plc Annual Report 2022 STRATEGIC REPORT Annual Report 2022 Victrex plc 59 STRATEGIC REPORT ## Sustainability report continued ## RESOURCE EFFICIENCY | Resource efficiency | u increasing production line speed; and | plants are regulated under Environmental | | --- | --- | --- | | Beyond our products playing a role in a better | | Permitting Regulations and, as such, are | | | u removing the caustic wash cycle. | | | society, or having recyclability potential in | | subject to regulatory review by the UK | | applications, we also have clear goals to | We have also commenced a major project | Environment Agency. We carry out extensive | | improve our resource efficiency, including | atour UK Hillhouse site to improve energy | routine monitoring in line with our | | reductions in energy, waste and water | metering enabling us to have more granular | environmental permits, to proactively ensure | | usage. Energy usage will continue, in the | energy use data. | our plants are well controlled with zero | | short term, to be driven by production | | notifiable permit breaches during the year. | | volumes, as will water with this year being | Principal environmental impacts | | | higher due to the year on year comparisons | The Group’s main environmental impacts | UK Emissions Trading Scheme | | with normalised levels of production compared | are set out in the charts on page 61 and are | | ### (‘UK ETS’) to FY 2021 when significant inventory, built up different from the Group’s overall greenhouse Whilst in absolute terms for the chemical for Brexit, was unwound as well as the gas (‘GHG’) emissions (on pages 62 and 63). industry, Victrex’s emissions are low, the lower production through thepandemic. These show energy use, water use and 21-stage process of manufacturing PEEK waste from our main UK production sites. polymers compared to other polymers However, we note that our carbon intensity These production sites have the biggest (typically with less than 10 stages) means (Scope 1 & 2 emissions/tonnes of PEEK potential environmental impact (consuming Victrex holds a Greenhouse Gas Permit under manufactured) decreased by 4% this year. 98% of energy for the Group). the UK ETS scheme, covering the combustion Thanks to improvement programmes, water of fuels at its UK Hillhouse polymer usage per unit revenue has also reduced by We report data per unit of revenue to best production site. Verification of emissions 5% over the past five years. We have align our indicators with our Polymer & Parts covering August 2021 (entry to the scheme) increased how we measure energy, waste and strategy as we move downstream into more to December 2021 was undertaken via a water usage within our business and expect specialised manufacturing with a varied registered third party and a submission made to add some further quantification over the product mix, along with absolute data to to the Competent Authority (UK Environment years ahead. We remain focused on controlling demonstrate our total impact. Over recent Agency) in April 2022. Victrex plans to make these impacts and, as we grow, are committed years, targeted improvement programmes an application to join the Hospital and Small to continual improvement. Our priorities remain have resulted in lower energy and water Emitter scheme in 2023 to reduce its exposure the efficient use of energy and water and waste efficiencies per unit of plant output. to fluctuations in carbon pricing by being minimisation and we are proactively focusing Environmental indicators have benefited granted several free allowances, backdated on improvement in these areas. from lower sales volumes. to cover 2021 and 2022 emissions. Pleasingly, we will be reporting on all our Our GHG report (updated in line with the During the year we successfully retained relevant Scope 3 emissions (indirect emissions UK government’s new policy on Streamlined ourISO 14001:2015 certification for the from formulation of and transport of goods Energy and Carbon Reporting (‘SECR’)) includes environmental management system on that are supplied to us, prior to manufacture) our corporate CO 2 emissions by emission allour UK polymer manufacturing plants, from FY 2022. Whilst peer data is difficult type (Scope 1 emissions generated by the melt filtration, compounding, film, tape, | tofully track, our own internal assessment | | direct combustion of gas; Scope 2 emissions | | | --- | --- | --- | --- | | | TM | | pipe, dispersion and innovation plants, | | suggests VICTREX | PEEK, with its own | from purchased electricity and steam; total | | validating our high level of commitment upstream integrated monomers and the fact energy used; and Scope 3 emissions indirect toenvironmental improvement. Victrex we are using 97% global renewable electricity from other sources). Absolute emissions hasan effective system for reporting and in our own operations, has a favourable data is reported along with Scope 1 & 2 investigating incidents and near misses. In sustainability profile against competitor emissions per unit revenue. the period there was one reportable incident. products, most of which operate on non-renewable electricity in other jurisdictions. ### Assessment & measurement ### Our new PEEK facility in China is also now PEEK recycling Victrex has increased its participation in a included in our Scope 1 & 2 data. When recycled appropriately, PEEK is a range of external ESG benchmarks, beyond Commissioning will take place through FY valuable resource whose waste may be reused our own disclosures in this Annual Report. 2023, ahead of commercial operations and without compromising on its performance. Aselection of these are shown on page 50. ‘normalised’ production. We will be spending Victrex has completed a project to identify For example, we have a long-standing most of FY2023 commissioning this project how we can recycle PEEK (PEEK from end of participation in the Carbon Disclosure Project which will add further to our GHG emissions life applications) even more efficiently and (‘CDP’), which benchmarks global companies data once fully operational. provide a recycling service to our customers. and has recognised our efforts in this area. We have developed the potential of partnering MSCI, one of the leading ESG rating agencies, with an existing Value Added Reseller (‘VAR’) ### Improvement programmes FTSE Russell and EcoVadis are other customer to recycle and retrieve PEEK waste With a Continuous Improvement (‘CI’) team organisations that assess our performance. aspart of its ongoing commitment to in place, we continue to assess opportunities sustainability and circular economy. across our resource efficiency area that haven’t ### Compliance already been implemented. These include in Victrex continually seeks to be compliant in recycling, energy usage, waste and water. our environmental and operating performance. Several improvement programmes have Working with global regulatory authorities, already delivered ongoing benefits, saving we make sure that the best available over 200 tonnes of CO 2 during FY 2022 by: techniques to protect the environment are adopted. Our UK chemical production u increasing polymer powder batch size; 60 Victrex plc Annual Report 2022 STRATEGIC REPORT ### Energy use Our energy use is reported mainly from Primary energy Primary energy per unit revenue our UK manufacturing sites, in line with Thousands GJ Thousands GJ/£m our 2030 goals being based on our 2019 2022 805 2.4 2022 manufacturing footprint. 2021 684 2021 2.2 Energy data is based on meter readings 2020 657 2020 2.5 and/or invoices. 7942019 2.72019 With higher production volumes vs FY 2021 8472018 2.62018 (FY 2021 saw the unwinding of sales inventory), absolute energy increased. | Primary energy per unit revenue has | of manufacture through customer price | | --- | --- | | increased as production volumes this year | increases, which we expect to become | | are higher year on year, with revenue | annualised in FY 2023. | being impacted by a currency headwind, and the lag in recovering the higher cost ### Water Water usage Water usage per unit revenue Our main manufacturing assets within the 3 3 Thousands m Thousands m /£m UK and US are all located within areas of low or very low water stress*. For FY 2022, 2022 607 1.8 2022 we started participation in the CDP water disclosure programme and note that our 2021 2021 467 1.5 water usage per unit revenue has decreased 2020 396 1.5 2020 by approximately 5% over the last fiveyears, 2019 499 2019 1.7 principally because of operational 2018 605 2018 1.9 improvements to our processes and a focuson water and resource efficiency. Water usage per unit revenue increased * UK Environment Agency Flood Risk by20% with water usage higher due to Assessment; Rhode Island Statewide increased production volumes (FY 2021 Planningand Grantsburg site 2021 InsuranceRisk Assessment. saw much lower production volumes as weunwound inventory built up for Brexit). ### Waste Victrex works closely with licensed waste Hazardous waste produced Hazardous waste produced per unit service providers to ensure that waste is Tonnes revenue Tonnes/£m recovered, recycled or disposed of with 2022 27,678 2022 81 minimal environmental impact. 2021 2021 11,914 39 Our manufacturing assets used to produce 2020 27,430 2020 103 PEEK provide us and our customers with | security of supply; however, using our | 2019 | 30,311 | | 2019 | 103 | | --- | --- | --- | --- | --- | --- | | own ingredients and raw materials means | | | 33,910 | | 104 | | | 2018 | | | 2018 | | that we do produce some hazardous waste due to the nature of our processes. This is primarily in our monomer production assets within the UK Hazardous waste disposed to Hazardous waste disposed to (Rotherham and Seal Sands). We are landfill (after treatment) Tonnes landfill (after treatment) per unit currently assessing options that could revenue Tonnes/£m reduce this type of waste within our 2022 15 0.043 2022 process and have committed a small proportion of our Research & Development 2021 2021 1 0.003 expense accordingly. 2020 12 0.05 2020 During FY 2022, waste disposed to landfill 2019 15 0.05 2019 increased due to higher production and 2018 2018 0.027 from the disposal of waste stored up during the COVID-19 pandemic. We | completed a full waste mapping exercise | waste to landfill to zero. We also note | | --- | --- | | and are working with our waste suppliers | thatfrom our original target of 50% of | | to identify areas of improvement. This also | hazardous waste to be reduced by 2023 | | includes options which could reduce our | (a2013 target), wesaw a48% reduction | inwaste per £mrevenue. Annual Report 2022 Victrex plc 61 STRATEGIC REPORT ## Sustainability report continued ## RESOURCE EFFICIENCY CONTINUED ### Greenhouse gas (‘GHG’) emissions Our GHG report has been completed 1. purchased goods and services; the current significant inflation in energy following the guidance within the UK costs, and the premium already existing in 2. capital goods; | government regulations on Streamlined | | the market for renewable procured | | --- | --- | --- | | Energy and Carbon Reporting (‘SECR’) | 3. fuel and energy-related activities; | electricity, the cost to Victrex of continuing | | introduced in 2019. | | to purchase renewable energy will only | 4. upstream transportation and distribution; increase on a medium-term view. Emissions have been calculated based 5. waste generated in operations; Emissions from our downstream onthe GHG Protocol Corporate Standard manufacturing facilities in the US and the with all emissions reported being within 6. business travel; UK continue to be included but are FY 2022. We include emissions from our 7. employee commuting; and relatively immaterial. Additionally, owned and leased assets that we are emissions from our overseas technical responsible for in the UK and overseas, 8. investments. facilities and offices are small compared which includes our manufacturing plants, Our GHG emissions are primarily from gas toproduction activities. technical centres and offices. No material combustion and electricity use on our Scope 1 or Scope 2 emissions are omitted, Pleasingly, our Intensity Measurement, chemical production plants in the UK, with and national and regional emission based on Scope 1 & 2 emissions/tonnes of an approximately 50/50 split. Victrex has conversion factors have been used. PEEK manufactured, decreased by 4% vs made strong progress, with a stated aim FY 2021, continuing a general trend seen In FY 2022 we established a clearer view of using 100% renewable electricity across since FY 2018. Direct emissions (Scope 1) of our Scope 3 emissions by conducting a all our global sites by the end of 2024. increased due to higher production thorough analysis of the following indirect Currently, 100% of electricity purchased volumes whilst indirect emissions from value chain emissions identified as relevant for our UK sites is from renewable sources, electricity used (Scope 2) increased, to Victrex globally: with 97% globally. This is in the form of although we note a general reduction Renewable Certificates or a limited trend over the past five years. amount of our own renewable (solar) generation, which we have the opportunity to expand. We note that with ### Victrex GHG emissions based on Victrex financial year 2021/22 Tonnes of CO 2 e equivalent 2022 from PEEK manufacture and downstream products. | SCOPE 1 | | SCOPE 2 | | | --- | --- | --- | --- | | Direct emissions resulting from | | Indirect emissions resulting from | | | combustion of fuels Tonnes CO | 2 e | electricity and steam purchased | | | | | (location-based method) Tonnes CO | 2 e | Scope 1 2022 25,232 10,673 2022 2021 20,161 2021 8,293 Scope 2 2020 18,241 2020 9,212 Scope 3 2019 23,820 2019 11,065 2018 25,499 2018 12,722 SCOPE 3** INTENSITY MEASUREMENT ##  Other indirect emissions across eight SCOPE 1 & 2 categories as listed above Tonnes CO 2 e Tonnes CO 2 e/tonnes of Scope 1: 20% PEEKmanufactured Scope 2: 8% 2022 91,215 7.79 2022 Scope 3: 72% | 2021 | Previously disclosed (limited categories) | | 2021 | 8.13 | | | --- | --- | --- | --- | --- | --- | | 2020 | Previously disclosed (limited categories) | | 2020 | | 9.87 | | 2019 | | 79,747** | 2019 | 8.86 | | | 2018 | Previously disclosed (limited categories) | | 2018 | 8.32 | | ** Scope 3 emissions for FY 2019 were the baseline for our full Scope 3 assessment covering the eight relevant categories to Victrex. FY 2022 Scope 3 emissions have been calculated on the same basis. The other years have been reported on as part of prior year disclosures based on a more limited number of Scope 3 categories, and are not shown here to minimise an inaccurate comparison. Future Scope 3 disclosures will now cover the full eight categories relevant to Victrex. 62 Victrex plc Annual Report 2022 ### Global GHG emissions andenergy use data ### Lifecycle Analysis 2021 2022 Lifecycle Analysis (‘LCA’) is the process of measuring the environmental impact of a product or service throughout Scope 1/tCO 2 e itslifecycle – from cradle to gate – and this year we have Global 20,161 25,232 completed LCAs on key products which represent nearly two UK 19,953 24,978 thirds of revenues (63%). We plan to conduct LCAs onasmall STRATEGIC REPORT Global (excluding UK) 208 254 proportion of additional key products over the nextthree years, Scope 2 (location based)/tCO e ensuring ourwider portfolio is covered. 2 Global 8,293 10,673 The process involves measuring the impacts of each part of UK 7,511 8,490 theprocess such as energy used in production or additional Global (excluding UK) 782 2,183 processing, and in inbound logistics. This helps us compare between products, materials and methods used, providing Scope 2 (market based)/tCO 2 e useful information by which to make decisions that could help Global 1,980 3,012 the environment and provides an understanding of our total UK 1,088 830 carbon footprint for us and the carbon footprint of our Global (excluding UK) 892 2,182 products for our customers. Gross Scope 1 & Scope 2 (location based)/tCO 2 e Our LCA – which followed and was compliant with ISO14040/44 Global 28,454 35,905 – has identified that the total global warming potential for UK 27,46 4 33,468 PEEK is 13kg CO 2 e/kg of PEEK. This is based on KPMG’s Global (excluding UK) 990 2,437 assessment which includes production, raw materials and parts, and inbound logistics, and uses 100% Victrex made BDF Energy consumption/MWh (though we do purchase a minority of non-Victrex-made BDF). Global 140,843 171,362 Our own internal assessment, particularly when considering the UK 138,676 166,171 lower renewable energy mix in countries producing PEEK for Global (excluding UK) 2,167 5,191 competitors and despite the increased number of steps in our Intensity ratio/tCO 2 e process, 21 vs 10 typically, suggests thisis much more favourable Gross Scope 1 & Scope 2/Tonnes of than our competitors, and the average for PEEK manufacturing, PEEKmanufactured though PEEK reporting by competitors is combined within their Global 8.13 7.79 broader portfolio reporting. PEEK’s global warming potential (‘GWP’) is also nearly three times lower than titanium*. Methodology Overall, the LCA enables us to consider future opportunities Based on GHG Protocol Corporate Standard forfurther environmental improvement, including: u installation of further isolation meters to accurately ### NOx (oxides of nitrogen reporting) recordusage data; Pleasingly, our operations emit well below our environmental permits threshold levels of 100 tonnes per annum. u developing a standard approach and repository for the collation of LCA data; and During the past 12 months, 11 tonnes of NOx (expressed as NO 2 ) were generated from our principal manufacturing sites directly in the u working with suppliers as part of the indirect impacts we manufacture of PEEK. This was calculated using monitoring data and have on the environment. assumptions around plant availability and actual operational periods. * Norgate, Jahanshahi and Rankin – Journal of Cleaner Production 2007. | Scope 3 emissions assessment | The assessment identified a Scope 3 figure of | | SCOPE 3 EMISSIONS BASED | | --- | --- | --- | --- | | | 79,747tCO | 2 e and gives a total pre-COVID-19 | | | Total carbon footprint: | | | ON FY 2022: | FY2019 carbon footprint figure, Scope 1, 2 & 3, of 114,632 tCO 2 e. When combining this with the FY2019 volume (production volume) this equates ## 28kg to a figure of 26kg CO e/kg. It should be noted 2 that in FY 2019 we produced more than sales CO 2 per kg of PEEK manufactured Other volume due to building inventory ahead of Brexit. categories Scope 1, 2 & 3 (8kg CO 2 per kg of PEEK Our FY 2022 Scope 3 figure was 91,215tCO 2 e based on Scope 1 & 2 only) and gives a total post-COVID-19 FY 2022 carbon | Scope 3 emissions are the result of activities from | footprint figure, Scope 1, 2 & 3, of 127,120tCO | | 2 e. | | | | --- | --- | --- | --- | --- | --- | | assets not owned or controlled by the reporting | When combining this with the FY2022 volume | | | | | | organisation, but that the organisation indirectly | this equates to a figure of 28kg | | | | | | impacts in its value chain. Scope 3 emissions | CO | 2 e/kg. In FY 2022, production volume was | | | Category 1 | | include all sources not within an organisation’s | similar to sales volume, reflecting the | | | | | | Scope 1 & 2 boundary. | normalisation of production. | | | | | | This year we completed a Scope 3 assessment | Overall, our Scope 3 analysis has provided us | | | | | | across all eight relevant categories, using pre- | with the following opportunities: | | |  | | and post-COVID-19 FY 2019 and FY 2022 data. | | u work with key suppliers to identify carbon | | | --- | --- | --- | | This was across the eight topics identified as | reduction opportunities; | Category 1: 80% – Purchased goods | | relevant to Victrex globally, by setting up | | and services. | | | u switch to biofuels as a source of energy for | | individual workstreams for each one, gathering the combustion-based activity; Other categories: 20% – capital goods, the data then calculating the carbon footprint for switch to renewable electricity; and fuel & energy (not in Scope 1 & 2), upstream each topic to identify the total Scope 3 emissions. u transportation, waste generation, business u encourage employee commuting using travel, employee commuting and investments. electric cars with zero GHG emissions. Annual Report 2022 Victrex plc 63 STRATEGIC REPORT ## Sustainability report continuedSustainability report continued ## RESOURCE EFFICIENCY CONTINUED ### Options to enable ### Carbon Net Zero A key focus area will be the use of alternative fuels and alternative process technology to minimise our GHG emissions. For example, we have been lobbying local MPs in the UK, engaged with the UK Business Minister and been active in local enterprise partnerships for the opportunity to gain access to hydrogen through proposed grids within the UK, including those planned in the North West of England, close to our main polymer manufacturing centre. We have also increased the capital required in our capital expenditure plans to support alternative fuel use or process technology (whilst noting the increased operating expense of alternative fuels). We are also allocating a small but growing proportion of R&D investment in support of alternative processes, including work with universities. Several key projects have been proposed that could be of interest including: u electrification of production equipment; ### Carbon offsetting Supply chain and ### u alternative fuel to generate steam Whilst Victrex will consider the opportunities energy sourcing for process heating; and from carbon offsetting, we currently view this With increased globalisation and concerns as a very small part of achieving our goals. from customers around energy sourcing, u bio-methane and renewable Victrex continually seeks to ensure it has self-generation options. ### REACH robust security of supply for customers. We have also been investigating the Following the UK’s withdrawal from the EU The majority of BDF – one of the key use of alternative fuels: and the subsequent transition period, the monomers used to manufacture PEEK – is EU REACH (Registration, Evaluation, u hydrogen – manufactured in our own operations within Authorisation and Restriction of Chemicals the UK. The remainder is sourced from Asia u Green Hydrogen via PEM regulations) Regulation has been brought through several contractual sources. With (Electrolysis) and renewables; into UK law under the European Union the conflict in Ukraine, we engaged with a (Withdrawal) Act 2018. REACH, and related u Blue Hydrogen via Steam range of stakeholders to reassure them that legislation, has been replicated in the UK Reforming and Carbon Capture; and no raw materials were sourced from with the necessary changes to make it Ukraine, or Russia. Indeed, sales to those u hydrogen (20%)/methane blend operable in a domestic context. The key countries totalled <0.1% prior to the schemes being piloted; principles of the EU REACH Regulation have Ukraine conflict starting. been retained. The new domestic regime is u biofuels – known as UK REACH. Currently, our raw material sourcing other u Green HVO (drop-in bio-diesel than BDF is primarily from Europe, with Asia UK REACH, implemented 1 January 2021, replacement); and the US also hosting our strategic suppliers. isa regulatory requirement for the chemical For energy supply, most of our production is in u Biomass (sustainable wood industry and Victrex has well-established the UK, so we procure energy on UK based chip);and processes in place to comply with it. We contracts, whilst noting the unprecedented regularly monitor and review to ensure that u AD Biogas Sources (Anaerobic increase in UK energy costs (primarily gas and raw materials involved in our manufacturing Digestion); and electricity used in our heating processes), as process are compliant and that REACH will the UK has to compete for global gas supplies u carbon capture – a range of projects not adversely impact on security of supply, at high prices. Energy and raw material that we are currently engaged with. which is important both for Victrex and for hedging is one aspect of our planning, though our customers who are focusing on with the conflict in Ukraine moving energy long-term demand. costs to unprecedented levels, the focus remains on recovering input cost inflation through efficiency and primarily price increases tocustomers. 64 Victrex plc Annual Report 2022 STRATEGIC REPORT ## SAFETY, HEALTH & ENVIRONMENT ### Occupational safety, health Recordable injury frequency rate FY 2020 FY 2021 FY 2022 ### andenvironment (‘SHE’) The occupational safety and health of all our Total number of recordable injuries 12 6 4 employees, along with contractors and Total hours (employee and contractor) 1,854,529 1,690,374 3,854,016 visitors to our sites, remains the highest Frequency rate 1.3 0.7 0.2 priority for Victrex and is fundamental to everything we do. OSHA benchmark 1.7 1.9 1.4 This year we have continued to protect our people from the COVID-19 pandemic by Frequency rate = total number of recordable injuries x 200,000/total number of hours acting swiftly based upon our previous worked (employee and contractor). experience whilst always following local and national guidance and ensuring that robust Lost time injury frequency rate FY 2020 FY 2021 FY 2022 controls are in place within each Victrex Total number of lost time injuries 7 4 2 location. We saw a Return to Site in our global locations, with the UK, the US & Frequency rate 0.8 0.5 0.1 Europe working at sites for our office-based Total hours (employee and contractor) 1,854,529 1,690,374 3,854,016 employees, supported by our Flexible Working Policy. With further lockdowns OSHA benchmark 0.6 0.6 0.8 during the year in China and restrictions still in place in Japan and Korea, progress to a Frequency rate = total number of lost time injuries x 200,000/total number of hours worked full Return to Site has been slower. We also (employee and contractor). encouraged take-up of vaccines at local level | across our geographic locations, with a | SHE KPIs | China | | --- | --- | --- | | continuation of COVID-19 related information | Our FY 2022 performance continued to | Our new China manufacturing subsidiary in | | via our Global COVID-19 Committee and | show a reduction in both our recordable | Panjin (‘PVYX’) has recorded over 1.7 million | | internal communication channels. | injury frequency rate (‘RIFR’) and our lost | hours since the project commenced, with | | | time frequency rate (‘LTFR’). We remain well | norecordable injuries in FY 2022. Data | FY 2022 saw the continuation of our zero below the OSHA industry standard RIFR rate onperformance during construction is incidents and zero accidents SHE culture (1.4) and LTFR rate (0.8). shown below: improvement programme and we have: Our recordable injury frequency rate has u completed the first phase of our process PVYX employees FY 2022 reduced by 71% from 0.7 to 0.2 and our safety management improvement lost time frequency rate has reduced by programme and conducted external Hours worked 181,680 80% from 0.5 to 0.1. assurance across all our high hazard sites; Recordable injuries 0 The success of our zero incidents, zero u launched employee toolkits to reinforce Total RIFR 0 accidents ambition relies on us all behaving our SHE golden rules; and inthe right way and doing the right things Reportable environmental 0 u continued to embed the SHE regardless of our role. This enables us to High potential incidents 2 | accountability framework and improved | continue to grow a productive, successful and | | | --- | --- | --- | | employee awareness of mental health | environmentally responsible business where | | | and wellbeing issues by completing | we are all able to go home without harm. | PVYX project contractors FY 2022 | prevention and intervention workshops. Our goal is to be an organisation where Hours worked 726,416 | Results from our annual SHE survey in July | whoever we are and whatever we are doing, | | | --- | --- | --- | | 2022 showed an improvement in our culture | the three questions at the forefront of our | Recordable injuries 0 | | engagement score. The survey revealed that | mind are always: | Total RIFR 0 | 94% of respondents (FY 2021: 82%) believe Am I taking care? Is it safe? Am I doing the Reportable environmental 0 achieving zero incidents and zero accidents right thing? Because for every one of us is possible if we all do the right thing and High potential incidents n/a Safety Starts with Me. understand what they need to do to keep both themselves and their colleagues safe from harm. Annual Report 2022 Victrex plc 65 STRATEGIC REPORT ## Sustainability report continued ## SOCIAL RESPONSIBILITY Our social responsibility area focuses on inspiring our employees and communities to positively impact our chosen UN Sustainable Development Goals: u Good Health and Wellbeing; u Quality Education/STEM; and u Diversity, Equity and Inclusion. ### Permanent employees (as at year end) Average number of people employed during ### theyear, by category ### IN 1993 ### TOTAL: TOTAL: ## 60 ### 895 1,004 ##  ### IN 2022 | | IN 2021 | | IN 2022 | | | --- | --- | --- | --- | --- | | | | Make 541 | | Make 586 | | | | Develop, market and sell 224 | | Develop, market and sell 230 | | 1,093 | | Support 130 | | Support 188 | | Gender pay | across an organisation regardless of role or | u The percentage of female employees in | | --- | --- | --- | | For Victrex, diversity, equity and inclusion are | level. Reporting a mean positive pay gap | the upper quartile has increased from | | all central to our 2030 sustainability strategy, | means male employees, on average, are | 17.83% in 2017 to 21.82% in 2022. | | with targets specifically focused on measuring | paid more than female employees. | | | | | u The median gender pay gap has | | the effectiveness of interventions to support | Reporting a mean negative pay gap means | | reduced from 13.49% in 2017 female progression within our organisation. female employees are paid more than male to6.52% in 2022. | In2022 we established a new Corporate | employees, on average. While this is not | | | --- | --- | --- | | Responsibility Committee chaired by a | acceptable it is not illegal. | u 88.05% of males were paid a bonus, | | Non-executive Director, Jane Toogood, to | | compared with 80.00% of females. | However, in contrast, equal pay is different increase the focus and rigour on our efforts as it is a direct comparison between u The proportion of male vs female to drive change in the DE&I agenda. | | individuals and considers whether someone | employees in each of our pay bands | | | --- | --- | --- | --- | | We are striving to build a more diverse | is paid equivalently to others doing the same | wassplit as follows: | | | workforce in which we empower employees | or equivalent job, regardless of gender. | | | | | | | u Lower quartile – 64.46% male | | to bring their whole self to work, unlocking | Unequal pay is unlawful.’ | | | vs35.54% female. potential to draw on a wealth of skills, For gender pay gap reporting purposes, we experiences and talent to improve our u Lower middle quartile – 89.16% male took our ‘snapshot’ of Victrex Manufacturing collaboration in teams, driving continuous vs 10.84% female. Limited (as an entity employing >250 people) innovation and successfully delivering our at 5 April 2022 and have outlined the u Upper middle quartile – 84.94% male strategy and Company priorities. | | headline statistics and analysis below. We | vs 15.06% female. | | --- | --- | --- | | Gender diversity and pay | have then set out a summary of the key | | | | | u Upper quartile – 78.18% male | | We continue to report and publish our | improvement actions we have been taking | | vs21.82% female. statutory gender pay and bonus gap each and the positive trends emerging since we year, in line with the guidance introduced in started our reporting in 2017. ### Analysis and insights the gender pay regulations in 2017. In Snapshot headlines Mean & median hourly rate addition, we look for trends and indicators u There were 633 relevant people The primary factor influencing the negative of our successful implementation of targeted employed on full pay. pay gap is the ratio of females overall in initiatives or identify new opportunities to positions which have higher remuneration support bridging the gap over time. u 79% were male and 21% female. opportunity such as management and Gender pay explained: u The percentage of female employees professional roles. The more senior jobs in overall has increased from 17% in hierarchy terms attract a higher level of ‘Having a gender pay gap isn’t the same as 2017 to 21% in 2022. variable (at risk) pay and Long Term Incentive having an equal pay issue. Gender pay gap Plans which have a tendency to fluctuate is the description given to the difference in u The percentage of female employees based on performance, which has a direct average pay of all men and all women in the upper middle quartile increased impact year on year on the pay gap. from 6.15% in 2017 to 15.06% in 2022. 66 Victrex plc Annual Report 2022 There are other influencing factors that link u the taxable gain on the sale of share In the past year, we have also: STRATEGIC REPORT | to the general representation of women in | options and LTIP proceeds have impacted | | | --- | --- | --- | | | | u set a target to have at least 40% female | | roles where the earnings potential is higher, | the mean bonus calculation again in | | representation in our senior management for example the shift roles where a 2022 to senior members who have roles by 2030. In April 2022 we reported differential allowance is paid. Shift exercised a considerable number 17% against this target; premiums are paid where roles require resulting in a notable increase in their employees to work shifts and unsocial earnings to be classified as bonus for u rolled out #iamremarkable training to hours, which at Victrex is predominantly thepurpose of the bonus gap; and allgender engagement networks, those directly involved in the manufacturing whichfocuses on supporting u in order to attract key talent into our operation, of which the majority are male. underrepresented people with organisation, more now than ever in the To put this into context 37% of our celebrating their remarkable attributes; currently challenging market, we operate employees were paid a shift premium and discretionary ‘sign-on’ bonuses – these u introduced an applicant tracking system 98% of those who received the shift are lump sum payments made to newly that has enabled us to do more premium were male. We continue to strive hired employees, usually in niche or detailedanalysis of who is applying for for more female representation in all roles critical skills roles. Notably in 2021, a jobs at Victrex and in turn enabling us and levels across the Company. sign-on bonus was given to a female to tobe more targeted about diverse Quartiles attract into a senior position and had a recruitment campaigns; We have seen incremental progress in the positive impact on the bonus gap in a u supported International Women’s Day three higher quartile bands although we year when the Company bonus did not with ‘break the bias’ videos, stories from acknowledge that we need to continue to pay out, creating a negative bonus gap. women about women’s experiences in make targeted efforts to accelerate this in As a consequence in 2022 we have the workplace and women’s health; | the coming years through our initiatives to | reverted back to a bonus gap in favour of | | | --- | --- | --- | | achieve our DE&I target by 2030, which will | males following the successful maximum | u launched our new careers site showcasing | | have a natural impact on the earnings | bonus metric being triggered. | successful women in early careers at Victrex; | potential of female employees. u created a UK gender engagement ### Actions In addition we are working to understand network ‘Thursdate’ where female and We continue to sponsor our Diversity, Equity the representation of the lower quartile male colleagues share personal and work & Inclusion agenda (‘DE&I’), with support (35.5% female) as the proportion of females experiences offering internal support to from our Head of Learning and Inclusion. to males does not follow the overall male to women in the workplace; and We have globally inclusive pay and bonus female ratio in the Company at 78.6%/21.4%. plans, and continue to focus our efforts to u embedded the global flexible We should expect to see a broadly similar maintain a competitive total reward workingpolicy with more women distribution throughout the quartiles. With offering. We continue to have equitable takingup flexible working opportunities these insights we are building plans of policies and processes, regardless of gender. than before. action to address the imbalance. We recognise that there are specific roles ### Bonuses Trends where we have not attracted as balanced Notable items impacting the bonus We continue to see positive trends in female aproportion of females as we would have calculations this year: progression through both formal wanted and we continue to work with programmes such as apprenticeships, u in the snapshot year of April 2022 (based contacts in the local area to encourage increase in females in STEM roles (currently on FY 2021 and including the bonus females to join the Company and consider 20% in 2022), internal promotions and payout) the Company successfully careers in such hard to attract roles. We are attracting new talent. | achieved maximum bonus target; this is | actively promoting and supporting a hybrid | | | --- | --- | --- | | an all-employee bonus plan with tiered | and remote working approach to reach | The positive impact of these and other | | levels aligned to organisational levels | talented individuals; this is helping us attract | changes can be seen in the statutory | | within our global compensation | a more diverse candidate pool for jobs. In | reported data since 2017. | | structure. Therefore the bonus gap is | addition, the apprenticeship programmes | | | impacted where more males occupy | will provide the talent pipeline for the future | | ### Summary senior level positions where variable pay and we measure the proportion of females We are committed to taking sustainable, such as bonus opportunity is higher; within these groups. positive and proactive actions to close the gender pay gap through focused interventions. We are actively reviewing, defining and developing initiatives to accelerate our progress toward our targets to becoming a more gender balanced organisation by 2030. Over time, we are confident that the actions and initiatives we put in place, alongside our other inclusive policies, will have an impact on the balance of male vs female employees at all levels in the organisation and support our 2030 sustainability goals. Annual Report 2022 Victrex plc 67 STRATEGIC REPORT ## Sustainability report continued ## SOCIAL RESPONSIBILITY CONTINUED | Diversity, Equity & Inclusion | Progress in FY 2022 | | Employee breakdown | | | | --- | --- | --- | --- | --- | --- | | The progress towards our target of achieving | | u Facilitated the internal delivery of the | At the end of FY 2022, 56% of our Board | | | | 40% of females in our leadership group by | | #iamremarkable campaign, focused on | were male and 44% were female. 40% of | | | | 2030 (increasing from 10% in FY 2021 to | | empowering women and other | our senior managers were female*. In the | | | | 19% in FY 2022) has been achieved through | | under-represented groups to celebrate | grouping of senior managers and their | | | | promotions and targeted talent development, | | their achievements in the workplace. | direct reports, 66% were male and 34% | | | | with coaching and mentoring being at the | | Over 170 employees engaged and | were female. Of the rest of our employees | | | | core of the support. | | participated in the training. | 78% were male and 22% were female. | | | | Through the focused direction of our | | u Continued to engage our employees | As of 30 September 2022: | | | | Strategic Inclusion Group (‘SIG’), our | | globally through our Gender | | | Grand | | | | | | Male Female | total | | diversity agenda continues to develop with | | Engagement Networks (‘GEN’), with over | | | | | more employees being actively engaged. We | | 120 employees now actively participating | | | | Board of Directors 5 4 9 | carried out our first diversity data collection | in the network as well as supporting the | | | --- | --- | --- | | exercise globally this year, giving us insight | delivery of several workshops internally | Senior managers* 3 2 5 | | into the diversity of our employee base. This | focusing across a range of Inclusion and | | Senior manager and has enabled more targeted support Diversity topics: trans, unconscious bias direct reports** 29 15 44 throughout FY 2022. and building your personal brand. Rest of employees 811 235 1,046 | Our Global Flexible Working policy | u Piloted a workshop on creating an | | | --- | --- | --- | | continues to embed with more employees | inclusive workplace which is now being | Grand total | | requesting variations to their working | rolled out to managers. | Permanent employees | | patterns. The female take-up of flexible | | (incl. Executive | | | u Created a library of resources to help | | | working hours is higher than male, with | | Directors) 843 250 1,093 | support our Diversity, Equity & Inclusion 75% of those taking up formal flexible by educating employees on topics such as working hours being female. This year’s * VMT members excluding the Board Directors. neurodiversity, gender, menopause and VMT members are listed on pages 88 and 89. requests, however, had 45% of requests allyship. This included an internal coming from males and 55% from females ** VMT and direct reports. campaign throughout July to highlight so we are seeing a greater take up. When ‘PRIDE’ and the LGBTQ+ communities. | itcomes to purchasing additional holidays | | Recognition | | --- | --- | --- | | this year 51% of the requests have come | u Continued to support our mentoring | We continue to be proud of our recognition | | from males. | programmes with the focus on | programmes, celebrating the achievements | | | under-represented groups; in addition, | of our employees through ‘instant’ and | The introduction of an applicant tracking wehave launched a pilot for our reverse ‘functional’ awards, our Above & Beyond system for recruitment has given us more mentoring programme. Awards, our annual CEO Awards which detailed analysis of who is applying for jobs recognise the global talent across Victrex at Victrex. This, and the work we are doing u Promoted several global awareness and our Professional Development Awards with recruitment agencies, is ensuring that daysacross the business: Movember; celebrating those of our employees we are beginning to target more closely a International Women’s Day; International completing further education to gain diverse applicant base. Men’s Day; and PRIDE – including a trans aqualification. education session held by one of We continue to give full and fair ouremployees. In FY 2022, there were 325 Above & Beyond consideration in our recruitment and Awards, 83 Functional Excellence Awards, selection process to any applicant with a In addition to our internal activities, we have 65 CEO Awards and 89 Professional disability. For disabled persons employed by continued to focus on developing a diverse Development Awards. Victrex, be that upon commencement or future workforce through activities within who become disabled during their our local communities: employment, Victrex is committed to u as part of International Women’s Day, we ensuring equality of opportunity for training, delivered a workshop aimed at breaking career development and promotion down gender stereotypes within STEM opportunities. We are registered with the UK careers. This reached over 160 young government’s ‘Disability Confident’ scheme female students. In addition, we and demonstrate this commitment globally. delivered virtual and face-to-face | We have rebranded from Inclusion and | workshops for over 60 women of | | --- | --- | | Diversity to Diversity, Equity & Inclusion to | different ethnic minorities, to promote | | reflect more accurately the focus of our | STEM careers and dispel the myths | | work and giving everyone fair and equitable | around women in STEM; and | treatment, access and opportunity, across all u participated in the UK social mobility aspects of their working life at Victrex. initiative ‘Kickstart’ bringing young Pleasingly our Employee Experience Survey people aged between 16–25 who are identified a 9% increase to 77% of defined as NEET (Not in Education, employees believing that Victrex appreciates Employment or Training). individual differences. 68 Victrex plc Annual Report 2022 STRATEGIC REPORT | Involvement and culture | | u our quarterly regional Employee Forums | In FY 2022 we had 49 (40M:9F) employees | | --- | --- | --- | --- | | We continue to offer a range of communication | | continue to give our employees an | on apprenticeship programmes including | | channels, both formal and informal, | | opportunity to feed back on broader | 5(3M:2F) employees completing their | | allowing us to ensure that our employees | | employee experience and provide an | qualifications. Employees across Victrex | | remain informed of business updates and | | employee view to planned business | havecompleted 19,274 hours of learning | | two-way discussions take place: | | initiatives and projects. | inFY 2022. | | | u we have seen a return to face to face in | Next year will see a continuation of our | | | | addition to our virtual quarterly staff | engagement activity, to continue to ensure | | | | briefings this year, following the worst | employee voice is embedded within our | | | | impact of the COVID-19 pandemic. | culture, built on innovation and delivering | | | | These sessions allow our employees to | with speed and service. | | ‘stay in touch’ with our leadership team ### and hear about business updates; Development Victrex continues to focus on digitising u Brendan Connolly, our Workforce learning, making it easier to access for all Engagement Non-executive Director, employees. We have seen an increase in hasbeen meeting with our employees engagement through online e-learning globally to listen to employee voice, platforms as well as an increase in the explore views and drive employee overall upskilling and training across the engagement. We have had excellent business. The post-COVID-19 world has feedback from our employees on the seena resurgence of more face-to-face interactions with Brendan. His third seminar-based learning. This includes an annual report can be found on pages increase in safety training within our 92and 93; Integrated Supply Chain team – Victrex | u following our 2022 Employee Experience | supported over 50 employees in completing | | --- | --- | | Survey we have been focused on reviewing | their IOSH accredited qualifications | | the results and creating and delivering | throughout FY2022. | action plans to drive improvements. 83% We continue to support apprenticeship of our employees believe that they work development for new and existing together well as a team, which is an employees with a total of 63 apprentices improvement of 28% from our 2020 being supported in FY 2022. We have also survey. We have also seen an increase developed and launched our new graduate from our 2020 survey to 52% (+5%) of development programme which sees a employees believing that we will act on structured approach to bringing in making improvements. Our Victrex graduates to the organisation. Engagement Steering Team (‘VEST’) continues to drive progress andaction; and Annual Report 2022 Victrex plc 69 STRATEGIC REPORT ## Sustainability report continued ## SOCIAL RESPONSIBILITY CONTINUED ### Wellbeing building on the foundations from this year Participation in employee The safety, health & wellbeing of our to ensure improvement in the safety, health ### share schemes employees continues to be our highest and wellbeing of all our employees. priority and fundamental to everything we | do at Victrex. In FY 2022, with the continued | Community volunteering | | --- | --- | | embedding of our flexible working policy we | Inspiring the next generation of talent | | have seen many of our ‘non-manufacturing’ | continues to be a key focus for Victrex. | | employees undertaking hybrid working. | Throughout FY 2022 we continued to support | | Wecontinued to monitor and adapt to the | the communities where we operate. This | | impact of COVID-19, with sensible controls | includes consulting and discussing withthese | ## 77% and processes to ensure continuity of daily communities on the long-term benefits from operations at each location. partnering with Victrex and where our support ## can be most valued. Wecontinue to develop  Our Employee Experience Survey in 2022 our global network of Social Responsibility reported that employees continue to feel Ambassadors aimed atincreasing community that Victrex is genuinely interested in their 2022 2021 2020 2019 2018 volunteering (andconsultation) across each wellbeing (an increase of 11% to 76%) and region, aswellasengaging our global 77% 89% 90% 93% 95% that they can talk openly with their line workforce inour community agenda. | manager about health and wellbeing issues. | | Note: Excludes employees with a tenure less than | | --- | --- | --- | | The survey also indicated that due to the | u Our team of STEM Ambassadors | a year. | | initiatives we have introduced, our managers | continues to increase year on year with | | | are more confident to recognise the signs of | 52 (+18%) employees now engaged in | | | mental health awareness in their teams and | the STEM Ambassador programme. | | know what to do if a team member is facing u During FY 2022 our educational activities ## mental wellbeing challenges. 8% impacted over 3,200 young people In April we held our annual Global SHE across 102 activities with a total of ### Voluntary employee turnover | Week, which took place in line with the ILO | 1,500+ hours focused on inspiring the | | | --- | --- | --- | | ‘World Day for Safety and Health at Work | next generation in STEM. | | | 2022’. Our employees were involved in the | | 2022 2021 2020 2019 2018 | | | u Our employees have volunteered a | | content and activities taking place during the record-breaking 4,784 hours in the 8% 7% 4% 5% 5% week, centred around being given time to communities where they live and work focus on healthy body, healthy mind and this year. Since 2020, our employees healthy eating. We held virtual workshops on have dedicated a cumulative total of Mental Wellness Training & Awareness for & Enterprise Company, SIP, Career Ready 10,913 hours to community activity, people managers, and Stress Management and Catalyst Science Discovery Centre; meaning we have already achieved our and Mental Health for all employees. Across 2030 milestone target of 10,000 hours. u collaboration with Speakers for Schools, our global sites we held in-person activities SIP, Career Ready and STEM Learning to including engagement sessions with Throughout FY 2022 we have continued to support a range of UK-wide networking manufacturing teams, financial wellbeing, support community initiatives including: groups aimed at inspiring local exercise classes, relaxation sessions, as well as u UK government led National businesses to play an active role in providing healthy food during the week. | | Apprenticeship Week 2022 – Victrex ran | supporting career outreach programmes, | | --- | --- | --- | | We continue to build digital resources and | three ‘Careers Workshops’ during the | including additional sessions with local | | toolkits accessible year-round for all our | week for schools in the UK; | schools, colleges and universities to | | employees which included articles which | | provide ongoing support and solutions | | | u UK Enterprise Advisor Programme | | | focused on a variety of topics including | | to career outreach programmes; | focused on engaging with local schools grief, mental health, digital wellbeing, to help develop their career programme u Victrex is a member of Science Industry surviving long-term illnesses and women’s offerings as part of our Cornerstone Partnership (‘SIP’), a UK alliance of health, some of which were shared personal Employer membership. We have five organisations designed to generate stories from our employees, which led to Enterprise Advisors (+67% from FY 2021); innovation and growth within the valued conversations and collaboration science industries. We have two across all our sites. We continued to support u continued membership with Business employees who sit on the SIP Task Force Movember and in November 2021, several inthe Community (‘BITC’) focused on which is focused on increasing outreach employees took part in a challenging improving our efforts as a responsible to young people to improve the talent long-distance endurance challenge to raise business, including ‘Pride of Place’, pipeline for science industries; and money and awareness and raised over £9,390. aunique public, private and voluntary sector partnership that has come u supporting employees taking part in a In addition, we continue to provide together to promote economic range of online and in-person initiatives occupational health, private medical and development and tackle deprivation; to help grow the STEM workforce of the employee assistance programme services to future – opportunities have included ‘I’m all our employees. We are committed to u new and continued relationships, to a Scientist, Get Me out of Here!’, various improving employee wellbeing and develop our STEM outreach offering, careers events, a range of online virtual engagement with a healthier and more with organisations such as STEM panels and Q&A sessions and more. inclusive culture and aim to continue Learning, Speakers for Schools, Careers 70 Victrex plc Annual Report 2022 ### Community volunteering STRATEGIC REPORT ### inaction Our global, employee-led, charity and community teams have continued to support the local communities where we work throughout FY 2022. Our key focus has been social mobility, global foodbank donations and a wide range of other community-led initiatives aimed at givingback. Victrex has supported a range of charitable donations totalling £81,811 (FY 2021: £88,178). Match funding was also provided to the Red Cross in Ukraine, following donations totalling £15,000 by our globalemployees. ### Responsible taxation policy The Group is committed to managing its tax affairs in a responsible and transparent manner, as outlined in our Tax Strategy (www.victrexplc.com), with the Group acknowledging its corporate responsibility inthis area. Taxation paid during FY 2022 ### As a business we continue to focus on: was £10.6m (FY 2021: £8.6m), in relation to profit-based taxes, with an effective tax rate | | the safety, health and wellbeing of our employees | of 13.9%. The Group’s mid-term guidance | | --- | --- | --- | | | being our highest priority; | for the effective tax rate is 12%–15% | | 1. | | compared to the current (19%) UK | corporation tax rate and the OECD global minimum rate of 15%. The discount to the UK rate is due to the specific UK ### promoting our values of Passion, Innovation and government reliefs, including Research & ### Performance and a culture of innovation, service Development expenditure credit, Patent Box ## 2. for customers and delivering with speed; and accelerated capital allowances, available to UK companies which invest heavily in Research & Development, create highly ### ensuring an inclusive and diverse workforce skilled innovation jobs and develop unique value-generating intellectual property (‘IP’). ### with appropriate policies; Victrex’s strategy of investing in, and ## 3. patenting the output of, innovative and sustainable products and processes allows the Group to benefit from these reliefs. ### being socially responsible to the communities where It is noted that the total tax contribution for ### we operate and being aligned to the UN Sustainable the Group is significantly higher than solely ## 4. Development Goals, including increasing our the profit-related taxes, when including ### sustainable products; other taxes borne by the Group, including employee-based taxes, customs duties ### providing appropriate remuneration for work carried andelements of VAT, in addition to ### out and equal opportunities for development and taxescollected on behalf of government, including VAT and taxes borne by the ## 5. career advancement; and Group’s employees. ### being intolerant of any unacceptable working Jakob Sigurdsson ### practices such as any form of discrimination, Chief Executive Officer ## 6. bullying or harassment. 6 December 2022 Annual Report 2022 Victrex plc 71 STRATEGIC REPORT ## Sustainability report continued ## OUR CODE OF CONDUCT – ## DOING THE RIGHT THING Victrex ### Our values of Passion, Innovation Strategy&Objectives ### and Performance underpin the way ### we do business and treat one Behaviours, Culture & Values ### another. Our Code of Conduct sets ### the foundations of how we act ### personally, with others and in our ### communities. Our continued success ### as a business rests on maintaining ### these principles and ensuring we PEOPLE CONDUCT ### strive to always do the right thing. SUSTAINABILITY Our Code of Conduct is supported by policies on each of the Conduct, People ### CODE OF CONDUCT andSustainability pillars shown in the tablebelow. ### Doing the right thing Doing the right thing Doing the right thing ### inourCONDUCT forourPEOPLE forSUSTAINABILITY u We are open and honest u We treat people with fairness and u We deliver sustainable respect, and hold ourselves and polymersolutions u We comply with all applicable laws each other to account and regulations u We work to minimise the u We do not discriminate environmental impact of our u We do not engage in anti-competitive business operations activity, bribery orcorruption u We provide a safe and healthy workplace and ensure our activities u We contribute to the wellbeing u We protect our Company do not harm our employees, the ofour local communities information and confidential public or the environment information shared with us u We seek to inspire the nextgeneration u We protect the personal data we hold about our employees and third parties u We follow good standards of corporate governance and do not abuse market regulations ### All our employees, officers and Board Sustainability at the heart time to time to ensure they remain fit for members are responsible for following our Whilst our products enable environmental purpose and continue to enhance our Code of Conduct and its supporting policies. and societal benefits, we also recognise that employee experience, whilst also serving to All employees are required to complete Code some of our operations can impact on the support recruitment processes to ensure we of Conduct e-learning on commencement of safety and wellbeing of our people and attract the highest quality talent possible. employment. There is annual recertification those in the communities around us. This is Our employees can easily access of the Code of Conduct through mandatory reflected in our principal risks on pages 36 employment policies and key work-related awareness learning for employees, with to 40. Our Safety, Health and Environment information through one click into our HR additional training on specific supporting (‘SHE’) Policy promotes our continuous intranet site. Our Group Diversity, Inclusion policies for targeted employees, and this improvement in this area. & Equal Opportunities Policy was updated programme continues to develop. In in2020 to strengthen focus on inclusion as September 2022 the completion rate was ### Our employees well as diversity. We rolled out our Global 95% on a rolling annual basis. The Code of Our employees are a valued asset to us, and Flexible Working Policy in FY 2021, with Conduct is available in five languages, we continue to seek to retain and develop good initial take up rates. viewable on www.victrexplc.com. our teams as well as recruiting talent when | We encourage employees and our | | opportunities arise, and this too is reflected | | --- | --- | --- | | stakeholders to speak up if they have | | as a principal risk on page 37. Ensuring we | | concerns that our Code of Conduct or its | | recognise the positive contribution of a | | supporting policies are not being followed | | diverse workforce and hold ourselves to | | and our Global Whistleblowing Policy gives | | account for delivering it is paramount. Our | | help on how to do this. | | policies and procedures are reviewed from | | 72 | Victrex plc Annual Report 2022 | | Our gender pay gap report was published this STRATEGIC REPORT year, details of which can be found on pages 66 and 67 and on www.victrexplc.com. Incases where the National Minimum Wage or National Living Wage applies within the UK, the Company complies in fullwith its obligations and meets both conditions. ### Respect for human rights We recognise the importance of treating thepeople around us, and those we may impact, with respect but also acknowledge there are practices globally that seek to threaten human rights. Victrex does not tolerate these practices. In relation to our supply chain activities, wehave focused policies on Modern Slavery, Conflict Minerals and Anti-bribery & Corruption. Before any vendor can become an approved supplier to Victrex, they must pass through our due diligence process which involves: u site-specific audits where appropriate; lines of defence controls assessment and an ### Compliance including action plan for implementation of further ### u detailed responses to a robust on- anti-bribery and corruption enhancements to existing measures. The boarding process that examines all In conducting business on behalf of Victrex, policies and procedures are published on relevant areas of the business operation, our employees and representatives must theCompany’s intranet on a dedicated with special focus on issues pertinent follow our Code of Conduct. This is a Group Policies page. The risk of bribery tolegislation and CSR factors; and commitment to being open and honest and andcorruption is considered a key aspect following all relevant laws and regulations. u acknowledgement and acceptance of ofthe ethics and regulatory compliance This commitment is supported by underlying theVictrex Supplier Standards Handbook. principal risk on page 39 and several policies and processes including with respect mitigations are in place which are reviewed The process is cyclical, to ensure the to Fraud, Anti-bribery & Corruption, Financial regularly. In addition to ensuring compliance appropriate focus is maintained on those Crime, Gifts & Hospitality, Share Dealing with export controls and sanctions, the vendors deemed as strategically important (Market Abuse), Data Protection, Competition Company conducts enhanced due diligence or as high risk to Victrex. Law and Export Controls & Sanction on individuals or organisations where there Compliance, and is reflected in our principal Our Modern Slavery statement is available is a perceived or actual increased risk of risks on page 39. Our focus on Doing the on www.victrexplc.com reaffirming our bribery (for example, where the Company is Right Thing extends beyond the letter of the policy commitment and our ongoing actions engaging with a politically exposed person), law to ensure we act ethically and openly, in this area. or where the Company is conducting due treating others fairly and how we would want diligence for a potential joint venture or We continue to operate a Global Data to be treated. The desired outcome of our acquisition. Our Code of Conduct training Protection Policy (and a suite of supporting Code of Conduct, including the policies and includes a section on anti-bribery and procedures and arrangements) to ensure procedures which underpin it (including the corruption matters. We keep our training compliance with applicable data protection Anti-bribery & Corruption Policy), is to ensure materials under regular review and specific legislation in the regions in which we do we act responsibly in all our dealings and e-learning modules for anti-bribery and business. This policy continues to be available foster a sustainable business. corruption, gifts and hospitality and conflict on the Company’s intranet on a dedicated The Company is committed to a of interest, supplement face-to-face or Group Policies page. Employees who handle zero-tolerance position about bribery, made virtual training as required. We continue personal data continue to be required to explicit through its Anti-bribery & Corruption toensure appropriate anti-bribery and complete mandatory annual training, Policy and supporting policies/guidance on gifts corruption clauses are included in relevant including through e-learning. Revisions to and hospitality, sponsorship and donations, contracts. The Company maintains a register the policy are considered as appropriate as and interactions with politically exposed of employee interests (where there are data protection legislation in the countries in persons and healthcare professionals. We actual or possible conflicts of interest) and which we conduct business evolves (for maintain a manual for the management of arecord of gifts and hospitality given and example China). Enhancements continue to Anti-Bribery and Corruption risk, reviewed received above certain thresholds in the be implemented with respect to information annually. The purpose of the manual is to form of a Giving & Receiving Register. security, including with the supply chain, provide a process for assessing risk and to Areview of the Company’s anti-bribery and these support the continuing protection ensure compliance with the Victrex Code andcorruption arrangements is featured of personal data. As of September 2022 ofConduct, the Anti-bribery & Corruption ontheBoard’s programme of business 95% of required trainees had completed Policy, applicable laws and regulations in the andtheinternal audit review programme their annual data protection training which countries in which Victrex conducts business includes a review of the adequacy of is completed on a rolling annual basis. | and the preservation and promotion of the | theCompany’s procedures in relation | | --- | --- | | Victrex brand and corporate reputation. The | toanti-bribery controls and procedures. | | manual considers the business activities that | Further information on our approach to | | could make Victrex vulnerable to bribery, risk | anti-bribery and corruption matters is | | factors, key recommended controls, a three | contained on page 81. | Annual Report 2022 Victrex plc 73 STRATEGIC REPORT ## Sustainability report continued ### Non-financial information statement This section of the Strategic report constitutes Victrex plc’s non-financial information statement, produced to comply with the Companies Act 2006. The below table, and information it refers to, is intended to help stakeholders understand our position on key non-financial matters, and where the relevant information is located in this report. | Reporting | Material policies and standards | | Key risks relating to these | | | | --- | --- | --- | --- | --- | --- | | requirement | that govern our approach | | matters (pages 36 to 40) Read more | | | | Sustainability & | | u Safety, Health & Environment (‘SHE’) Policy | | u Safety, Health | u Sustainability report – | | environmental | | | | andEnvironment | Sustainable solutions and | | | | u Environmental Policy (ISO system) | | | | resource efficiency, pages 58 u Legal and regulatory u Code of Conduct* to 65 and our TCFD report on compliance, Ethics pages 52 to 57 &Contracts Employees u Group Diversity, Inclusion & Equal u Recruitment and retention u Sustainability report – Opportunities Policy of the right people OurCode of Conduct, pages 72 and 73 | | u Disciplinary Policy & Procedure | u Legal and regulatory | | | --- | --- | --- | --- | | | | compliance, Ethics | u Sustainability report – Social | | | u Grievance Policy & Procedure | | | | | | &Contracts | responsibility, pages 66 to 71 | | | u Global Flexible Working Policy | | | | | | | u Gender pay report, pages 66 | | | u Employee Handbook | | and 67 | | | u Global Whistleblowing Policy | | | | | u Share Dealing Code | | | | | u Code of Conduct | | | | | u Prevention of Bullying & Harassment Policy | | | | Respect for | u Modern Slavery & Human Trafficking Policy | u Legal and regulatory | u Sustainability report – | | humanrights | | compliance, Ethics | OurCode of Conduct, pages | | | u Modern slavery statement* | | | | | | &Contracts | 72 and 73 | | | u Conflict minerals statement* | | | | | | | u Modern slavery, human | | | u Global Data Protection Policy | | trafficking and conflict | minerals statements – see u Code of Conduct* www.victrexplc.com | Social matters | u Sustainability Policy | u Recruitment and retention | u Sustainability report – Social | | --- | --- | --- | --- | | | | of the right people | responsibility, pages 66 to 71 | | | u Code of Conduct* | | | | Anti-corruption | u Anti-bribery & Corruption Policy | u Legal and regulatory | u Sustainability report – | | andanti-bribery | | compliance, Ethics | OurCode of Conduct, pages | | | u Fraud Policy | | | | | | &Contracts | 72 and 73 | | | u Conflict of Interests Policy | | | | | u Gifts & Hospitality Policy | | | | | u Sponsorship & Donations Policy | | | | | u Financial Crime Policy | | | | | u Policy on Interaction with | | | HealthcareProfessionals u Procedure on Interaction with Politically Exposed People | | u Export Controls & Sanctions Policy | | | | --- | --- | --- | --- | | | u Competition & Anti-trust Policy | | | | | u Code of Conduct* | | | | Description of the | | u All principal risks | u Business model, pages 12 | | business model | | | and13 | | Non-financial key | | u All principal risks | u Non-financial key performance | | performance | | | indicators, pages 24 and 25 | indicators * These policies are published on www.victrexplc.com, along with being available to employees via the Group intranet. All other policies listed are available to employees via the Group intranet. 74 Victrex plc Annual Report 2022 CORPORATE GOVERNANCE ## CORPORATE ## GOVERNANCE 76 Introduction from the Chair 78 Board of Directors 80 Statement of corporate governance 94 Nominations Committee report 97 Audit Committee report 104 Directors’ remuneration report 128 Directors’ report – other statutoryinformation 132 Statement of Directors’ responsibilities in respect ofthe Annual Report and financial statements 133 Independent auditors’ report to the members ofVictrex plc Annual Report 2022 Victrex plc 75 CORPORATE GOVERNANCE ## Introduction from the Chair ### I was delighted to be appointed Chair of this unique ### Company. Our innovative culture, our purpose to bring ### transformational and sustainable solutions that address ### world material challenges every day and our clear ### strategy of ‘Polymer & Parts’, put us in a good position ### for the years ahead. Dr Vivienne Cox DBE Chair ## INTRODUCTION FROM THE CHAIR | Dear shareholders, | Stakeholder interests are at the centre of | Within the medical device industry, our | | --- | --- | --- | | I was delighted to be appointed Chair | our decision making as we strive to meet | materials support patient outcomes in | | on 11February 2022 and I would like to | our purpose and strategic aims. Our section | spine, trauma, arthroscopy, drug delivery, | | thank Larry Pentz for enabling a smooth | 172 statement is set out on pages 20 to | and in newer application areas under | | transition. It is a privilege to Chair this | 23. Details of the Group’s stakeholders | development or in early commercialisation | | unique Company. | and engagement channels can be found | such as cardio (artificial heart) and knee. We | | | on page 91. The annual report from our | have a goal to increase Group revenue from | Victrex’s innovative culture, our purpose Non-executive Director for Workforce products with quantifiable environmental to bring transformational and sustainable Engagement, Brendan Connolly, can be or societal benefits (including Medical) from solutions that address world material found on pages 92 and 93. Together with my approximately 50% today to 70% by 2030. challenges every day and our clear strategy non-executive colleagues and our CEO, site of ‘Polymer & Parts’, put us in a good With established sustainability goals for visits were conducted at our manufacturing position for the years ahead. the 10 years to 2030, including our Net sites in Rotherham and Seal Sands. The Zero goal on Scope 1 & 2 emissions, The Group delivered record revenue Board conducted a ‘virtual’ visit to some of and alignment to the UN Sustainable and volume in FY 2022 and, despite the our locations in the Asia-Pacific region in Development Goals, we continue to make unprecedented energy & raw material October 2021 due to limitations on travel due steady progress. We now have a better inflation, we saw solid profit growth as well to COVID-19. Both such visits, together with assessment of the options available to us as healthy cash generation. An overview of other engagement activities during the year, for Net Zero, including potential greater our results can be found on pages 26 to 29. provided valuable opportunities for Board electrification or access to hydrogen for our members to engage with our employees. | The Board and its Committees met regularly | | UK manufacturing sites. We have further | | --- | --- | --- | | during the year and it was pleasing to | The Board routinely monitors culture and | increased disclosures in our Sustainability | | be able to hold all our scheduled Board | ensures that it is aligned to the Group’s | report, which includes our TCFD disclosure, | | and Committee meetings, as well as our | purpose, values and strategy. The Board | a better understanding of Scope 3 emissions | | 2022 AGM, in person after navigating the | received insights from the Employee | and the ‘full’ Scope 1 and 2 carbon footprint | | challenges posed by COVID-19 during the | Experience Survey which was conducted | of our products through Lifecycle Analysis. | | prior two years. An outline of key topics | during the year. More information on the | We continue to receive positive accreditation | | covered by the Board in the year is set out | survey can be located on page 69. | for our sustainability & ESG goals, including | | on pages 87 and 88. | | an improved A rating from MSCI – one | We have strived to put sustainability at of the benchmarks for ESG ratings – and the heart of our business model, with inclusion in FTSE Russell’s Green Revenues many of our products used in applications Index for sustainable products. Further which enable environmental and societal detail is shown on pages 50 and 51. During benefits. For example, in Aerospace and the year we established our Corporate Automotive, our products are lighter than Responsibility Committee to enhance the alternatives, reducing fuel use and CO 2 oversight of our progress towards our emissions; they are also recyclable, and have sustainability goals. attractive technical properties. 76 Victrex plc Annual Report 2022 Our Nominations Committee led the search We look forward to welcoming shareholders CORPORATE GOVERNANCE for a new Chief Financial Officer following at our Annual General Meeting (‘AGM’) ### FY 2022 highlights the decision by Richard Armitage to step in February 2023. Please see page 128 for u Further focus on our ESG agenda down from the Board to pursue another more information. Whether or not you and establishing our Corporate opportunity. Following a rigorous process, propose to attend the AGM in person, Responsibility Committee we were delighted to welcome Ian Melling you are encouraged to vote on each of the u Full Return to Site as part of living as Chief Financial Officer, joining the Board resolutions set out in the Notice of Annual with COVID-19 including site visits on 4 July 2022. Further details about the General Meeting by appointing a proxy by Board members | | search and appointment process can be | to act on your behalf. You are strongly | | --- | --- | --- | | u Prioritisation of the health, safety | found in the Nominations Committee report | encouraged to appoint the Chair of the | | and wellbeing of ourpeople | on pages 94 to 96. Ian’s biographical details | meeting as your proxy. This will ensure that | | u Continued focus on developing | are set out on page 79. | your vote will be counted if you (or any | | our core business and meeting | | other proxy you may otherwise choose to | Given the changes in Board composition our mega-programme milestones, appoint) are not able to attend the AGM this year, we decided that an externally led including accelerating investment for any reason. If you appoint the Chair of effectiveness exercise would be of most to support Medical opportunities the meeting as proxy, the Chair will vote benefit in 2023. Accordingly, effectiveness in accordance with your instructions. If u Smooth transition and effective has been reviewed during the year through the Chair is given discretion as to how to inductions for new Chair and an internal process using confidential vote, she will vote in favour of each of the IanMelling, our new Chief questionnaires developed by each Committee resolutions in the Notice of Annual General Financial Officer Chair, the Company Secretary and me. I am Meeting. All proposed resolutions in the pleased to confirm that the review found u Reviewing the results of the FY 2022 Notice of Annual General Meeting will be that the Board and its Committees continue Employee Experience Survey put to the vote on a poll. to perform effectively. Further details can be found on pages 89 and 90. If you have any questions for the Board on ### FY 2023 focus areas the business of the AGM, please send them u Navigating the Group through As at year end we have 44% female in advance of the AGM to ir@victrex.com. a potentially uncertain representation on our Board. Below We will aim to respond to all questions as macro-economic outlook the Board, we have two women on our quickly as possible. A summary and key u Further focus on acceleration Victrex Management Team (‘VMT’) which, themes of the questions and answers will be ofMedical opportunities excluding the Executive Directors, means posted on our website, www.victrexplc.com, there is 40% female representation at senior u Further developing the opportunity on the morning of the AGM. management level. As at 30 September from our China investments 2022, 15 of the 44 people who comprise u Continuing focus on our senior management (‘VMT’) and their ESGagenda Dr Vivienne Cox DBE direct reports were women (34% female Chair representation at this level). A description 6 December 2022 of the VMT, its members and the key below Board meetings which support the Chief Executive Officer is set out on pages 88 and 89. During the year the Board reviewed and approved an updated Board Inclusion & Diversity Policy – further details can be found on page 96. This is an area that the Board will continue to provide support to and challenge. Annual Report 2022 Victrex plc 77 CORPORATE GOVERNANCE # Board of Directors All Directors listed below were Directors throughout FY 2022 with the exception of Dr Vivienne Cox who was appointed as a Director with effect from 1 December 2021 and Ian Melling who was appointed as a Director with effect from 4 July 2022. ![img-4.jpeg](img-4.jpeg) ![img-5.jpeg](img-5.jpeg) ![img-6.jpeg](img-6.jpeg) ![img-7.jpeg](img-7.jpeg) ![img-8.jpeg](img-8.jpeg) ![img-9.jpeg](img-9.jpeg) ![img-10.jpeg](img-10.jpeg) ![img-11.jpeg](img-11.jpeg) ![img-12.jpeg](img-12.jpeg) # 1. DR VIVIENNE COX DBE Chair Qualifications: MA (Hons) Nationality: British Appointed to the Board: December 2021, Chair February 2022 Independent: Yes Skills and experience: Vivienne has a wealth of experience in executive and non-executive roles over more than 40 years, with a particular focus on sustainability, innovation and alternative energy. Vivienne was appointed Commander of the Order of the British Empire (1281) in 2006 for services to the economy and sustainability and was made a Bame Commander of the Order of the British Empire (1282) in the 2022 New Year Honours List for services to sustainability, diversity and inclusion in business. Vivienne holds an MA Honours in chemistry from Oxford University, an MBA from BGLAD and honorary doctorates from the University of Hull and the University of Hertfordshire. Previous roles: Vivienne's previous non-executive roles include serving on the boards of Guesumnel plc, BG Group plc and Bio Torso plc, as senior independent director of Pearson plc, as chair of Valloume SA and as the lead non-executive director for the UK Department for International Development. She also chaired Climate Change Capital, a private asset management and advisory group developing solutions for climate change and resource depletion. Until recently she was a non-executive director of GVA as well as GDC's workforce engagement director. Other significant appointments: Vivienne is currently a non-executive director of Halven plc and Stena AB in Sweden, a non-executive director of Venteno Group plc (a non-listed company), chair of the Resalted Frail in Institute and deputy chair of the Subthuismes School in Oxford. Specific contribution to the Company's long-term success: Vivienne's extensive board, corporate governance and sector experience, as well as her leadership or and passion for sustainability and diversity matters, enables strong leadership of the board. # 2. DR ROS RIVAZ Senior Independent Director Qualifications: Rio Sirano Honorary DSC Nationality: British Appointed to the Board: May 2020 Independent: Yes Skills and experience: Fox holds a Bachelor of Science (Honours) degree in chemistry and an honorary doctorate from Southampton University, and has deep international experience in the areas of supply chain management, logistics, manufacturing, IT, procurement and systems in the engineering, manufacturing and chemicals industries. Previous roles: Past executive career spans nearly 30 years. She held senior executive roles at Exxon Chemical Corporation, Yale & Lyle, ICL Shagel and Premier Foods. Ros served as global chief operating officer for Smith & Nephew from 2011 to 2014. She was non-executive director at CorneTec plc, RPC Group plc, Reparon Holdings Limited, Rosam plc and CEVA Logistics AG. Other significant appointments: Ros is currently senior independent director, employee engagement director and chair of the remuneration committee of Compulscenter plc. She is lead independent director of Apenam SA. She is chair of the Nuclear Decommissioning Authority and non-executive director at the Ministry of Defense Equipment and Support board. Specific contribution to the Company's long-term success: Ros' strong track record as both a non-executive and executive across a range of listed companies, particularly in the medical industry, is instrumental in driving growth and supporting the Chair in her role as Senior Independent Director. # 3. JANE TOOGOOD Non-executive Director Qualifications: MA (Hons) Nationality: British Appointed to the Board: September 2015 Independent: Yes Skills and experience: Jane has a wealth of experience across a number of business management, senior commercial and business development roles within the global chemicals industry. Jane holds an MA in natural sciences (chemistry) from the University of Oxford and a Fellow of the Royal Society of Chemistry. Previous roles: Jane held senior roles at Reneghi, ICL and Unigene. She was non-executive director of NH's Harrogate and Endrin Foundation Trust. Other significant appointments: Jane is the chief executive of Catalyst Technologies at Johnson Matthey Plc and during the year was appointed as the UK government's first Hydrogen Champion. Specific contribution to the Company's long-term success: Jane brings strategic and industry expertise and insights drawing on her extensive international experience across multiple sectors. Jane is a current senior executive leading growth and transformation in a portfolio of businesses to meet future market demands including decarbonisation, the energy transition and deployment of hydrogen and circularity. Vivienne plc Annual Report 2022 Key to Committees A Audit N Nominations B Remuneration C Corporate Responsibility D Committee Chair ### 4. JANET ASHDOWN Non-executive Director Qualifications: BSc (Hons) Nationality: British Appointed to the Board: February 2018 Independent: Yes Skills and experience: Level has over 30 years' experience in the international energy sector working across the value chain from customer facing through to manufacturing in increasingly senior roles with an additional 10+ years as a non-executive director Previous roles: Level had a distinguished career working for 8P plc for 30 years where her last role was head of the UK Bank Business Unit. She was CEO of Hansel Energy, an international private equity backed business, from 2010 to 2012. She was previously non-executive director at 5th plc, Coventry Building Society and Marshalls plc Other significant appointments: Level is a non-executive director, chair of the senior roles committee and chair of the corporate sustainability committee of Bell Magnetics Ltd, senior independent director and chair of the environment safety and security committee and sustainability & governance committee of the Nuclear Decommissioning Authority and non-executive director of Sick-Nielsen Norway AS. Specific contribution to the Company's long-term success: Level has extensive international executive and non-executive experience. She has experience of chairing remuneration committee across different sectors. He over six years and has now been chairing sustainability committees for three to four years. ### 5. DAVID THOMAS Non-executive Director Qualifications: MA FCA Nationality: British Appointed to the Board: May 2018 Independent: Yes Skills and experience: David has deep experience in a broad range of finance activities within hotel companies as both a senior executive and an audit professional. Previous roles: David was CFO at them up plc from 2011 until his retirement in 2014, having held senior roles across the business since 2002. Prior to joining Thomas, he was a senior partner at Third & Fourth specialising in long-term industrial contracting business and was a member of the Auditing Standards Board. Other significant appointments: David is senior independent director and chair of the audit committee at Daught plc. Specific contribution to the Company's long-term success: David contributes his expertise in finance and his understanding of the investment community and regulations as both a Board member and Chair of the Audit Committee, as well as his industry knowledge to enhance the values for Board decision making. ### 6. BRENDAN CONNOLLY Non-executive Director Qualifications: BSc Nationality: British Appointed to the Board: February 2018 Independent: Yes Skills and expertise: Brendan has over 35 years' experience in the international oil and gas industry serving in a number of senior executive roles. Previous roles: Until 2015, Brendan was a senior executive at Intertek Group plc and has previously been CEO of Elibody International (acquised by Intertek in 2011). Prior to Elibody, Brendan was managing director of Atos Origin UK and spent more than 25 years of his career with Schlumberger in senior international roles over three continents. Other significant appointments: Brendan is senior independent director and chair of the environment committee of Spriformer plc, a non-executive director of Report Group N.T. and also an independent director on the Board of Applica Services, S.A. as well as a member of its environment, social and governance committee and the appointments and compensations committee. Brendan is also on one private equity board. Specific contribution to the Company's long-term success: With extensive executive and non-executive experience, Brendan brings operational, commercial and strategic expertise and insights; he is also at the designated Non-executive Director for short/long engagement enhances the Board's understanding of the views of employees and the culture of the Company. ### 7. JAKOB SIGURDSSON Executive Director – Chief Executive Officer Qualifications: BSc MBA Nationality: Icelandic Appointed to the Board: October 2017 Independent: No Skills and experience: Islis holds a BSc in chemistry from the University of Iceland and an MBA from Northwestern University in the US. His executive responsibilities have spanned marketing, supply chain, business development, strategy and MBA, with particular emphasis on growth in new or developing markets. Previous roles: Islis has more than 20 years' experience in large multinational companies, both listed and private, including nine years with Rattin & Haan (now part of Clow Chemical) in the US, He was chief executive at Atheca, Frontiers and U.S. Other significant appointments: Non-executive director of Coors Group plc. Specific contribution to the Company's long-term success: Islis brings his diverse and international background in chemicals coupled with wider business, executive and non-executive experience to inspire and lead the Group. ### 8. DR MARTIN COURT Executive Director – Chief Commercial Officer Qualifications: BSc (Eng) PhD Nationality: British Appointed to the Board: April 2015 Independent: No Skills and experience: Martin is an INSEAD alumnus and holds a doctorate in the field of surface chemistry and fracture mechanics and a BSc (Eng) in mineral technology from the Imperial College of Science and Technology. He has broad international experience in strategy, innovation driven growth and organisational change in high performance materials and chemical industries, having held both senior commercial and technical leadership roles. Previous roles: Martin joined Victrex in 2010 as Managing Director of InSEAD from Cytex Industries where he served as VP in process separation and VP R&D, previously having held senior leadership roles in VICE S.A. and I.E. Other significant appointments: Martin is a non-executive director at Lamar Cropper plc. Specific contribution to the Company's long-term success: Martin's significant diverse international experience and focus on value creation and achieving business growth through innovation and geographic expansion enable him to drive Vickers's commercial and innovation strategies, ensuring an appropriate balance between disruptive and non-discipline change. ### 9. IAN MELLING Executive Director – Chief Financial Officer Qualifications: MCham FCA Nationality: Jersey Appointed to the Board: July 2022 Independent: No Skills and experience: Ian is a Chartered Accountant and holds a first class master's degree in chemistry from Oxford University in the UK. Previous roles: Mimi recently Ian held the role of senior vice president, corporate finance and R&D for Smith & Nephew plc. She medical technology company, having served as interim chief financial officer during 2020. Ian has worked in a number of senior finance roles in the UK and internationally for Smith & Nephew, including those with divisional and functional responsibility, having joined the Group in 2006. He was senior vice president, group finance for five years until October 2021. Ian started his career and qualified as a Chartered Accountant at Deloitte S.P. Other significant appointments: Ian is a member of the UK Endorsement Board Program Advisory Group. Specific contribution to the Company's long-term success: Ian contributes his significant financial experience as well as his background in the medical device sector which is relevant to the Company's growth plans. ### JANE BRISLEY Company Secretary Annual Report 2022 Victrex plc CORPORATE GOVERNANCE CORPORATE GOVERNANCE # Statement of corporate governance This section contains details of how we have applied the principles of the 2018 UK Corporate Governance Code (the 'Code'). The Code can be found on www.frc.org.uk. For the year ended 30 September 2022, we are pleased to report that we have applied the principles and complied with the provisions of the Code except as described below: - Regarding Provision 21 of the Code, we have not conducted an externally facilitated Board effectiveness review during the year. Please see pages 89, 90 and 96 for an explanation for this, as well as details of the annual internally managed review. The Board expects to undertake an externally facilitated review during 2023. - Regarding pension provision for Executive Directors and Provision 38 of the Code, during the year Jakob Sigurdson and Martin Court were eligible to receive Company pension benefits of 12% of salary up to a pre-set earnings cap and then 25% of salary above this earnings cap. With effect from 1 October 2022 their pension provision has been changed so it is aligned with the typical Company rate of pension provided to the wider workforce of 14% of salary – please see page 117. # 1. Board leadership and Company purpose # A. Role of the Board The Board performs its role to promote the long-term sustainable success of the Company and is considered to be effective in its approach. An explanation of how the Board operates can be found on pages 85 to 88. The action plan following the 2022 internal Board and Committee effectiveness evaluation is contained on page 89. For a description of the business model and a description of strategy, please see pages 12 to 15. # B. Purpose, values, strategy and culture The Board endorses the Company's purpose which informs our strategy, our values and our culture and inspires our people. The Board reviews workforce culture and employee engagement through a range of touchpoints throughout the year. We have developed a dashboard of cultural indicators which is reviewed formally twice each year, with any actions to address any areas of concern being monitored more frequently. In addition, the Audit Committee has reviewed the results of internal audits which provide insights into the culture of the Group and individual areas of the business. Following a detailed review of culture which included consideration of the Group's values, the behavioural framework and employee insights from our Non-executive Director with designated responsibility for workforce engagement, in conjunction with the annual review of purpose and strategy undertaken, the Board confirmed the alignment between purpose, strategy, values and desired culture. For more information on our purpose, strategy, values and culture, please see page 2. # C. Resources and controls The Board ensures that the necessary resources are in place for the Company to meet its objectives and measures performance against them. The Board has a framework of controls which enables risk to be assessed and managed. The Group has established an Executive Risk Management Committee which manages risks and establishes and monitors controls in place. For more information about the risks faced by the Company and the associated governance framework, see pages 34 to 40. See the Audit Committee report on pages 101 and 103 for information about controls. # D. Engagement with shareholders and stakeholders Victrex has multiple stakeholders who are all important to our business. We are aware that our actions and decisions impact our stakeholders and the communities in which we operate. We recognise that valuable stakeholder engagement underpins our ability to achieve our purpose and strategic aims. The Board regularly reviews and considers our key stakeholder relationships, including how we engage with them and whether any enhancements can be made. The Board maintains regular direct and indirect engagement with shareholders and other key stakeholders. Where engagement is not direct, it takes place via feedback from individual Directors and members of management. For more information about shareholder engagement, please see pages 90 and 91 of this section and page 106 of the Remuneration Committee report. The relevance of each stakeholder group will depend on the particular matter requiring Board decision; we also have regard to any other key factors including the interests or requirements of applicable regulators. All decisions we make will unfortunately not benefit all stakeholders; by taking a consistent approach to decision making and being guided by our purpose and our strategic aims, we hope that our decisions are understandable. For more information about engagement with other stakeholders including the annual report from our Non-executive Director with designated responsibility for Workforce Engagement, please see pages 92 and 93. Our section 172 statement is contained on pages 20 to 23 of the Strategic report. The matters we have discussed and debated during the year are set out on pages 87 and 88. 40 Victrex plc Annual Report 2022 CORPORATE GOVERNANCE ### 1. Board leadership and Company purpose continued E. Workforce policies and practices Our Code of Conduct sets out the standards of behaviour we expect from everyone at Victrex and For more information about this those who work with us. We encourage people to raise any matters of concern through our Global and our approach to ethics and Whistleblowing Policy, where genuine concerns may be reported and investigated without reprisals compliance, please see pages for whistleblowers. 72 and 73. The Group operates an independently provided confidential reporting telephone helpline for employees to raise any matters of concern. Alternatively, such matters could be raised with the line manager, the HR business partner or, as detailed in the Global Whistleblowing Policy, the Director of Risk & Compliance, the Group HR Director or the Chair of the Audit Committee. Employees can remain anonymous if they wish. All concerns are investigated fully, regardless of how they are raised. During the year, the Board was kept fully apprised of the number of cases. The Board is also informed about how cases were being investigated and remedial actions taken. A number of employees have been selected and received specialist training in order to conduct investigations ofcases of whistleblowing. The Group operates an Anti-bribery & Corruption Policy to prevent bribery being committed on its behalf. All employees must follow it and there are processes in place to monitor compliance. As part of the programme, employees are required to comply with the Group’s Gifts & Hospitality Policy. This permits employees to give and accept proportionate and reasonable hospitality for legitimate business purposes only. Our suppliers must comply with our Supplier Code of Conduct which explains we will not tolerate corruption, bribery or anti-competitive actions and expect suppliers to comply with applicable laws. A copy of the Group’s Anti-bribery & Corruption Policy is available on request. Conflicts of interest The Board has a formal system in place to declare an actual or potential conflict of interest. Please see page 129 for Astatement of Directors’ interests in Company shares is set out on page 122. furtherinformation. ### 2. Division of responsibilities F. Role of the Chair Our Senior Independent Director, Dr Ros Rivaz, led the annual performance review of our Chair, For more information, see Vivienne Cox. The outcome of that process found Vivienne to be an effective Chair. page 96 of the Nominations Committee report. G. Composition andresponsibilities As at 30 September 2022, there are nine members of our Board: the Chair, five independent Information about our individual Non-executive Directors (one of whom is Senior Independent Director) and three Executive Directors is set out on pages 78 and Directors. During the year, Vivienne Cox was appointed Chair, succeeding Larry Pentz who had 79. Details about our Board and its served for more than the recommended nine years. Our Chair was independent on appointment. Committees are set out onpage 85. All Non-executive Directors have less than nine years’ service. Details of the distinct roles and responsibilities of the Chair, the Senior Independent Director and the Chief Executive Officer are summarised on page 85, with full details set out on our website. Annual Report 2022 Victrex plc 81 CORPORATE GOVERNANCE ## Statement of corporate governance continued ### 2. Division of responsibilities continued H. Role of the Non-executive Director The role of the Non-executive Director is to provide constructive challenge and strategic guidance, A summary of the roles and offer specialist advice and hold management to account. The results of our Board and Committee responsibilities of the Chair and the evaluation supported this. At the end of most Board meetings, the Chair holds a meeting without Non-executive Directors (including the Executive Directors present to provide feedback on papers presented, and consider and discuss that of the Senior Independent any matters that have arisen during the meeting. The Chairs of the Audit and Remuneration Director) is contained on page 85. Committees also hold regular meetings without the Executive Directors and management present. Other significant appointments The Chief Executive Officer holds meetings with the Chair and the Non-executive Directors to ensure of each individual Director are they remain up to date on business matters in months when there are no scheduled Board meetings. included in the Board biographies on pages 78 and 79. Independence of Non-executive Directors is reviewed against the circumstances which are likely to impair, or could appear to impair, a Non-executive Director’s independence as set out in the Code. For more information on meeting Following assessment, all of the Company’s Non-executive Directors are considered independent. attendance in FY 2022, please The Chair was considered independent on appointment. A chart showing the independence of the see page 86. Non-executive Directors is contained on page 86. It is vital that Directors have sufficient time to devote to and fulfil their duties. Non-executive Directors are expected to devote the time needed to fulfil the role and manage their diaries accordingly although the Company’s historical practice has been to specify an expected time commitment range in their letter of appointment. The Board is satisfied that none of its Directors are overcommitted and unable to fulfil their duties to Victrex. Each individual’s circumstances are different, as is their ability to take on the responsibilities of a Non-executive Director role. If a Director was unable to attend meetings on aregular basis, or was not preparing for or contributing appropriately to Board discussions, the Chair would be responsible for discussing the matter with them and agreeing a course of action. The Nominations Committee also reviewed the time required from each Non-executive Director and any other significant commitments of the Chair. The 2022 review found the Non-executive Directors’ time commitments to be sufficient to discharge their responsibilities effectively. Prior to the Board approving a Board member taking on any new external appointment or significant commitment, he or she is required to confirm sufficient time remains available to discharge his or her responsibilities to Victrex. During the year, the Board approved additional external appointments for Martin Court and Ian Melling to support their professional development. Following an assessment that each Director could continue to devote the required time commitment to Victrex and that there were no actual or potential conflicts of interest, the Board approved the appointment of Martin Court as a non-executive director of James Cropper plc and the appointment of Ian Melling as a member ofthe UK Endorsement Board Preparer Advisory Group. I. Effective and efficient Board function The General Counsel & Company Secretary supports the Board to ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently. All Directors have access to the advice of the General Counsel & Company Secretary, as well as independent advice at the Company’s expense. Appropriate levels of insurance cover are obtained for all Directors and Officers of the Company. Further information on Directors’ indemnities and insurance cover is given in the Directors’ report on page 129. ### 3. Composition, succession and evaluation J. Board succession planning The Nominations Committee leads the process for Board appointments, and ensures plans are in The Nominations Committee report place for orderly succession to both the Board and senior management positions. It also oversees on pages 94 to 96 describes its the development of a diverse pipeline for succession. The Committee also recommends candidates work including an explanation of its for appointment. It operates a formal, rigorous and transparent procedure which focuses on use of external search consultancies finding the right candidate having regard to the strategic aims of the Company, desired skills and and its succession plans. The Board’s experience, with due regard for promoting diversity. Details of how this was applied to the search Diversity & Inclusion Policy is set out for a new Chief Financial Officer, facilitated by an external search consultancy and resulting in the on page 96 and on our website. appointment of Ian Melling, are provided on page 95. There are written succession plans in place Details of the specific reasons why the for the Executive Directors, Non-executive Directors and senior management which are reviewed by contribution of each individual Director the Committee. The Board maintains a Diversity & Inclusion Policy. Each Director seeks re-election is and continues to be important to on an annual basis and all Directors will seek re-election (or election in the case of Ian Melling) at the Company’s long-term sustainable the forthcoming Annual General Meeting. success are set out in the Director biographies on pages 78 and 79, as well as in the notes accompanying the resolutions to re-elect (or elect as the case may be) each Director. 82 Victrex plc Annual Report 2022 ### 3. Composition, succession and evaluation continued #### K. Skills, experience, knowledge and refreshment Using a Board skills matrix, the Nominations Committee ensures that the combination of skills, experience and knowledge on the Board and its Committees is relevant to assisting the Company in delivering its purpose and strategic aims, as well as sufficient to discharge their governance and oversight responsibilities. During the year the Board skills matrix has been reviewed and updated. For more details on the skills and experience of the Board, see the individual Director biographies on pages 78 and 79, and page 95 of the Nominations Committee report. #### L. Board evaluation In FY 2022 an internally facilitated Board and Committee evaluation took place. Using the findings, an action plan was devised for focus during FY 2023. Details of how the Board has actioned areas identified by the internal Board evaluation conducted in 2021 are set out on page 89. The Board intends to source an externally facilitated effectiveness evaluation in 2023. For more information on the Board and Committee evaluation, please see pages 89, 90 and 96. #### Induction and Board development The Group has in place an induction programme for newly appointed Directors which is capable of being personalised according to that individual's proposed role, skills and experience. Comprehensive induction programmes were undertaken by Vivienne Cox and Ian Melling to support their smooth transition into role. See page 95 for a description of the induction programme. Board Directors regularly receive updates to improve their knowledge and understanding about the business and are encouraged to identify any knowledge or skills gaps they would like to address. During the year, the Board has received legal and governance briefings from the General Counsel & Company Secretary, Alddleshaw Goddard (compliance and governance updates, Kom Ferry Remuneration), PwC (corporate reporting update) and KPMG (climate risk and TCFD). Given travel restrictions due to COVID-19 the Board conducted a 'virtual' visit to some locations in the Asia-Pacific region in October 2021 which included some site tours and employee presentations, as well as customer meetings. In March 2022, the Chair, Non-executive Directors and Chief Executive Officer conducted visits to the Group's Rotherham and Seal Sands manufacturing sites. ### 4. Audit, risk and internal control #### M. Independence and effectiveness of internal and external audit The Audit Committee meets composition requirements set out in the Code as it comprises five Non-executive Directors, the Chair is not a member, at least one member has recent and relevant financial experience and the Committee as a whole has competence relevant to the sector in which the Company operates. The Audit Committee assesses and assures the Board of the independence and effectiveness of the Group's internal audit function and the external auditors, PwC. The Audit Committee operates a policy for non-audit services which PwC are permitted to conduct. An explanation of how the Audit Committee has assessed the effectiveness of the external audit process can be found on page 102. Further information on the work of the Audit Committee, internal audit and the external auditors, PwC, is set out on pages 97 to 103. #### N. Fair, balanced and understandable assessment The Audit Committee reviews financial and narrative statements set out in the Group's annual and half-year results and reports its findings and makes recommendations to the Board. The entire Board considers the recommendations of the Audit Committee, representations made by management and the views of internal audit and the external auditors. This process is applied so that the Board can satisfy itself on the integrity of financial and narrative statements and to determine whether, when taken together, they represent a fair, balanced and understandable assessment of the Company's position and performance, business model and strategy. See pages 108 to 103 for a description of the significant issues that the Audit Committee considered in relation to the financial statements and how these were addressed, having regard to the matters communicated to it by the external audit team. Please see page 132 for the statement that the Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides information necessary for shareholders to assess the Company's financial position and performance. The going concern statement is set out on page 41. Annual Report 2022 Victrex plc 41 CORPORATE GOVERNANCE CORPORATE GOVERNANCE Statement of corporate governance continued # **4. Audit, risk and internal control continued** # **O. Risk management and internal controls** The Audit Committee monitors the internal control framework and receives regular reports on its effectiveness, reporting its findings to the Board. At least twice in each year, the Board reviews the principal and emerging risks which apply to the Group to ensure that they remain up to date. The Board also reviews the controls and mitigations in place (including financial, operational and compliance controls) to manage those risks to ensure that they are aligned to the risk appetite determined appropriate by the Board to achieve the long-term strategic aims of the Group. For further information, see the risk descriptions on pages 36 to 40, and the Audit Committee report on page 101. # **5. Remuneration** # **P. Remuneration policy and practices** The Remuneration Committee is responsible for determining remuneration policies and practices which support the strategy and promote the long-term sustainable success of the Company. The work of the Remuneration Committee is summarised on page 104. When setting executive pay, the Committee takes into account workforce remuneration and related policies as well as the alignment of incentives and rewards with culture. The Remuneration Committee meets composition requirements set out in the Code as it comprises five Non-executive Directors; the Chair is not a member and the Committee Chair has served on a remuneration committee for longer than 12 months. The remuneration of Non-executive Directors is determined by the Board, reflecting the time commitment and responsibilities of the individual roles. Please see pages 107 to 114 for details of remuneration policy. The Company's remuneration advisor is Korn Ferry. Details of the engagement are contained on page 115. # **Q. Executive remuneration** The executive remuneration policy is due for renewal at the 2023 AGM. During the year, the Remuneration Committee reviewed the policy and determined it was fit for purpose. Therefore, the proposed policy only includes minor amends to align with market and corporate governance best practice. No Director is involved in deciding their own remuneration outcome. Future policy table and notes, performance scenario charts and remuneration obligations in service contracts are set out on pages 107 and 114. Please see the Directors' remuneration report for policy implementation (pages 106 and 116 to 120), remuneration paid to service advisors (page 115), single total figure tables (page 116), Chief Executive Officer total remuneration (page 124), CEO pay ratio (page 126), alignment of Directors' remuneration (including pension contributions) with the workforce's (pages 106 and 107) and relative importance of spend on pay (page 125). Please see the Remuneration Committee report for Directors' shareholdings (page 122) and variable pay awarded in the year (pages 117 to 120). # **R. Judgement and discretion** The Remuneration Committee determines remuneration outcomes for Directors and senior management and in doing so exercises independent judgement and discretion when authorising remuneration outcomes, taking account of Company and individual performance, as well as wider circumstances. Details of the Committee's discretionary powers, specifically relating to status and clawback, bonuses and (FIPs can be found in the remuneration policy from page 108. The Committee did not use discretion in relation to adjusting incentive outcomes for FY 2022. For more information on remuneration outcomes, please see the Directors' remuneration report from page 104. 44 Victrex plc Annual Report 2023 ### Leadership – Our governance framework as at 30 September 2022 Chief Executive: Jakob Sigurdsson Chair: Vivienne Cox Key responsibilities: Key responsibilities: CORPORATE GOVERNANCE u Day to day running of the Group u Leading the Board u Recommending to the Board and implementing agreed strategy u Creating the right Board dynamic u Executing Board decisions u Ensuring Board effectiveness, including contribution and challenge from all Directors Matters not reserved for Board decision are delegated to the CEO u Ensuring effective engagement with shareholders Executive Directors: Jakob Sigurdsson, Independent Non-executive Directors: Janet Ashdown, Ian Melling, Martin Court Brendan Connolly, Ros Rivaz, David Thomas, Jane Toogood Key responsibilities: Key responsibilities: u Performing designated executive responsibilities u Exercising independent and objective judgement in decision making u Discharging duties in respect of the Group as a whole u Scrutinising and constructively challenging senior management General Counsel & Company Secretary: Jane Brisley Senior Independent Director: Ros Rivaz Key responsibilities: Key responsibilities: u Acting as secretary to the Board and its Committees u Acting as a sounding board to the Chair u Keeping the Board up to date on all legislative, regulatory and u Serving as an intermediary for other Directors when necessary governance matters u Being available to meet with shareholders should they have any concerns, u Reviewing the efficacy of and compliance with Board procedures where contact through the normal channels may be inappropriate u Facilitating information flows between management and the Board u Leading the review of the Chair’s performance u Deputising for the Chair if the Chair is unable to fulfil her duties Board: One Chair (independent on appointment), five independent Non-executive Directors, three Executive Directors Key responsibilities: u Ensuring a sound system of risk management and internal controls which enables risk to be assessed and managed is in place u Providing entrepreneurial leadership u Reviewing management performance and the operating and u Setting the Company’s purpose and strategic aims financial performance of the Group u Being collectively responsible and accountable to shareholders for the u Setting the Company’s culture, values and behaviours long-term sustainable success of the Group and for the responsible operation of the Group in delivering its strategic objectives u Ensuring good corporate governance u Ensuring the interests of all stakeholders are taken into account How the Company generates value for shareholders and other stakeholders and contributes to wider society is set out on pages 6 to 17 u Ensuring that the necessary financial and human resources are in place for the Company to meet its objectives Board Committees Audit Committee members: Nominations Committee members: Fiveindependent Non-executive Directors Company Chair and five independent Non-executive Directors Role: Role: u Assisting the Board in its oversight of financial reporting, internal u Reviewing Board structure, size, composition and succession planning controls and risk management u Overseeing senior management succession u Managing the relationship with the Group’s external auditors See the Nominations Committee report from page 94 for more information See the Audit Committee report from page 97 for more information Remuneration Committee members: fiveindependent Disclosure Committee members: WholeBoard Non-executive Directors Role: Role: u Ensuring timely and accurate disclosure of information to comply with u Setting remuneration policy for Executive Directors, senior applicable laws and regulations where it is impractical for the Board (or management and the Chair any other Board Committee with delegated responsibility) u Determining the application of remuneration policy u Making disclosures on behalf of the Board See the Directors’ remuneration report from page 104 for more information u Taking advice from the Company’s broker, external auditors and legal advisors, on the form and content of any disclosure under consideration Corporate Responsibility Committee members: a minimum ofthree Non-executive Directors Chair: Vivienne Cox, David Thomas, Jakob Sigurdsson or Ian Melling (in that order) Role: Quorum: Two of Vivienne Cox, David Thomas, Jakob Sigurdsson and u Overseeing the Company’s conduct with regards to its corporate Ian Melling societal obligations and commitments Audit Committee report pages 97 to 103 u Overseeing and reviewing the development and execution of the Company’s sustainability strategy and commitments including progress towards targets Directors’ remunerationreport pages 104 to 127 This Committee was established during FY 2022 Nominations Committee report pages 94 to 96 Annual Report 2022 Victrex plc 85 CORPORATE GOVERNANCE ## Statement of corporate governance continued | As at the date of this Annual Report | | Chair and Non-executive | | | --- | --- | --- | --- | | Roles and gender | Nationality | Director tenure | | | | | Up to 3 years | 33% | | | | 3–6 years | 50% | | | | 7–9 years | 17% | |  |  | | | ### Independence Female Chair 1 Icelandic 1 Female Senior Independent Director 1 British 8 Chair 1 Male Executive Directors 3 Male Non-executive Directors 2 Independent Other female 5 NEDs | | Non-executive Directors | 2 | | | | --- | --- | --- | --- | --- | | Diversity | | | We have 40% female representation at | ethnicity, and will continue to focus on | | Our Board believes that diversity is | | | senior management level (two of the | broadening the diversity of the Board and | | important for Board effectiveness. The | | | five members of the VMT excluding the | senior management. During the year the | | merits of gender diversity at Board level | | | Executive Directors are female) and 34% of | Board Diversity & Inclusion Policy has been | | are recognised and female representation | | | senior management and their direct reports | updated. Further details, including the Board | | on the Board as at the date of this Annual | | | (15 of 44) are female. The VMT is described | Diversity & Inclusion Policy, can be found in | | Report is 44%. The Board also recognises | | | on pages 88 and 89. The current ethnic | the Nominations Committee report on page | | the importance of gender diversity amongst | | | composition of our Board is 100% White, | 96. Details of the Group’s Diversity, Inclusion | | the workforce and is committed to ensuring | | | with a breakdown of nationalities provided | & Equal Opportunities Policy can be found | | an appropriate level of gender diversity, | | | above. The Board recognises the value | on page 72. | | in particular at senior management level. | | | of diversity in its widest sense, including | | ### Attendance at meetings The Directors’ attendance record at the Annual General Meeting (‘AGM’) and scheduled Board and Committee meetings for the year ended 30 September 2022 is set out below. Attendance is shown as the number of scheduled meetings attended out of the number that each Director was eligible to attend. Only in exceptional circumstances would a Director not attend a Board or Committee meeting. Corporate Audit Remuneration Nominations Responsibility AGM Board Committee Committee Committee Committee Number of meetings 1 7 3 5 4 1 Chair 1 V Cox 5/6 2/3* 3/4* 3/4 1/1* 2 L C Pentz 3/3 1/1* 2/2* 1/1 — Executive Directors J O Sigurdsson 7/7 3/3* 5/5* 4/4* 1/1* 3 R J Armitage 5/5 2/2* — — — 4 M L Court 6/7 3/3* — — — 5 I C Melling — 1/1 1/1* — — 1/1* Non-executive Directors 6 J E Ashdown — 7/7 3/3 5/5 3/4 1/1 7 B W D Connolly 6/7 3/3 4/5 3/4 1/1* D Thomas 7/7 3/3 5/5 4/4 1/1 J E Toogood 7/7 3/3 5/5 4/4 1/1 8 R Rivaz 7/7 3/3 5/5 3/4 1/1 Notes * Although not a Committee member, attended the Committee meetings by invitation. 1 Vivienne Cox was appointed to the Board on 1 December 2021, becoming Chair Designate on 1 January 2022 and Chair at the close of the 2022 AGM on 11 February 2022. Vivienne could not attend one Board meeting and one Nominations Committee meeting due to illness and Ros Rivaz, theSenior Independent Director, acted as Chair for those meetings. Vivienne provided comments to Dr Rivaz in advance of those meetings. 2 Larry Pentz stood down from the Board at the conclusion of the 2022 AGM on 11 February 2022. 3 Richard Armitage stood down from the Board on 27 May 2022. 4 Martin Court was unable to attend one Board meeting due to an important family commitment. 5 Ian Melling joined Victrex on 29 June 2022 and was appointed to the Board on 4 July 2022. 6 Janet Ashdown was unable to attend the 2022 AGM due to sickness and arranged for the Senior Independent Director to be available to address any questions on the Remuneration Committee report. Janet was unable to attend one ad hoc meeting of the Nominations Committee (called at short notice) and provided feedback in advance. 7 Brendan Connolly was unable to attend one Board meeting and one Remuneration Committee meeting due to sickness, and one meeting of the Nominations Committee (called at short notice) and provided feedback in advance. 8 Ros Rivaz was unable to attend one meeting of the Nominations Committee (called at short notice) and provided feedback in advance. A summary of Board activity in FY 2022 and strategic outcomes is on pages 87 and 88. In undertaking these activities, the Board considers its legal duties and the interests of principal impacted stakeholders. The section 172 statement is located on pages 20 to 23. 86 Victrex plc Annual Report 2022 SUMMARY OF BOARD ACTIVITY IN FY 2022 STRATEGIC OUTCOMES CORPORATE GOVERNANCE Strategy u Held the annual strategy review at which the Group’s strategy was reviewed in detail u Strategy updated to reflect five-year financial plan and enhanced u Reviewed and approved the Group’s purpose and strategy sustainability agenda u Reviewed performance against strategy u Supporting further pace in the u Reviewed the Group’s innovation portfolio progression of the Medical strategy u Reviewed business development activities u Further development of key customer u Conducted deep dives into strategic business unit and key functional strategy relationships and understanding of u Met with a number of key customers as part of the virtual Board visit to Asia-Pacific customer priorities in October 2021. In addition, the Board received a face-to-face presentation from TechnipFMC, to further develop the relationship as they progress their industrialisation andscale up in Brazil Financial, operations and risk u Reviewed operational performance u Ongoing monitoring of operational andfinancial performance u Approved the budget and monitored financial performance u Approved changes to the principal risks u Reviewed and approved the half and full-year results and associated announcements – see pages 34 to 40 | u Reviewed and approved the going concern and viability statement | | | --- | --- | | | u Approval of the interim and final dividend | | u Reviewed and approved the Group’s 2022/23 UK tax strategy | | | | u Capex and IT investments to support | | u Reviewed and approved the Group’s treasury policies | | ourstrategy u Reviewed and debated the risk profile of the Group, and in particular the principal risks u Enhanced awareness of IT security controls andour risk appetite and cyber security u Reviewed and approved additional capex investments u Approved a significant IT project (a new ERP system) u Reviewed the effectiveness of the risk management and internal control systems including bribery prevention arrangements and Group whistleblowing policies and processes u Reviewed annual insurance arrangements and received a briefing from the Group’s insurance brokers u Reviewed and approved changes to the Group’s corporate structure and director andofficerappointments to subsidiary boards u Received briefing on cyber security matters Shareholder relations u Received regular updates and discussed feedback from roadshows, presentations and u Enhanced engagement and clear meetings between the Chief Executive Officer, the Chief Financial Officer and/or the understanding of investor views Director of Investor Relations, Corporate Communications & ESG and other engagement with large investors, prospective investors and analysts Leadership and employees u Reviewed health and safety activities, considered health and safety incidents impacting u Continued prioritisation of health employees and contractors and maintained focus on on the progress of embedding an andsafety matters enhanced health and safety culture u Refreshed Board Diversity & u Approved the appointment of Ian Melling to the Board with effect from 4 July 2022 InclusionPolicy u Reviewed and discussed Executive Director and senior management succession plans and u Monitoring alignment of culture with monitored progress on key aspects of talent and development plans, identifying general ourpurpose, values and strategy management and functional leadership potential, and developing our employee value u Enhanced insight into employee proposition and aspiration for a diverse workforce engagement, views of our employees u Considered outcomes of the 2022 Employee Experience Survey and related actions u Reviewed and approved changes to the Board Diversity & Inclusion Policy u Increased Nominations and Remuneration Committee activity due u Considered reports on workforce engagement from Brendan Connolly as the Non-executive toBoard changes Director with designated responsibility for Workforce Engagement u Reviewed dashboard of workforce composition and conditions u Monitored culture using a combination of formal and informal methods including a dashboard of cultural indicators u Reviewed whistleblowing arrangements u Conducted annual review of stakeholder engagement arrangements Annual Report 2022 Victrex plc 87 CORPORATE GOVERNANCE ## Statement of corporate governance continued SUMMARY OF BOARD ACTIVITY IN FY 2022 STRATEGIC OUTCOMES Governance u Reviewed the governance framework and the Terms of Reference for each Board u FY 2023 action plan agreed Committee and received post-meeting reports from the Chairs of each Committee following2022 Board and summarising discussions, decisions and actions Committeeinternal evaluation u Approved the creation of the Corporate Responsibility Committee u Corporate Responsibility Committee established to support enhanced u Reviewed six-monthly updates on changes and developments in corporate governance focuson ESG and best practice u Approval of modern slavery and u Received updates in relation to climate change and TCFD human trafficking statement u Implemented actions from the FY 2021 evaluation of Board performance u Refreshed Board Diversity & Inclusion u Agreed the approach to the FY 2022 internal evaluation of Board performance Policy in place u Determined independence of the Non-executive Directors u Reviewed the performance of the external auditors and recommendation for re-appointment u Reviewed the Modern Slavery Policy and approved the 2022/23 modern slavery and human trafficking statement u Considered and approved updates to the Board Diversity & Inclusion Policy ### Below Board support for the Executive Risk Management Meeting: Further details on this policy and the activities At least twice each year, the Chief of the Currency Committee are included in ### Chief Executive Officer to Financial Officer chairs the Executive Risk note 16 to the financial statements. ### discharge his responsibilities Management Meeting which reviews the Innovation Portfolio Review: Meeting The Victrex Management Team (‘VMT’) Group’s corporate and emerging risks, quarterly and chaired by the Marketing Representing all business functions, associated mitigations and controls. This Director, the Innovation Portfolio Review individual members of the VMT advise meeting is attended by the Chief Executive meeting reviews and manages the balance the Chief Executive Officer and the other Officer, the Chief Commercial Officer, the of the innovation portfolio, as well as Executive Directors of the interests of all Chief Operating Officer, the General Counsel ensuring the appropriate and effective the Group’s principal stakeholders and & Company Secretary, the Group HR Director allocation of resources to projects. This how they are likely to be impacted by how and the Director of Risk & Compliance. meeting is attended by the Chief Executive Victrex operates. They do this during VMT VMT Risk & Compliance Meeting: Officer, the Chief Financial Officer, the Chief meetings which are chaired by the Chief Meeting six times each year, the Chief Commercial Officer, the Chief Operating Executive Officer and typically held at least Financial Officer chairs the Executive Risk & Officer and those in senior positions in R&D once a month or when they participate in Compliance Meeting which reviews legal and marketing with other subject matter other management meetings or Committees compliance matters, internal audit matters, experts attending as necessary. which have been established to assist the IT security matters, and performance in SHE, Chief Executive Officer in the operational Portfolio Steering Committee: Meeting quality and regulatory matters. This meeting management of the business – more six times each year, the Chief Commercial is attended by the Chief Executive Officer, information is set out below. The VMT works Officer chairs the Portfolio Steering the Chief Commercial Officer, the Chief to nurture the culture, maximise employee Committee which oversees the selection, Operating Officer, the General Counsel & engagement, support the business units prioritisation, resourcing and delivery of Company Secretary, the Group HR Director in delivering profitable growth, ensure our mega-programmes. This meeting is and the Director of Risk & Compliance. The consistent and appropriate communications attended by SBU Directors responsible for Group Head of SHE, Internal Audit Manager, both internally and externally, and drive mega-programme projects, the Marketing R&D Director, Head of Regulatory Affairs faster execution of business and functional Director, the R&D Director, the Director of and Product Stewardship and Group Head activities and plans which rely on cross- Global Manufacturing and the Sales Director, of Security participate in relevant sessions. functional dependencies. More details as well as other subject matter experts Industry-based risk committees meet three on the members of the VMT and their attending asnecessary. times a year and are chaired by the Chief individual roles and responsibilities are set Commercial Officer with support from the IP Committee: Chaired by the Intellectual out on page 89. Director of Risk & Compliance. Property Director and attended by the Chief A number of meetings are in operation to Commercial Officer, the Marketing Director, The SHE Steering Committee meets quarterly support the Chief Executive Officer to run the R&D Director, the Chief Scientist and the and is chaired by the Chief Operating Officer. the business of the Group on a day to day Group’s Intellectual Property team, as well A description of how risk management is basis. Key meetings are described below. as those in senior positions in R&D. The IP conducted by the Group can be found in the Committee meets quarterly and manages Victrex Performance Day: Each month, Strategic report on pages 34 and 35. the Group’s IP portfolio. the Chief Financial Officer chairs the Currency Committee: The Board has Performance Day which reviews operational ultimate responsibility for the annual business performance covering supply, approval of the Treasury and Cash demand, financial and business unit Management Policy and continues performance. This meeting is attended to besupported in its work by the by the Chief Executive Officer, the Chief management-led Currency Committee. Commercial Officer and the Chief Operating The Currency Committee is chaired by the Officer with VMT members and other senior Chief Financial Officer and meets monthly leaders attending relevant sessions based on to manage the application of the policy. their area of responsibility. Attendees include the Chief Executive Officer. 88 Victrex plc Annual Report 2022 | VMT MEMBERS’ ROLES AND RESPONSIBILITIES | | | | | | | | CORPORATE GOVERNANCE | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | 1 | | | 1 | | | Jakob Sigurdsson | | Ian Melling | | | Martin Court | | | | | Chief Executive Officer | | Chief Financial Officer | | | Chief Commercial Officer | | | | | (see page 85) | | | u Responsible for financial control | | | u Responsible for strategic and divisional | | | commercial performance u Leads the Finance, IT and Legal teams u Oversees all science and innovation functions | | | 1 | | | 2 | | | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Jeff Versterre | | | Jilly Atherton | | | Barry Andrew | | | | Chief Operating Officer | | | Group HR Director | | | Group Customer Experience Director | | | | | u Responsible for overall performance | | | u People strategy | | | u Customer experience | | and development of the integrated u Leads the Human Resources and u Leads the Sales, Customer and Technical supply chain Business Administration teams Service teams u Leads the Procurement, SHE and Supply Chain teams | | 1 | | 2 | | --- | --- | --- | --- | | Andrew Hanson | | Jane Brisley | | | Director of Investor Relations, | | General Counsel & Company Secretary | | CorporateCommunications & ESG u Legal, governance and company u Investor relations, internal secretarial matters communications and u Leads the Legal, Governance and corporatecommunications Executive PA teams u Leads the Communications and ESG teams 1 Male. 2 Female. The VMT is treated as senior management for the purposes of the Corporate Governance Code. The VMT (excluding the Executive Directors) is treated as senior managers for the purposes of section 414C(8) of the Companies Act 2006. Only the Executive Directors are treated as key management personnel for the purposes of IAS 24. ### Performance evaluation The FY 2022 performance evaluation was conducted internally and assessed the performance of the Board, its Committees and the Chair. Questionnaires produced sought input on how the Board, its Committees and the Chair performed against current best practice corporate governance principles. Progress against areas identified for focus in the FY 2021 internal performance evaluation was also assessed. Please see page 96 for more information. The Board intends to conduct an externally facilitated evaluation in FY 2023. Following the Board’s discussion of the outcome of the FY 2022 internal Board evaluation, an action plan was agreed which included the following key features: Topic Action/recommendation Board papers and presentations Continue evolution of materials submitted to the Board to support focus and efficiency Engagement Review opportunities for engagement outside of formal meetings and build on opportunities to meet with employees Strategy Build on the strategy decision-making process and maintain focus on strategic matters anddeployment Annual Report 2022 Victrex plc 89 CORPORATE GOVERNANCE ## Statement of corporate governance continued Performance evaluation continued u Our purpose is to bring transformational The Board retains the power to take decisions Review of the Chair’s performance and sustainable solutions that address which affect the future developments and Taking into account feedback from the world material challenges every day. business prospects of the Group and the internal Board evaluation, Dr Ros Rivaz, authority and responsibility for planning, u Our strategy is to drive core business and as the Senior Independent Director and in directing and controlling the activities of create and deliver future value through discussion with the other Non-executive the Group. Where the matter has not been Polymer & Parts. We will do this by Directors, led the review of the Chair’s reserved for Board decision, it is delegated innovating in high performance polymer performance. Vivienne’s leadership of the to the Chief Executive Officer. The Group solutions to focus on our key strategic Board was considered effective. operates a Group Authorities Manual & markets of Automotive, Aerospace, Matrix which sets out the delegation of Review of the individual Directors’ Energy & Industrial, Electronics and operational decision-making authorities performance Medical. This is with the aim of shaping for certain management roles operating at The Chair reviewed the performance of the future performance for our customers different levels of the organisation. | individual Directors. Each of the Directors | and creating long-term value for our | | | --- | --- | --- | | was found to be effective in discharging | shareholders, enabled by differentiation | The operational management of our business | | their responsibilities and to be making a | through innovation and underpinned by | is delegated by the Board to the Chief | | valuable and effective contribution to the | safety, sustainability and capability. | Executive Officer who uses several teams, | | Board. As Ian Melling joined the Board on | | meetings and below Board Committees to | | | u Our long-term values of Passion, | | | 4 July 2022, a formal performance review | | assist him in this responsibility. Further details | Innovation and Performance shape our for Ian was not deemed appropriate given are set out on pages 88 and 89. culture and drive responsible business his very short tenure prior to the evaluation conduct in line with our Code of ### process being conducted in July and August. Stakeholder engagement Conduct. You can find more on our Code It is important to the Board that we All Directors are subject to annual election of Conduct on pages 72 and 73. develop strong and positive relationships at the AGM in February 2023. The Board u Our entire workforce (including our with our employees, customers, suppliers recommends that shareholders vote in Directors) are reviewed against our and investors, as well as government and favour of those standing at the forthcoming core behaviours of driving results, regulators. We also strive to make a positive AGM, as they will be doing in respect of working together, doing the right thing, contribution to the environment and local their individual shareholdings. The papers continuously improving and focusing communities in which we operate. A accompanying the resolutions to elect each onour customers. summary of how we engage is set out on Director contain the specific reasons why pages 20 and 21. The Board conducts a their contribution is, and continues to be, u Throughout its annual programme of formal review of the Group’s stakeholder important to the Company’s long-term business, receiving reports from Brendan engagement programme annually, sustainable success. Connolly, our Non-executive Director considering other touchpoints throughout responsible for Workforce Engagement, the year. Details of how the Board is and meeting with employees, the Board ### Company purpose, values, informed about stakeholder engagement gains an insight into the culture of ### strategy and culture are outlined on page 91. Our section 172 Victrex. A formal review of corporate The Board has established the Company’s statement is set out on pages 20 to 23 and culture is conducted by the Board twice purpose, values and strategy and monitors outlines examples of how the Board has a year, using the dashboard of cultural Company culture to ensure that these considered the interests of stakeholders in indicators which has been developed. are aligned. decision making. Our cultural dashboard has a behavioural focus tracking cultural insights in the following areas: Employee engagement, Safety Purpose inclusion anddiversity Doing the right thing Service for customers Strategy Sustainable Innovation businesspractices Values Behaviours Culture 90 Victrex plc Annual Report 2022 Employees Attracting and retaining a skilled, talented, experienced and engaged workforce is key to supporting the Group in achieving our strategy. The Board promotes effective engagement with the Group’s workforce and this is supported by a range of direct and indirect engagement activities. The Board programme of business typically schedules visits to one or more of the Group’s sites. This year, the Chair, Chief Executive Officer and Non-executive Directors visited the Group’s operations in Rotherham and Seal Sands. Due to restrictions posed by COVID-19, virtual site visits took place to two of the Group’s locations in China which included presentations by some of the Group’s employees. Board dinners with senior management CORPORATE GOVERNANCE have taken place periodically. The Board reviews the results of engagement surveys and receives regular ‘people’ updates throughout the year. The Group has operated a range of measures to facilitate workforce engagement including works councils, employee forums, staff briefings, regular communications from the Chief Executive Officer and anonymous communication channels. The Board has continued to enhance its engagement with the workforce through the role of Brendan Connolly as the Non-executive Director with designated responsibility for Workforce Engagement. Brendan’s third annual report in this capacity is set out on pages 92 and 93. Working groups established at the outset of the COVID-19 pandemic have continued to hold periodic meetings to review, revise and implement appropriate policies and practices to provide a safe working environment for our workforce. We have encouraged employees to be vaccinated. As we implemented our Return to Site plans supported by our Global Flexible Working Policy, the health, safety and wellbeing of employees was at the forefront of plans, and we continue to respond andadapt to COVID-19 as appropriate based on regional risk profiles. Customers The Board engages with customers indirectly through the Executive Directors who provide information about key customer relationships. The Board receives information on key customer interactions and regularly reviews information on how the Group is performing for its customers including delivery ‘on time in full’ metrics and product quality statistics. During the year, Board members met with a number of key customers as part of the virtual Board visit to the Asia-Pacific region. The Board received a presentation from TechnipFMC to further develop the relationship as they progress their industrialisation and scale up plans in Brazil. Material customer contracts are reviewed and approved. Since the year end Board members have held face-to-face meetings with several key customers in Europe as part of the Board’s site visit to our European base in Germany. Suppliers Information about key suppliers is provided to the Board by the Executive Directors when relevant to Board deliberations. The Board is committed to fair treatment and payment of suppliers and the Company is a signatory to the government’s Prompt Payment Code. The Board reviews proposed updates to the Group’s Modern Slavery & Human Trafficking Policy as well as approving the Group’s modern slavery and human trafficking statement, which can be found on our website, www.victrexplc.com. From time to time material supplier contracts are also reviewed and approved. Investors The Board receives monthly reports on investor engagement and sentiment, prepared by the Company’s Investor Relations team which frequently interacts with key investors and investor groups. The Chief Executive Officer, the Chief Financial Officer and the Director of Investor Relations, Corporate Communications & ESG regularly meet shareholders, prospective shareholders and analysts. This year, over 190 virtual meetings or calls were hosted with institutional investors or prospective investors. Two major UK roadshows were held and there was one major US roadshow and one virtual roadshow in Europe. Five investor conferences were attended by our Director of Investor Relations, Corporate Communications & ESG with two selected ‘Company Overview’ Q&A sessions with North American prospective investors. Due to succeeding as Chair midway through FY 2022, the Chair has had a limited number of engagements with shareholders to date, through the Annual General Meeting and financial results. Both the Chair and Senior Independent Director remain available for engagement with shareholders. The Board receives reports from sector analysts to ensure that it maintains an understanding of investor priorities. The Board attends the Annual General Meeting so as to be available to answer any questions that may arise from investors. The Board believes that appropriate steps have been taken during the year so that all members of the Board and, inparticular, the Non-executive Directors, have an understanding of the views of major shareholders. The Chair of the Remuneration Committee consulted with major shareholders on remuneration matters during FY 2022. Please see page 106 of the the Directors’ remuneration report for more information. Communities The Board recognises its impact on local communities and its responsibility to the environment and society as a whole. and The Group has a busy engagement programme with local communities which is described on pages 70 and 71. The environment Board receives information on key community activities. During the year the Board has established an additional Board Committee, the Corporate Responsibility Committee, in order to enhance focus on ESG matters including monitoring of itsstanding with key stakeholder groups. See page 85 for more information. Government The Board engages directly and indirectly with a wide range of government bodies and regulators. The Health and Safety and Executive and the Environment Agency monitor compliance by the Group’s UK sites with environmental, health and safety regulators legislation. The Board receives regular updates on safety, health and environmental performance and material interaction with regulators. The Board engages directly and indirectly with a wide range of government bodies and regulators. Board engagement is primarily through the Chief Operating Officer and our Global SHE Lead to reflect our SHE focus, environmental reporting and activities aligned to our sustainability agenda. Governmental and NGO interactions occur typically through the Chemical Industry Association (of which we are an active member) via the Chief Executive Officer, with relevant functions taking the lead in responding to UK government consultations and submissions of relevant data. Engagement with MPs and regional government bodies has also been undertaken this year, via the IR, Communications & ESG team, as part of lobbying efforts to enable access to alternative fuels, including potential access to a future hydrogen grid or alternative. From time to time the Group receives some government funding associated with its innovation and Research & Development agenda. As part of a new PEEK manufacturing facility in China, engagement was held with a number of regional governmental bodies there, with the facility in commissioning since the start of FY 2023. From time totime the Group receives some government funding associated with its innovation agenda. Annual Report 2022 Victrex plc 91 CORPORATE GOVERNANCE ## Statement of corporate governance continued ### During my third year as Workforce Engagement Director ### I have welcomed the opportunity to further engage with ### a variety of forums and groups, in person where possible, ### to build on the work undertaken in the last two years. ### Progress has been made. It was also important to be able ### to create the feedback loop on the topics and questions ### discussed. All discussions have been open and constructive, ### with the forums setting the agenda on the discussion ### topics. The passion and interest of our people is clear, ### and I would like to thank everyone for their continued ### engagement. I look forward to continuing the ### dialogue in 2023. Brendan Connolly Workforce Engagement Director ### Workforce engagement u ensure that feedback is obtained from all Group through face-to-face and virtual levels of the workforce in multi-locations; meetings across a variety of forums: ### statement – hearing the ### employee voice u organise bespoke events for additional u UK Hillhouse Operational Forum meeting Brendan Connolly was appointed the feedback where required; and (in person), together with the Chair; designated Non-executive Director for u solicit employee views about executive u US Gender Engagement Network Workforce Engagement with effect from remuneration and share feedback obtained meeting (virtual); 1October 2019 (the ‘Workforce Engagement with the Remuneration Committee. NED’). This statement summarises the third u UK Employee Forum meeting (virtual); year of the ‘employee voice’ programme. The Workforce Engagement NED is not u Strategic Inclusion Group meeting expected to take on responsibilities that are Objectives and role (virtual); and those of an Executive Director or of the HR The Workforce Engagement NED is team or act as a proxy for those teams. u European Forum & Workshop (in person). responsible for the following matters to | support the Directors’ collective responsibility | | Third year highlights | There was a wide range of topics discussed | | --- | --- | --- | --- | | to consider a wide range of stakeholder | | During FY 2022 the focus has been on | and employees were keen to engage. | | perspectives when arriving at Board decisions: | | continuing regular dialogue with the | Examples of the topics covered are set | | | | workforce through a variety of means | out below: | | | u understand the concerns of the | | | including face-to-face meetings, site visits, workforce and articulate those views On operations: Request for enhanced involving other Non-executive Directors and concerns in Board meetings on an communications and accessibility of in engagement activities and making ongoing basis; SHE reporting and occupational health, progress on areas previously identified for and wider training and development u ensure that the Board, and particularly enhancement including providing feedback opportunities and initiatives. As a result of the the Executive Directors, take appropriate for employees on matters raised and actions matters raised a detailed programme of activity steps to evaluate the impact of proposals taken. Relevant Board papers contain a was put in place and reported to the Board. and developments on the workforce; workforce impact statement to ensure that the interests of our employees are a central On leadership: Employees were positive on u where relevant and appropriate, provide consideration in our decision making. ‘skills and promoting values’; perhaps ‘not as feedback to the workforce on Board visible aswe would like’ at times; but‘good decisions and direction during the The Workforce Engagement NED had working relationships’. engagement process; interactions with several groups of employees representing every level and region in the On what motivates our employees: u primarily use existing engagement Good communications; access to mechanisms, including the employee management; recognition; success; survey, quarterly staff briefings, works transparency; strong brand; and good council meetings, union meetings, regional products to sell. forums and Q&A sessions, to gather the relevant feedback from the workforce; 92 Victrex plc Annual Report 2022 ### Workforce engagement Relations with shareholders CORPORATE GOVERNANCE ### statement – hearing the Annual General Meetings The Annual General Meeting (‘AGM’) is an ### employee voice continued important part of effective communication On diversity: There was no difference with shareholders. The forthcoming AGM perceived in treatment due to gender, will be held at 11am on 10 February 2023. with the same opportunities available All shareholders will have the opportunity to all. A question arose on whether all to ask questions at the AGM. The Chairs roles are published. Suggestions were of the Audit, Nominations, Remuneration made for training for leaders to ensure all and Corporate Responsibility Committees voices are heard at meetings and for more will be available to answer questions at female leaders or mentors. Employees that meeting. The details of the 2023 were broadly satisfied with the direction AGM are summarised in the Chair’s oftravelondiversity. introduction on page 77 and in the Notice | On employee survey actions – are | of Annual General Meeting from page 187. | | --- | --- | | they visible and acted on? ‘Yes, but are | If there are any queries, please contact | | they effective if same areas come up every | cosec@victrex.com. | survey?’ emphasising the importance of The Notice of Annual General Meeting, continuing to communicate the actions together with an explanation of the taken on specific areas. There was positive resolutions to be considered, is set out feedback on the survey overall including on pages 187 to 196 and sent out in a thecharitable donation aspect. circular to shareholders. Proxy votes lodged In summary, there were no major negative on each resolution will be announced at themes and many positive ones. What is also the AGM, published on the Company’s clear is that ESG is a key topic of interest website and announced via the Regulatory generally and that SHE remains a priority for Information Service. our employees. This is strong alignment with Outcome of the February 2022 the Board’s continued focus on these areas. AnnualGeneral Meeting | Key focus areas for FY 2023 include | At the 2022 Annual General Meeting, | | --- | --- | | continuing to involve other Non-executive | votes were cast in relation to approximately | | Directors in employee engagement | 83.04% of the issued share capital. All 22 | | initiatives where possible, continuing to | resolutions were passed by the required | | attend a cross-section of employee forums | majority. Votes were cast in favour of the | | and bodies, and continuing to embed | re-appointment (or, in the case of Vivienne | | the recently established feedback loop | Cox, appointment) of the following Board | | with employees on matters raised and | Directors as follows: | actions taken. | u Vivienne Cox: 99.98% | | --- | | u Jane Toogood: 98.80% | | u Janet Ashdown: 98.62% | | u Brendan Connolly: 97.36% | | u David Thomas: 98.81% | | u Ros Rivaz: 90.85% | | u Jakob Sigurdsson: 99.83% | | u Martin Court: 99.75% | | u Richard Armitage: 98.36% | Share capital Details of the Company’s share capital, including the rights and obligations attached to the shares, are set out in the Directors’ report on page 130. Annual Report 2022 Victrex plc 93 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Nominations Committee report ### FY 2022 highlights u Overseeing a full induction programme for new Chair and new Chief Financial Officer u Leading the search process for new Chief Financial Officer u Maintaining focus on talent development and succession planning u Reviewing and updating our Board Diversity & Inclusion Policy ### FY 2023 focus areas u Continued focus on Diversity &Inclusion at Board, Committee and senior management level and relatedsuccessionplanning u Overseeing an externally facilitated Boardand Committee evaluation exercise ## NOMINATIONS COMMITTEE REPORT | | | Inclusion and diversity | effectively. Further details can be found on | | --- | --- | --- | --- | | Main responsibilities | | The Committee maintained its focus | page 96. Whilst recognising that an internal | | ofCommittee | | on the Group’s inclusion and diversity | exercise was not in line with the Corporate | | | Leading the process for Board | initiatives, further details of which can | Governance Code recommendation for an | u | appointments and making | be found on pages 95 and 96. Following | externally facilitated effectiveness review | | --- | --- | --- | | recommendations to the Board | the establishment of the Corporate | every three years, after careful consideration | | about proposed appointments | Responsibility Committee (‘CRC’) during | it was decided that it would be more | | to the Board, including the | the year, the CRC will oversee the focus on | appropriate and of greater value to conduct | | Company Secretary | inclusion and diversity from a business-wide | an external process in FY 2023 due to the | | | perspective going forwards. The Committee | Board changes in the current year. | | u Evaluating the skills, experience | | | reviewed and updated the Board Diversity andknowledge of the Board The following Nominations Committee & Inclusion Policy, which can be found report was approved by the Committee u Overseeing the development on page 96. atits meeting held on 1 December 2022. ofadiverse pipeline for ### successionto Board and senior Board effectiveness management positions This year’s Board and Committee evaluation Dr Vivienne Cox DBE was conducted internally for the third year Chair of the Nominations Committee Terms of Reference for the Nominations in a row and concluded that the Board 6 December 2022 Committee can be found on and each Committee continued to operate www.victrexplc.com The Committee held three scheduled Secretary: Jane Brisley ### Dear shareholders, meetings during FY 2022 and has a On behalf of the Nominations Committee, Other attendees: programme of business reflecting its Terms I am pleased to present its report for the of Reference. One ad hoc meeting took u the Chief Executive Officer is not a year ended 30 September 2022. I became place at short notice and the Committee member of the Committee but is Chair of the Committee after the Company’s members who were unable to attend invited to attend; Annual General Meeting on 11 February provided feedback in advance. Please see 2022 when the Company’s previous Chair, u the Group HR Director regularly attends footnotes to the table on page 86. LarryPentz, stood down. meetings; and Meeting | This year, in addition to the Committee’s | Committee member | attendance | u from time to time the Chief Commercial | | --- | --- | --- | --- | | regular programme of business, our focus | | | Officer and Chief Financial Officer | | | V Cox (Chair)* 3/4 | | may be invited to attend Committee | has been on conducting the search for a new Chief Financial Officer as well as L C Pentz** 1/1 meetings to support and participate overseeing my own induction process in discussions regarding inclusion and J E Ashdown 3/4 following my appointment to the Board as diversity initiatives. B W D Connolly 3/4 Non-executive Director on 1 December 2021 All members of the Committee are and transition into the role of Board Chair. D Thomas 4/4 independent, thus fulfilling the Corporate Governance Code requirement that a J E Toogood 4/4 ### New Chief Financial Officer search majority of members of the Nominations R Rivaz 3/4 Following the announcement by Richard Committee should be independent Armitage that he intended to step down as Non-executive Directors. * Vivienne Cox was appointed as a Non- Chief Financial Officer to take up another executive Director on 1 December 2021, The Chair would not chair or otherwise opportunity, the Nominations Committee becoming Chair Designate on 1 January 2022 participate in the Committee when it conducted a search process for the and Board and Nominations Committee is dealing with the appointment of her recruitment of a new Chief Financial Officer. Chair on 11 February 2022. She became a member of the Nominations Committee on successor. No Director would participate in Following a comprehensive process, the 2 December 2021 and chaired two scheduled the Committee when it is dealing with the Committee recommended the appointment meetings during the year. appointment of his or her successor. of Ian Melling and this recommendation was ** Larry Pentz stood down from the Board at approved by the Board. Further details can be The Chair’s other significant commitments the conclusion of the 2022 Annual General found on page 95. Meeting on 11 February 2022. He was Chair of are set out in her biography on page 78. the Nominations Committee meeting held in December 2021 and attended all meetings for which he was eligible to attend. 94 Victrex plc Annual Report 2022 CORPORATE GOVERNANCE ### The Committee’s agenda in FY 2022 u approval of the Nominations Committee report in the Annual The Committee’s principal activities during the year, and up to the Report and Accounts; date of approval of this Annual Report, were as follows: u reviewing Victrex’s diversity profile and enterprise-wide u search for new Chief Financial Officer; activities to promote inclusion and diversity before these focus areas transitioned to the Corporate Responsibility Committee u Board and senior management composition; which was established during the year; u overseeing changes to senior management. Details of the u reviewing the Board skills matrix; composition of the Victrex Management Team are set out on page 89; u reviewing and recommending changes to the Board Diversity & Inclusion Policy for approval by the Board; and u Board and senior management succession planning; u reviewing the Committee Terms of Reference and the u talent management framework and pipeline development; Committee’s annual programme of business. ### Succession planning sustainability, innovation, alternative energy All Directors are encouraged to keep up to During the year, the Committee conducted a and diversity & inclusion. date with relevant legal and governance review of succession planning for the Board matters, best practice and evolving areas of Following the announcement by Richard and senior management over the short and risk. The Board receives training and updates Armitage that he intended to step down medium term, as well as contingency plans on relevant topics as appropriate, taking into asChief Financial Officer to take up another for emergency situations. The Committee account individual qualifications and relevant opportunity, the Committee developed a aims to ensure that the Board and senior experience. The Directors are supported to candidate profile for the new Chief Financial management have the appropriate balance undertake any other professional development Officer and engaged Russell Reynolds, a of skills and experience to support the identified as necessary or desirable. professional search agency to lead the search Group’s strategic objectives. The Board uses process. There is no personal connection VMT members, other senior leaders and a succession planning toolkit which includes between Russell Reynolds and any individual those designated as talent are invited, consideration of diversity and use of a Director. Potential candidates were as appropriate, to deliver presentations Board skills matrix to help assess the Board’s interviewed by Committee members. The at Board meetings on their areas of composition and identify any opportunities candidates were assessed against the agreed responsibility. It is the Company’s usual for enhancement. Together with the written candidate profile which included the desired policy for all Directors to attend the AGM. succession plan, the succession planning experience, skills, characteristics and traits for toolkit facilitates Committee deliberations. ### the role. Following a thorough process and Board diversity The Committee holds regular Board succession after careful consideration, the Committee The Company is committed to diversity, planning discussions, considering potential made a recommendation to the Board to inclusive practices and equality of timing for changes to key Board positions, appoint Ian Melling. This recommendation opportunity amongst its employees the likely evolution of the business and its was accepted by the Board and Ian was and its Board members. The Company strategic needs. The Committee is mindful of appointed to the Board with effect from acknowledges the value of diversity in its current Director tenure and the importance of 4July 2022. Ian has valuable experience widest sense and its contribution towards an orderly refreshment of the Board which to support the Company in the pursuit of effective Board operations and decisions factors in the Company’s strategy, its current its strategy. His biography can be found as different perspectives drive a broader performance and its focus on enhancing on page 79. During the period from when and more detailed debate. The Group diversity. The tenure of Non-executive Richard Armitage stood down and Ian joined, operates a Group Diversity, Inclusion & Directors is set out on page 86. Michael Ward, Finance Director, acted as Equal Opportunities Policy which is reviewed The Committee conducted a review of the Interim CFO to facilitate a smooth transition. each year and provides the framework for Board skills matrix during the year. The skills productive working relationships. Any new Directors appointed by the matrix supports there being a broad balance Board must be elected at the next AGM Our Board Diversity & Inclusion Policy is of skills, experience and knowledge on the to continue in office. All existing Directors set out in the blue box on page 96. It is Board, with particular strength in chemicals, retire by rotation every year. also contained on our corporate website – strategic direction setting, M&A, risk www.victrexplc.com. The Board Diversity & management and compliance, and broad ### Board induction, development Inclusion Policy was reviewed and updated experience across functional disciplines. ### and business engagement during the year to expand its scope to our A formal induction programme is in place key Board Committees and in preparation for ### Board appointments for new Board members and is tailored as mandatory diversity disclosures for our financial The Committee assesses the balance, appropriate depending on role, skills and year commencing 1 October 2022. Our policy skills, experience, diversity, knowledge and experience. This typically includes meeting reflects diversity in its broadest sense, including independence on the Board to identify any with members of senior management, gender, social and ethnic backgrounds, and gaps and consider the need for refreshment. SBU and functional leaders, and certain cognitive and personal strengths. During the year, the role of Company employees identified as talent individually, There is ongoing focus on the Group’s Chair transitioned to Dr Vivienne Cox visiting a number of operations and sites, initiatives designed to promote inclusion with effect from the conclusion of the access to Board and relevant Committee and diversity across the business. Read Company’s AGM on 11 February 2022 when papers, undertaking relevant training, more about this on pages 68 and 72 which Larry Pentz stood down after serving more meeting the external auditors, brokers and includes our target of 40% of females in the than the recommended nine years in the advisors and receiving briefings on pertinent leadership group (comprising the top two role. Vivienne has a wealth of experience matters. Acomprehensive induction grades) by 2030 (FY 2022: 19%, FY2021: in executive and non-executive roles over programme wasconducted for DrVivienne 10%). With the establishment of the more than 40 years, with a particular focus on Cox and has been completed for Ian Melling. Corporate Responsibility Committee Annual Report 2022 Victrex plc 95 CORPORATE GOVERNANCE ## Nominations Committee report continued ### Board diversity continued ### Board Diversity & of skills, background and experience (‘CRC’) during the year, going forward, – with diversity in its widest sense as ### business-wide initiatives designed to Inclusion Policy described above being an important promote inclusion anddiversity, the impact The Company acknowledges the value consideration; | of such initiatives and progress against | of diversity in its widest sense (age, | | | | --- | --- | --- | --- | | targets will be monitored by the CRC. | gender, ethnicity, sexual orientation, | 5. policies adopted by the Group | | | | disability and socio-economic background | | promote diversity in the | The Board has not set express gender, as well as educational and professional broadest sense; ethnic or other related diversity quotas backgrounds) and its contribution or measurable objectives for the Board’s 6. adequate and appropriate towards effective Board and Committee composition. The Board and the Committee disclosure of: operations and decisions. seek to encourage applications from a a. this Policy and diversity initiatives diverse range of candidates, subject to the The Group operates a Group Diversity, the Group has in place and the selection criteria being met. Inclusion and Equal Opportunities Policy steps it is taking to promote which is reviewed each year and The current ethnic composition of our diversity at Board level and providesthe framework for productive Board is 100% White, with a breakdown across the Company including working relationships. of nationalities provided on page 86. The adescription of progress made; Board will continue to consider the various Taking account of its changing strategic b. the composition and structure diversity factors set out in the Corporate needs, the Board will ensure: ofthe Board and its Committees; Governance Code and the recommendations 1. it and its Committees have the of the FTSE Women Leaders Review c. whether the Company has met appropriate balance, composition and (following on from the Hampton-Alexander regulatory diversity targets on mix of skills, experience, independence Review) and the Parker Report. acomply or explain basis, and and knowledge to ensure their theBoard’s approach to such The Board strives to broaden the diversity continued effectiveness, having regard data collection*; of the Board and senior management to regulatory diversity targets and pipelines. As at the date of approval of this external guidance on diversity; d. external reporting requirements Annual Report, we have four women on our including: (i) the ethnic 2. a pipeline is maintained promoting Board, representing 44% (FY 2021: 40%). background and gender identity diversity for succession to the Board Two members of the VMT (excluding the or sex of the Board and executive and senior management positions; | Executive Directors) are women (40%) and | | | management*; and (ii) the | | --- | --- | --- | --- | | 34% of senior management and their direct | 3. only executive search consultants | | gender balance of those in senior | | reports are women (29 men, 15 women). In | | which have signed up to the voluntary | management and their direct | | accordance with the Corporate Governance | | code of conduct for executive search | reports; and | | Code, senior management is defined as the | | firms on gender diversity on corporate | | e. the process for appointments VMT (excluding the Chief Executive, the Chief boards are engaged when seeking tothe Board; and | Financial Officer and the Chief Commercial | appointments to the Board so that | | | | --- | --- | --- | --- | | Officer). See page 89 for a list of members of | the selection processes provide access | 7. this Policy is reviewed from time to | | | the VMT. For further details on inclusion and | to a diverse range of candidates; | | time to monitor progress being made | | diversity across Victrex, including our Group | | | to assess its effectiveness. | 4. appointments to the Board are made Diversity, Inclusion & Equal Opportunities on the basis of merit, with regard for * With effect from financial year commencing Policy, see pages 68 and 72. 1 October 2022. suitability for the role, Board balance and composition and the required mix ### Board, Committee and ### individual Director effectiveness The Board and its Committees carry out a evaluation exercise would be of greater is led by the Senior Independent Director, formal review of effectiveness each year. value in 2023. Accordingly, this year’s review DrRos Rivaz. The Nominations Committee An external evaluation was conducted in was facilitated internally via questionnaires reviewed the performance of the Chief 2019 by Equity Communications. Due to developed by the Company Chair, the Executive Officer and the Chief Commercial the changes in Board composition in the Chairs of each Committee and the General Officer. These reviews confirmed that each year, after careful consideration it was Counsel & Company Secretary. The Board Director continues to make a valuable determined that an externally facilitated | | and each Committee reviewed the output | personal contribution to the Board. | | --- | --- | --- | | | and determined the priorities for the 2023 | Individual contributions are summarised in | | Board diversity – gender | financial year. The Board actions and | the biographies on pages 78 and 79. All | | | recommendations agreed following the | Non-executive Directors are considered | ### (as at 30 September 2022) review are set out on page 89. to have sufficient time to perform their duties at the Company. Where an Executive The reviews of the Audit, Nominations and Director has an external appointment, Remuneration Committees confirmed that the time commitment involved is kept these Committees continue to provide effective under review and the Board is satisfied the support to the Board. The effectiveness Executive Directors devote sufficient time evaluation in 2023 will be expanded to cover to discharging their responsibilities to the the Corporate Responsibility Committee Company. Details of individual Executive which was established during the year. Director appointments are included in the ##  Each Director receives a formal performance biographies on pages 78 and 79. review process. The Chair led the review | Female 44% | | of each Non-executive Director. The | | --- | --- | --- | | Male 56% | | annual performance review of the Chair | | 96 | Victrex plc Annual Report 2022 | | ## Audit Committee report ### FY 2022 highlights FY 2023 focus areas CORPORATE GOVERNANCE u Ongoing monitoring of developments regarding the BEIS u Continued monitoring of developments regarding the Draft Consultation and Draft Audit Reform Bill along with the Audit Reform Bill, its passage through parliament and likely Company’s proposed response implementation timelines along with the associated evolution ofmanagement’s response u Supporting the Company in addressing the requirements of the Task Force on Climate-related Financial Disclosures u Monitoring the progress of the ERP (‘TCFD’), including consideration of disclosure and consistency implementation project, both the level and of reporting between sections of the Annual Report nature of costs treated as exceptional and the use of the new system to automate u Continuing focus on operations in China where significant the control environment ahead of investment in manufacturing capacity is reaching the the likely requirements from the mechanical completion phase aforementioned Draft Audit Reform Bill u Review of the process for identification and reporting of u Supporting the transition of the new risks and the Company’s control environment including PwC audit partner and monitoring the integration with the TCFD requirements noted above effectiveness of the knowledge transfer u Focus on inventory valuation as input costs have increased, plan proposed by PwC driven by both raw material and utility cost inflation u Supporting the evolution of reporting underTCFD u Continuing to review and make suggestions toenhance risk management processes ## AUDIT COMMITTEE REPORT ### Main responsibilities of Committee u Reviewing financial statements and announcements relating u Reviewing significant legal and regulatory matters to the financial performance of the Company, including u Reviewing matters associated with the appointment, terms, reporting to the Board on the significant issues considered by remuneration, independence, objectivity and effectiveness of the Committee in relation to the financial statements, how the external audit process and reviewing the scope and results these were addressed, and whether the financial statements of the audit are fair, balanced and understandable u Reporting to the Board on how the Committee has discharged u Reviewing the scope and results of the annual external audit its responsibilities and reporting to the Board on the effectiveness of the audit process and how the independence and objectivity of the Terms of Reference for the Audit Committee can be found on auditors have been safeguarded www.victrexplc.com u Reviewing the scope, remit and effectiveness of the internal audit function and the Group’s internal control and risk management systems | Dear shareholders, | global economic challenges remain, | when taken as a whole, is fair, balanced | | --- | --- | --- | | I am pleased to present the report of | particularly the uncertainty over energy | and understandable and provides the | | the Audit Committee for the year ended | prices and the knock-on impact through | information necessary for shareholders | | 30 September 2022. The Directors’ | global supply chains and the resulting | to assess the Company’s position and | | responsibility statement in respect of the | inflationary pressures. The Committee has | performance, business model and strategy. | | Annual Report can be found on page 132. | challenged management’s assumptions and | The Committee undertakes this role through | | | judgements made in the preparation of the | independent review of the Annual Report, | During 2022 I was involved in the recruitment forecasts, their correlation with outputs discussions with management, including process for our new Chief Financial Officer from the Integrated Business Planning assessment of Alternative Performance ensuring that the successful candidate had the process used to run the business and the Measures against the regulatory guidance, requisite financial experience and skill set to potential range of outcomes under scenario consideration of FRC Thematic Review maintain the strong financial governance within and sensitivity analysis. The Committee also findings and reporting from PwC. The FRC the Company. Following the appointment of challenged management’s assumptions on undertook a review of the Annual Report Ian Melling, in my role as Audit Committee the potential impact of climate change on for the year ended 30 September 2021. Chair, I have been engaged in the induction the longer-term forecasts used in assessing Pleasingly there were no questions or process to ensure a smooth transition. the carrying value of assets and viability. queries raised. The FRC did note a number The Committee has maintained its focus on of potential improvements to existing The Corporate Governance Code calls the robustness of financial forecasts used disclosures. The Company is grateful for the for the Board to ‘present a fair, balanced by management in assessing going concern, FRC’s feedback with a default position being and understandable assessment of the viability and the carrying value of assets to incorporate the improvements where Company’s position and prospects’. and the associated disclosures. Whilst the material. The Committee has overseen The Board asks the Audit Committee to business has recovered from COVID-19, this process. advise on whether the Annual Report, Annual Report 2022 Victrex plc 97 CORPORATE GOVERNANCE ## Audit Committee report continued The Committee receives regular reports subcommittee’s recommendation was meeting as part of the overall assessment of from management covering the key approved by the Audit Committee with auditor effectiveness. areas of estimation and judgement Graham Parsons, a partner with relevant We continue to be committed to providing underpinning the financial statements. sector, international and listed company meaningful disclosure of the Committee’s The Committee’s role is to ensure that experience, succeeding Ian Morrison for our activities as well as ensuring the Committee’s management’s disclosures reflect the financial year ending 30 September 2023. agenda is kept under review and that supporting information or challenge them The Audit Committee has agreed a plan we maintain an awareness of relevant to explain and justify their interpretation. with PwC to transition Graham into the role. developments. Details of the annual The Committee is supported in this role Following the publication of the FRC’s Audit evaluation process of the Committee’s by the external auditors, which, in the Quality Inspection Reports, it is pleasing to see performance can be found in the Corporate course of the statutory audit, review the PwC return to the level we observed during governance report. accounting records kept by the Company to the process to appoint them as our external test whether information is beingrecorded The following Audit Committee report was auditors. The Committee challenged PwC on in line with agreed accounting practices. approved by the Committee at its meeting their response to the three key findings noted The external auditors present their findings held on 1 December 2022. in the FRC’s Quality Inspection Report (revenue to the shareholders and their report is set testing, impairment assessments and audit of The Committee has reflected upon the out in the Independent auditors’ report. The journals) and evidenced the increase in level FRC Guidance on Audit Committees Committee reports its findings and makes of work performed in these areas compared and was satisfied that the principles recommendations to the Board accordingly. to previous years. Through the Committee’s concerning internal audit are reflected The Committee is responsible for programme to monitor audit quality and intheresponsibilities and function of ensuring that the relationship between effectiveness, evidence has been seen over theinternal audit function. the Committee, the external auditors the last three years that PwC are committed I will be available to answer any questions and management is appropriate. The to addressing the findings, with significant in relation to this Audit Committee report external auditors must be independent increases in the level of substantive testing before the Annual General Meeting. Please of the Company. Information on how the across most areas of the audit, including email your queries to ir@victrex.com. Committee assesses the independence the aforementioned key findings. This work, of the external auditors is set out in the along with increased regulatory pressure and Audit Committee report. During the year new auditing standards, is the primary driver David Thomas I led a subcommittee in interviewing behind the fee increase of more than 170% Chair of the Audit Committee partner candidates put forward by PwC to since 2019. The Committee reviewed further 6 December 2022 succeed Ian Morrison as the audit partner evidence of the enhancements and specific following completion of his fifth year. The reporting from PwC at the final Committee The Committee met three times during FY 2022 and has a programme discuss matters which fall within the Committee’s Terms of of business reflecting the Committee’s Terms of Reference. Reference. These have included a meeting with the Finance Director and the Director of Risk & Compliance in addition to Committee member Meeting attendance meetings with the General Counsel & Company Secretary as D Thomas (Committee Chair) 3/3 part of reviewing relevant matters and forward planning on the businessoftheCommittee. J E Ashdown 3/3 The Committee is authorised to seek outside legal or other B W D Connolly 3/3 independent professional advice as it sees fit but has not done J E Toogood 3/3 soduring the year. R Rivaz 3/3 The qualifications of Committee members are outlined in the Directors’ biographies on pages 78 and 79. The members of the Secretary: Jane Brisley Committee are all independent Non-executive Directors. The Board is satisfied that the Committee as a whole has competence The following other attendees regularly attend meetings: relevant to the sectors in which the Group operates and its u the Chair and Executive Directors; members have an appropriate level of experience in corporate and financial matters and are financially literate. The effectiveness u the Director of Risk & Compliance; of the Committee in fulfilling its remit was considered as part of u the Finance Director; and the most recent evaluation of performance which was completed in the summer of 2022 and subsequently reported to the Board. u representatives from the external auditors, PwC. The Committee Chair is a member of the Institute of Chartered Other members of the management team may also be asked to Accountants of England and Wales. He previously served as chief attend meetings for discussion on specific issues. The Committee financial officer of Invensys plc. Prior to this, he was a senior also meets with the external auditors at least twice each year partner at Ernst & Young and is a former member of the Auditing without management being present. Practices Board. The Board is satisfied that he has recent and relevant financial experience as required by the Code. The Chair meets with members of the executive and management teams and PwC outside of formal Committee meetings to 98 Victrex plc Annual Report 2022 ### The Committee's agenda in FY 2022 The Committee's principal activities during the year, in addition to those noted in the FY 2022 highlights, and up to the date of approval of this Annual Report, were as follows: - negotiated and agreed PwC's engagement letter and the statutory audit fee for the year ended 30 September 2022; - reviewed the results of the Committee's assessment of the effectiveness of the 2020/21 external audit along with receiving a presentation from PwC on the proposals for their programme to enhance audit quality; - reviewed PwC's proposed audit strategy and plan for the 2021/22 statutory audit, including the level of materiality applied by PwC, the final audit report from PwC on the financial statements detailing their key findings from the 2021/22 audit; - confirmed the independence of the external auditors and recommended to the Board the re-appointment of PwC as the external auditors at the upcoming AGM; - reviewed the basis of preparation of the financial statements as a going concern (prior to making a recommendation to the Board) as set out in the accounting policies; - reviewed and discussed reports on the financial statements and considered management's significant accounting judgements and key areas of estimation uncertainty and the policies being applied, and how the statutory audit contributed to the integrity of the financial reporting; - reviewed the long-term viability statement, prior to making a recommendation to the Board; - reviewed the FY 2022 Annual Report and recommended to the Board that it complied with the Code principle to be 'fair, balanced and understandable'; - approved the strategic internal audit planning approach and reviewed reports on the work of the internal audit function from the Director of Risk & Compliance; - considered the findings brought to the Committee's attention by internal audit and satisfied itself that management has resolved or is in the process of resolving any outstanding issues or concerns; - reviewed and approved the internal audit plan and approach for 2022/23; - reviewed the effectiveness of the risk management and internal control systems prior to making a recommendation to the Board; - reviewed the Group's linkage between the identification of risk and the control environment, including the formal evaluation of the Lines of Defence conducted by the business and the processes for testing the second line of defence; and - reviewed the conclusions of the Committee's annual evaluation. It was concluded that the Committee continued to be effective. ### How did the Committee assess whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's financial position and performance, business model and strategy? The Committee made this assessment by: - reviewing key messages proposed for the Annual Report; - reviewing copies of the Annual Report at various stages during the drafting process to ensure the key messages were being followed and were aligned with the Company's position, performance and strategy being pursued and that the narrative sections of the Annual Report were consistent with the financial statements; - ensuring that all key events and issues which had been reported to the Board in the executive Board reports during the year had been appropriately referenced or reflected within the Annual Report; - reviewing how alternative performance measures were used in the Annual Report, ensuring completeness and accuracy of definitions, consistency of use, relevance to users of the Annual Report and balance with statutory metrics; and - considering reports produced by both management and the external auditors on principal matters and judgements in areas underpinning the financial statements. ### External auditor independence - Written assurances were received from the external auditors that all partners and staff involved with the audit are independent of any links to Victrex. - PwC confirmed all partners and staff complied with their ethics and independence policies and procedures which are fully consistent with the FRC's Ethical Standard. - PwC are required to disclose at the planning stage of the audit any significant relationships and matters that may reasonably be thought to have an impact on their objectivity and independence and that of the lead partner and audit team – no such matters were disclosed. - PwC operate a policy requiring the change in lead audit partner every five years, with other senior audit staff rotating at regular intervals. During the year the Committee considered potential candidates for a new lead audit partner and approved Graham Parsons to take over this role from 2023. - The Committee is responsible for maintaining an appropriate policy on non-audit services and associated fees that are paid to PwC. To further safeguard the independence and objectivity of the external auditors, non-audit services provided by the external auditors are considered and where appropriate authorised by the Committee in accordance with a non-audit services policy. The policy is outlined in an appendix to the Committee's Terms of Reference, which are published on our investor website – www.victrexplc.com. This policy limits the amount and type of services undertaken by our auditors. Our auditors will not be asked to carry out non-audit work with the exception of a half-year review (should it be required) and regulatory and bank required reporting. When awarding non-audit work to PwC, the Committee is cognizant of the FRC Revised Ethical Standard 2019, paragraph 4.15, including the limit on non-audit fees of 70% of the audit fee based on a rolling three-year average. Non-audit fees for the year ended 30 September 2022 were £x1 representing 0% of the audit fee (2021: £35,000 representing 5% of the audit fee). The non-audit fee in 2021 related to the interim review performed at the half year. Annual Report 2022 Victrex plc 91 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Audit Committee report continued ### External auditor independence management to identify audit efficiencies, statements. In addition, as part of the a further increase has been proposed in Committee’s responsibility to provide advice ### continued 2022 to £507,000 taking the total increase to the Board on the long-term viability The Audit Committee took the decision since 2019 to c.170%. The further increase statement, the Committee performed a that an interim review was not required in has again been attributed to the cost of robust review of the process and underlying 2022 with the Committee able to obtain regulation and investment in audit quality, assessment of the Group’s longer-term sufficient assurance over the Interim Report significant changes in auditing standards prospects made by management, including: through internal processes. During the year, and the impact of inflation in a competitive the Company’s US based former Chair, u the review period and its alignment with job market. The Committee recognises the Larry Pentz, stood down from the Board at the Group’s five-year strategic plan; changing regulatory environment and the the conclusion of the Company’s AGM on unfortunate consequence that companies, u the assessment of the prospects of the 11 February 2022. Prior to standing down such as Victrex, are ultimately paying the Group after consideration of the Group’s Larry Pentz received an allowance from the price for the profession overlaying significant principal risks, current financial position, Group to independently procure tax filing levels of substantive testing across all areas available banking facilities and ability to preparation services. PwC provided such of the audit, including those which are generate cash; services through a direct engagement with considered low risk, with minimal perceived Larry Pentz; however, these services are not u the modelling of the financial impact of additional benefit for the key stakeholders. considered to meet the definition of non- additional key scenarios which encompass The Company continues to explore ways of audit fees in relation to the Group. the potential impact of crystallisation of mitigating elements of the increase through one or more of the principal risks; Over a three-year rolling period, the level of audit efficiency and smarter audit scoping. non-audit fees has averaged 6% of the audit u the consideration of the impact of climate The Committee recommended to the Board fee. No further non-audit fees are expected change on the Group’s strategic plan; and that PwC be proposed for re-appointment at to be incurred with PwC due to their revised the forthcoming AGM in February 2023. There u ensuring transparent disclosures in the general approach to not provide such are no contractual obligations that restrict Annual Report as to why the viability services to listed audit clients. | | the Committee’s choice of external auditors, | period selected was appropriate, including | | --- | --- | --- | | Taking into account our findings in relation | the recommendation is free from third-party | what the key scenarios tested were and | | to the effectiveness of the audit process and | influence and no auditor liability agreement, | how the analysis was performed. | | in relation to the independence of PwC, the | in accordance with sections 534–538 of the | | As a result of that review, the Committee Committee is satisfied that PwC continue Companies Act 2006, has been entered into. was satisfied that the approach adopted to be independent and free from conflicting was appropriate. The viability statement for interests with the Group. ### Financial reporting the 2021/22 financial year was prepared The primary role of the Committee in relation on a consistent basis with that reported in ### External auditor re-appointment to financial reporting is to review with both previous years and is on pages 42 and 43. We last undertook a formal tender process management and the external auditors, and in compliance with the CMA Order 2014 for report to the Board the appropriateness of, ### Significant issues considered by statutory audit services in 2017. PwC the annual and half-year financial statements, ### commenced their appointment as auditors the Committee in relation to the considering amongst other matters: ### and presented their first report to shareholders financial statements and how for the year ended 30 September 2018. ### Clarity of the disclosures and these were addressed IanMorrison has completed his fifth year as compliance with financial reporting In the preparation and final approval of the lead audit partner and will be succeeded standards and relevant financial and the financial statements, the Committee in this role by Graham Parsons from 2023 governance reporting requirements discussed with management the key sources following the Committee’s assessment of of estimation and critical accounting the proposed candidates. The next formal judgements outlined in note 1. The tender process, in compliance with the CMA Areas in which significant judgements significant areas of focus considered and Order 2014, is required ahead of the 2028 and estimation have been applied, assessed by the Committee in relation to audit with PwC having completed 10 years including discussions on such matters the 2022 financial statements and how as the Group’s auditors in the year ended undertaken with the external auditors these have been addressed are set out 30September 2027. TheGroup has no below. In concluding that these represented current plans to perform a formal tender in the primary areas of judgement, or a high advance of this, a decision which is reviewed Whether the Annual Report, taken degree of estimation, the Audit Committee annually by the Audit Committee following as a whole, is fair, balanced and considered reports by management which the review of auditor effectiveness. understandable and provides the referenced both quantitative and qualitative information necessary for shareholders judgement factors across each significant In the 2020 Annual Report we disclosed that to assess the Company’s performance, account balance, assessing the impact on PwC had proposed a significant fee increase, business model and strategy. The the user of the financial statements. to be staged over two years, which took the statement incorporating the conclusion fee from £191,000 in 2019 to £380,000 in Other than in the recurring areas of inventory of this assessment is included onpage132 2021, an increase of 100%. This increase valuation and UK defined benefit accounting, is attributed to external factors in the audit detailed on page 101, the primary focus is on market resulting in an increase in cost of Any correspondence from regulators those areas of accounting which rely on the delivery. Key factors, predicated on regulatory in relation to our financial reporting use of future financial forecasts which changes and responses to AQRT findings, inherently involve higher levels of judgement include the separation of the audit practice and estimation. This includes the carrying In addition to the above, the Committee from other service lines, additional investment value ofboth tangible and intangible supports the Board in completing its in training and technology and investment assetsand the going concern and assessment of the adoption of the going in improved risk and quality management. viabilityassessments. concern basis of preparing the financial Despite work between PwC and 100 Victrex plc Annual Report 2022 ## Significant issues considered by the Committee in relation to the financial statements and how these were addressed continued The Audit Committee's work on stability and going concern is detailed above with the disclosure included on pages 41 and 43. The annual impairment review performed on the Company's tangible and intangible assets is also reviewed by the Audit Committee, including the level of sensitivity analysis performed, which in the current year considered the impact of inflation and the longer-term impact of climate change and the Company's ambition to achieve Net Zero Carbon by 2030 in its own operations. In the cases of both the carrying value of assets and going concern, the level of headroom remained at a level where, even under sensitivity, reasonable changes to the key sources of estimation would not cause a different outcome with the reverse sensitivity scenario analysis performed considered beyond plausible. PwC's report to the Committee came to the same conclusion. The classification of costs as exceptional is inherently a judgemental area and one where the Audit Committee also supports the Remuneration Committee in making an assessment of the treatment of exceptional costs for executive remuneration purposes. In the current year the cost of the new ERP implementation has been treated as exceptional, in line with the IFRS Interpretations Committee's agenda decision relating to the capitalisation of configuration and customization costs in a cloud computing (Software as a Service, 'SaaS') arrangement. The Audit Committee has assessed this treatment, considered management's rationale and also taken input from PwC in reaching the conclusion that the treatment as exceptional was appropriate. The Committee will continue to monitor the position along with the level and nature of costs over the duration of the project, which is expected to complete in 2024. The Committee considered the clarity of disclosure in the Annual Report and discussed with PwC the consistency of such treatment with the approach adopted by other companies. The areas of inventory valuation and UK defined benefit pension accounting are areas of higher audit risk and, accordingly, PwC were asked to focus on and report to the Committee on, and the Audit Committee discussed and assessed, these judgements and estimates. During the meeting of the Committee which considered the draft of the Annual Report, the matters raised by PwC in their report were discussed with management, including how such analysis related to management's own assessment and the appropriateness of the form of disclosure provided by the Company in the Annual Report. In particular, the Committee considered the following recurring matters: - **Valuation of inventory:** the Committee reviews the nature of the costs absorbed into inventory, the level of production over which these costs are absorbed, the variances, including in respect of material usage and purchase price, between standard cost and actual cost, and the reasons for movements in inventory value period to period. 2022 has seen inflation across key input costs, primarily raw materials and energy costs, reach levels not seen for a long time. Management has absorbed these additional costs into inventory to reflect the actual cost of production. The Committee has reviewed the increase in inventory valuation resulting from the increase in costs, assessing this for reasonableness, supported by the testing and reporting provided by PwC. The level of production over which costs were absorbed is judgemental with the higher of actual production and 'normal' production to be used. Production levels in 2022 returned to pre-COVID-19 levels to a level where actual production is considered as a reasonable approximation for 'normal', which had not been the case through 2020 and 2021 when COVID-19 impacted production requirements. This judgement was reviewed by the Committee, with input from PwC, including an assessment of the level of sensitivity with the estimation. The basis for and level of provisioning, including for aged, obsolete and non-conforming product which is judgemental or requires a high degree of estimation, are presented to the Committee by management. Management produced analysis showing the ageing profiles of inventory and analysed inventory movements over the past 12 months providing the Committee with sufficient information to challenge judgements and reach a conclusion on the level of provisioning. After discussion with management, and review of reporting from PwC, the Committee concluded that the valuation of inventory and level of provisioning were reasonable. The impact of changes in the key areas of estimation on inventory are included in note 3. - **UK defined benefit pension accounting:** the valuation of the UK defined benefit scheme obligation is dependent on a number of assumptions that are inherently judgemental or require a high level of estimation. Following the closure of the scheme on 31 March 2016, judgement on future salary growth rates ceased, but judgement over future interest and inflation rates, together with the estimation of mortality rates, remain, with sensitivities of +/-1% having a material impact on the value of scheme liabilities and therefore the balance recognised on the Group balance sheet. The Audit Committee assesses these judgements and estimates, based on reports received from management and the Group's actuarial advisors. The Committee also considered the opinions made and benchmark provided by PwC. The current economic environment, with inflation running at double-digit levels and interest rates rapidly rising in the run-up to 30 September 2022, increases the level of estimation involved, particularly with the scheme using LOs to manage interest rate risk, but the Committee concluded that the assumptions used and the resulting valuation were reasonable. It was also noted by the Committee that the Company's approach to funding the scheme has been stable with a track record of making voluntary contributions of approximately £1m each financial year as the scheme worked towards self-sufficiency. The sensitivity of the scheme valuation to interest rate and inflation assumptions is disclosed in note 17. To aid the conduct of reviews, the Committee considers reports from the Chief Financial Officer and the Finance Director and also reports from the external auditors on the outcomes of their annual audit. The main features of the Group's internal controls and risk management systems are summarised below: ### Risk management systems and internal controls The Audit Committee has responsibility for reviewing the risk management systems and effectiveness of these systems. The responsibilities and processes in respect of risk management are described separately on pages 34 to 40 and page 84. The Committee receives updates and reports from the Director of Risk & Compliance on key activities relating to the Group's risk management systems and processes at every meeting. These are then reported to the Board, as appropriate. The Group designs its risk management activities in order to eliminate risk wherever possible, mitigating residual risk where practicable to within tolerance, to achieve its strategic objectives. The Chief Financial Officer has executive responsibility for risk management and is supported in this role by the Director of Risk & Compliance and his team. The Director of Risk & Compliance manages a series of risk management committees across the business which feed into the Executive Risk Management Committee formed by the Executive Directors, the Chief Operating Officer, the Group HR Director, the General Counsel & Company Secretary and the Director of Risk & Compliance. Annual Report 2022 Victree plc 141 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Audit Committee report continued ### Effectiveness and quality of the external audit The Committee actively considers the effectiveness and quality of the external audit process on an ongoing basis. Following the process outlined below, the Committee assessed the effectiveness of the external audit and concluded that the external audit process and services provided by PwC were satisfactory and effective. PwC present key findings from the FRC’s Audit Quality Inspection Report for PwC and planned actions. The Committee discusses and agrees at the planning stage the draft list of specific risks to audit effectiveness andquality (specific audit quality risks). The Committee assesses audit planning work in respect of specific audit quality risks and ensures that matters of key interest (including those listed as significant issues above) are addressed in the audit plan. PwC report against audit scope and subsequent meetings provide the Committee with an opportunity to monitor progress and raise questions. PwC report on specific audit quality risks applicable to Victrex and how these have been addressed at the planning and final stages of the audit. The Committee discusses both internally and with PwC the extent to which PwC have demonstrated professional scepticism and challenged management’s assumptions through the audit process, particularly in areas of estimation and judgement. Private meetings are held at most Committee meetings between the Audit Committee and representatives from the external auditors without management being present in order to encourage open and transparent feedback by both parties. The Committee assesses final audit work and reporting along with the overall conclusion reached regarding specific audit quality risks and the significant audit issues (as outlined above). All Committee members, key members of management, and those who regularly provide input into the Audit Committee or have regular feedback with the external auditors are asked for feedback on how well PwC performed the year-end audit. Feedback and conclusions are discussed, along with the conclusion and transparency of reporting regarding specific audit risks and issues, with an overall conclusion on audit effectiveness and quality reached. Any opportunities forimprovement are brought to the attention of the external auditors. The FRC’s Audit Quality Inspection Report for PwC, published in July 2022, showed that PwC’s responses to previous reviews were making a positive impact on the scores with the second consecutive year of improvement, with the FRC recognising the improvements which had been made whilst also noting there was still work to do. The Committee has engaged with PwC during each year of their appointment to discuss PwC’s response to weaknesses identified by the FRC in general, but particularly those relevant to the Company’s audit. The Committee seeks evidence in the final audit report of the work performed by PwC on those areas relevant to the Company’s audit, probing the audit team on the level of professional scepticism they have demonstrated and the level of challenge they have given management. Due to the time lag between the FRC issuing findings to PwC for response and the publication of the report, evidence of PwC’s revised approach has been evident across the recent audits. The Committee, asamatter of course, does seek full explanation of work undertaken in the more judgemental aspects of the accounts. 102 Victrex plc Annual Report 2022 ### Significant issues considered by Committee, the Board and management. the Director of Risk & Compliance has met CORPORATE GOVERNANCE In addition to reviewing the design and with the Chair of the Audit Committee on ### the Committee in relation to the operational effectiveness of controls in a number of occasions to consider findings ### financial statements and how managing risks, the internal audit function from internal audit and other matters ### these were addressed continued also considers, where relevant, the risk and relating to the internal audit function. They meet biannually and review the control culture/environment, efficiency of The effectiveness of the internal audit principal risks of the Company, emerging controls, compliance with law/regulations, function’s work is continually monitored: risks, the governance processes and their internal policies and also controls to support effectiveness. This review then feeds into the safeguarding of Company assets. u ongoing audit reports are received; the information and assurance processes The internal audit function monitors the u scopes of audits are received by the Chair of the Audit Committee and into the implementation of agreed audit actions to of the Audit Committee; Board’s assessment of risk exposures and verify its completion and routinely reports the strategies to manage these risks. The the status at each Audit Committee meeting. u Committee interaction with the Director Board has conducted a robust assessment of of Risk & Compliance; A three to five-year audit planning approach the principal and emerging risks facing the has been applied that has identified key areas u internal audit, led by the Director of Risk Group. Details of the Group’s principal risks, requiring periodic assurance which is focused & Compliance, reports functionally to the the procedures in place to identify emerging around financial controls and compliance of Chief Financial Officer. The Director of risks and an explanation as to how they are key policies. In addition, an audit planning Risk & Compliance attends all scheduled being managed and mitigated are contained assessment exercise is undertaken annually meetings of the Audit Committee and on pages 34 to 40. that identifies further areas requiring has the opportunity to raise any matters Over the last year, the Committee has assurance that are aligned to strategic risks with the members of the Committee overseen the development of climate-related and/or projects. This approach results in the without the presence of management. risks and opportunities, ensuring that they development of a risk-based annual internal He is also in regular contact with the are aligned to the requirements of TCFD and audit plan that is endorsed, managed and Chair of the Committee outside of the considered in the context of the principal approved by the Audit Committee. Committee meetings; and business risks. The purpose, scope and authority of internal u progress against the internal audit plan During FY 2023 the Committee will continue audit are defined within its charter which is isreviewed at each meeting. to review the Group’s linkage between approved annually by the Audit Committee. the identification of risk and the control The in-house team is supplemented by environment, including the formal evaluation additional resource and skills sourced from of the Lines of Defence conducted by the external providers, based on specialism business and the processes for testing the or workload. The Committee keeps the second line of defence. relationship with external providers under The Committee also reviews the Group’s review to ensure the independence of the internal control systems and their internal audit function is maintained. effectiveness, and receives updates on the Assessing the effectiveness of the findings of the internal audit’s investigations internal audit function at every meeting, prior to reporting any The annual internal audit plan for the significant matters to the Board. Internal internal audit function is considered and control systems are part of our business as approved each year by the Committee. In usual activities and are documented in the reviewing the proposed plan, the Committee Group Authorities Manual/Matrix, which gives consideration to the Group’s strategic covers financial, operational and compliance priorities and specific initiatives which are controls and processes. Internal control being undertaken, which could impact the systems are the responsibility of the Chief business and also the findings and actions Financial Officer. arising from the assessment of the Group’s Confirmation that the controls and risk register. Thereafter, together with processes are being adhered to throughout findings from audits which are presented the business is the responsibility of at each meeting, the Committee considers managers but is continually tested by the the appropriateness of the internal audit work of the internal audit team as part of its plan and the resourcing of the function to annual plan of work which the Committee enable it to deliver it. Where appropriate to approves each year as well as aspects being the nature of the work being undertaken, tested by other internal assurance providers. reviews are supported by other independent assurance providers. The internal audit function The internal audit function is a key element The Director of Risk & Compliance has of the Group’s corporate governance responsibility for internal audit and framework. The purpose of internal audit independently reports to the Chair of the is to enhance and protect organisational Audit Committee in relation to internal value by providing risk-based and objective control matters. In addition to attendance assurance, advice and insight to the Audit by invitation at meetings of the Committee, Annual Report 2022 Victrex plc 103 CORPORATE GOVERNANCE CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Directors’ remuneration report ### FY 2022 highlights u Oversaw the review of the operation ofshare plans across the Company u Oversaw the implementation of the current remuneration policy u Reviewed and approved salaries for the Executive Directors and the senior u Reviewed the remuneration policy ahead leadership team of the 2023 AGM u Considered and approved the Directors’ u Consulted with investors on the remuneration report remuneration policy and the proposed implementation of the policy in FY 2023 ### FY 2023 priorities u Engaged with the wider workforce on u Oversee the implementation of the the alignment between executive pay newpolicy and the wider workforce u Set incentive plan performance targets u Reviewed formulaic incentive outcomes for the upcoming year and considered whether they were aligned to Company performance over the short and long term ## DIRECTORS’ REMUNERATION REPORT end of our financial year and commissioning Therefore, paying bonuses based on the ### Main responsibilities underway. Capital expenditure remained formulaic outcome was consistent with the ### of Committee high during the year and is expected to approach taken across the Group. be similar in FY 2023, as we complete our u Designing and determining the LTIP current investment in assets and capability remuneration for the Company The 2019/20 long-term incentive awards are within China. Chair, Executive Directors and eligible to vest based on performance from seniormanagement 1 October 2019 to 30 September 2022. ### 2022 remuneration outcomes Performance was based on cumulative u Reviewing workforce remuneration Annual bonus EPS (75%) and TSR performance vs FTSE and related policies The FY 2022 annual bonus was based on 250 excluding investment trusts (25%). PBIT pre-exceptional items (50%), strategic u Exercising judgement when Based on TSR and EPS performance over (30%) and personal (20%) objectives. If the determining remuneration awards the performance period 6.73% of the LTIP threshold PBIT target was not met, then award will vest. After reviewing the overall Terms of Reference for the no payment would be made under any financial and strategic performance over Remuneration Committee can be element. The Committee retained the ability the period, and noting that awards were foundon www.victrexplc.com to adjust the outcome if it did not reflect the granted prior to the onset of COVID-19 (i.e. wider performance of the business. there was no potential for COVID-19 related | Dear shareholders, | FY 2022 was a record year for revenue and | windfall gains), the Committee believes | | --- | --- | --- | | On behalf of the Remuneration Committee | volume, underlining the strong demand | that this outcome is appropriate and has | | (the ‘Committee’) I am pleased to introduce | for applications using high performance | not applied discretion in relation to the | | the Directors’ remuneration report for | materials, across a diverse setof end | incentive outcome. | | the year ended 30 September 2022. This | markets. As a result, the PBIT (pre-exceptional | | The Committee is comfortable that actions report is divided into three sections: my items) achieved was £95.4m. The Executives taken on pay during the year across the statement, the Directors’ remuneration also performed well against the personal Company were appropriate and balanced policy being put to shareholders at the 2023 and strategic objectives resulting in a the interests of all stakeholders and that the Annual General Meeting and our annual total pay-out between 56% and 64% remuneration policy operated as intended. report on remuneration for the year ended of maximum. Half of the bonus for the 30September 2022. Executive Directors will be deferred into ### Change in CFO shares for three years. Richard Armitage stepped down from the ### Background The Committee is comfortable that the Board on 27 May 2022. As disclosed in the Victrex delivered record revenue and volume formulaic bonus outcome reflects the wider 2021 Annual Report, Richard was eligible to over the year, with good progress in our business performance of the Company. receive salary, pension and benefits during medical business as elective surgeries TheCommittee did consider whether it was the period of his employment. He did not return in greater numbers, as well as appropriate to use its discretion to adjust receive an annual bonus or LTIP award in growth in emerging applications. We the formula-based bonus assessment but FY2022. All outstanding LTIP awards lapsed also saw improved average selling prices noting both the financial and non-financial on cessation of employment and he received compared to FY 2021. Our attractive and achievements delivered in the context of the no further payments. Richard Armitage differentiated portfolio includes sustainable current challenging external environment it is required to retain his shareholding of products which enable environmental and concluded that the bonus was a fair reflection 32% of salary for two years post as the societal benefits, with just under 50% of overall performance and so it was not threshold of 200% of salary in accordance of our revenues being from sustainable deemed appropriate to adjust the bonus with the shareholding guidelines under the products. Cash generation remained outcome. As part of approving bonuses, remuneration policy was not met. strong, supporting growth investment and the Committee also considered the bonuses shareholder returns. We are also pleased to Ian Melling joined the Company as CFO payable to all employees. All Group employees see good progress at our new PEEK facility with effect from 29 June 2022 and was were eligible to receive bonuses with the same in China, with construction completed at the appointed to the Board on 4 July 2022. financial targets applying to all participants. He was recruited on a base salary of 104 Victrex plc Annual Report 2022 CORPORATE GOVERNANCE ### Committee meetings in FY 2022 Secretary: Jane Brisley The Committee met five times during FY 2022 and has a programme Other attendees: of business reflecting the Committee’s Terms of Reference. u the Company Chair and the CEO are not members Committee member Meeting attendance oftheCommittee but are invited to attend; J E Ashdown (Chair) 5/5 u the Group HR Director regularly attends meetings; B W D Connolly* 4/5 | | u representatives from the Committee’s remuneration advisors, | | --- | --- | | D Thomas 5/5 | currently Korn Ferry, regularly attend meetings; | | J E Toogood 5/5 | u the Director of Investor Relations, Corporate Communications | & ESG is an occasional attendee based on engagement R Rivaz 5/5 matters with shareholders; and * Please see the footnote to the table on page 86. u the CFO is an occasional attendee to represent financial matters such as target setting. No attendee participates in the Committee when it deals with their own remuneration. ### The Committee’s agenda in FY 2022 | Our principal activities during the year, and up to the date of | | u ensuring the successful implementation of the Directors’ | | --- | --- | --- | | approval of this Annual Report, were as follows: | | remuneration policy; | | | u reviewing the remuneration policy ahead of the 2023 AGM; | u agreeing the Executive Directors’ FY 2023 | remuneration packages; | u consulting with major shareholders ahead of the AGM on the | | | --- | --- | | proposed remuneration policy; | u assessing FY 2022 bonus and LTIP outturns; and | | | u preparing the Directors’ remuneration report. | | £350,000. When setting Ian’s salary, the | additional time and responsibility for this | options after successful probation. In addition, | | --- | --- | --- | | Committee considered a number of factors | role, the Chair of the CRC will be paid a | the LTIP is cascaded below the Board in | | including: (i)the salary of the outgoing CFO | fee of £11,000 per annum (pro-rated for | aconsistent manner. During the year the | | (£378,000); (ii) the experience and calibre | FY 2022), in line with the other Committee | Committee also reviewed the CEO pay ratio. | | of the individual; (iii) his salary at Smith & | Chair fees. This additional fee came into | | In FY 2022, the CEO pay ratio has decreased Nephew; and (iv) the market rate for the effect on 1May 2022. slightly. This is in part due to lower long-term role based on Victrex’s size and complexity. incentive pay-outs for the CEO and higher ### In line with the remuneration policy, his Directors’ remuneration policy remuneration for employees due to increases pension contribution was set in line with Our current policy was approved at our inbase pay during FY 2022. The remuneration the wider workforce. Ian was eligible for a 2020 AGM and is due for renewal at our policy and its implementation are considered pro-rata FY2022 bonus and will be eligible 2023 AGM. Our current policy has served appropriate as it aligns with pay across the for his first LTIP grant in FY 2023. Ian did the Company well over the past three years, business and the resulting ratios are considered not forfeit all of his awards on leaving Smith enabling us to be flexible in the payments to be consistent with our wider pay, reward and & Nephew andso no buy-out awards were to Executive Directors, to recruit a new progression policies for employees. considered necessary. Allother elements CFO and it has provided a good overall of remuneration are in line with the link between pay and performance. On Wider workforce engagement remuneration policy. this basis, and having explored alternative Brendan Connolly, who is the appointed incentive mechanisms, our review concluded designated Workforce Engagement Non- ### Change in Non-executive that only a few minor amendments were executive Director and is a member of the necessary to align to market best practice. Committee, enables employees to provide ### Director Chair A summary of the key changes to the policy feedback on remuneration during the various As disclosed in the 2021 Annual Report, are set out on page 108. engagement mechanisms he undertakes Larry Pentz retired from the Board on that includes attendance at several forums. 11February 2022. Vivienne Cox was Brendan shares our approach to executive ### appointed as Non-executive Director on Other considerations during remuneration, and how it aligns with wider ### 1December 2021 until she became Board theyear workforce and Company strategy and Chair Designate on 1 January 2022. She then Wider workforce context invites comments and questions. The views became Board Chair from 11 February 2022. During the year the Committee had oversight he receives on remuneration (including of the reward and compensation packages executive and wider employee remuneration) ### Other Board changes that operate across the Company, which are are then fed back to the Committee and During the year, the Board established a new considered competitive. As a part of the the wider Board as part of his membership committee, the Corporate Responsibility policy review, the Committee reviewed the of the Committee and his wider workforce Committee (‘CRC’) to oversee and keep pay alignment across the business. Victrex’s engagement role. The executive remuneration under review the development and execution pay and culture is aligned across the business, policy and its implementation were not of the Company’s sustainability strategy and we offer a competitive remuneration raised as material issues during the year. and progress towards targets, as well as the package to our employees. All employees are Therefore, no amendments were required Company’s societal obligations. Effective on eligible for an annual bonus; high achievers to the remuneration policy or its proposed 1 May 2022, Jane Toogood was appointed may also receive additional awards for implementation as a result of this engagement. the Chair of the Committee. To reflect the excellence and all new joiners receive share Annual Report 2022 Victrex plc 105 CORPORATE GOVERNANCE Directors' remuneration report continued # Other considerations during the year continued Wider workforce engagement continued The Company's biannual Employee Experience Survey indicated a change in the perception of Victrex's total remuneration (pay and benefits) package, compared with the FY 2020 survey. Reward and performance was an emerging key theme from those discussions and as such will form a key workstream focusing on improving employee awareness in this area, as part of the enterprise-wide engagement outcomes. Shareholder engagement Ahead of the 2023 AGM, we engaged with our largest investors as well as Institutional Shareholder Services ('ISS'). The Investment Association ('IA') and Glass Leans, to understand their views on our proposed new policy and the proposed implementation in FY 2023. Based on the feedback received from our engagement, investors were supportive of the changes proposed to the remuneration policy and the proposed implementation of the policy in FY 2023. # Implementation of policy in 2023 The Committee considered how remuneration should be implemented for FY 2023. Part of this process was reviewing current practice against both market and best practice, our Group reward principles and pay ratios. The outcome of the review was that our current overall approach remains appropriate with greater weighting and total remuneration opportunity for senior executives reflecting their roles and responsibilities. The key decisions taken for FY 2023 included: Base salary: During the year the Committee reviewed the salary increases for the wider workforce taking into account high inflation and the increase in cost of living. As a result of the review, the wider workforce received an average increase of 5%. In addition, wider workforce employees (excluding senior managers) received an additional one-off payment of up to £1,200. Therefore, with a 5% budget increase applied to the wider workforce and the additional payments, the Remuneration Committee were comfortable with an increase of 4% in salary for Executive Directors. However, in recognition of the fact that Ian Melling joined the Company part way through the financial year it was agreed that a lower rate of increase of 2% should be applied notwithstanding that normal Company policy is to increase in line with the wider workforce where employment starts prior to 1 July in the year. Pension: As of 1 October 2022, the Company pension contribution for the Executive Directors has been aligned to the rate most commonly provided to the wider UK employee population (14% of salary). This aligns Victrex with the recommendations of the 2018 UK Corporate Governance Code with effect from 1 October 2022. Annual bonus: In line with the bonus operated in FY 2022, the annual bonus will be subject to financial, strategic objectives and personal objectives. The weighting on the financial targets will increase from 50% to 60% with a corresponding reduction to the weighting on the personal targets. The financial targets are set as a challenging range of profit targets derived from the Company's budget with the strategic and personal targets linked to the Company's incremental progress in delivering against its 'rrega-programmes' as well as improving internal operational and safety performance. Similar to the approach taken in FY 2022, the non-financial targets will be subject to an underpin equal to the threshold profit target. Half of any bonus paid will be deferred into shares for three years. The Committee retains the ability to adjust bonus outcomes in the event that there is a perceived disconnect between performance and reward in the current financial year. Long-term incentives: In line with the approach for FY 2022, the FY 2023 performance targets will include a challenging range of EPS growth, relative total shareholder return targets and ESG targets. For the FY 2023 awards, the weighting on TSR has been increased to 30% of the award (from 20%) with a corresponding reduction to the weighting on EPS. This reflects the Committee's objective of further aligning the executives with delivering shareholding returns. The EPS targets, determining vesting of 60% of the award, will measure performance based on growth in earnings of between 5% and 12% p.a. over the three years ending 30 September 2025. The range of targets is considered similarly challenging to targets set in prior years allowing for current internal planning, external market expectations for the Company and current economic conditions. The TSR policies, to determine the vesting of 30% of the award, will again compare Victrex's relative TSR performance over the period against the FTSE 250 Index constituents less investment trusts. The remaining 10% of the LTP will be assessed against a challenging range of carbon reduction targets. With regards to the carbon reduction targets, both the targets for the FY 2022 and FY 2023 LTP are measured on emissions per tonne of PEEK produced (with the FY 2022 targets included on page 120 and the FY 2023 targets included on page 127). The FY 2022 targets were originally set based on intensity per km of revenue. However, the targets were restated to be emissions per tonne of PEEK produced to avoid the artificial benefits of increased pricing on the performance target. This ensures the envisaged degree of stretch in the target operates as intended. With regard to the quantum of FY 2023 awards, the Committee intends to make awards at 175% of salary for the CEO and 150% of salary for other Executive Directors. In recognition of current share price volatility the Committee is to include the ability to adjust the number of shares vesting in the FY 2023 long-term incentive award in the event there was to be a perceived windfall gain on vesting. Non-executive Board fees: As described on page 127, to reflect the additional time and responsibilities of the Chair of the newly formed Corporate Responsibility Committee, a Chair fee of £11,000 p.a. was introduced on 1 May 2022. An increase of 4% to the NED base fee was approved by the Board. The Remuneration Committee anticipated an increase of 4% for the Chair; however, the Chair wasted this increase. I hope it is clear from the way we are proposing to apply policy in FY 2023 that we continue to take account of the feedback of our shareholders and we look forward to receiving your support for the Directors' remuneration report at the upcoming Annual General Meeting. I will be available to answer any questions before the Annual General Meeting. Please email your queries to info@ictrex.com. The following Remuneration Committee report was approved by the Committee at its meeting held on 1 December 2022: Janet Ashdown Chair of the Remuneration Committee 6 December 2022 Victrex plc Annual Report 2022 ### Directors’ remuneration policy CORPORATE GOVERNANCE This report has been prepared in accordance with the provisions of the Companies Act 2006, The Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 and the subsequent amendments, and the UK Listing Authority Listing Rules. In addition, the report has been prepared on a ‘comply or explain’ basis with regard to the UK Corporate Governance Code 2018. The remuneration policy described in this section is intended to apply for three years and will be applicable from the date of approval by shareholders at the Company’s 2023 AGM. ### Determining the remuneration policy The Committee is responsible for the development, implementation and review of the Directors’ remuneration policy. In addressing this responsibility, the Committee works with management and external advisors to develop proposals and recommendations. The Committee considers the source of information presented to it, takes care to understand the detail and ensures that independent judgement is exercised when making decisions. The Remuneration Committee works alongside other Board Committees as needed; for example, the Group Audit Committee confirms incentive plan performance results. When setting the remuneration policy, the Committee considered the Company’s strategic objectives over both the short and the long term, the external market and market best practice. In addition, the Committee also considered the alignment across the business as well as stakeholder views. A summary of the pay alignment across the business and how stakeholder views are taken into account in the policy is set out in the sections below. The pay alignment across the business The Committee has oversight of the reward and compensation packages that operate across the Company and this is taken into account when setting the remuneration policy for Executive Directors and determining the implementation of the policy. The remuneration approach is consistently applied at levels below the Executive Directors. Key features include: u all employees are eligible for an annual bonus based on a Group profit target; u base salary, incentives and benefits are regularly benchmarked for employees; u all UK roles are eligible for employer pension contributions of up to 14%; u employee benefits include 29 days’ paid holiday, private medical insurance, group income protection, car allowance (where appropriate) and the opportunity to participate in our share plans; u all new joiners receive share options after successful probation; and u roles considered critical to the business are eligible for a long-term incentive award. At senior levels, remuneration is increasingly long term and ‘at risk’ with an increased emphasis on performance related pay and share- based remuneration. How employee views are taken into account Processes are in place for the Committee to review and consider any remuneration related matters that may arise from the activities undertaken by the Board to take account of the ‘employee voice’, including the Non-executive Director with designated responsibility for Workforce Engagement reporting to the Committee any employee feedback on matters relating to pay and conditions. The Workforce Engagement Director is responsible for explaining how executive remuneration is structured and how it aligns with wider workforce remuneration and strategy. The Workforce Engagement Director also enables employees to provide feedback on remuneration via various engagement mechanisms which is then fed back to the Remuneration Committee. The Committee then considers this feedback when designing the remuneration policy and determining the implementation of the policy. Based on feedback during FY 2022, the executive remuneration policy and its implementation were not raised as material issues in the discussions during the year and therefore no amendments to the remuneration policy were required as a result of this engagement. How shareholder views are taken into account The Committee has a standard annual agenda item whereby the feedback from shareholders and investor advisory bodies is presented and discussed following the AGM. The Committee Chair is also available for questions at the AGM. This feedback is sought and collated by our Director of Investor Relations, Corporate Communications & ESG. The feedback that the Committee receives then informs discussions for the formulation of future policy and subsequent remuneration decisions. The Committee is also regularly updated on the collective views ofshareholders and investor advisory bodies by its independent advisor. As part of the policy renewal process the Committee Chair consulted with major shareholders, as well as proxy voting bodies and shareholder advisory groups. Based on the feedback from our engagement, shareholders welcomed the proposed changes to the remuneration policy and so no amendments were required to the proposed policy. The Committee welcomes shareholder feedback and questions. Should you have any questions or feedback, please contact ir@victrex.com. This feedback is sought and collated by our Director of Investor Relations, Corporate Communications & ESG. Other considerations In line with the UK Corporate Governance Code, the policy has been tested against the six factors listed in Provision 40: Clarity – the remuneration policy is transparent, and the implementation of the policy is disclosed in straightforward, concise terms toshareholders. Simplicity – remuneration structures are simple and market typical, whilst at the same time incorporating the necessary structural features to ensure a strong alignment to performance, strategy and minimising the risk of rewarding failure. Annual Report 2022 Victrex plc 107 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Determining the remuneration policy continued Other considerations continued Risk – the remuneration policy has been shaped to discourage inappropriate risk taking as remuneration is focused on long-term success through the LTIP and the Deferred Bonus Scheme (‘DBS’). Awards under the remuneration policy are subject to malus and clawback provisions. The performance conditions are reviewed annually to ensure that they remain suitable and do not incentivise risk taking. Toavoid conflicts of interest, Committee members are required to disclose any conflicts or potential conflicts ahead of Committee meetings. No Executive Director or other member of management is present when their own remuneration is under discussion. Predictability – examples of the caps under the remuneration policy are illustrated in the scenario charts. Proportionality – the link between each element of policy and Company strategy is noted in the table below. Variable pay is subject toacombination of financial and non-financial measures that are linked to Company strategy. Alignment to culture – the Remuneration Committee reviews workforce composition and remuneration across the Group every year and takes them into account when reviewing the implementation of the policy. Where possible, in support of our performance culture, we align remuneration across the Group; for example, all employees are eligible for an annual bonus and all new joiners receive share options after successful probation. ### Conclusion of the review and key changes to the policy The Committee concluded that the remuneration policy had operated as intended over the past three years, enabling us to be flexible in the payments to Executive Directors and to recruit a new CFO, and provided a good overall link between pay and performance. On this basis, and having explored alternative incentive mechanisms, the Committee concluded that the policy was fit for purpose and only the minor amendments listed below were necessary to align to market best practice. The clarifications and changes to the policy are set out below: u Pension: u All Executive Directors (incumbent and new hires) must have a pension contribution in line with the wider workforce (currently 14% of salary) rather than just new hires. u Annual bonus: u Pay-out schedule: We have clarified that where financial targets are set, the maximum proportion of each target that can be paid for achieving the threshold performance target is up to 20% of that part of the bonus, rising on a graduated scale to the maximum performance level where 100% of the relevant part of the bonus becomes payable. This is in line with market practice and the current approach at Victrex for setting financial targets. Where non-financial targets are set (e.g. strategic and/or personal targets) it may not be possible to structure the target in the same way as a financial target but, in principle, the same graduated approach to target setting will apply. u Recovery and withholding provisions: These will in future apply for up to two years following the payment of the cash bonus or the end of the share deferral period (rather than one year). The provisions have been broadened to include insolvency as a trigger. u LTIP: u Performance measures and vesting schedules: The references to specific performance measures have been removed (e.g. being required to have EPS or TSR) from the policy to allow the Committee market consistent flexibility to select the most appropriate performance measures. However, at least half of an award must be subject to financial and/or shareholder return measures. u Recovery and withholding provisions: The provisions have been broadened to include insolvency as a trigger. ### Directors’ remuneration policy table The table below and the accompanying notes describe the remuneration policy for Executive Directors. | Element of | Purpose and link | | | | | --- | --- | --- | --- | --- | | remuneration | to strategy Operation Maximum Performance target | | | | | Base salary | To provide | The basic salary for each Executive | Executive Directors will normally | None. | | | competitive and | Director is normally reviewed annually | receive a salary increase | | | | fixed remuneration. | (effective 1 October) taking into account | (expressed as a percentage | | | | | individual performance and the Group’s | of salary) up to the level of | | To attract and retain financial circumstances, as well as pay increase awarded to the executives of the for all employees in the Group and the general workforce. There is no calibre required external market. prescribed maximum. to deliver the Company’s strategy Increases in salary above those of the Where the Committee has set and enhance general workforce should only take the salary of a new Executive earnings over the place infrequently, for example where Director at a discount to the long term. there has been a material increase in role market level initially, a series responsibility, size of the Company or of planned increases may be movement in the external market. implemented over the following few years to bring the salary On recruitment or promotion to to the appropriate market Executive Director, the Committee will position, subject to individual take into account previous remuneration performance. and pay levels for comparable companies | | | which may lead to salary being set at | Current salary levels are | | --- | --- | --- | --- | | | | a higher or lower level than for the | shown in the annual report on | | | | previous incumbent. | remuneration on page 126. | | 108 | Victrex plc Annual Report 2022 | | | ### Directors’ remuneration policy table continued CORPORATE GOVERNANCE Element of Purpose and link remuneration to strategy Operation Maximum Performance target Benefits To provide market- Benefit provision includes the following There is no defined Not applicable. consistent benefits, benefits and allowances: maximum as the costs including insured of benefits can vary u health benefits; benefits to support year on year. the individual and u car allowance; their family during u relocation assistance; periods of ill health, or in the event of u life assurance; accidents or death. u group income protection; This is consistent with a culture of u all-employee share schemes (e.g. safety, sustainability opportunity to join the SIP or SAYE); and capability. u travel; Car allowances u communication costs; and to facilitate effective travel. u any reasonable business related expenses can be reimbursed (and anytax thereon met if determined tobe a taxable benefit). Executive Directors will be eligible for any other benefits or allowances which are introduced for the wider workforce on broadly similar terms and additional benefits or allowances might be provided from time to time if the Committee decides payment of such benefits is appropriate and in line with market practice. Pension To attract and Executive Directors are offered the The maximum Company Not applicable. retain high calibre choice of: pension contribution for an Executive Directors. Executive Director will be u a Company contribution into a limited to that available to To provide a level defined contribution pension scheme; the wider workforce which is of benefits that u a cash allowance in lieu of pension; or currently 14% of base salary. allow for personal retirement planning. u a combination of a Company contribution into a defined contribution pension scheme and a cash allowance. | Bonus | To incentivise | A maximum of 50% of bonus paid in | Maximum award of up | At least 50% of the bonus will be | | --- | --- | --- | --- | --- | | | performance | cash with 50% of the bonus deferred | to 150% of salary for the | based on financial and operational | | | against personal | into Company shares under the | CEO and 125% for other | performance. The remainder of | | | objectives and | Deferred Bonus Scheme (‘DBS’) for | Executive Directors. | the bonus will be based on the | | | selected financial | aperiod of at least three years. With | | achievement of other non-financial | | | and operational | regards to the treatment of awards | | objectives such as personal objectives. | | | KPIs which are | oncessation of employment, details | | | Targets and weightings are set by directly linked to areon page 113. reference to the Company’s financial and business strategy. DBS shares accrue dividend equivalents. operating plans and the current targets Deferral of part of and weightings are shown on page 117. Not pensionable. bonus into shares Bonus outcomes are subject to the aligns the interests Bonus and DBS awards are subject to Committee being satisfied that the of Executive Directors ‘malus’ and/or ‘clawback’ provisions (for Company’s performance on the measures and shareholders. up to two years following (i) the is consistent with underlying business payment of a cash bonus or (ii) in the performance and individual contribution. case of a DBS award, the end of the The Committee will exercise discretion on relevant deferral period) in exceptional bonus outcomes if it deems necessary. circumstances, including material | misstatement of the Company’s audited | Where financial targets are set, up to | | --- | --- | | financial results; an error in the relevant | 20% of the relevant part of the bonus | | financial information that led to the bonus | becomes payable at the threshold | | or DBS award being greater than it | performance level rising on a graduated | | otherwise would have been; personal | scale to the maximum performance level | | misconduct; serious reputational | where 100% of the relevant part of the | | damage; insolvency; or a failure | bonus becomes payable. Where non- | | ofriskmanagement. | financial targets are set (e.g. strategic | and/or personal targets) it may not be practicable to set a pre-set percentage of the relevant part of the bonus that becomes payable at the threshold performance level (i.e. the testing of non-financial targets may be binary for the relevant part of the bonus). Annual Report 2022 Victrex plc 109 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Directors’ remuneration policy table continued | Element of | Purpose and link | | | | | --- | --- | --- | --- | --- | | remuneration | to strategy Operation Maximum Performance target | | | | | Victrex Long | Designed to align | Awards under the LTIP are rights to | The normal maximum award | Awards will be subject to a | | Term | the strategic | receive Company shares, subject to | level will be up to 175% of | combination of long-term measures | | | objective of | certain performance conditions. | salary p.a. in respect of the | which are aligned to the shareholder | Incentive Plan | | delivering | | CEO and 150% for other | experience and may include financial | | --- | --- | --- | --- | --- | | 2019 (‘LTIP’) | | Each award is measured over at least a | | | | | sustainable earnings | | Executive Directors. | metrics (such as EPS), shareholder | three-year performance period. growth over the value metrics (such as TSR), and ESG The overall policy limit is 200% longer term with An additional holding period applies or strategic measures. At least half of of salary. It is not anticipated the interests after the end of the three-year the award will be subject to financial that awards above the ofshareholders. performance period so that the total and/or shareholder return measures. normal level will be made to vesting and holding period is at least The Committee will have discretion to current Executive Directors five years. set different measures and weightings and any such increase on an for awards in future years to best Shares subject to awards may accrue ongoing basis will be subject support the strategy of the business dividend equivalents. to prior consultation with at that time. major shareholders. LTIP awards are subject to ‘malus’ Normally, below threshold and/or ‘clawback’ provisions (for up performance, 0% will vest. to a year following the end of the Wherepracticable, no more than relevant holding period), in exceptional 25%of maximum will vest at circumstances including material threshold performance, increasing misstatement of the Company’s pro-rata to 100% vesting for audited financial results; an error in maximum performance. the relevant financial information that led to the award being greater than it Any vesting is also subject to the otherwise would have been; personal Committee being satisfied that the misconduct; serious reputational Company’s performance on the damage; insolvency; or a failure of measures is consistent with underlying riskmanagement. business performance and individual contribution. The Committee will exercise discretion on LTIP outcomes ifit deems necessary. Share To increase Awards made under the DBS on a Minimum of 200% of salary. Not applicable. ownership alignment between net of tax basis shall count towards Executive Directors will Executive Directors the share ownership guideline and guidelines also be required to retain and shareholders Executive Directors are required to shares equivalent to the including for a period retain 50% of the net of tax vested LTIP lower of 200% of salary post-employment. shares until the guideline is met. ortheir actual shareholding The requirement to hold shares for at the time employment a period post-employment shall be ceases. Theshares must implemented by contractual means. be held for two years with the Committee having discretion to allow half of the sharestobe released after one year. 110 Victrex plc Annual Report 2022 ### Directors’ remuneration policy table continued CORPORATE GOVERNANCE Element of Purpose and link remuneration to strategy Operation Maximum Performance target Non-executive To attract Non- The remuneration policy for the There is no prescribed Not applicable. Directors’ fees executive Directors Non-executive Directors (with the exception maximum other than the Non-executive Directors do with a broad range of the Chair) is set by a separate Company’s Articles of and benefits not participate in variable pay of experience and Committee of the Board. The policy for Association containing a limit arrangements and do not receive (Determined by skills to oversee the the Chair is determined by the Committee on the fees that can be paid retirement benefits. theBoard) development and (of which the Chair is not a member). to Non-executive Directors. implementation of Fees are paid in cash and are reviewed The Board is guided by our strategy. | | annually considering the salary increase | the general increase in the | | --- | --- | --- | | Reflects anticipated | for the general workforce and the | market for Non-executive | | time commitments | Executive Directors, and the level of | Director roles and for | | and responsibilities | fees paid by companies of a similar size | the broader employee | | of each role. | and complexity. Any changes are | population but on occasion | | | normally effective from 1 October. | may need to recognise, for | Reflects fees paid example, an increase in the and benefits provided Additional fees are paid in relation to scale, scope or responsibility by comparator extra responsibilities undertaken, such as of the role. | companies. | chairing certain Board subcommittees, and | | | --- | --- | --- | | | to the Senior Independent Non-executive | Current fee levels are set out | | | Director and the Non-executive Director | on page 127. | with designated responsibility for WorkforceEngagement. Non-executive Directors may be eligible for such cash and non-cash benefits as the Company deems appropriate from time to time. In exceptional circumstances, if there is a temporary yet material increase in the time commitments for Non-executive Directors, the Board may pay extra fees on a pro-rata basis to recognise the additional workload. No eligibility for bonuses, Long Term Incentive Plans (‘LTIPs’), pension schemes, healthcare arrangements or employee share schemes. The Company pays any reasonable expenses that a Non-executive Director incurs in carrying out their duties as a Director, including travel, hospitality related and other modest benefits and any tax liabilities thereon, and the provision of advice relating to any such tax liabilities, if appropriate. ### Additional notes to the policy table Annual bonus and long-term incentives The Committee will operate the Company’s incentive plans according to their respective rules as approved by shareholders and consistent with normal market practice, the Listing Rules and HMRC rules where relevant. These include making awards and setting performance criteria each year, dealing with leavers and adjustments to awards and performance criteria following acquisitions, disposals and changes inshare capital and taking account of the impact of other merger and acquisition activity. With regards to performance measures for variable pay, these are set with reference to Victrex’s strategy and align the senior executives’ interests with those of shareholders. The annual bonus plan performance metrics include a mix of financial targets and non-financial objectives, reflecting the key annual priorities of the Company. The financial metrics determine at least half the bonus and typically include a measure of profitability (e.g. PBIT) alongside a combination of key strategic and wider non-financial targets (e.g. progress with our mega- programmes). For FY 2023 the performance measures are 60% PBIT (pre-exceptional items), 30% strategic targets and 10% personal targets. The long-term incentive plan performance metrics relate to creating long-term sustainable returns and typically include measures of long-term profitable growth (e.g. EPS) and shareholder returns (e.g. TSR), along with sustainability and/or strategic targets (e.g. carbon reduction). For FY 2023, the performance measures are 60% EPS growth, 30% TSR and 10% carbon reduction targets (set as a measure of emissions intensity). The Committee retains discretion within policy to set different performance criteria and/or alter weightings for the annual bonus plan and long-term incentives in line with the Company’s strategic priorities, pay dividend equivalents on vested shares under the long-term incentives up to the date those shares can first reasonably be exercised and, in exceptional circumstances, under the rules of the LTIPs adjust performance conditions to ensure that the awards fulfil their original purposes (for example, if a measure is no longer available). Performance targets are set based on a range of expected outcomes, taking into account both internal and external expectations of performance. Targets are set to be challenging yet realistic. All assessments of performance are ultimately subject to the Committee’s judgement. Any discretion exercised, and the rationale, will be disclosed in the annual report on remuneration. Legacy scheme and awards All historical awards that were granted under any current or previous share schemes operated by the Company and remain outstanding remain eligible to vest based on their original award terms. Annual Report 2022 Victrex plc 111 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Recovery provisions As outlined in the policy table the Committee has the power to operate ‘malus’ and/or clawback provisions in exceptional circumstances, including material misstatement of the Company’s audited financial results; an error in the relevant financial information that led to a bonus, DBS or LTIP award being greater than it otherwise would have been; personal misconduct; serious reputational damage; a failure of risk management; or insolvency. ### Discretion The Remuneration Committee can exercise discretion in a number of areas when operating the Company’s incentive schemes, in line with the relevant rules of the schemes. These include (but are not limited to): u the choice of participants; u the size of awards in any year (subject to the limits set out in the Directors’ remuneration policy table); u the extent of payments or vesting in light of the achievement of the relevant performance conditions; u the determination of good or bad leavers and the treatment of outstanding awards (subject to the provisions of the scheme rules and the remuneration policy provisions); and u the treatment of outstanding awards in the event of a change of control. In addition, if events occur which cause the Remuneration Committee to conclude that any performance condition is no longer appropriate, that condition may be substituted, varied or waived as is considered reasonable in the circumstances in order to produce a fairer measure of performance that is not materially less difficult to satisfy. ### Illustrations of the application of remuneration policy Chief Executive Officer Chief Financial Officer Chief Commercial Officer 3,500 £3,435k 16% 3,000 £2,876k 2,500 39% 33% 2,000 £1,836k £1,686k £1,589k 31% £1,419k 16% 1,500 | | | | | | | | | £1,337k | 16% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 33% | 28% | | | | | | | | | | | | | 38% | 32% | | | | | | 26% | | | £928k | | | | 38% | 32% | | 1,000 | | | | | | | £875k | | | £797k 29% 29% | Total remuneration (£000) | | | 31% | 26% | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | £437k | | | | | | 31% | 26% | | | | 24% | | | £413k | 24% | | | 500 100% 43% 28% 23% 100% 47% 31% 26% 100% 47% 31% 26% 0 | Below target Target Maximum | | Max + 50% | | Below target Target Maximum Max + 50% | | | Below target Target Maximum Max + 50% | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | share price | | | | share price | | share price | | | | appreciation | | | | appreciation | | appreciation | | Fixed pay | Annual bonus | | LTIP | | LTIP + 50% share price appreciation | | | | Notes on the scenario methodology: u The above charts give an illustrative value of the remuneration package for each of the Executive Directors in the upcoming year. u Minimum is the base salary and pension contribution for FY 2023 plus the value of benefits as disclosed in the FY 2022 single figure table. As the CFO joined during the year, the benefits are based on the expected benefits value in FY 2023. u On target is the aforementioned minimum plus an assumed 50% pay-out of the annual bonus opportunity and 50% vesting of LTIP awards to be made in FY 2023. u Maximum is the aforementioned minimum with an assumed 100% pay-out of the annual bonus opportunity and full vesting of LTIP awards to be made in FY 2023. u Maximum + share price assumption shows maximum plus 50% share price appreciation on the shares subject to vested LTIP awards to be made in FY 2023. ### External directorships The Company accepts that its Executive Directors may be invited to become Non-executive Directors of other companies outside the Company and exposure to such non-executive duties can broaden experience and knowledge, which would be of benefit to the Company. Any external appointments are subject to Board approval (which would not be given if the proposed appointment was with a competing company, would lead to a material conflict of interest or could have a detrimental effect on a Director’s performance). Whether any related fees are retained by the individual or are remitted to the Company will be considered on a case-by-case basis. ### Service contracts and letters of appointment Each of the Executive Directors’ service contracts are terminable by either the employing company or the Director on 12 months’ notice. The Chair and other Non-executive Directors have letters of appointment rather than service contracts. Their appointments may be terminated without compensation at any time, subject to a three-month notice period. All Non-executive Directors are subject to re-election at each Annual General Meeting. 112 Victrex plc Annual Report 2022 # Service contracts and letters of appointment continued The table below summarises the notice periods for each Director as well as the date of appointment and current contract/letter of appointment. | | Date of appointment | Date of current contract/letter of appointment | Notice from the Company | Notice from the individual | Unsecured period of service contract/ letter of appointment | | --- | --- | --- | --- | --- | --- | | Executive Directors | | | | | | | J O Sigurdsson | 01/10/2017 | 19/04/2017 | 12 months | 12 months | Rolling contract | | M L Court | 01/04/2015 | 10/01/2013 | 12 months | 12 months | Rolling contract | | I C Melling | 29/06/2022 | 04/04/2022 | 12 months | 12 months | Rolling contract | | Non-executive Directors | | | | | | | V Cox | 01/12/2021 | 17/09/2021 | 3 months | 3 months | Rolling contract | | J E Ashdown | 09/02/2018 | 18/12/2017 | 3 months | 3 months | Rolling contract | | B W D Connolly | 09/02/2018 | 18/12/2017 | 3 months | 3 months | Rolling contract | | D Thomas | 14/05/2018 | 11/05/2018 | 3 months | 3 months | Rolling contract | | J E Toogood | 01/09/2015 | 30/07/2015 | 3 months | 3 months | Rolling contract | | R Rivaz | 01/05/2020 | 24/03/2020 | 3 months | 3 months | Rolling contract | Copies of Executive Directors' service contracts and Non-executive Directors' letters of appointment are available for inspection on request; please contact the General Counsel & Company Secretary on case@victrex.com. # Policy on payment for loss of office The circumstances of termination, the relevant individual's performance and an individual's duty and opportunity to mitigate losses are considered in every case. Our policy is to stop or reduce compensatory payments to former Executive Directors to the extent that they receive remuneration from other employment during the compensation period. A robust line on reducing compensation is applied and payments to departing employees may be phased to mitigate loss. Our policy is shown in the table below. Provision Summary Notes | Compensation for loss of office | → An Executive Director's service contract may be terminated without notice and without any further payment or compensation, except for sums earned up to the date of termination, on the occurrence of certain contractually specified events such as gross misconduct. → No termination payment if full notice is worked. → Otherwise, a payment in respect of the period of notice not worked of basic salary, plus pension and benefits for that period. → The termination payment will be paid in monthly instalments over what would have been the period of notice not worked. This will be reduced by the value of any salary, pension contribution and benefits earned in new paid employment in that period. | | --- | --- | | Treatment of annual bonus on termination | → A time pro-rated bonus may be payable for the period of active service; however, there is no automatic entitlement to payments under the bonus scheme. Any payment (e.g. for a good leaver) is at the discretion of the Committee and is subject to recovery and withholding provisions as detailed in the policy table. → Performance targets would apply in all circumstances. | | --- | --- | | Treatment of deferred bonus on termination | → Determined based on the DBS rules. Full details are available on request. → Deferred bonuses are subject to recovery and withholding provisions as detailed in the policy table. → The default treatment for good leavers is that any unvested awards will vest with no time pro-rating applying. Awards will normally vest at the normal vesting date unless the Committee decides they will vest on cessation of employment. Awards to 'bad leavers' lapse on cessation of employment. | | --- | --- | | Treatment of unvested long-term incentives on termination | → Determined based on the relevant plan rules. Full details are available on request. → Normally, any unvested awards will lapse on date of cessation of employment (if that occurs during the performance period) unless, in certain prescribed circumstances such as death, disability, mutually agreed retirement or other circumstances at the discretion of the Committee, 'good leaver' status is applied. In these circumstances, awards vest on a time pro-rated basis subject to the satisfaction of relevant performance criteria, with the balance of awards lapping. The Committee retains the discretion not to time pro-rate if it is inappropriate to do so in particular circumstances. The Committee will consider the individual's performance and the reasons for their departure when determining whether 'good leaver' status can be applied. Awards will normally vest at the normal vesting date unless the Committee decides that they will vest on the date of cessation of employment. | | --- | --- | Annual Report 2022 Victrex plc 99 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Approach to recruitment remuneration The remuneration package for a new Executive Director will be set in accordance with the terms of the Company’s approved remuneration policy in force at the time of appointment and the Committee shall seek to recruit within the parameters of approved policy and on the principle that recruitment remuneration shall be no more than is necessary to secure the services of a preferred candidate. Base salary Base salary levels for new Executive Directors will be set in accordance with the policy, considering the experience of the individual recruited. Where appropriate, the Committee has the flexibility to set the salary of a new appointee at a discount to the market level initially, with a series of planned increases implemented over the following years to bring the salary to the appropriate market position, subject to individual performance in the role. Maximum level of variable pay The maximum level of variable pay which may be awarded to a new Executive Director will be 350% of salary (i.e. 150% annual bonus plus 200% LTIP award). These limits will be separate to the value of any buy-out arrangement which may be necessary to secure the services of a preferred candidate. In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out according to its terms, underlying as relevant to take into account the appointment. In addition, any other previously awarded entitlements would continue, and be disclosed in the next annual report on remuneration. Annual bonus performance conditions Where a new Director is appointed part way through a financial year, the Committee may set different annual bonus measures and targets for the new Executive Director from those used for other Executive Directors (for the initial part year only). Buy-out awards The Committee may offer additional cash and/or share-based elements (on a one-time basis or ongoing) when it considers these to be in the best interests of the Company (and therefore shareholders). Any such payments would be limited to a reasonable estimate of value of remuneration lost when leaving the former employer and would reflect the delivery mechanism (i.e. cash and/or share based), time horizons and whether performance requirements are attached to that remuneration. Relocation and incidental expenses The Committee may agree that the Company will meet certain relocation and/or incidental expenses as may be necessary to recruit a preferred candidate and as deemed appropriate by the Committee. ### Appointment of Non-executive Directors For the appointment of a new Chair or Non-executive Director, the fee arrangement would be set in accordance with the approved remuneration policy in force at that time. Non-executive Directors’ fees are set by a separate Committee of the Board; the Chair’s fees are set by the Committee. Outplacement services, reimbursement of legal costs and any other incidental expenses may be provided where appropriate. Any statutory entitlements or compromise claims in connection with a termination of employment would be paid as necessary. Outstanding savings/ shares under all-employee share plans would be transferred in accordance with the terms of the plans as approved by HMRC. ### Change of control On a change of control, Executive Directors’ incentive awards will be treated in accordance with the rules of the relevant plans. In summary: u bonus payments will consider the extent to which the performance measures have been satisfied between the start of the performance period and the date of the change of control, and the value will normally be pro-rated to reflect the same period; u deferred bonuses will generally vest on the date of a change of control, unless the Committee permits (or requires) awards to roll over into equivalent shares in the acquirer; and u LTIP awards will generally vest on the date of a change of control, taking into account the extent to which any performance condition has been satisfied at that point. Time pro-rating will normally apply unless the Committee determines otherwise. 114 Victrex plc Annual Report 2022 ## Annual report on remuneration The Remuneration Committee (the 'Committee') presents the Directors' remuneration report (excluding the remuneration policy), to be put to shareholders for an advisory (non-binding) vote at the 2023 Annual General Meeting. ### Members of the Committee during the year The role of the Committee is to determine and recommend to the Board a fair and responsible remuneration framework for the Company's Chair and Executive Directors. The members of the Committee (all of whom were independent Non-executive Directors) during the year under review were as follows: - Janet Ashdown (Remuneration Committee Chair); - Ros Rivac; - Jane Toogood; - Brendan Connolly; and - David Thomas. Biographical information on the Committee members, details of attendance at the Committee's meetings and activities during the year are set out on pages 78, 79 and 105. The purpose, roles and responsibilities are thereby included in this section of the report by reference. ### External advisor Korn Ferry provided independent advice to the Committee during FY 2022 having been appointed by the Committee following a competitive tender process in 2020. Korn Ferry provided advice on market practice updates and benchmarking and supported management with undertakings such as producing the Directors' remuneration report to the extent this did not impact the independence of its advice. The fees paid to Korn Ferry for providing advice to the Committee in relation to Directors' remuneration were £70,000 which included fixed fees for planned undertakings and ad-hoc support on a time and expense basis. Korn Ferry provided other human capital related services during the year to a separate part of the business, but these services were carried out by a team separate to the remuneration advisory team. As a result, the Committee is satisfied that the advice received was objective and independent. Korn Ferry is a member of the Remuneration Consultants Group and abides by the voluntary code of conduct of that body, which is designed to ensure objective and independent advice is given to remuneration committees. ### Annual General Meeting voting outcomes The following table summarises the details of votes cast for and against the Directors' remuneration policy and the Directors' remuneration report at the 2020 AGM and 2022 AGM, along with the number of votes withheld. The Committee will continue to consider the views of, and feedback from, shareholders when determining and reporting on remuneration arrangements. | Voting outcome | Votes for | Votes against | Votes withheld | | --- | --- | --- | --- | | **Directors' remuneration report 2022 AGM** | **67,651,442 (99.23%)** | **523,183 (0.77%)** | **4,050,685** | | Directors' remuneration policy 2020 AGM | 64,813,885 (93.73%) | 4,337,065 (6.27%) | 593,713 | CORPORATE GOVERNANCE Annual Report 2022 Victrex plc 175 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 A summary of how the Directors’ remuneration policy was applied for the year ended 30 September 2022 is set out below. Remuneration received by Directors for the year ended 30 September 2022 (audited) | Salary | | Taxable | | | | | Total | | Annual | | Long-term | | | Total | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and fees | 1 | benefits | 2 | Pension | 3 | fixed pay | | | bonus | 4 | incentives | 5 | variable pay | | | Total | | | | £ | | £ | | £ | | | £ | | £ | | £ | | | £ | | £ | J O Sigurdsson 2022 615,000 68,000 130,740 813,740 579,754 47,334 627,088 1,440,828 2021 557,535 71,875 117,076 746,486 780,270 — 780,270 1,526,756 * I C Melling 2022 80,096 8,034 12,606 100,736 63,371 — 63,371 164,107 R J Armitage 2022 249,577 18,167 47,387 315,131 — — — 315,131 2021 378,000 16,664 72,192 466,856 — — — 466,856 M L Court 2022 323,044 30,000 57,751 410,795 259,834 22,109 281,943 692,738 2021 313,635 16,664 56,101 386,400 371,463 — 371,463 757, 863 ** V Cox 2022 214,292 — — 214,292 — — — 214,292 L C Pentz 2022 76,022 6,000 — 82,022 — — — 82,022 2021 200,593 6,000 — 206,593 — — — 206,593 J E Ashdown 2022 62,500 — — 62,500 — — — 62,500 2021 60,000 — — 60,000 — — — 60,000 B W D Connolly 2022 60,500 — — 60,500 — — — 60,500 2021 58,000 — — 58,000 — — — 58,000 D Thomas 2022 62,500 — — 62,500 — — — 62,500 2021 60,000 — — 60,000 — — — 60,000 J E Toogood 2022 56,083 — — 56,083 — — — 56,083 2021 50,000 — — 50,000 — — — 50,000 R Rivaz 2022 61,000 — — 61,000 — — — 61,000 2021 58,500 — — 58,500 — — — 58,500 * Ian Melling’s salary has been pro-rated from the date of employment on 29 June 2022. Ian took some unpaid leave in line with the policy for the wider workforce. ** As detailed on page 109 of the 2021 annual report, the fee for the Board Chair for Vivienne Cox, was set at £280,000. The fee was set as part of theworkundertaken in respect of the search for a successor to Larry Pentz and recognised the expected future time commitment of the role, the calibre and experience of the individual and current market fee rates. The remuneration for Executive and Non-executive Directors comprising salary (or fees), taxable benefits, pension and bonus was £3.2m (FY2021: £3.2m). 116 Victrex plc Annual Report 2022 ## Implementation of the Directors' remuneration policy for the year ended 30 September 2022 continued ### Notes and additional information (audited) #### 1. Salary and fees Several Board changes occurred during the year: - → Richard Armitage stepped down from the Board on 27 May 2022. Richard received a salary of £378,000 pro-rata up until he stepped down from the Board; - → Ian Melling was appointed to the Board as CFO with effect from 4 July 2022. Ian received a base salary of £358,000 pro-rata from the first date of his employment on 29 June 2022; - → Larry Pentz retired from the Board on 11 February 2022 and received a fee of £206,610 p.a. pro-rata for the period until leaving the Board; - → Vivienne Cox received a pro-rata fee based on the annualised rate of £51,500 p.a. from her appointment as a Non-executive Director on 1 December 2021 until she became Board Chair Designate on 1 January 2022, at which time her fee became £280,000 p.a. to reflect the expected time commitment of her role from that date as Board Chair Designate and then Board Chair from 11 February 2022; and - → as described on page 127 Jane Toopood received an additional fee as Corporate Responsibility Committee Chair of £11,000 p.a. effective on 1 May 2022. #### 2. Taxable benefits All Executive Directors are eligible for a company car allowance up to £21,000 and membership to a private medical scheme covering themselves and their immediate families. The remaining taxable benefits for Jakob Sigurdsson and Martin Court relate to communication, tax, services and insured benefits allowance. Larry Pentz received support to complete UK and overseas tax submissions. #### 3. Pensions Members of the UK pension scheme are entitled to life assurance cover of four times salary and a retirement pension subject to the scheme rules. If a member dies whilst in pensionable service, the value of the member's retirement account will be used by the trustees to provide either or both a lump sum and a pension payable to dependants. Where the promised levels of benefits cannot be provided through the appropriate scheme, the Group provides benefits through the provision of salary supplements. In 2022, Martin Court remained opted out of the defined contribution pension scheme and received a cash supplement of 12%. Jakob Sigurdsson continues to participate in the Company defined contribution pension scheme in line with HMRC limits (£4,000) and receives the balance between these limits and the Company contributions as a cash supplement of 12%. The aforementioned contributions of 12% apply up to the National Earnings Cap ("NEC") for basic salary. Above the NEC, participants receive a cash supplement of 25% of basic pay. All supplements are subject to statutory deductions. Details of the value of pension contributions received by the Executive Directors in the year under review are provided in the 'Pensions' column of the 'Remuneration received by Directors' table. For new entrants and with effect from 1 October 2022, all Executive Directors will align with the wider workforce on pension contributions. Ian Melling participates in the defined contribution pension scheme in line with HMRC limits (£4,000) and receives the balance between these limits and the maximum Company contribution of 14% of salary (as a cash supplement) which is aligned to the wider workforce. All supplements are subject to statutory deductions. Two of the Directors are accruing pension benefits under defined contribution schemes (FY 2021: one). None of the Directors are accruing pension benefits under defined benefit schemes (FY 2021: none). #### 4. Annual bonus payments The annual bonus was operated on the same basis as FY 2021 with 50% subject to a stretching Group underlying profit before interest and tax (PBIT) target and performance against shared strategic (30% weighting) and individual personal performance objectives (20% weighting). No payment is made on any element of bonus (including strategic and personal) if the underlying PBIT threshold is not met. The maximum annual bonus opportunity for the CEO is 150% of salary and 125% of salary for the other Executive Directors. Following his appointment as CFO, Ian Melling was eligible for a pro-rata bonus for FY 2022. The performance against measures to 30 September 2022 is set out in the tables below. | Measure | Weighting | Threshold | | | Outcome (% of maximum) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 30% of maximum | 50% of maximum | 100% of maximum | Actual result* | IQ Sigurdsson | IC Melling | MC Court | | **Financial** | | | | | | | | | | PBIT | 50% | £91.7m | £96.0m | £105.6m | £95.4m | 45.8% | 45.8% | 45.8% | | **Strategic and personal objectives** | | | | | | | | | | Strategic objectives | 30% | See below | | | | 75.6% | 75.6% | 75.6% | | Personal objectives | 20% | See below | | | | 86.3% | 50.0% | 93.8% | | **Total** | | | | | | 62.9% | 55.6% | 64.4% | * Group profit before tax and exceptional items of £95.6m less Finance income of £0.5m plus Finance costs of £0.3m Executive Directors were set a number of stretching strategic and personal performance objectives for FY 2022, which account for 50% of total annual bonus opportunity. The Committee assesses performance against those objectives using a combination of quantitative and qualitative information. A summary of the strategic objectives for the Executive Directors collectively and of the personal objectives along with key performance highlights is shown on pages 118 and 119. Annual Report 2022 Victrex plc 117 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued Notes and additional information (audited) continued 4. Annual bonus payments continued | Strategic | | | | Achievement | | | --- | --- | --- | --- | --- | --- | | objectives Weighting Overview Performance target and assessment by Committee | | | | (% of max) | | | Drive core | 12.5% | Deliver growth Target: Revenue of at least £316m. | | | 85% | | business | | | Performance: Achieved in excess of target with record revenue of £341m, representing an | | | 11% year-on-year increase which was marginally below the maximum target. Additional reference points: Record sales volume of 4,727t, up 8% on prior year, plus price increase programme. Overall achievement between target and maximum. 12.5% Delivering the Target: Cost per tonne on budget with additional savings of £2.7m. 70% supply and Achieved: Delivered budget with £3.1m of cost savings. cost plans Additional reference points: Record volume (exceeding the target by over 400 tonnes) with productivity results also ahead of budget. Overall achievement between target and maximum. | Differentiate | 25% | Commercial | Target: Deliver five new product milestones and associated revenues. | 75% | | --- | --- | --- | --- | --- | | through | | traction | Achieved: Six of eight new product milestones achieved with all revenue targets achieved. | | | innovation | | in mega- | | | Additional reference points: Revenue from new business 3% above budget with cost 33% programmes below. Sales from new products 6% of Group revenue at £19m. Roadmap to £10m revenue in milestones to place for Magma, Trauma, E-mobility, Aerospace and Knee mega programmes. deliver forecast Overall achievement between target and maximum. Create and 25% Deliver China Target: Completion and commissioning of new production facilities. 50% deliver future development Achieved: New PVYX PEEK facility in China on track – mechanically complete with value plan commissioning underway. Investment in capability to underpin growth well advanced. Overall achievement at target. Underpin 25% Traction in Target: Achieve RIFR of <0.5. Manage communication of ESG progress to improve rating 100% through safety, ESG strategy agencies and /or investor assessments. Improve external positioning in relation to third party sustainability ESG assessments. Improve performance across range of ESG KPIs. and capability Achieved: RIFR of 0.2, positive feedback from investors and ESG rating agencies (MSCI score up to A from BB) and steps towards SBTi submission. Scope 3 and Lifecycle Assessment projects completed to map full carbon footprint. Additional reference points: Safety improved through near miss management, ‘Golden Rules’ and process safety. Overall achievement at maximum. Total 100% 76% Achievement Personal objectives Weighting Assessment of performance by Committee (% of max) Jakob Sigurdsson Target: Improve manufacturing cost base and pricing structures. Achieved: Pricing mix improved to an exit rate of £12m with cost savings ahead of budget and Drive core business 25% targets for productivity and cost reduction initiatives delivering an outcome between target 70% Manufacturingcost base and maximum. Overall achievement between target and maximum. Target: Achieve contract partner for Trauma mega programme plus deliver demonstrable progress on up to two other mega programme partners. Differentiate through 25% Achieved: Trauma partner established, along with progress against other mega 75% innovation Mega-programmes programmemilestones. Overall achievement between target and maximum. Target: Develop to a conclusion up to three specific initiatives (covering both process and execution). Create and deliver future Achieved: Manufacturing partnership established in the year, with development and strategy value Building core competence 25% 100% projects progressed ahead of Board expectations. and M&Astrategy Overall achievement at maximum Target: Increase female representation in leadership roles vs FY2021 and deliver at least 12targeted broader DE&I initiatives. Underpin through safety, sustainability and capability 25% Achieved: Females in leadership up to 19% (FY 2021: 10%) with 26 DE&I initiatives delivered. 100% DE&I development withESG Additional reference points: New ESG function established. Overall achievement at maximum. Total 100% 86% 118 Victrex plc Annual Report 2022 ### Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued CORPORATE GOVERNANCE Notes and additional information (audited) continued 4. Annual bonus payments continued Achievement Personal objectives Weighting Assessment of performance by Committee (% of max) Martin Court Drive core business 25% Target: Establish pipeline and market adoption plan for a PEEK offering in China. 100% Further develop PEEKoffering Achieved: Board approved plan with progress on track in relation to execution of the pipeline and the market adoption plan for a PEEK offering in China. Overall achievement at maximum. Differentiate 25% Target: Establish enhanced innovation processes and controls to enhance delivery of mega programmes. 75% throughinnovation Achieved: Revised working protocols were established resulting in enhanced team engagement Enhance mega-programmes and increased average project size. Overall achievement between target and maximum. Create and deliver 25% Target: Assess opportunities for both energy transition and renewable raw materials. 100% futurevalue Achieved: Access to alternative fuels and technologies assessed, including hydrogen, with programmes Opportunities for energy ahead of plan. Developed sustainable product applications, including wind turbine applications. transition and renewable Overall achievement at maximum. rawmaterials Underpin through safety, 25% Target: Establish a new graduate R&D programme and partnership with targeted universities. 100% sustainability andcapability Achieved: New R&D graduate programme established, plus new innovation partnerships with Development of academia and manufacturing groups. innovationresources Overall achievement at maximum. Total 100% 94% Achievement Personal objectives Weighting Assessment of performance by Committee (% of max) Ian Melling Target: Deliver ERP system in line with Board approved plan, maximum target includes exceeding Board plan. Drive core business 50% Achieved: New business-wide ERP system delivery on track, progressing well 50% ERP upgrade against agreed timescales and within budget. Overall achievement at target. Target: Support up to two initiatives in M&A process and product | Create and deliver future value | | development areas. | | | --- | --- | --- | --- | | | 50% | | 50% | | Corporate development activities | | Achieved: Two initiatives on track. | | Overall achievement at target. Total 100% 50% The above reflects a full summary of the targets set and achievements delivered within the bounds of commercial confidentiality. Based on performance to 30 September 2022, the annual bonus outcome for Executive Directors during the year is shown below. Theabove reflects a full summary of the targets set and achievements delivered within the bounds of commercial confidentiality. Annual bonus outcome Bonus outcome Measure % of maximum % of salary (£) J O Sigurdsson 63% 94% 579,754 1 I C Melling 56% 69% 63,371 M L Court 64% 80% 259,834 1 I C Melling’s bonus has been pro-rated for the period of employment, in line with the approach used for the wider workforce. Half of the bonus will be deferred in shares for three years. No further performance conditions apply. Deferred shares are subject to continued service. Annual Report 2022 Victrex plc 119 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Implementation of the Directors’ remuneration policy for the year ended 30 September 2022 continued Notes and additional information (audited) continued 5. Vesting of LTIP awards The LTIP awards granted on 11 December 2019 and 12 February 2020 were based on performance to the year ended 30 September 2022. The performance targets for these awards and actual performance against those targets were as follows with the Committee comfortable with TSR vesting following considering the overall progress of the business and the current market wide share price volatility: Vesting at threshold Threshold Stretch Metric Weighting (% of max) target target 2 Actual % vesting Cumulative underlying earnings per share 75% 20% 352.9p 395.8p 253.7p 0% Total shareholder return vs. FTSE 250 Index 25% 25% -4.20% 26.80% -3.00% 26.9% 1 (excluding investment trusts) Total 100% Total vesting 6.73% 1 TSR measured over three financial years with a three-month average at the start and end of the performance period. 2 If the stretch target is achieved 100% of the element vests. Straight line vesting applies between the threshold and the stretch target. The vesting details for the Executive Directors are therefore as follows: Dividend equivalent | | | | Number | Number | Number | on shares | | Estimated | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | of shares | of shares | of shares | to vest | | | value | 3 | | Executive | 1 | Grant date Vest date | at grant | to vest | to lapse | | £ | | | £ | J O Sigurdsson 11 December 2019 11 December 2022 29,327 1,972 27,355 4,244 39,603 2 12 February 2020 12 February 2023 5,865 394 5,471 666 7,731 M L Court 11 December 2019 11 December 2022 13,172 885 12,287 1,905 17,773 2 12 February 2020 12 February 2023 3,293 221 3,072 373 4,336 1 Richard Armitage’s options lapsed in accordance with the Plan rules following his leaving employment of the Company. For information relating to the awards that vested in relation to the 30 September 2021 year end, please see page 104 in the 2021 Annual Report. 2 In 2019, LTIP awards at the outgoing policy level were granted on 11 December 2019. After the approval of the current remuneration policy at the 2020 AGM, the Committee granted top-up awards on 12 February 2020 so that the total value of awards granted was consistent with the approved remuneration policy. 3 Estimated value of shares based on the three-month average share price during the month ended 30 September 2022 of £17.93. This value will be restated in the single figure table next year based on the actual share price on the date of vesting. The share price was £23.42 at the time of grant of the award for the December award and £23.48 for the February award, compared totheshare price of £23.81 used to determine the grants and therefore none of the value of the award is due to share price appreciation. ### Long-term incentives granted during the year (audited) On 10 December 2021, the following LTIPs were granted to Executive Directors: % of face value | | Average share | | | Number of shares | | | that would vest | | | | Vesting | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | price used | | over which award | | Face value | | at threshold | | determined by | | | | Executive Type of award Basis of award | | at grant | 1 | | was granted | of award | performance | | performance over | | | 2 | | J O Sigurdsson Nil-cost option 175% of salary £24.6267 43,702 £1,076,236 21% | | | | | | | | | Three financial | | | | years to 30 September M L Court Nil-cost option 150% of salary £24.6267 19,676 £484,555 21% 2024 1 The share price at date of grant is the mid-market price quoted over a three-day average on 7, 8 and 9 December 2021 in accordance with the Plan rules. 2 An additional two-year holding period applies after the end of the three-year performance period. The LTIP was awarded as nil-cost options with an exercise price of £nil. There is no change in the approach to the exercise price or date. The award is subject to the performance conditions set out below: Payment at Performance measure Weighting threshold Threshold Maximum EPS (compound annual growth over three years) 70% 20% 7% p.a. 15.5% p.a. Relative TSR vs FTSE 250 (excluding investment trusts) 20% 25% Median Upper quartile Reduction in Scope 1 & Scope 2 emissions (per tonne PEEK produced) 10% 20% -2.5% p.a. -7. 2% p. a. 120 Victrex plc Annual Report 2022 ### Deferred shares granted in the year to 30 September 2022 (audited) Awards of deferred bonus shares over the Company's shares were granted to Executive Directors on 10 December 2021 as shown below. The deferred share awards are based on 50% of the bonus awarded for the year to 30 September 2021. No further performance conditions apply and vesting of the awards is subject to continued employment at the date of vesting in three years' time. | Exercised | Type | Number of shares granted | Face value of the award at grant date | Grant date | Next date | | --- | --- | --- | --- | --- | --- | | J O Sigurdsson | Nil-cost options | 15,841 | £392,540 | 10 December 2021 | 10 December 2024 | | M L Court | Nil-cost options | 7,541 | £186,866 | 10 December 2021 | 10 December 2024 | 1 The share price at date of grant is £24.63 and is the mid-market price quoted over a three-day average on 7, 8 and 9 December 2021 in accordance with the Plan rules. The closing share price on the date of grant was £24.78. ### Sharesave options granted during the year (audited) During the year Jakob Sigurdsson received an award under the Company's Save as You Earn Scheme ('SAVE'). The details are set out below. | Name | Number of options granted | Exercise price* | Face value at grant* | % of award vesting at threshold | Date on which exercisable | | --- | --- | --- | --- | --- | --- | | J O Sigurdsson | 951 | £18,912 | £17,985 | n/a | 1 April 2025 | 1 The exercise price represents a 20% discount to the average price used to determine the number of shares comprising the award which was the share price on 10 January 2022 of £23.64. 2 The number of shares included in the award was determined based on his expected monthly saving over a 36-month period of £500 per month. ### Payments for loss of office and to past Directors (audited) Richard Armitage stepped down from the Board on 27 May 2022. As disclosed in the 2021 Annual Report, Richard was eligible to receive salary, pension and benefits during the period of his employment. The value received under each element is set out in the single figure table. Richard did not receive an annual bonus or LTP award in FY 2022. All outstanding LTP awards lapsed on cessation of employment and he received no further payments. Richard Armitage's deferred bonus share award granted on 10 December 2018 vested on 10 December 2021, as Richard was still employed on this date. There are no outstanding deferred bonus share awards. Richard Armitage is required to retain all of his shareholding upon cessation for two years as the threshold of 200% of salary in accordance with the Shareholding Guidelines under the remuneration policy was not met. Larry Pentz retired from the Board on 11 February 2022 and received a pro-rata fee for the period until leaving the Board (based on his FY 2022 fee of £206,610 p.a., being the FY 2021 fee plus 3% in line with the wider workforce) and benefits of £6,000. CORPORATE GOVERNANCE Annual Report 2022 Victree plc N11 CORPORATE GOVERNANCE ## Directors’ remuneration report continued ### Statement of Directors’ shareholdings and share interests (audited) During employment, Executive Directors are required to build and maintain a shareholding equivalent to 200% of their base salary. Executive Directors are required to retain 50% of the net of tax value of any vested LTIP shares until the guideline is met. The table below summarises each Director’s current shareholding, and share awards subject to performance conditions, and whether or not the shareholding requirement has been met. | | | | | | | | Unvested | | | Unvested | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Beneficially | | | | options | | | options | | Vested | | | Shareholding | | | | | | Beneficially | | | owned | | | | with | | without | unexercised | | | | | as a % of | | | | | owned at | | | | at | performance | | | performance | | | options | | Total for | | salary at | | | | | 1 October | | 30 September | | | | conditions | | | conditions | | (LTIP/ | shareholding | | 30 September | | | | | Director | | 2021 | | 2022 | | 1 | | (LTIP) | | (DBS/SAYE) | DBS/SAYE) Total | | | guidelines | | | 2022 | 2 | J O Sigurdsson 16,200 22,000 124,686 16,792 10,237 173,715 35,828 99% M L Court 12,426 22,613 58,221 8,450 2,269 91,553 27,681 146% 3 I C Melling — 1,000 — — — 1,000 1,000 5% R J Armitage 6,396 7,133 — — 1,562 8,695 7,133 32% V Cox — — — — — — n/a n/a B W D Connolly 350 850 — — — — n/a n/a J E Ashdown — — — — — — n/a n/a D Thomas — — — — — — n/a n/a J E Toogood 500 500 — — — — n/a n/a R Rivaz — — — — — — n/a n/a L Pentz 4,000 4,000 — — — — n/a n/a 1 The table above includes the holdings of persons connected with each of the Directors. The holdings stated represent shares beneficially held. 2 The shareholding as a percentage shown above is based on the average share price during September 2022 of £17.01. 3 Ian Melling joined the Company on 29 June 2022 with no award of LTIP made in FY 2022. There are no unvested scheme interests in the form of shares. Martin Court acquired an additional 18 shares during the period from 1 October 2022 to the date of this report through his participation inthe All-Employee Share Ownership Scheme. There have been no other changes in the Directors’ shareholdings and share interests up to the date of this report. LTIP awards are nil-cost options. Vested but unexercised LTIPs are not subject to performance conditions as they are out of the performance period. The unvested LTIPs are subject to EPS and TSR performance conditions, and an ESG measure also applying to options granted from 2021. Outstanding deferred bonus share awards are nil-cost options which are not subject to performance conditions. Outstanding share awards under all-employee share plans relate to the options issued under the Save As You Earn Scheme; none of this type of option are subject to performance conditions. The details of outstanding scheme interests are included in the table above. The aggregate gain for Martin Court in the year from the exercise of awards granted under the LTIP and DBS was £411,249 based on the respective share price on the date of exercise of £24.78. The gain for Richard Armitage in the year from the exercise of awards granted under the DBS was £31,427 based on the share price on the date of exercise of £24.75. 122 Victrex plc Annual Report 2022 ### Details of outstanding scheme interest (audited) CORPORATE GOVERNANCE The table below sets out details of outstanding share awards held by Executive Directors. The table shows changes in the options held by each Director, taking into account grants made, options which have lapsed and any options exercised. The closing position at 30 September 2022 is shown in bold. No. of | | | | No. of | | | | | | share | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | share | | | | | | awards | | | | | | | | awards at | | Granted | Vested | Exercised | Lapsed | | at 30 | | End of | | Date | | | Exercise | 1 October | | during | during | during | during | September | | performance | | from which | | | Plan Grant date | price | | 2021 | the year | the year | the year | the year | | 2022 | | period | exercisable Expiry date | | M L Court LTIP 08/12/2016 nil 14,550 — — 14,550 — — 30/09/2019 08/12 /2021 08/12/2026 08/12/2017 nil 2,269 — — — — 2,269 30/09/2020 08/12/2022 08/12/2027 10/12/2018 nil 12,972 — — — 12,972 — 30/09/2021 10/12/2023 10/12/2028 11/12 / 2019 nil 13,172 — — — — 13,172 30/09/2022 11/12 / 2024 11/12 / 2029 12/02/2020 nil 3,293 — — — — 3,293 30/09/2022 12/02/2025 12/02/2030 14/12/2020 nil 22,080 — — — — 22,080 30/09/2023 14/12/2025 14/12/2030 10/12/2021 nil — 19,676 — — — 19,676 30/09/2024 10/12/2026 10/12/2031 Total 68,336 19,676 — 14,550 12,972 60,490 SAYE 01/04/2020 £19.97 450 — — — — 450 n/a 01/04/2023 30/09/2023 01/04/2021 £19.60 459 — — — — 459 n/a 01/04/2024 30/09/2024 Total 909 — — — — 909 Deferred shares 10/12/2018 nil 2,046 — — 2,046 — — n/a 10/12/2021 10/12/2026 10/12/2021 nil — 7,541 — — — 7,541 n/a 10/12/2024 10/12/2029 Total 2,046 7,5 41 — 2,046 — 7,541 J O Sigurdsson LTIP 08 /12/2017 nil 4,890 — — — — 4,890 30/09/2020 08/12/2022 08/12/2027 10/12/2018 nil 29,586 — — — 29,586 — 30/09/2021 10/12/2023 10/12/2028 11/12 / 2019 nil 29,327 — — — — 29,327 30/09/2022 11/12 / 2024 11/12 / 2029 12/02/2020 nil 5,865 — — — — 5,865 30/09/2022 12/02/2025 12/02/2030 14/12/2020 nil 45,792 — — — — 45,792 30/09/2023 14/12/2025 14/12/2030 10/12/2021 nil — 43,702 — — — 43,702 30/09/2024 10/12/2026 10/12/2031 Total 115,460 43,702 — — 29,586 129,576 SAYE 01/04/2019 £19.20 937 — 937 — — 937 n/a 01/04/2022 30/09/2022 01/04/2022 £18.91 — 951 — — — 951 n/a 01/04/2025 30/09/2025 Total 937 951 937 — — 1,888 Deferred shares 10/12/2018 nil 4,410 — — — — 4,410 n/a 10/12/ 2021 10/12/2026 10/12/2021 nil — 15,841 — — — 15,841 n/a 10/12/2024 10/12/2029 Total 4,410 15,841 — — — 20,251 Note: I C Melling does not have any outstanding scheme interests. Annual Report 2022 Victrex plc 123 CORPORATE GOVERNANCE # Directors' remuneration report continued # **Total shareholder return graph** The following graph shows the cumulative total shareholder return of the Company over the last 10 financial years relative to the FTSE 250 Index. The FTSE 250 Index has been selected for consistency as it is the Index against which the Company's total shareholder return is measured for the purposes of the LTIP. In addition, the Company is a constituent of the Index. TSR is a measure of the returns that a company has provided for its shareholders, reflecting share price movements and assuming reinvestment of dividends. Data is averaged over three months at the end of each financial year. ![img-13.jpeg](img-13.jpeg) Source: DataStream Return Index. # **CEO total remuneration** The total remuneration figures for the Chief Executive during each of the last 10 financial years are shown in the table below. The total remuneration figure includes the annual bonus based on that year's performance and LTIP awards based on three-year performance periods ending in the relevant year. The annual bonus pay-out and LTIP vending level as a percentage of the maximum opportunity are also shown for each of these years. | Year ended 30 September | 2020 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Name | J O Sigurdsson | J O Sigurdsson | J O Sigurdsson | J O Sigurdsson | J O Sigurdsson | D R Hummel | D R Hummel | D R Hummel | D R Hummel | D R Hummel | | Total remuneration | **£1,440,828** | £1,526,756 | £888,780 | £763,672 | £1,071,351 | £1,462,274 | £668,211 | £735,103 | £832,147 | £709,288 | | Annual bonus (% of maximum) | **62.9%** | 93.3% | 0% | 0% | 65% | 77.6% | — | 22.5% | 53.1% | —^{1} | | LTIP vending (% of maximum) | **6.73%** | 0% | 19.8% | n/a^{2} | n/a^{2} | 22.1% | — | — | — | 16.56% | 1 There were no bonus payments made to Directors in 2013 as they washed their entitlement to reverse bonus payments. 2 Jakob Sigurdsson was appointed as CEO on 1 October 2017. His first tranche of LTIPs was eligible to vest in 2020. 118 **Victrex plc** Annual Report 2021 ### Annual percentage change in Director and employee remuneration CORPORATE GOVERNANCE The table below shows the percentage change in the Directors’ salary, benefits and annual bonus over the last three financial years, compared to employee average. | Average percentage change 2021–2022 Average percentage change 2020–2021 | | | | | 1 | Average percentage change 2019–2020 | | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Taxable | Annual | Taxable | Annual | | Taxable | Annual | | | Salary | benefits | bonus Salary | benefits | bonus Salary | | benefits | bonus | 2 J O Sigurdsson 10.30% (5.40)% (25.70)% 0.00% (24.50)% 100.00% 2.30% (8.10)% 0.00% I C Melling n/a n/a n/a 3 R J Armitage (34.00)% 9.00% 0.00% 0.00% 0.50% 0.00% 5.00% 1.60% 0.00% 4 M L Court 3.00% 80.00% (30.10)% 0.00% 0.50% 100.00% 5.00% 1.60% 0.00% Dr V Cox n/a n/a n/a 3 L C Pentz (62.10)% 0.00% n/a 0.00% 9.10% n/a 2.30% 0.00% n/a J E Ashdown 4.20% n/a n/a 0.00% n/a n/a 3.40% n/a n/a B W D Connolly 4.30% n/a n/a 0.00% n/a n/a 20.80% n/a n/a D Thomas 4.20% n/a n/a 0.00% n/a n/a 3.40% n/a n/a 5 J E Toogood 12.20% n/a n/a 0.00% n/a n/a 4.20% n/a n/a R Rivaz 4.30% n/a n/a 140.00% n/a n/a n/a n/a n/a Employee average (0.40)% (11.04)% (43.10)% (2.93)% (2.02)% 100.00% 1.78% 7.56% 0.00% 1 Explanations for large increases in between 2020 and 2021, and 2019 and 2020, are provided in the previous Annual Reports. 2 Jakob Sigurdsson’s benefits reduced due to decreased education benefits for his children in FY 2021. 3 Richard Armitage and Larry Pentz both received pro-rated salary/fees and benefits up to their last date of service. 4 Martin Court’s benefits increased due to the introduction of communication, tax, services and insured benefits allowance. 5 Jane Toogood’s fee increase is in line with new responsibility as Chair of the CRC as detailed on page 127. As the Parent Company does not have any employees, the employee average is based on global employees. The reason for the decreases year on year was predominantly due to a change in the distribution of the global workforce and the impact of exchange rate movements. ### Relative importance of spend on pay The following table shows the Company’s actual spend on pay (for all employees) relative to dividends: 2022 2021 £m £m % change 1 Staff costs 72.3 71.5 1% 2 Dividends 51.8 51.6 0% 1 FY 2021 staff costs are offset by a £0.8m credit in respect of restructuring costs. No such credit was included in FY 2022. 2 2022 includes a proposed final regular dividend of 46.14p. The 2021 comparative excludes the special dividend of £43.5m (based on 50p per share). £3.0m (FY 2021: £3.0m) of the staff costs figures relate to pay for the Directors (excluding pension contributions), of which £1.3m relates to the highest paid Director (FY 2021: £1.4m). Total pension contributions were £0.2m (FY 2021: £0.2m) and for the highest paid Director were £0.1m (FY 2021: £0.1m). The dividend figures relate to amounts payable in respect of the relevant financial year. Annual Report 2022 Victrex plc 125 CORPORATE GOVERNANCE # Directors' remuneration report continued # CEO pay ratio Below we have calculated our UK CEO pay ratio comparing the CEO single total figure of remuneration to the equivalent pay for the lower quartile, median and upper quartile UK employees calculated on a full-time equivalent basis. The ratios have been calculated in accordance with the Companies (Miscellaneous Reporting) Regulations 2018 which first formally applied to Victrex from the financial year beginning 1 October 2019. | Financial year | Calculation methodology | CEO pay ratio | | | | --- | --- | --- | --- | --- | | | | 25th percentile pay ratio | 50th percentile (median) pay ratio | 75th percentile pay ratio | | 2022 | Option A | 31.78 | 27.41 | 22.43 | | 2021 | Option A | 32.60 | 28.38 | 22.87 | | 2020 | Option A | 20.22 | 17.66 | 13.85 | | 2019 | Option A | 17.82 | 15.91 | 12.56 | Victrex reports against Option A as this option is considered to be the most statistically robust. The ratios are based on total pay and benefits as well as short-term and long-term incentives applicable for the financial year 1 October 2021 to 30 September 2022. The reference employees at the 25th, 50th and 75th percentile have been determined by reference to the last day of the financial year, 30 September 2022, and all items of remuneration for employees have been calculated on the same basis as the single figure for the CEO. The regulations require the total pay and benefits and the salary component of total pay and benefits to be set out as follows: | | Base salary | Total pay and benefits | | --- | --- | --- | | CEO remuneration | £615,000 | £1,440,828 | | 25th percentile employee | £37,265 | £45,336 | | 50th percentile employee | £42,802 | £52,561 | | 75th percentile employee | £44,488 | £64,250 | Our principles for pay setting and progression in our wider workforce are the same as for our executives – total reward being sufficiently competitive to attract and retain high calibre individuals without over-paying and providing the opportunity for individual development and career progression. The pay ratios reflect how remuneration arrangements differ as accountability increases for more senior roles within the organisation and in particular the ratios reflect the weighting towards long-term value creation and alignment with shareholder interests for the CEO. In FY 2022, the CEO pay ratio has improved slightly. This is in part due to lower long-term incentive pay-outs for the CEO and higher remuneration for employees due to increases in base pay and full bonus pay-out during FY 2022. The CEO pay ratio deteriorated slightly in 2021 due to the partial vesting of the 2017 LTP and a pay-out under the annual bonus. In 2020 and 2019, the bonus did not meet threshold performance, resulting in lower pay ratio figures. We are satisfied that the median pay ratio reported this year is consistent with our wider pay, reward and progression policies for employees. The median reference employee has the opportunity for annual pay increases, annual performance payments and career progression and development opportunities. # Implementation of policy in FY 2023 The section below sets out the implementation of the remuneration policy in FY 2023 which has been set in line with the remuneration policy to be put to shareholders at the 2023 AGM. There are no significant changes in the implementation of the policy proposed in FY 2023. # Salaries and fees # Executive Directors During the year the Committee reviewed the salary increases for the wider workforce taking into account high inflation and the increase in cost of living. As a result of the review the wider workforce received an average increase of 5%. In addition, wider workforce employees (excluding senior managers) received an additional one-off payment of up to £1,200 as a support payment to recognise the extreme cost of living increase in 2022. The Remuneration Committee determined that the Executive Directors should receive an increase below that of the average wider workforce rate at 4% of salary. With regard to Ian Melling, in view of his joining the Company part way through the year, it was agreed that his increase would be limited to 2% of salary notwithstanding that normal Company policy is to increase in line with the wider workforce where employment starts prior to 1 July in the year. | | 2023 | 2022 | % increase | | --- | --- | --- | --- | | J O Sigurdsson | £639,600 | £615,000 | 4% | | J C Melling | £357,000 | £350,000 | 2% | | M L Court | £335,966 | £323,044 | 4% | 118 Victrex plc Annual Report 2022 ## Implementation of policy in FY 2023 continued ### Non-executive Directors The Company's approach to Non-executive Directors' remuneration is set by the Board, with account taken of the time and responsibility involved in each role, including, where applicable, the chairship of Board Committees. As detailed in the Committee Chair's introductory letter on page 105, to reflect the additional time and responsibilities of the Chair of the newly formed Corporate Responsibility Committee, a Chair fee of £11,000 p.a. was introduced on 1 May 2022. The Committee fees will remain at FY 2022 levels as they are considered aligned to market. The base fee will increase in line with the Executive Directors at 4%. The table below shows the fees for the Board with effect from 1 October 2022. | Position | 2023 | 2022 | % increase | | --- | --- | --- | --- | | Chair | £280,000 | £280,000 | 0% | | Base fee | £53,560 | £51,500 | 4% | | Senior Independent Director | £9,500 | £9,500 | 0% | | Workforce Engagement Director | £9,000 | £9,000 | 0% | | Audit Committee Chair | £11,000 | £11,000 | 0% | | Remuneration Committee Chair | £11,000 | £11,000 | 0% | | Corporate Responsibility Committee Chair | £11,000 | £11,000 | 0% | 1. V.Coo waived her proposed fee increase for FY 2023. ### Annual bonus For FY 2023 the maximum annual bonus will be 150% of salary for the Chief Executive and 125% of basic salary for the other Executive Directors. Half of any bonus earned will be deferred into shares for three years. Targets will be a combination of PBIT (weighted at 60%), strategic objectives (weighted at 30%) and an executive's personal performance (weighted at 10%). Profit targets for FY 2023 will be based on PBIT (pre-exceptional items) with the Committee retaining discretion to determine the impact of any exceptional items on the testing of the targets, to ensure performance outcomes are a fair reflection of underlying business performance. Similar to previous years, the non-financial targets will be subject to an underpin equal to the threshold profit target. The Committee retains the ability to adjust bonus outcomes in the event that there is a perceived disconnect between performance and reward. The Company believes that this combination of financial, strategic and personal performance objectives reflects the strategic focus on PBIT while maintaining a measurement of progression against strategic milestones and personal contribution across key operational goals for the business. The Committee will continue to run a thorough annual review of strategic and personal objectives to ensure they are measurable, robust and aligned with overall Group-wide objectives. The Committee considers certain aspects of the performance targets for the annual bonus to be commercially sensitive and, as such, they will be disclosed either at the end of the performance period or when they are no longer commercially sensitive. ### Long-term incentives The Committee intends to make LTHP awards at 175% of salary for the CEO and 150% of salary for other Executive Directors. In recognition of current share price volatility the Committee is to include the ability to adjust the number of shares vesting in the FY 2023 long-term incentive award in the event there was to be a perceived windfall gain on vesting. The extent to which the LTHP awards will vest will be determined by the performance measures listed below: | Performance measure | Weighting | Payment at threshold | Targets | | | --- | --- | --- | --- | --- | | | | | Threshold | Maximum | | EPS (compound annual growth over three years) | 60% | 20% | 5% | 12% | | Relative TSR vs FTSE 250 (excluding investment trusts) | 30% | 25% | Median | Upper quartile | | Reduction in market-based Scope 1 & 2 emissions (per tonne PEEK produced) FY 2025 compared to FY 2022 | 10% | 20% | -3.4% p.a. | -9.1% p.a. | The Committee retains discretion to adjust vesting outcomes (e.g. if TSR vesting is not considered aligned with the underlying financial performance of the Company or EPS vesting outcomes are impacted by relevant events such as material acquisitions or divestments or material changes in corporate tax rates). Any such discretion would be used to ensure that the performance targets fulfil their original intent and were not more or less challenging than intended when set out for the relevant events in the performance period. Furthermore, as set out in the Directors' remuneration policy, awards are granted subject to status and clawback provisions. As noted in the Chair's introductory letter, the annual bonus and long-term incentive plan targets were the subject to minor adjustments to the weightings between metrics to better align with current business priorities. The targets were set to be similarly challenging to those set in prior years in light of business planning and the wider economic environment. This Directors' remuneration report was approved by the Board on 5 December 2022 and is signed on its behalf by: Janet Ashdown Chair of the Remuneration Committee 6 December 2022 Annual Report 2022 Victrex plc CORPORATE GOVERNANCE CORPORATE GOVERNANCE # Directors' report – other statutory information The Directors' report required under the Companies Act 2006 comprises this Directors' report (pages 128 to 131), the Corporate governance report (pages 76 to 131) and the Sustainability report set out in the Strategic report (pages 44 to 74). The management report required under Disclosure Guidance and Transparency Rule 4.1.8R comprises the Strategic report (pages 1 to 74) and this Directors' report. This Directors' report meets the requirements of the corporate governance statement required under Disclosure Guidance and Transparency Rule 7.2. As permitted by legislation, some of the matters required to be included in the Directors' report have been included in the Strategic report by cross-reference. | **Annual General Meeting** | The Notice of the 2023 Annual General Meeting of the Company (AGM) and explanatory notes are set out on pages 187 to 196. The AGM will be held on Friday 10 February 2023 at 11am at the offices of J.F. Morgan, 1 John Carpenter Street, London EC4V 0JP. Members, appointed representatives and proxies are requested not to attend the meeting if they have tested positive for COVID-19 or if they are displaying symptoms of COVID-19. Whether or not they propose to attend the AGM in person, all shareholders are encouraged to vote on each of the resolutions set out in the Notice of AGM by appointing a proxy to act on their behalf. Shareholders are strongly encouraged to appoint the Chair of the meeting as their proxy. This will ensure that the appointing shareholder's vote will be counted if ultimately they are on any other proxy they might otherwise choose to appoint to not able to attend the AGM for any reason. If a shareholder appoints the Chair of the meeting as proxy, the Chair will vote in accordance with the shareholder's instructions. If the Chair is given discretion as to how to vote, he or she will vote in favour of each of the resolutions in the Notice of AGM. All proposed resolutions in the Notice of AGM will, once again, be put to the vote on a poll. If shareholders have any questions for the Board on the business of the meeting, please send them in advance of the AGM to info@ctree.com. We will aim to respond to all questions as quickly as possible. A summary and key themes of the questions and answers will be posted on our website, www.victreeplc.com, on the morning of the AGM. | | --- | --- | | **Results and dividends** | Group profit before tax for the year was £87.7m (FY 2021: £92.5m). The Directors recommend the payment of a final dividend of 44.14p per ordinary share that, subject to shareholder approval at the AGM on 10 February 2023, will be paid on 17 February 2023 to all shareholders on the register of members as at 6pm on 20 January 2023. Together with the interim dividend paid in June 2022 this makes a total regular dividend of 59.56p per ordinary share for the year (FY 2021: 59.56p per ordinary share). The Company has established Employee Benefit Trusts (EBTs) in connection with the obligation to satisfy Future share awards under certain employee share incentive schemes. The trustees of the EBTs have waived their rights to receive dividends on those ordinary shares of the Company held in the EBTs. Such waivers represent less than 1% of the total dividend payable on the Company's ordinary shares. There are no other arrangements in place under which a shareholder has waived or agreed to waive any dividends. | | **Important events since 30 September 2022** | There have been no important events affecting the Company or any member of the Group since 30 September 2022. | | **Financial instruments** | Information on the Group's financial risk management objectives and policies and its exposure to credit risk. liquidity risk, interest rate risk and foreign currency risk can be found in note 16 to the financial statements. Such information is incorporated into this Directors' report by reference and is deemed to form part of this Directors' report. | | **Directors** | The Directors of the Company and their biographical details are set out on pages 78 and 79. | | **Directors' interests in the Company's shares** | The interests of the Directors of the Company and their connected persons at 30 September 2022 in the issued share capital of the Company (or other financial instruments) which have been notified to the Company in accordance with the Market Abuse Regulation are set out in the Directors' remuneration report on page 122. The biographies of all Directors serving at the date of this Annual Report are shown on pages 78 and 79. Details of Directors' interests in shares are provided in the Directors' remuneration report on pages 122 and 123. | 118 Victrex plc Annual Report 2022 | Major interests in shares | Trading | % | | --- | --- | --- | | Reinforcing information has been disclosed to the Company on request pursuant to the Financial Conduct Authority's Disclosure Guidance and Transparency Rules and is published on a Regulatory Information Service and on the Company's website. The following has been received, in accordance with DTK 5, from holders of notifiable interests in the Company's issued share capital as at 23 November 2022: | | | | Sprucegrove Investment Management (CA) | 8,354,218 | 9.60 | | The Vanguard Group Inc (US) | 6,265,314 | 7.20 | | BlackRock Inc | 5,668,355 | 6.52 | | Fidelity International Ltd | 4,321,792 | 4.71 | | Baillie Gifford & Co Ltd (SC) | 3,836,057 | 4.41 | | Columbia Threadneedle Investments | 3,136,760 | 3.61 | | Brown Capital Management Inc (US) | 3,079,544 | 3.54 | | Schroder Investment Management Ltd | 2,989,930 | 3.44 | | Royal London Asset Management Ltd | 2,891,095 | 3.32 | | The positions stated above represent the holdings in shares either in their own right or on behalf of third parties and may not represent the total voting rights (or authority to vote) as at 23 November 2022. The information provided above was correct at the date of notification. However, these holdings may have changed since the Company was notified. | | | | **Appointment and replacement of Directors** | The Company's Articles of Association (the 'Articles') provide that the Company may by ordinary resolution at a general meeting appoint any person to act as a Director, provided that notice is given of the resolution identifying the proposed person by name and, if he or she has not been recommended by the Board, that the Company receives written confirmation (within the time frame specified in the Articles) of that person's willingness to act as Director. The Articles also empower the Board to appoint as a Director any person who is willing to act as such. The maximum possible number of Directors under the Articles is 12, unless the Company decides otherwise by ordinary resolution. The Articles provide that the Company may by special resolution, or by ordinary resolution of which special notice is given, remove any Director before the expiration of his or her period of office. The Articles also set out specific circumstances in which a Director shall vacate office. The Articles require that at each Annual General Meeting any Director who was appointed after the previous Annual General Meeting must be proposed for election by the shareholders. Additionally, any other Director who has not been elected or re-elected at one of the previous two Annual General Meetings must be proposed for re-election by the shareholders. The Articles also allow the Board to select any other Director to be proposed for re-election. In each case, the rules apply to Directors who were acting as Directors on a specific date selected by the Board. This is a date not more than 14 days before, and no later than, the date of the Notice of AGM. Notwithstanding the provisions of the Articles, it is the Company's current practice that all Directors stand for election or re-election on an annual basis in compliance with the provisions of the UK Corporate Governance Code. The Articles are available on the Company's website (www.uctreepic.com). | | | **Indemnification of Directors** | The Company has granted indemnities in favour of all of its Directors under Deeds of Indemnity ('Deeds'). Deeds were in force during the year ended 30 September 2022 (or from the date of appointment for those appointed during the year) and remain in force as at the date of this report. The Deeds are available for inspection during normal business hours on Monday to Friday (including public holidays) at the Company's registered office. The Company has appropriate directors' and officers' liability insurance cover in place in respect of legal action brought against the Directors. An appointment can be made with the General Counsel & Company Secretary to review the Deeds. Please contact cases@victrex.com. | | | **Conflict of interest duties** | Procedures are in place to ensure compliance with the Directors' conflict of interest duties set out in the Companies Act 2006. The Company has complied with these procedures during the year and the Board believes that these procedures operate effectively. During the year, details of any new conflicts or potential conflict matters were submitted to the Board for consideration and, where appropriate, these were approved. Authorised conflict or potential conflict matters will continue to be reviewed by the Board at least on an annual basis. | | | **Principal activity** | The Company is a public limited company, incorporated in England, registration number 2793780. The principal activity of the Company is that of a holding company. The principal activity of the Group is the manufacture and sale of high performance polymers. | | | **Branches** | The Company does not have any branches outside the UK. Victrex Manufacturing Limited is a subsidiary of the Company and has a branch in Korea. | | | **Information set out in the Strategic report** | Certain information required to be included in the Directors' report has been set out in the Strategic report, including information to be disclosed pursuant to section 4140.11 (i) of the Companies Act 2006. The Strategic report required by the Companies Act 2006 can be found on pages 1 to 74. The report sets out the business model (pages 12 and 13), strategy (pages 14 and 15) and likely future developments (pages 2 to 74). It contains a review of the business and describes the development and performance of the Group's business during the financial year and the position at the end of the financial year. It also contains a description of the principal risks and uncertainties facing the Group (pages 34 to 40). Such information is incorporated into this report by reference and is deemed to form part of this Directors' report. | | CORPORATE GOVERNANCE Annual Report 2022 Victrex plc 109 CORPORATE GOVERNANCE # Directors' report – other statutory information continued | Employee and other stakeholder engagement | Details of the Company's arrangements for engaging with employees and actions taken during the year can be found on pages 66 to 71 of the Strategic report and page 91 of the Corporate governance report. Details of the arrangements in place under which employees can near any matter of concern are set out on page 72. Disclosures relating to the Group's human rights and and tobery policies are contained on pages 72 and 73. The Group's non-financial information statement is set out on page 74. Details of employee involvement in Company performance through share scheme participation can be found on page 75. Details of how the Directors have engaged with employees and how the Directors have had regard to employee interests and the effect of that regard on the principal decisions taken by the Company during the financial year can be found in the section 172 statement on pages 20 to 22. These are deemed to form part of this Directors' report. A summary of how the Company has engaged with suppliers, customers and other third parties can be found on pages 20 to 21 and 91. Details of how the Directors have had regard to the need to foster the Company's business relationships with suppliers, customers and others, and the effect of that regard on the principal decisions taken by the Company during the financial year, are contained in the section 172(1) statement on pages 20 to 22. Further information on our payment practices with suppliers can be found on the government's reporting portal. In addition, during the year, we have continued to be a signatory to the Prompt Payment Code for suppliers. Further details can be found on page 91. These are deemed to form part of this Directors' report. | | --- | --- | | Political donations | No contributions were made to political parties during the year ended 30 September 2022 (FY 2021: £nil). | | Employment policies | The Group's policies as regards the employment of disabled persons including those who have become disabled during their employment with the Group, and a description of actions the Group has taken to encourage greater employee involvement in the business, are set out on page 68. Such information is incorporated into this Directors' report by reference and is deemed to form part of this Directors' report. Read more about the Group's diversity on pages 66 to 69. | | Environmental matters | Information on our greenhouse gas emissions energy consumption and energy efficiency actions required to be disclosed by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2015, Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008/400 and our TCFD reporting is set out in the Sustainability report on pages 52 to 65. Such information is incorporated into this report by reference and is deemed to form part of this Directors' report. | | Research & Development | Our innovative culture is reflected in high Research & Development investment (of approximately 5–6% of revenues) with the majority of this being on development, as we seek to move our programmes faster towards greater commercialisation. The Group's spend on Research & Development is disclosed in note 10 to the financial statements. Such information is incorporated into this report by reference and is deemed to form part of this Directors' report. | | Share capital | The Company has a single class of shares in the form of ordinary shares with a nominal value of 1p per share which have a Premium Linking on the London Stock Exchange and trade as part of the FTSE 250 Index under the symbol VCT. Details of the Company's share capital and reserves for own shares are given in note 22 to the financial statements. During the year 26,406 shares were issued in respect of options exercised under employee share schemes. Details of these schemes are summarised in note 21 to the financial statements. The information in notes 21 and 22 to the financial statements is incorporated into this Directors' report by reference and is deemed to form part of this Directors' report. | | Rights and obligations attaching to shares | The rights and obligations attaching to shares are set out in full in the Company's Articles of Association which are available on the Company's website (www.victirept.com). The holders of ordinary shares are entitled to receive dividends when declared, to receive the Company's Annual Report, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding of ordinary shares and no requirements to obtain prior approval to any transfer except where the Company has exercised its right to suspend their voting rights, withhold a dividend or prohibit their transfer following failure by the member or any other person appearing to be interested in the shares to provide the Company with information requested under section 793 of the Companies Act 2006. The Directors may, in certain limited circumstances, also refuse to register the transfer of a share in certified form. This includes where the instrument of transfer does not comply with the specific requirements of the Articles of Association, where the shares are not fully paid up or where the transfer is in favour of more than four joint transferees. The Directors may also refuse to register the transfer of an uncertificated share if it is in favour of more than four persons jointly or if any other circumstances apply in respect of which refusal to register a share transfer is permitted or required by the Uncertificated Securities Regulations 2001. No shares carry any special rights with regard to control of the Company and there are no restrictions on voting rights except that a shareholder has no right to vote in respect of a share unless all sums due in respect of that share are fully paid and except also where the Company suspends voting rights as referred to above in the event of non-disclosure of an interest as permitted by the Articles of Association. There are no known agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights and no known arrangements under which financial rights are held by a person other than the holder of the shares. Shares acquired by employees under employee share schemes rank equally with the other shares in issue and have no special rights. | | Own shares held | As at the date of this Annual Report, the Company does not hold any shares as treasury shares. Details of the Company's share capital are given in note 22 to the financial statements. A summary of the Directors' powers in relation to buying back shares is set out below in the paragraph entitled 'Powers of the Directors in relation to share capital'. As part of routine resolutions which are proposed to shareholders, the Directors will be seeking to renew the authority allowing the Company to purchase its own shares, which is set out in Resolution 21 of the Notice of AGM and which can be found on page 189. No market purchases of the Company's own shares were made during the year ended 30 September 2022 or from 1 October 2022 up to the date on which this Annual Report was approved. A total of 87,903 ordinary shares are held by the Employee Benefit Trusts in order to satisfy the exercise of options by Directors under the Company's 2009 and 2019 Long Term Incentive Plans (LTPs) and the 2017 Deferred Bonus Plan. No shares were purchased by the Employee Benefit Trusts in the financial year to 30 September 2022. The Directors and certain participating employees are beneficiaries of the Employee Benefit Trusts. | 118 Victrex plc Annual Report 2022 | **Related party transactions** | During the year ended 30 September 2022, the Company did not have any material transactions or transactions of an unusual nature with, and did not make loans to, related parties in which any Director has or had a material interest. Details of related party transactions are given in note 23 to the financial statements. | | --- | --- | | **Nominees, financial assistance and liens** | During the year ended 30 September 2022, no shares in the Company were acquired by the Company's nominee or by a person with financial assistance from the Company, in either case where the Company has a beneficial interest in the shares (and no person acquired shares in the Company in any previous financial year in its capacity as the Company's nominee or with financial assistance from the Company). Furthermore, the Company did not obtain or hold a lien or other charge over its own shares. | | **Change of control** | There are no significant agreements that take effect, alter or terminate on change of control of the Company following a takeover. None of the Directors' or employees' service contracts contain provisions providing for compensation for loss of office or employment that occurs because of a takeover bid. The rules of the Company's employee share plans set out the consequences of a change in control of the Company or participants' rights under the plans. Generally, such rights will vest and become exercisable on a change of control subject to a separate determination as to the satisfaction of performance conditions. | | **Amendment of Articles of Association** | The Company's Articles of Association may only be amended by Special Resolution of the Company at a general meeting of its shareholders. | | **Powers of the Directors in relation to share capital** | The powers of the Directors are determined by the Company's Articles of Association, UK legislation including the Companies Act 2006 and any directions given by the Company in general meeting. The Directors were granted authority at the 2022 Annual General Meeting to allot shares in the Company or to grant rights to subscribe for, or to convert any securities into, shares in the Company (i) up to a maximum aggregate nominal amount representing approximately one third of the issued share capital (as at the last practicable date before the publication of the 2022 Notice of AGM) in any circumstances, and (ii) up to a further maximum aggregate nominal amount representing approximately one third of the issued share capital in connection with a rights issue only. This authority is due to expire at the 2023 Annual General Meeting when shareholders will be invited to grant a similar allotment authority. The Directors were also empowered at the 2022 Annual General Meeting to make non-pre-emptive issues for cash (i) up to a maximum aggregate nominal amount representing approximately 5% of the issued share capital (as at the last practicable date before the publication of the 2022 Notice of AGM), and (ii) up to a maximum aggregate nominal amount representing approximately 5% of the issued share capital for use only in connection with acquisitions and specified capital investments. These powers are due to expire at the 2023 Annual General Meeting and shareholders will be asked to grant similar powers. The Directors also sought authority at the 2022 Annual General Meeting to repurchase shares in the capital of the Company up to a maximum aggregate number of ordinary shares representing approximately 10% of the issued share capital (as at the last practicable date before the publication of the 2022 Notice of AGM). This authority is also due to expire at the 2023 AGM and shareholders will be asked to grant a similar share repurchase authority. | | **Notice required for shareholder meetings** | On the basis of a resolution passed at the 2022 Annual General Meeting, the Company is currently able to call general meetings (other than an Annual General Meeting) on at least 14 days' notice. The Company would like to preserve this ability and Resolution 22 seeks approval to do so. The approval will be effective until the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will offer an electronic voting facility for a general meeting called on 14 days' notice. | | **Information required by LR 9.8.4R** | There is no information required to be disclosed under LR 9.8.4R save in respect of allotments of equity securities for cash and dividend waivers, which can be found on page 128 of this Annual Report. | | **Disclosure of information to auditors** | The Directors in office at the date of approval of this report each confirm that, so far as they are aware, there is no relevant audit information of which the Company's auditors are unaware and that they have taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information. | | **Auditors** | An Ordinary Resolution will be put before the 2023 Annual General Meeting to re-appoint PricewaterhouseCoopers LLP as external auditors for the 2023 financial year. | The Directors' report was approved by the Board on 5 December 2022 and is signed on its behalf by: Ian Melling Chief Financial Officer 6 December 2022 Annual Report 2022 Victrea plc 141 CORPORATE GOVERNANCE CORPORATE GOVERNANCE ## Statement of Directors’ responsibilities in respect ## of the Annual Report and the financial statements The Directors are responsible for preparing The Directors are also responsible for u the Group and Company financial the Annual Report and the financial keeping adequate accounting records that statements, which have been prepared statements in accordance with applicable are sufficient to show and explain the in accordance with international law and regulation. Group’s and Company’s transactions and accounting standards in conformity with disclose with reasonable accuracy at any the requirements of the UK-adopted Company law requires the Directors to time the financial position of the Group and international accounting standards and prepare financial statements for each Company and enable them to ensure that IFRSs issued by IASB, give a true and fair financial year. Under that law the Directors the financial statements and the Directors’ view of the assets, liabilities, financial have prepared the Group and Company remuneration report comply with the position and profit of the Company; and financial statements in conformity with the Companies Act 2006. requirements of the UK-adopted international u the Strategic report includes a fair review accounting standards. In preparing the The Directors are responsible for the of the development and performance Group and Company financial statements, maintenance and integrity of the Group’s of the business and the position of the the Directors have also elected to comply with and Company’s website. Legislation Group and Company, together with a International Financial Reporting Standards in theUnited Kingdom governing the description of the principal risks and issued by the International Accounting preparation and dissemination of financial uncertainties that they face. Standards Board (IFRSs as issued by IASB). statements may differ from legislation in In the case of each Director in office at other jurisdictions. Under company law the Directors must not thedate the Directors’ report is approved: approve the financial statements unless ### Directors’ confirmations u so far as the Director is aware, there is they are satisfied that they give a true and The Directors consider that the Annual no relevant audit information of which fair view of the state of affairs of the Group Report and Accounts, taken as a whole, the Group’s and Company’s auditors are and Company and of the profit or loss of is fair, balanced and understandable and unaware; and the Group and Company for that period. provides the information necessary for In preparing the financial statements, u they have taken all the steps that they shareholders to assess the Group and theDirectors are required to: ought to have taken as a Director in order Company’s position and performance, to make themselves aware of any relevant u select suitable accounting policies business model and strategy. audit information and to establish that andthen apply them consistently; Each of the Directors, whose names and the Group’s and Company’s auditors are u state whether applicable international functions are set out below: aware of that information. accounting standards in conformity with Vivienne Cox, Chair; This Responsibility statement was approved u the requirements of the UK-adopted by the Board on 5 December 2022 and is international accounting standards Jakob Sigurdsson, u signed on its behalf by: and IFRSs issued by IASB have been ChiefExecutive Officer; followed, subject to any material u Ian Melling, Chief Financial Officer; departures disclosed and explained Ian Melling inthefinancialstatements; Martin Court, Chief Commercial Officer; u Chief Financial Officer u make judgements and accounting estimates Janet Ashdown, Non-executive Director; 6 December 2022 u that are reasonable and prudent; and u Brendan Connolly, u prepare the financial statements on Non-executive Director; the going concern basis unless it is u Ros Rivaz, Non-executive Director; inappropriate to presume that the Group and Company will continue in business. David Thomas, Non-executive u Director; and The Directors are responsible for safeguarding the assets of the Group and Jane Toogood, Non-executive Director, u Company and hence for taking reasonable confirm that, to the best of his or steps for the prevention and detection of herknowledge: fraud and other irregularities. 132 Victrex plc Annual Report 2022 Independent auditors' report to the members of Victrex plc # Report on the audit of the financial statements Opinion In our opinion, Victrex plc's group financial statements and company financial statements (the "financial statements"): → give a true and fair view of the state of the group's and of the company's affairs as at 30 September 2022 and of the group's profit and the group's and company's cash flows for the year then ended; → have been properly prepared in accordance with UK-adopted international accounting standards; and → have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: the Group and Company Balance sheets as at 30 September 2022, the Consolidated income statement and the Consolidated statement of comprehensive income, the Group and Company Cash flow statements, and the Consolidated statement of changes in equity and the Company statement of changes in equity for the year then ended, and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. # Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. # Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. We have provided no non-audit services to the company or its controlled undertakings in the period under audit. # Our audit approach # Overview Audit scope → Our audit focused on those entities with the most significant contribution to the group's profit before tax and exceptional items. Of the group's 23 reporting units, we identified four, which in our view, required an audit of their complete financial information for group reporting purposes. These were Victrex Manufacturing Limited, Invibio Limited, Victrex Europa GmbH and Victrex plc. We also audited material consolidation journals. → Another three reporting units were subject to audit procedures over specific balances and transactions, due to their contribution towards specific financial statement line items. Revenue was in scope for Invibio Inc. and Victrex USA Inc., trade receivables for Victrex USA Inc., and cash and cash equivalents, property, plant and equipment, accruals and bank loans were in scope for Panjin VYX High Performance Materials Co. → All audits were performed by the group engagement team with the exception of Victrex Europa GmbH, which was audited by a PwC component audit team. → The components within the scope of our work, and work performed centrally by the group team, accounted for 81% of group revenue and 83% of group profit before tax and exceptional items. # Key audit matters → Valuation of the UK defined benefit pension scheme (group) → Valuation of inventories (group) → Risk of impairment of investments in subsidiaries and amounts owed by group undertakings (company) # Materiality → Overall group materiality: £4.8m (2021: £4.6m) based on 5% of profit before tax and exceptional items. → Overall company materiality: £1.5m (2021: £1.4m) based on 0.5% of total assets capped due to group materiality allocation. → Performance materiality: £3.6m (2021: £3.5m) (group) and £1.1m (2021: £1.1m) (company). # The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. # Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Risk of impairment of investments in subsidiaries and amounts owed by group undertakings (company) is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year. CORPORATE GOVERNANCE Annual Report 2022 Victrex plc ![img-14.jpeg](img-14.jpeg) CORPORATE GOVERNANCE Independent auditors' report to the members of Victrex plc continued # Report on the audit of the financial statements continued Our audit approach continued Key audit matters continued | Key audit matter | How our audit addressed the key audit matter | | --- | --- | | **Valuation of the UK defined benefit pension scheme (group)** Refer to page 101 of the Audit Committee report and pages 171 to 176 of the Notes to the financial statements of the Annual Report 2022. The measurement of the net defined benefit asset (£14.9m net surplus at 30 September 2022, Q521: £14.2m net surplus) requires the application of an actuarial valuation method, the attribution of benefits to periods of service, and the use of significant actuarial assumptions including in particular the discount rate, inflation rates and the average life expectancy of members. Small changes in the assumptions used could have a significant effect on the financial position of the group. The present value of the defined benefit obligation is deducted from the fair value of any plan assets in determining the net surplus. | To assess the appropriateness of the valuation of the UK defined benefit pension scheme, we performed the following: → We challenged, with the support of our own actuarial experts, the key assumptions applied against externally derived data and internally developed benchmarks; → We assessed the appropriateness of the recognition of the UK surplus in line with accounting standards; → We assessed the membership data used in valuing the defined benefit pension obligation. We confirmed that there were no significant changes since the last Scheme funding valuation (performed to 31 March 2022) by way of reviewing administrator controls related to member data and performed roll forward procedures where applicable; and → We considered the adequacy of the group's disclosures in respect of the sensitivity of the surplus to changes in the assumptions. Based on the results of our testing, we found the assumptions made in the valuation of the UK defined benefit pension scheme to be within an acceptable range. We also consider the disclosures made in the financial statements to be appropriate. | | **Valuation of inventories (group)** Refer to page 101 of the Audit Committee report and pages 164 to 165 of the Notes to the financial statements of the Annual Report 2022. A number of estimates are involved in arriving at the valuation of inventories. At 30 September 2022 inventories amounted to £88.8m (2021: £70.3m). A standard costing process is adopted to value work in progress and finished goods. This process includes an assessment of the extent to which actual production levels are within a normal range and the level of variations between actual and standard costs capitalised into inventory at each period end. In addition, inventory provisions are recorded based on specific policies, taking into account batch ageing, quality, and future sales expectations based on forecast sales rates. Judgements are made with regards to the categorisation of stock as non-conforming, slow moving or obsolete, and therefore whether items should be considered for provision. Estimation is then involved in arriving at the provision percentage to apply to these identified items such that inventory is carried at the lower of cost or net realisable value. | To assess the appropriateness of the valuation of inventories, we performed the following: → We reviewed the assessment of normal levels of production for standard costing purposes by comparing actual and budgeted levels of production over the past five years; → We understood and tested the application of group's policy for capitalisation of cost variances; → We tested the cost of inventories, through tracing a sample of standard costs to bills of material and raw material inputs to source documentation. We understood management's approach to overhead allocation and tested the reasonableness of costs absorbed versus expensed; → For a sample of inventory items we evaluated the appropriateness of management's categorisation of inventories as non-conforming, slow moving or obsolete to supporting evidence; → We performed look-back procedures on the provision at the prior year-end and compared the level of inventory write-offs and utilisation during the current period in order to assess the reasonableness of the estimated provision percentages applied by management; → We tested a sample of post year-end sales in order obtain evidence that inventory items are held at the lower of cost or net realisable value; and → We attended year-end and cycle inventory counts to gain an understanding of management's processes over the identification of non-conforming, slow moving or obsolete items. Based on our audit work, we found estimates made in the valuation of inventory to be acceptable. We also consider the disclosures made in the financial statements to be appropriate. | 118 Victrex plc Annual Report 2022 ## Report on the audit of the financial statements continued Our audit approach continued Key audit matters continued ### Key audit matter #### Risk of impairment of investments in subsidiaries and amounts owed by group undertakings (company) Refer to pages 159 to 163 and page 165 of the Notes to the financial statements of the Annual Report 2022. The company has investments in subsidiaries of £131.9m (2021: £131.9m) and amounts owed by group undertakings of £191.9m (2021: £152.7m). Given the magnitude of both of these balances we considered the risk of impairment of these assets. Management have considered both of these balances for impairment and concluded that no impairments are required. #### How our audit addressed the key audit matter In assessing the appropriateness of valuation of investment in subsidiaries and amounts owed by group undertakings we have performed the following procedures: - We obtained a schedule of investments in subsidiaries and ensured this is reconciled to the financial statements; - We performed a review of the performance and net assets of each material subsidiary against the carrying value of the investments; and - We compared the overall carrying value of the investments to the group's market capitalisation and also our review of the discounted cash flow models prepared for the purposes of testing overall group goodwill for impairment. Based on the above procedures we concluded that there were no triggers that would indicate the directors were required to perform a full impairment test of the carrying value of investments in subsidiaries. - We performed a reconciliation of the amounts owed by group undertakings and ensured this agrees with the counterparty; - We have obtained management's intercompany recoverability model and assessed whether the methods applied were consistent with PRS 9. We checked the calculations within the model and agreed the figures included to the relevant financial information included in the group consolidation schedules; - We evaluated management's assessment of the recoverability of amounts owed by group undertakings including assessing the ability of other group companies to settle the intercompany balances; and - We also assessed the adequacy of the disclosure provided in the company financial statements in relation to the relevant accounting standards. We found no exceptions as a result of our procedures and consider the recoverability of amounts owed by group undertakings to be appropriate. #### How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate. The group is organised into 23 reporting components and the group financial statements are a consolidation of these reporting components. The reporting units vary in size. We identified four units that required a full scope audit of their financial information due to either their size or risk characteristics. These were Victrex Manufacturing Limited, Invibio Limited, Victrex Europa GmbH, and Victrex plc. We also audited material consolidation journals. Three reporting components were subject to audit procedures over specific balances and transactions due to their contribution to the group's results: revenue for Invibio Inc. and Victrex USA Inc., trade receivables for Victrex USA Inc., and cash and cash equivalents, property, plant and equipment, accruals and bank loans for Panjin VYX High Performance Materials Co. Our audit scope was determined by considering the significance of each component's contribution to profit before tax and exceptional items, and individual financial statement line items, with specific consideration to obtaining sufficient coverage over significant risks. All audit work was performed by the group team, with the exception of one component audit which was performed by a PwC component audit team. The group audit team supervised the direction and execution of the audit procedures performed by the component team. Our involvement in their audit process included the review of their reporting and supporting working papers. The group audit team also attended planning and clearance meetings during the audit cycle. Together with the additional procedures performed at group level, this gave us the evidence required for our opinion on the financial statements as a whole. The group engagement team also performed the audit of the company. As part of our audit we made enquiries of management to understand the process they have adopted to assess the extent of the potential impact of climate risk on the group's financial statements, including their commitments made to achieving Net Zero-carbon emissions for Scope 1 & 2 by 2030. The key areas of the financial statements where management evaluated that climate risk has a potential impact are set out in note 1 – Basis of preparation – Climate change in the notes to the financial statements. The directors have reached the overall conclusion that there has been no material impact on the financial statements for the current year from the potential impact of climate change. We used our knowledge of the group, with assistance from our internal climate experts, to challenge management's assessment. We particularly considered how climate risk would impact the assumptions made in the forecasts prepared by management used in their impairment analyses and going concern. We also considered the consistency of the disclosures in relation to climate change (including the disclosures in the Task Force on Climate-related Financial Disclosures (TCFD) section) within the Annual Report with the financial statements and our knowledge obtained from our audit. Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole, or on our key audit matters for the year ended 30 September 2022. Annual Report 2022 Victrex plc 195 CORPORATE GOVERNANCE CORPORATE GOVERNANCE # Independent auditors' report to the members of Victrex plc continued # Report on the audit of the financial statements continued # Our audit approach continued # Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows | | Financial statements – group | Financial statements – company | | --- | --- | --- | | **Overall materiality** | £4.8m (2021: £4.8m) | £1.5m (2021: £1.4m) | | **Have we determined it** | 5% of profit before tax and exceptional items | 0.5% of total assets capped due to group materiality allocation. | | **Rationale for benchmark applied** | Based on the benchmarks used in the Annual Report 2022, profit before tax and exceptional items is in our view the primary measure used by the shareholders in assessing the performance of the group, and is a generally accepted auditing benchmark. | We believe that total assets is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark for non-trading companies. | For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £0.9m and £4.1m. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £3.8m (2021: £3.5m) for the group financial statements and £1.1m (2021: £1.1m) for the company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2m (group audit) (2021: £0.2m) and £0.1m (company audit) (2021: £0.1m) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. # Conclusions relating to going concern Our evaluation of the directors' assessment of the group's and the company's ability to continue to adopt the going concern basis of accounting included: - → We obtained from management their latest assessments that support the board's conclusions with respect to the going concern basis of preparation for the financial statements; - → We evaluated management's forecast and downside scenarios and challenged the adequacy and appropriateness of the underlying assumptions; - → We reviewed management accounts for the financial period to date and checked that these were consistent with the starting point of management's scenarios and supported the key assumptions included in the assessments; - → We evaluated the historical accuracy of the budgeting process to assess the reliability of the data; - → We challenged management with regards to the impact of climate change and how this has been taken into account in the forecasts; - → We tested the mathematical integrity of management's going concern forecast models, and - → We reviewed the disclosures made in respect of going concern included in the financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's ability to continue as a going concern. In relation to the directors' reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. # Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. 16 Victrex plc Annual Report 2022 ### Report on the audit of the financial statements In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the ### continued corporate governance statement is materially consistent with the Reporting on other information continued financial statements and our knowledge obtained during the audit: With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies u The directors’ statement that they consider the Annual Report, Act 2006 have been included. taken as a whole, is fair, balanced and understandable, and CORPORATE GOVERNANCE provides the information necessary for the members to assess Based on our work undertaken in the course of the audit, the the group’s and company’s position, performance, business Companies Act 2006 requires us also to report certain opinions and model and strategy; matters as described below. u The section of the Annual Report that describes the review Strategic report and Directors’ report of effectiveness of risk management and internal control In our opinion, based on the work undertaken in the course of the systems; and audit, the information given in the Strategic report and Directors’ report for the year ended 30 September 2022 is consistent with u The section of the Annual Report describing the work of the the financial statements and has been prepared in accordance with Audit Committee. applicable legal requirements. We have nothing to report in respect of our responsibility to report In light of the knowledge and understanding of the group and when the directors’ statement relating to the company’s compliance company and their environment obtained in the course of the audit, with the Code does not properly disclose a departure from a we did not identify any material misstatements in the Strategic relevant provision of the Code specified under the Listing Rules for report and Directors’ report. review by the auditors. Directors’ Remuneration Responsibilities for the financial statements and the audit In our opinion, the part of the Directors’ remuneration report to Responsibilities of the directors for the financial statements be audited has been properly prepared in accordance with the As explained more fully in the Statement of Directors’ Companies Act 2006. responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in Corporate governance statement accordance with the applicable framework and for being satisfied The Listing Rules require us to review the directors’ statements in that they give a true and fair view. The directors are also responsible relation to going concern, longer-term viability and that part of for such internal control as they determine is necessary to enable the corporate governance statement relating to the company’s the preparation of financial statements that are free from material compliance with the provisions of the UK Corporate Governance misstatement, whether due to fraud or error. Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information In preparing the financial statements, the directors are responsible are described in the Reporting on other information section of for assessing the group’s and the company’s ability to continue as this report. a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Based on the work undertaken as part of our audit, we have directors either intend to liquidate the group or the company or to concluded that each of the following elements of the corporate cease operations, or have no realistic alternative but to do so. governance statement, included within the Statement of corporate governance is materially consistent with the financial statements Auditors’ responsibilities for the audit of the financial statements and our knowledge obtained during the audit, and we have nothing Our objectives are to obtain reasonable assurance about whether material to add or draw attention to in relation to: the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report u The directors’ confirmation that they have carried out a robust that includes our opinion. Reasonable assurance is a high level assessment of the emerging and principal risks; of assurance, but is not a guarantee that an audit conducted u The disclosures in the Annual Report that describe those principal in accordance with ISAs (UK) will always detect a material risks, what procedures are in place to identify emerging risks and misstatement when it exists. Misstatements can arise from fraud or an explanation of how these are being managed or mitigated; error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic u The directors’ statement in the financial statements about decisions of users taken on the basis of these financial statements. whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their Irregularities, including fraud, are instances of non-compliance identification of any material uncertainties to the group’s and with laws and regulations. We design procedures in line with our company’s ability to continue to do so over a period of at least responsibilities, outlined above, to detect material misstatements twelve months from the date of approval of the financial statements; in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is u The directors’ explanation as to their assessment of the group’s detailed below. and company’s prospects, the period this assessment covers and why the period is appropriate; and Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws u The directors’ statement as to whether they have a reasonable and regulations related to medical devices regulations and REACH expectation that the company will be able to continue in regulations (Registration, Evaluation, Authorisation and Restriction operation and meet its liabilities as they fall due over the period of Chemicals), and we considered the extent to which non- of its assessment, including any related disclosures drawing compliance might have a material effect on the financial statements. attention to any necessary qualifications or assumptions. We also considered those laws and regulations that have a direct Our review of the directors’ statement regarding the longer-term impact on the financial statements such as the Companies Act viability of the group was substantially less in scope than an audit 2006 and tax legislation. We evaluated management’s incentives and only consisted of making inquiries and considering the directors’ and opportunities for fraudulent manipulation of the financial process supporting their statement; checking that the statement statements (including the risk of override of controls), and is in alignment with the relevant provisions of the UK Corporate determined that the principal risks were related to posting journal Governance Code; and considering whether the statement is entries to manipulate revenue and financial performance, and consistent with the financial statements and our knowledge and management bias within accounting estimates and judgements. understanding of the group and company and their environment obtained in the course of the audit. Annual Report 2022 Victrex plc 137 CORPORATE GOVERNANCE ## Independent auditors’ report to the members of Victrex plc continued | Report on the audit of the financial statements | Other required reporting | | --- | --- | | continued | Companies Act 2006 exception reporting | | Responsibilities for the financial statements and the audit | Under the Companies Act 2006 we are required to report to you if, | | continued | in our opinion: | Auditors’ responsibilities for the audit of the financial u we have not obtained all the information and explanations we statements continued require for our audit; or The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit u adequate accounting records have not been kept by the procedures in response to such risks in their work. Audit procedures company, or returns adequate for our audit have not been performed by the group engagement team and/or component received from branches not visited by us; or auditors included: u certain disclosures of directors’ remuneration specified by law challenging assumptions and judgements made by management are not made; or u in their significant accounting estimates, in particular around u the company financial statements and the part of the Directors’ the valuation of inventories and the valuation of the UK defined remuneration report to be audited are not in agreement with the benefit pension scheme; accounting records and returns. u identifying and testing journal entries, in particular any journal We have no exceptions to report arising from this responsibility. entries posted with unusual account combinations; Appointment u discussions with the Audit Committee, management, internal Following the recommendation of the Audit Committee, we were audit and the in-house legal team including consideration of appointed by the members on 9 February 2018 to audit the financial known or suspected instances of non-compliance with laws and statements for the year ended 30 September 2018 and subsequent regulation or fraud; and financial periods. The period of total uninterrupted engagement reviewing minutes of meetings of those charged with is five years, covering the years ended 30 September 2018 to u governance throughout the year and post year end to identify 30September 2022. any one off or unusual transactions. ### Other matter There are inherent limitations in the audit procedures described As required by the Financial Conduct Authority Disclosure Guidance above. We are less likely to become aware of instances of non- and Transparency Rule 4.1.14R, these financial statements form compliance with laws and regulations that are not closely related to part of the ESEF-prepared annual financial report filed on the events and transactions reflected in the financial statements. Also, National Storage Mechanism of the Financial Conduct Authority the risk of not detecting a material misstatement due to fraud is in accordance with the ESEF Regulatory Technical Standard (‘ESEF higher than the risk of not detecting one resulting from error, as RTS’). This auditors’ report provides no assurance over whether the fraud may involve deliberate concealment by, for example, forgery annual financial report has been prepared using the single electronic or intentional misrepresentations, or through collusion. format specified in the ESEF RTS. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number Ian Morrison (Senior Statutory Auditor) of items for testing, rather than testing complete populations. We for and on behalf of PricewaterhouseCoopers LLP will often seek to target particular items for testing based on their Chartered Accountants and Statutory Auditors size or risk characteristics. In other cases, we will use audit sampling Manchester to enable us to draw a conclusion about the population from which 6 December 2022 the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 138 Victrex plc Annual Report 2022 ALL TEXT TO BE SUPPLIED FINANCIAL STATEMENTS ## AUDITED ## CONSOLIDATED ## FINANCIAL ## STATEMENTS 140 Consolidated income statement 141 Consolidated statement ofcomprehensiveincome 142 Balance sheets 143 Cash flow statements 144 Consolidated statement ofchangesinequity 145 Company statement ofchangesinequity 146 Notes to the financial statements ## SHAREHOLDER ## INFORMATION 185 Five-year financial summary 186 Cautionary note regarding forward-looking statements 187 Notice of Annual GeneralMeeting 192 Explanatory notes 197 Appendix to Notice of AnnualGeneralMeeting 199 Financial calendar 200 Advisors Annual Report 2022 Victrex plc 139 # FINANCIAL STATEMENTS # Consolidated income statement for the year ended 30 September | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Revenue** | 2 | **341.0** | 306.3 | | (Losses)/gains on foreign currency net hedging | | (2.8) | 4.9 | | Cost of sales | 3 | **(163.7)** | (145.9) | | **Gross profit** | | **174.5** | 165.3 | | Sales, marketing and administrative expenses | 3 | **(86.0)** | (71.9) | | Operating profit before exceptional items | | **96.4** | 92.6 | | Exceptional items | 3 | **(7.9)** | 0.8 | | **Operating profit** | | **88.5** | 93.4 | | Finance income | 6 | **0.5** | 0.2 | | Finance costs | 6 | **(0.3)** | (0.2) | | Share of loss of associate | 11 | **(1.0)** | (0.9) | | Profit before tax and exceptional items | | **95.6** | 91.7 | | Exceptional items | 3 | **(7.9)** | 0.8 | | **Profit before tax** | | **87.7** | 92.5 | | Income tax expense | 7 | **(12.2)** | (19.7) | | **Profit for the financial year** | | **75.5** | 72.8 | | Profit/(loss) for the year attributable to | | | | | – Owners of the Company | | **76.2** | 73.2 | | – Non-controlling interests | 11 | **(0.7)** | (0.4) | | **Earnings per share** | | | | | Basic | 8 | **87.6p** | 84.3p | | Diluted | 8 | **87.3p** | 84.0p | | **Dividend per ordinary share** | | | | | Interim | 22 | **13.42p** | 13.42p | | Final | 22 | **46.14p** | 46.14p | | Special | 22 | — | 50.00p | | | 22 | **59.56p** | 109.56p | A final dividend in respect of FY 2022 of 46.14p per ordinary share has been recommended by the Directors for approval at the Annual General Meeting on 10 February 2023. 140 Victrex plc Annual Report 2022 ## Consolidated statement of comprehensive income for the year ended 30 September | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Profit for the financial year | | **75.5** | 72.8 | | **Items that will not be reclassified to profit or loss** | | | | | Defined benefit pension schemes' actuarial gains | 17 | **0.2** | 4.5 | | Income tax on items that will not be reclassified to profit or loss | 7 | **(0.1)** | (1.1) | | | | **0.1** | 3.4 | | **Items that may be reclassified subsequently to profit or loss** | | | | | Currency translation differences for foreign operations | | **11.1** | (2.0) | | Effective portion of changes in fair value of cash flow hedges | | **(19.7)** | 5.7 | | Net change in fair value of cash flow hedges transferred to profit or loss | | **2.8** | (4.9) | | Income tax on items that may be reclassified to profit or loss | 7 | **3.2** | (0.2) | | | | **(2.6)** | (1.4) | | **Total other comprehensive (expense)/income for the year** | | **(2.5)** | 2.0 | | **Total comprehensive income for the year** | | **73.0** | 74.8 | | **Total comprehensive income/(expense) for the year attributable to:** | | | | | – Owners of the Company | | **73.7** | 75.2 | | – Non-controlling interests | | **(0.7)** | (0.4) | FINANCIAL STATEMENTS Annual Report 2022 Victrex plc 141 # FINANCIAL STATEMENTS # Balance sheets as at 30 September | | Note | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Assets** | | | | | | | **Non-current assets** | | | | | | | Property, plant and equipment | 9 | 347.2 | 305.7 | — | — | | Intangible assets | 10 | 20.2 | 24.8 | — | — | | Investment in subsidiaries | 11 | — | — | 131.9 | 131.9 | | Investment in associated undertakings | 11 | 10.4 | 11.4 | — | — | | Financial assets held at fair value through profit and loss | 11 | 10.1 | 12.7 | — | — | | Deferred tax assets | 12 | 7.2 | 8.9 | — | — | | Retirement benefit asset | 17 | 14.9 | 14.2 | — | — | | | | **410.0** | **377.7** | **131.9** | **131.9** | | **Current assets** | | | | | | | Inventories | 13 | 86.8 | 70.3 | — | — | | Current income tax assets | | 7.9 | 2.9 | — | — | | Trade and other receivables | 14 | 68.1 | 49.1 | 191.9 | 152.7 | | Derivative financial instruments | 16 | — | 2.9 | — | — | | Other financial assets | 16 | 10.1 | 37.5 | — | — | | Cash and cash equivalents | 16 | 58.7 | 74.9 | 0.3 | — | | | | **231.6** | **237.6** | **192.2** | **152.7** | | **Total assets** | | **641.6** | **615.3** | **324.1** | **284.6** | | **Liabilities** | | | | | | | **Non-current liabilities** | | | | | | | Deferred tax liabilities | 12 | (34.3) | (31.6) | — | — | | Long-term lease liabilities | 19 | (7.8) | (8.2) | — | — | | Borrowings | 15 | (21.6) | (5.9) | — | — | | Retirement benefit obligation | 17 | (2.7) | (1.9) | — | — | | | | **(66.4)** | **(47.6)** | **—** | **—** | | **Current liabilities** | | | | | | | Derivative financial instruments | 16 | (19.9) | (1.9) | — | — | | Borrowings | 15 | (0.9) | — | — | — | | Current income tax liabilities | | (2.3) | (2.9) | — | — | | Trade and other payables | 18 | (59.7) | (49.4) | (0.1) | — | | Current lease liabilities | 19 | (1.8) | (1.8) | — | — | | | | **(84.6)** | **(56.0)** | **(0.1)** | **—** | | **Total liabilities** | | **(151.0)** | **(103.6)** | **(0.1)** | **—** | | **Net assets** | | **490.6** | **511.7** | **324.0** | **284.6** | | **Equity** | | | | | | | Share capital | 22 | 0.9 | 0.9 | 0.9 | 0.9 | | Share premium | 22 | 61.5 | 61.1 | 61.5 | 61.1 | | Translation reserve | 22 | 12.8 | 1.7 | — | — | | Hedging reserve | 22 | (13.6) | 0.1 | — | — | | Retained earnings^{1} | 22 | 427.2 | 445.4 | 261.6 | 222.6 | | Equity attributable to owners of the Company | | 488.8 | 509.2 | 324.0 | 284.6 | | Non-controlling interest | | 1.8 | 2.5 | — | — | | **Total equity** | | **490.6** | **511.7** | **324.0** | **284.6** | 1 The profit for the financial year dealt with in the financial statements of the Company is £132.4m, which includes dividends from subsidiaries of £132.8m (FY 2021: profit of £5.2m, which includes dividends from subsidiaries of £5.7m). These financial statements of Victrex plc on pages 140 to 184, registered number 2798780, were approved by the Board of Directors on 6 December 2022 and were signed on its behalf by: **Chief Executive Officer** **Ian Melling** **Chief Financial Officer** **Victrex plc** Annual Report 2022 ## Cash flow statements for the year ended 30 September | | Note | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Profit for the financial year | | **75.5** | 72.8 | **132.4** | 5.2 | | Income tax expense | 7 | **12.2** | 19.7 | — | — | | Finance income | | **(0.5)** | (0.2) | — | — | | Finance costs | | **0.3** | 0.2 | — | — | | Share of loss of associate | | **1.0** | 0.9 | — | — | | Dividends received from subsidiaries | | — | — | **(132.8)** | (5.7) | | Operating profit/(loss) | | **88.5** | 93.4 | **(0.4)** | (0.5) | | Adjustments for: | | | | | | | Depreciation | 9 | **19.0** | 18.5 | — | — | | Amortisation | 10 | **2.6** | 3.4 | — | — | | Loss on disposal of non-current assets | 9, 10 | **2.4** | 0.8 | — | — | | Equity-settled share-based payment transactions | 21 | **1.8** | 1.4 | **1.8** | 1.4 | | Losses/(gains) on derivatives recognised in income statement that have not yet settled | 16 | **4.0** | (0.5) | — | — | | Gain on financial assets held at fair value | 11 | **(0.3)** | (0.9) | — | — | | (Increase)/decrease in inventories | | **(13.4)** | 26.0 | — | — | | (Increase)/decrease in receivables | | **(16.9)** | (18.3) | **(39.2)** | 38.9 | | Increase in payables | | **2.8** | 11.9 | **0.1** | — | | Retirement benefit obligations charge less contributions | | **0.2** | (0.2) | — | — | | **Cash generated from/(used in) operations** | | **90.7** | 135.5 | **(37.7)** | 39.8 | | Interest received | | **0.3** | 0.2 | — | — | | Interest paid | | **(0.4)** | — | — | — | | Net income tax paid | | **(10.6)** | (8.6) | — | — | | **Net cash flow generated from/(used in) operating activities** | | **80.0** | 127.1 | **(37.7)** | 39.8 | | **Cash flows (used in)/generated from investing activities** | | | | | | | Acquisition of property, plant and equipment and intangible assets | 9, 10 | **(45.5)** | (41.9) | — | — | | Proceeds from disposal of financial asset held at fair value through profit and loss | | **4.2** | — | — | — | | Withdrawal/(deposit) of cash invested for greater than three months | 16 | **27.4** | (37.5) | — | — | | Dividends received | | — | — | **132.8** | 5.7 | | Loan to associated undertakings | | **(2.3)** | (3.8) | — | — | | **Net cash flow (used in)/generated from investing activities** | | **(16.2)** | (83.2) | **132.8** | 5.7 | | **Cash flows used in financing activities** | | | | | | | Proceeds from issue of ordinary shares exercised under option | 22 | **0.4** | 6.1 | **0.4** | 6.1 | | Repayment of lease liabilities | 19 | **(2.1)** | (1.8) | — | — | | Loan received from non-controlling interest | 11 | — | 5.6 | — | — | | Bank borrowings received | 15, 16 | **14.5** | — | — | — | | Dividends paid | 22 | **(95.2)** | (51.6) | **(95.2)** | (51.6) | | **Net cash flow used in financing activities** | | **(82.4)** | (41.7) | **(94.8)** | (45.5) | | **Net (decrease)/increase in cash and cash equivalents** | | **(18.6)** | 2.2 | **0.3** | — | | Effect of exchange rate fluctuations on cash held | | **2.4** | (0.4) | — | — | | Cash and cash equivalents at beginning of year | | **74.9** | 73.1 | — | — | | **Cash and cash equivalents at end of year** | | **58.7** | 74.9 | **0.3** | — | FINANCIAL STATEMENTS Annual Report 2022 Victrex plc 143 # FINANCIAL STATEMENTS # Consolidated statement of changes in equity | | Note | Share capital £m | Share premium £m | Translation reserve £m | Hedging reserve £m | Returned earnings £m | Total attributable to owners of the Parent £m | Non-controlling interest £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Equity at 1 October 2020** | | 0.9 | 55.0 | 3.7 | (0.5) | 419.0 | 478.1 | 2.9 | 481.0 | | **Total comprehensive income/(expense) for the year** | | — | — | — | — | 73.2 | 73.2 | — | 73.2 | | Profit for the year attributable to the Parent | | — | — | — | — | — | — | (0.4) | (0.4) | | Loss for the year attributable to non-controlling interest | | — | — | — | — | — | — | (0.4) | (0.4) | | **Other comprehensive (expense)/income** | | — | — | (2.0) | — | — | (2.0) | — | (2.0) | | Currency translation differences for foreign operations | | — | — | — | 5.7 | — | 5.7 | — | 5.7 | | Effective portion of changes in fair value of cash flow hedges | | — | — | — | — | — | — | — | — | | Net change in fair value of cash flow hedges transferred to profit or loss | | — | — | — | (4.9) | — | (4.9) | — | (4.9) | | Defined benefit pension schemes' actuarial gains | 17 | — | — | — | — | 4.5 | 4.5 | — | 4.5 | | Tax on other comprehensive income | 7 | — | — | — | (0.2) | (1.1) | (1.3) | — | (1.3) | | **Total other comprehensive income for the year** | | — | — | (2.0) | 0.6 | 3.4 | 2.0 | — | 2.0 | | **Total comprehensive income for the year** | | — | — | (2.0) | 0.6 | 76.6 | 75.2 | (0.4) | 74.8 | | **Contributions by and distributions to owners of the Company** | | — | — | — | — | — | — | — | — | | Share options exercised | 22 | — | 6.1 | — | — | — | 6.1 | — | 6.1 | | Equity-settled share-based payment transactions | 21 | — | — | — | — | 1.4 | 1.4 | — | 1.4 | | Dividends to shareholders | 22 | — | — | — | — | (51.6) | (51.6) | — | (51.6) | | **Equity at 30 September 2021** | | 0.9 | 61.1 | 1.7 | 0.1 | 445.4 | 509.2 | 2.5 | 511.7 | | **Total comprehensive income/(expense) for the year** | | — | — | — | — | 76.2 | 76.2 | — | 76.2 | | Profit for the year attributable to the Parent | | — | — | — | — | — | — | (0.7) | (0.7) | | Loss for the year attributable to non-controlling interest | | — | — | — | — | — | — | (0.7) | (0.7) | | **Other comprehensive income/(expense)** | | — | — | 11.1 | — | — | 11.1 | — | 11.1 | | Currency translation differences for foreign operations | | — | — | — | — | — | — | — | — | | Effective portion of changes in fair value of cash flow hedges | | — | — | — | (19.7) | — | (19.7) | — | (19.7) | | Net change in fair value of cash flow hedges transferred to profit or loss | | — | — | — | 2.8 | — | 2.8 | — | 2.8 | | Defined benefit pension schemes' actuarial gains | 17 | — | — | — | — | 0.2 | 0.2 | — | 0.2 | | Tax on other comprehensive expense/(income) | 7 | — | — | — | 3.2 | (0.1) | 3.1 | — | 3.1 | | **Total other comprehensive expense for the year** | | — | — | 11.1 | (13.7) | 0.1 | (2.5) | — | (2.5) | | **Total comprehensive income for the year** | | — | — | 11.1 | (13.7) | 76.3 | 73.7 | (0.7) | 73.0 | | **Contributions by and distributions to owners of the Company** | | — | — | — | — | — | — | — | — | | Share options exercised | 22 | — | 0.4 | — | — | — | 0.4 | — | 0.4 | | Equity-settled share-based payment transactions | 21 | — | — | — | — | 1.8 | 1.8 | — | 1.8 | | Tax on equity-settled share-based payment transactions | 7 | — | — | — | — | (1.1) | (1.1) | — | (1.1) | | Dividends to shareholders | 22 | — | — | — | — | (95.2) | (95.2) | — | (95.2) | | **Equity at 30 September 2022** | | 0.9 | 61.5 | 12.8 | (13.6) | 427.2 | 488.8 | 1.8 | 490.6 | Victrex plc Annual Report 2022 ## Company statement of changes in equity | | Base | Share capital £m | Share premium £m | Returned earnings £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Equity at 1 October 2020** | | 0.9 | 55.0 | 267.6 | 323.5 | | **Total comprehensive income for the year** | | | | | | | Profit for the year (including dividends from subsidiaries of £5.7m) | | — | — | 5.2 | 5.2 | | **Contributions by and distributions to owners of the Company** | | | | | | | Share options exercised | 22 | — | 6.1 | — | 6.1 | | Equity-settled share-based payment transactions | 21 | — | — | 1.4 | 1.4 | | Dividends to shareholders | 22 | — | — | (51.6) | (51.6) | | **Equity at 30 September 2021** | | 0.9 | 61.1 | 222.6 | 284.6 | | **Total comprehensive income for the year** | | | | | | | Profit for the year (including dividends from subsidiaries of £132.8m) | | — | — | 132.4 | 132.4 | | **Contributions by and distributions to owners of the Company** | | | | | | | Share options exercised | 22 | — | 0.4 | — | 0.4 | | Equity-settled share-based payment transactions | 21 | — | — | 1.8 | 1.8 | | Dividends to shareholders | 22 | — | — | (95.2) | (95.2) | | **Equity at 30 September 2022** | | 0.9 | 61.5 | 261.6 | 324.0 | FINANCIAL STATEMENTS Annual Report 2022 Victrex plc 145 FINANCIAL STATEMENTS # Notes to the financial statements # 1. Basis of preparation # General information Victrex plc (the 'Company') is a public company, which is limited by shares and is listed on the London Stock Exchange. This Company is incorporated and domiciled in England in the United Kingdom. The address of its registered office is Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire FY5 4QD, United Kingdom. The consolidated financial statements of the Company for the year ended 30 September 2022 comprise the Company and its subsidiaries (together referred to as the 'Group'). These consolidated financial statements have been approved for issue by the Board of Directors on 6 December 2022. # Basis of preparation and statement of compliance Both the consolidated and Company financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with UK-adopted International Accounting Standards. On 31 December 2020, IRIS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 October 2021. This change constitutes a change in accounting framework. However, there is no impact on the recognition, measurement or disclosure in the period as a result of the change in framework. The financial statements have been prepared under the historical cost basis except for derivative financial instruments, defined benefit pension scheme assets and financial assets held at fair value through profit and loss, which are measured at their fair value. The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Strategic report on pages 12 to 19. In addition, note 16 on financial risk management details the Group's exposure to a variety of financial risks, including currency and credit risk. On publishing the Company financial statements here together with the consolidated financial statements, the Company is taking advantage of section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form part of the approved financial statements. Unless a change has been required by adoption of new standards, the accounting policies set out in these notes have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been consistently applied by Group entities. # Climate change In preparing the financial statements of the Group an assessment of the impact of climate change has been made in line with the requirements of TCRT and with specific consideration of the disclosures made in the Sustainability report starting on page 44. This has specifically incorporated the impact of the physical risks of climate change, transitional risks including the potential impact of government and regulatory actions as well as the Group's stated Net Zero 2030 (Scope 1 & 2 emissions) target. The potential impact has been considered in the following areas: → the key areas of judgement and estimation – see below; → the expected useful lives of property, plant and equipment; → those areas which rely on future forecasts which have the potential to be impacted by climate change: → carrying value of non-current assets; → going concern; and → viability; → the recoverability of deferred taxation assets; and → the recoverability of inventory and trade receivables. The specific considerations have been included in the corresponding financial statement notes below. The Directors recognise the inherent uncertainty in predicting the impact of climate change and the actions which regulators and governments, both domestic and overseas, will take in order to achieve their various targets. However, from the work undertaken to date, outlined in the Sustainability report, the Directors have reached the overall conclusion that there has been no material impact on the financial statements for the current year from the potential impact of climate change. The specific considerations in respect to the viability of the Group are included in the viability statement on pages 42 and 43. The Group's analysis on the impact of climate change continues to evolve as more clarity on timings and targets emerges, with Victrex committed to reducing its carbon impact towards Net Zero (Scope 1 & 2 emissions) in 2030. Victrex plc Annual Report 2022 ## 1. Basis of preparation continued ### Going concern The Directors have performed a robust going concern assessment including a detailed review of the business' 24-month rolling forecast and consideration of the principal risks faced by the Group and the Company, as detailed on pages 34 to 40. This assessment has paid particular attention to the impact of the ongoing global economic challenges on the aforementioned forecasts. The Company maintains a strong balance sheet providing assurance to key stakeholders, including customers, suppliers and employees. The combined cash and other financial assets balance at 30 September 2022 was £68.8m, having reduced from £112.4m at 30 September 2021 following payment of the regular and special dividends of £83.5m in February 2022. Of the £68.8m, £2.8m is held in the Group's subsidiaries in China for the sole purpose of funding the construction of our new manufacturing facilities. Of the remaining £66.0m, approximately 80% is held in the UK where the Company incurs the majority of its expenditure and 85% is held in instant access accounts. The Group has drawn debt of £15.7m in its Chinese subsidiaries (with a total facility of c.£40m available until December 2026) and has unutilised UK banking facilities of £40m through to October 2024, of which £20m is committed and immediately available and £20m is available subject to lender approval. The 24-month rolling forecast is derived from the Company's Integrated Business Planning ('IBP') process which runs monthly. Each area of the business provides revised forecasts which consider a number of external data sources, triangulating with customer conversations, trends in market and country indices as well as forward-looking industry forecasts. For example, forecast aircraft build rates from the two major manufacturers for Aerospace, World Semiconductor Trade Statistics Semiconductor market forecasts for Electronics through to 2024 and Needham and iQVIA forecasts for Medical procedures. The assessment of going concern included conducting scenario analysis on the aforementioned forecast which, given current economic forecasts, focused on the Group's ability to sustain a period of falling demand, whether caused by a pandemic, geo-political event(s) or other global economic challenges. In assessing the severity of the scenario analysis, the scale of the impact experienced during previous economic downturns has been used, including the differing impacts on Industrial versus Medical segments. Using the IBP data and reference points from previous downturns management has created two scenarios to model the effect of reductions to revenue at regional/market level and aggregated levels on the Company's profits and cash generation through to January 2024. The impact of climate change and the Group's Net Zero 2030 goal for its own operations (Scope 1 & 2 emissions) has been considered as part of this assessment. Any impact on revenue over the shorter going concern period, either positive or negative, is likely to be insignificant, with the greater risk being that of higher carbon taxes. The current elevated price of gas and electricity included in the 24-month forecast, reflecting current supply side uncertainty, and the government focus on limiting the impact of the current economic slowdown mean that additional carbon taxes over the going concern period are considered unlikely, and therefore no additional costs have been included in either the base forecast or the scenarios noted below. **Scenario 1** – the global economy contracts with sales volumes reducing by 30% from the level seen over the past 12 months, to approximately 280 tonnes per month, from January 2023 for a period of six months (to mirror the length of the most recent downturn in 2020) before a partial recovery to c.330 tonnes per month for the remainder of the going concern period. Medical revenue remains unchanged from the past 12 months' run rate, with the economic situation historically having minimal impact on this segment. **Scenario 2** – in line with scenario 1, c.280 tonnes per month from January 2023, but the economic contraction lasts for a full 12 months, i.e. throughout the going concern period. This would give an annual volume of c.3,300 tonnes, a level not seen since 2013. Prior to COVID-19, the last recession was the financial crisis in 2008 and 2009 which lasted approximately 12 months. In this scenario Medical revenue is reduced by 10% during the second six months to reflect a limited impact from a longer lasting slowdown. The Group considers scenario 2 to be a severe but plausible scenario. Before any mitigating actions the sensitised cash flows show the Company has significantly reduced cash headroom. Under scenario 2 there is minimal cash generation through the going concern period and there is potential that the committed facility would be required to manage intra-month cash flows. However, the Company has a number of mitigating actions which are readily available in order to generate significant headroom. These include: - → use of committed facility – £20m could be drawn at short notice. Conversations with our banking partner indicate that the £20m accordion could also be readily accessed. The covenants of the facility have been successfully tested under each of the scenarios; - → deferral of capital expenditure – the base case capital investment over the next 12 months is approximately £50m as major projects are completed in China and the UK. This could be reduced significantly by limiting expenditure to essential projects, deferring all other projects later into 2024, with the exception of completing the manufacturing facilities in China which will continue as planned; - → reduction in discretionary overheads – costs would be limited to prioritise and support customer related activity; and - → deferral/cancellation of dividends – the dividend payable in June 2023 could be deferred or cancelled. The Company's intention is to continue payment of dividends where cash reserves facilitate but it remains a key lever in downside scenario mitigation. Reverse stress testing was performed to identify the level that sales would need to drop by in order for the Group to run out of cash by the end of the going concern assessment period. Sales volumes would need to consistently drop materially below the low point in scenario 2 which is not considered plausible. As a result of this detailed assessment and with reference to the Company's strong balance sheet, existing committed facilities and the cash preserving levers at the Company's disposal, but also acknowledging the current economic uncertainty as a number of global economies close to its recession and the war in Ukraine continues, the Board has concluded that the Company has sufficient liquidity to meet its obligations when they fall due for a period of at least 12 months after the date of this report. For this reason, it continues to adopt the going concern basis for preparing the financial statements. FINANCIAL STATEMENTS Annual Report 2022 **Victrex plc** ![img-15.jpeg](img-15.jpeg) FINANCIAL STATEMENTS ## Notes to the financial statements continued ### 1. Basis of preparation continued Critical judgements and key sources of estimation uncertainty The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis including formal consideration by the Audit Committee. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. Judgements made in applying accounting policies Other than judgements involving the use of estimates, the Directors do not consider there are any judgements made in applying the Group’s significant accounting policies which would have a material impact on the amounts recognised in the financial statements within the next 12 months. Sources of estimation uncertainty The Group uses estimates and assumptions in applying the critical accounting policies to value balances and transactions recorded in the financial statements. The estimates and assumptions that, if revised, would have a significant risk of a material impact on the valuation of assets and liabilities within the next financial year are retirement benefits (see note 17) and the valuation of inventory (see note 13). The critical judgements and key sources of estimation uncertainty, defined as those with a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next 12 months, that the Directors have considered in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements are included within the relevant notes. Critical judgements and key sources of estimation uncertainty can be identified throughout the notes by the following symbol . Management has discussed these with the Audit Committee. These should be read in conjunction with the significant accounting policies provided in the notes to the financial statements. In the current year the consideration of critical judgements and key sources of estimation uncertainty has included consideration of the potential impact of climate change on the financial statements. The areas considered and the conclusions made can be identified throughout the financial statements by the symbol . None of the areas of estimation uncertainty considered had a significant risk of material adjustment in the next 12 months as a result of climate change, although it is noted that there could be a more significant impact over the medium and longer time frames. Other areas of judgement and sources of estimation uncertainty The financial statements include other areas of judgement and sources of estimation uncertainty which do not meet the above definition of critical either due to the level of risk or the time frame of the potential impact, however apply to the measurement of certain material assets and liabilities. These include the useful economic lives and residual value of property, plant and equipment, the carrying value of investment in associates, the fair value of convertible loans and the recognition of deferred taxation balances for which there is uncertainty over the longer term. New accounting standards and amendments to existing standards New standards and amendments to existing standards were effective for the financial year ended 30 September 2022, which included: u Amendments to IFRS 3 – Reference to the Conceptual Framework; u Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use; u Amendments to IAS 37 – Onerous Contracts – Costs of Fulfilling a Contract; and u IFRS 9 – Financial Instruments – fees in the ‘10%’ test for derecognition of financial liabilities. None of these have had a material impact on the Group’s consolidated result or financial position. IFRIC – configuration or customisation costs in cloud computing arrangements The Group has changed its accounting policy related to the capitalisation of configuration and customisation costs in a cloud computing (Software as a Service, ‘SaaS’) arrangement, with costs now being expensed as incurred. This change is as a result of the IFRS Interpretations Committee’s agenda decision published in April 2021. The Group’s accounting policy has historically been, where the criteria within IAS 38 have been met, to capitalise costs directly attributable to the implementation, including configuration and customisation of cloud computing arrangements, as intangible assets in the Balance sheet. Following the publication of the above IFRIC agenda decision, current cloud computing arrangements were identified and assessed to determine if the Group has control of the software. For those arrangements where the Group does not have control of the developed software, the intangible assets previously capitalised as at 1 October 2021 have been derecognised. On the basis that the carrying value of these intangibles is not material the criteria in IAS 8 to restate the comparative financial statements has not been met and therefore the intangibles have been expensed in the current financial year. Further details are provided within note 3. Standards effective from 1 October 2022 onwards A number of standards, amendments and interpretations have been issued and endorsed by the UK but are not yet effective or have been issued but not endorsed by the UK and, accordingly, the Group has not yet adopted them. These include: u Amendments to IAS 1 – Classification of Liabilities as Current or Non-current; u Narrow scope amendments to IAS 1, Practice Statement 2 and IAS 8 – distinguish between Changes in Accounting Policies and Accounting Estimates; and u Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction. None of these are expected to have a material impact on the Group’s consolidated result or financial position. 148 Victrex plc Annual Report 2022 ## 2. Segment reporting The Group complies with IFRS 8 – Operating Segments, which requires operating segments to be identified and reported upon that are consistent with the level at which results are regularly reviewed by the entity's chief operating decision maker. The chief operating decision maker ('COOM') for the Group is the Victrex plc Board. Information on the business units is the primary basis of information reported to the Victrex plc Board. The performance of the business units is assessed based on segmental gross profit. Management of sales, marketing and administration functions servicing both business units is consolidated and reported at a Group level. Segmental balance sheets are not produced, instead the COOM reviews the balance sheet at a Group level which provides the necessary level of detail to make an informed assessment of the financial position of the Group on which to base key business decisions. The Group's business is strategically organised as two business units (operating segments): Industrial, which focuses on our Energy and Industrial, VAR, Automotive, Aerospace and Electronics markets, and Medical, which focuses on providing specialist solutions for medical device manufacturers. | | Year ended 31 September 2022 | | | Year ended 31 September 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Industrial £m | Medical £m | Group £m | Industrial £m | Medical £m | Group £m | | Segment revenue | 285.8 | 58.3 | 344.1 | 257.4 | 51.1 | 308.5 | | Internal revenue | (3.1) | — | (3.1) | (2.2) | — | (2.2) | | **Revenue from external sales** | **282.7** | **58.3** | **341.0** | **255.2** | **51.1** | **306.3** | | **Segment gross profit** | **124.8** | **49.7** | **174.5** | **119.7** | **45.6** | **165.3** | ### Impact of climate change The COOM for the Group has started monitoring climate change metrics, primarily the revenue from sustainable products, on a low monthly basis. However, the primary basis for reviewing financial performance over all time horizons, from monthly to annually, remains at the operating segment level. It is noted that products sold into sustainable applications are primarily the same as products sold into non-sustainable applications. It is only the end application which differentiates them. As a result it is not anticipated that any change will be required in the segmental reporting as a result of the Group's focus on sustainable applications. Transactions between segments are conducted at arm's length. ### Revenue recognition Revenue in both segments comprises the amounts receivable for the sale of goods, net of value added tax, rebates and discounts and after eliminating sales within the Group. Revenue from the sale of goods is recognised when all performance obligations are met, which is when the goods are dispatched or delivered in line with Incoterms. Victrex receives Medical Unit Payments ('MUPs') from a number of medical customers. MUPs are deferred payments contingent on the customer selling its final component to the end user. Revenue from MUPs is a form of variable consideration where all performance obligations have been met when the material is sold by the Group. The initial value of the MUP recognised is based on management's best estimate of the value that will flow to the Group only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This will be adjusted as appropriate, with a final adjustment being made in the period the final declaration is made. The value of MUPs recognised but not invoiced is included in prepayments and accrued income. See note 14. No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due or associated costs. The Group has taken advantage of the expedient allowed in IFRS 15 (121b) not to disclose information about its remaining performance obligations because the Group only recognises revenue on the satisfaction of performance obligations. ### Information about products The Group derives its revenue from the sale of high performance thermoplastic polymers. ### Information about geographical areas The Group's country of domicile is the United Kingdom. #### 1) Revenue from external sales The following is an analysis of external revenues based on the customer's location. | | Revenue from external sales | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Industrial £m | Medical £m | 2022 £m | Industrial £m | Medical £m | 2021 £m | | United Kingdom | 4.3 | — | 4.3 | 3.7 | — | 3.7 | | Europe, the Middle East and Africa ('EMEA') | 129.1 | 15.2 | 144.3 | 125.6 | 13.7 | 139.3 | | Americas | 65.8 | 28.7 | 94.5 | 50.2 | 27.2 | 77.4 | | Asia-Pacific | 83.5 | 14.4 | 97.9 | 75.7 | 10.2 | 85.9 | | | **282.7** | **58.3** | **341.0** | **255.2** | **51.1** | **306.3** | Revenue from external customers based in Germany was £90.1m (2021: £87.4m), US was £87.6m (2021: £71.6m) and China was £40.3m (2021: £32.3m). The revenue from any individual country, with the exception of Germany, the US and China, is not more than 10% of the Group's total revenue in either current or prior year. Annual Report 2022 Victrex plc FINANCIAL STATEMENTS FINANCIAL STATEMENTS # Notes to the financial statements continued # **2. Segment reporting continued** Information about geographical areas continued # *2) Non-current assets* The following is an analysis of the carrying value of non-current assets by the geographical area in which the assets are located. Non-current assets include property, plant and equipment, intangibles assets, and investments in associates. It does not include retirement benefit assets, deferred tax assets and financial instruments. | | 2022 £m | 2021 £m | | --- | --- | --- | | United Kingdom | 257.8 | 263.9 | | China | 85.3 | 43.9 | | Other | 34.7 | 34.1 | | | **377.8** | **341.9** | Non-current assets held in any individual country, with the exception of the UK and China, is not more than 10% of the Group's total non-current assets (FY 2021: same). # **Information about major customers** In the current year one customer within our Industrial segment contributed more than 10% to Group revenue (FY 2021: no customer contributed more than 10% to Group revenue). # **3. Expenses by nature** | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Staff costs | 5 | 72.3 | 71.5 | | Depreciation of property, plant and equipment | 9 | 19.0 | 18.5 | | Loss on disposal of non-current assets | 9, 10 | 2.4 | 0.8 | | Amortisation of intangibles | 10 | 2.6 | 3.4 | | Trade receivables impairment allowance during the year | | 1.4 | — | | Reversal of trade receivables impairment allowance | 16 | (1.0) | (0.5) | | Research & Development expenditure | 10 | 15.7 | 15.5 | | Inventory written down during the year | 13 | 3.2 | 4.0 | | Reversal of write down of inventories | 13 | (2.5) | (1.5) | | Fees payable to auditors | 4 | 0.5 | 0.4 | | Fair value gain on investment in Magna Global Limited | 11 | — | (0.9) | | Other costs of manufacture | | 116.2 | 100.1 | | Other sales, marketing and administrative expenses | | 19.9 | 6.5 | | | | **249.7** | **217.8** | During the year the Group wrote down inventory by £3.2m (FY 2021: £4.0m) and reversed previously written down inventory by £2.5m (FY 2021: £1.5m) resulting in a net increase in the overall inventory write down charge in the year of £0.7m (FY 2021: increase of £2.5m). Victrex continues to focus on driving down aged and non-conforming product by working with suppliers and customers, reworking and repackaging product to realise value from this inventory. Exchange differences recognised in the consolidated income statement, except for those arising on financial instruments measured at fair value through profit or loss in accordance with IFRS 9, are a gain of £2.2m (FY 2021: gain of £0.1m). # **Exceptional items** Exceptional items are those which are, in aggregate, material in size and/or unusual or infrequent in nature. Exceptional items were as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Included within sales, marketing and administrative expenses: | | | | Implementation of SaaS ERP system | 7.9 | — | | Restructuring costs | — | (0.8) | | **Exceptional items before tax** | **7.9** | **(0.8)** | | Tax on exceptional items | (1.5) | — | | **Exceptional items after tax** | **6.4** | **(0.8)** | Victrex plc Annual Report 2022 ### 3. Expenses by nature continued #### Implementation of SaaS ERP system The Group has commenced a multi-year implementation of a new cloud-based ERP system. The Group forecasts to spend approximately £15m–£20m on the implementation, including process redesign, customisation and configuration of the system, change management and training, which will deliver benefits to both customer interactions and internal business processes. The IFRS Interpretations Committee issued its decision clarifying how arrangements in respect of cloud-based software as a service ('SaaS') systems should be accounted for. The new ERP system does not meet the criteria for capitalisation (as the majority of costs relating to past systems have) and therefore the cost is being expensed rather than capitalised and amortised. Given the size of the project and its impact on the reported profit-based metrics, the fact the system is evergreen and thus this level and nature of cost will not happen again, it meets the Group's criteria to be presented as exceptional. The ERP system is expected to be completed in 2024. #### Restructuring costs During FY 2020, the Group reviewed cost actions and efficiencies required to support profitability in a lower production environment. The credit in FY 2021 related to more favourable settlements being reached on finalisation than assumed when making the restructuring charge in FY 2020 when the Group commenced consultation. These costs were treated as non-tax deductible in FY 2020 and the corresponding credit was treated as non-chargeable in FY 2021 accordingly, which resulted in a credit in income tax expenses for expenses not deductible for tax purposes in FY 2021 (see note 7). The cash flow in the year associated with exceptional items was a £5.6m outflow (FY 2021: £1.9m outflow). ### 4. Fees payable to auditors Auditors' remuneration was as follows: | | 2022 £000 | 2021 £000 | | --- | --- | --- | | Audit services relating to: | | | | – Victrex plc and Group consolidation* | 172 | 153 | | – The Company's subsidiaries, pursuant to legislation | 335 | 250 | | | 507 | 403 | | Non-audit services relating to | | | | – Interim review | — | 35 | | | — | 35 | | | 507 | 438 | * Due to the impact of COVID-19 on 2020 year-end reporting, PwC charged an additional audit fee of £23,000 which was billed in 2021. Given the timing of the agreement of this fee, the amount was not included within the audit fee disclosed for 2020. It was added instead to the 2021 fee of £380,000, increasing the total amount disclosed to £400,000. ### 5. Staff costs | | 2022 £m | 2021 £m | | --- | --- | --- | | Wages and salaries | 59.7 | 58.8 | | Social security costs | 5.8 | 5.9 | | Defined contribution pension schemes | 5.8 | 5.5 | | Defined benefit pension schemes | (0.3) | (0.1) | | Equity-settled share-based payment transactions | 1.3 | 1.4 | | | 72.3 | 71.5 | Detailed disclosures that form part of these financial statements are given in the Directors' remuneration report on pages 104 to 127. In FY 2021 staff costs includes a credit in respect of exceptional staff costs of £0.8m. Further details are set out in note 3. The monthly average number of people employed by the Group during the year, analysed by category, was as follows: | | 2022 Number | 2021 Number | | --- | --- | --- | | Make | 586 | 541 | | Develop, market and sell | 230 | 224 | | Support | 188 | 130 | | | 1,004 | 895 | There are no people employed by the Company (FY 2021: none). Annual Report 2022 **Victrex plc** 191 FINANCIAL STATEMENTS FINANCIAL STATEMENTS Notes to the financial statements continued ## 6. Finance income and costs | | 2022 Q4 | 2021 Q4 | | --- | --- | --- | | Finance income/costs: | | | | – Interest received | 0.5 | 0.2 | | – Interest payable and similar charges | (0.1) | — | | – Interest on lease liabilities | (0.2) | (0.2) | | | 0.2 | — | In addition, the Group has incurred borrowing costs of £0.5m on bank loans and loans payable to the non-controlling interest funding the construction of property, plant and equipment in China, which have been capitalised within the associated cost of the qualifying property, plant and equipment (see note 9). ## 7. Income tax expense Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income or equity as appropriate. Current tax is the expected tax payable on the taxable income for the current and prior years, using tax rates (and tax laws) enacted or substantively enacted at the balance sheet date. The Group is subject to income tax in numerous jurisdictions. Estimates are required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain because it may be unclear how tax law applies to a particular transaction or circumstance. Where the Group determines that it is more likely than not that the tax authorities would accept the position taken in the tax return, amounts are recognised in the financial statements on that basis. Where the amount of tax payable or recoverable is uncertain, the Group recognises a liability based on either the Group's judgement of the most likely outcome or, where there is a wide range of possible outcomes, the expected value. Deferred tax is provided in full, using the liability method, on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries except to the extent that they will probably reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable, within a reasonable time frame (typically a period of up to five years), that future taxable profits will be available against which the asset can be utilised. The probability assessment takes into account the legislation in each jurisdiction, including any restrictions in place, on a company by company basis, including consideration of the ability to relieve losses between Group companies in the same country. The availability of taxable temporary differences (i.e. deferred tax liabilities) relating to the same tax jurisdiction and company, which are expected to reverse over a similar time frame, are also taken into account when assessing the recognition of any deferred tax asset. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The assessment over the recoverability of deferred tax assets is reviewed at each reporting date. Where forward-looking forecasts are used to assess the recognition of a deferred tax balance, forecasts consistent with those used for other assessments within the Annual Report (including going concern, impairment and viability) are used, but disaggregated to a level appropriate for tax to be assessed, either by company or by tax jurisdiction. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. | | 2022 Q4 | 2021 Q4 | | --- | --- | --- | | **Current tax** | | | | UK corporation tax on profits for the year | 9.8 | 10.4 | | Overseas tax on profits for the year | 2.4 | 1.7 | | | 11.4 | 12.1 | | **Deferred tax** | | | | Change in deferred tax rate | — | 6.1 | | Origination and reversal of temporary differences | 1.7 | 1.4 | | | 1.7 | 7.5 | | Tax adjustments relating to prior years: | | | | – Current tax | (2.6) | 0.2 | | – Deferred tax | 1.7 | (0.1) | | **Total tax expense in income statement** | **12.2** | **19.7** | 112 Victrex plc Annual Report 2022 ## 7. Income tax expense continued ### Reconciliation of standard and effective tax rate | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | % | Mn | % | Mn | | Profit before tax | | 87.7 | | 92.5 | | Tax expense at UK corporation tax rate | 19.0 | 16.7 | 19.0 | 17.6 | | Effects of: | | | | | | – Expenses not deductible for tax purposes | | 1.3 | | (0.2) | | – Higher rates of tax on overseas earnings | | 0.7 | | 0.5 | | – Effect of UK tax incentives for capital expenditure and other allowances | | (1.2) | | (0.4) | | – Tax adjustments relating to prior years | | (0.9) | | 0.1 | | – Change in deferred tax rate | | — | | 6.1 | | – Share of loss of associate | | 0.2 | | 0.2 | | – Difference in rates between deferred tax and corporation tax | | 0.9 | | 0.4 | | – Deferred tax on losses not recognised | | 0.9 | | 0.8 | | – Deferred tax on unremitted earnings | | 0.1 | | 0.5 | | – Patent Box deduction | | (6.5) | | (5.9) | | **Effective tax rate and total tax expense** | **13.9** | **12.2** | **21.3** | **19.7** | Deferred tax assets/liabilities have been recognised at the rate they are expected to reverse. For UK assets/liabilities this is 25% for the majority of assets and liabilities (30 September 2021: 25%), being the UK tax rate effective from 1 April 2023, in accordance with the Finance Bill 2021, which was substantively enacted on 24 May 2021. The impact of remeasuring the deferred tax assets and liabilities accordingly increased the tax charge in FY 2021 by £6.1m. For overseas assets/liabilities the corresponding overseas tax rate has been applied. ### Tax components of other comprehensive income | | 2022 Mn | 2021 Mn | | --- | --- | --- | | **Tax on items that will not be reclassified to the income statement:** | | | | Deferred tax charge on defined benefits pension schemes' actuarial result | (0.1) | (1.1) | | **Tax on items that have or may be subsequently reclassified to the income statement:** | | | | Current tax credit/(charge) on changes in fair value of cash flow hedges | 3.2 | (0.2) | | | 3.1 | (1.3) | | Current tax credit/(charge) | 3.2 | (0.2) | | Deferred tax charge | (0.1) | (1.1) | | | 3.1 | (1.3) | ### Tax components of items recognised directly in equity | | 2022 Mn | 2021 Mn | | --- | --- | --- | | Tax credit on equity-settled share-based payment transactions | 1.1 | — | | | 1.1 | — | ## 8. Earnings per share Basic earnings per share is based on the Group's profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year, excluding own shares held (see note 22). Diluted earnings per share is calculated by adjusting the weighted average number of shares used for the calculation of basic earnings per share as increased by the dilutive effect of potential ordinary shares. Dilutive shares arise from employee share option schemes where the exercise price is less than the average market price of the Company's ordinary shares during the period. Where the option price is above the average market price, the option is not dilutive and is excluded from the diluted earnings per share calculation. | | 2022 | 2021 | | --- | --- | --- | | **Earnings per share** | | | | – basic | 87.6p | 84.3p | | – diluted | 87.3p | 84.0p | | **Profit for the financial year attributable to the owners of the Company** | **£76.2m** | **£73.2m** | | Weighted average number of shares used | Number | Number | | – Issued ordinary shares at beginning of year | 86,968,573 | 86,617,582 | | – Effect of own shares held | (87,903) | (108,977) | | – Effect of shares issued during the year | 16,683 | 196,184 | | **Basic weighted average number of shares** | **86,897,553** | **86,704,789** | | Effect of share options | 341,959 | 340,564 | | **Diluted weighted average number of shares** | **87,239,312** | **87,045,353** | Annual Report 2022 Victrex plc FINANCIAL STATEMENTS FINANCIAL STATEMENTS ## Notes to the financial statements continued ### 9. Property, plant and equipment Owned assets All owned items of property, plant and equipment are stated at historical cost less accumulated depreciation and provision for impairment. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial year in which they are incurred. Borrowing costs relating to the construction of qualifying property, plant and equipment are capitalised, at the actual cost incurred where the funds are borrowed specifically to fund the construction project. All other finance costs are expensed as incurred. Depreciation Depreciation is charged to the income statement on a straight line basis over the estimated useful economic lives as follows: Buildings 25–50 years Plant and machinery 10–30 years Fixtures, fittings, tools and equipment 5–10 years Computers and motor vehicles 2–5 years Freehold land is not depreciated. The residual values and useful lives of assets are reviewed annually for continued appropriateness and indications of impairment and adjusted if appropriate. Depreciation on assets classified as in the course of construction commences when the assets are ready for their intended use. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. Impact of climate change The impact of climate change on property, plant and equipment is primarily a result of physical risks, for example increasing severity of flooding or high winds which could impact the useful economic life of the asset. The maximum useful life of assets is 50 years, relating to office buildings, with primary plant assets being depreciated over 30 years. The latest date for an asset to be fully depreciated is 2062, with the latest date for manufacturing assets currently under construction expected to be 2053. Based on the site by site climate change impact assessments performed to date, it is not anticipated that any physical risks would materially impact the Group’s assets to the extent that their current carrying value or remaining useful economic lives would be reduced. Assets which may be impacted by proactive actions to reduce carbon emissions, for example gas powered boilers, or by potential regulations to curb carbon emissions, are being assessed as the path to Net Zero is planned in detail and regulators provide more transparency on their potential approach. Based on the planning work performed to date, for example replacing gas as the heat source with hydrogen, biogas or green electricity, and the infancy of the regulatory approach, there is not expected to be a material impact on the remaining useful economic lives, or the carrying value, of the assets held by the Group. The Company has minimal asset value in market/application specific property, plant and equipment where there is expected to be a material drop in demand due to climate change. Right of use (‘ROU’) assets At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases are recognised as a ROU asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. At the lease commencement date a ROU asset is measured at cost comprising the following: the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and restoration costs to return the asset to its original condition. The ROU asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis. If ownership of the ROU asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Contracts may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of retail estate for which the Company is a lessee and for which it has major leases, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. 154 Victrex plc Annual Report 2022 ## 9. Property, plant and equipment continued | | Land and buildings £m | Plant and machinery £m | Computer and water vehicle £m | Property, fittings, tools and equipment £m | Right of use assets £m | Assets in course of construction £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | | | At 1 October 2020 | 63.4 | 338.3 | 3.6 | 3.9 | 8.6 | 20.2 | 438.0 | | Exchange differences | (0.3) | (0.3) | — | (0.2) | — | 0.9 | 0.1 | | Additions | — | 1.4 | 0.1 | — | 4.7 | 44.6 | 50.8 | | Disposals | — | (0.3) | (0.5) | — | (0.2) | (0.7) | (1.7) | | Reclassification | 0.1 | 4.0 | 2.7 | 0.2 | — | (7.0) | — | | At 30 September 2021 | 63.2 | 343.1 | 5.9 | 3.9 | 13.1 | 58.0 | 487.2 | | Exchange differences | 1.2 | 2.9 | 0.1 | 0.1 | — | 6.3 | 10.6 | | Additions | — | 3.9 | 0.2 | — | 1.6 | 45.6 | 51.3 | | Disposals | — | (0.8) | — | — | (1.2) | — | (2.0) | | Reclassification | 0.2 | 3.4 | 0.6 | 0.1 | — | (4.3) | — | | **At 30 September 2022** | **64.6** | **352.5** | **6.8** | **4.1** | **13.5** | **105.6** | **547.1** | | **Accumulated depreciation** | | | | | | | | | At 1 October 2020 | 14.7 | 142.2 | 2.1 | 3.6 | 1.7 | — | 164.3 | | Exchange differences | (0.1) | (0.1) | — | (0.2) | — | — | (0.4) | | Disposals | — | (0.2) | (0.5) | — | (0.2) | — | (0.9) | | Depreciation charge | 2.0 | 13.6 | 0.8 | 0.2 | 1.9 | — | 18.5 | | At 30 September 2021 | 16.6 | 155.5 | 2.4 | 3.6 | 3.4 | — | 181.5 | | Exchange differences | 0.4 | 0.7 | 0.1 | — | — | — | 1.2 | | Disposals | — | (0.6) | — | — | (1.2) | — | (1.8) | | Depreciation charge | 2.0 | 13.8 | 1.0 | 0.1 | 2.1 | — | 19.0 | | **At 30 September 2022** | **19.0** | **169.4** | **3.5** | **3.7** | **4.3** | **—** | **199.9** | | **Carrying amounts** | | | | | | | | | **At 30 September 2022** | **45.6** | **183.1** | **3.3** | **0.4** | **9.2** | **105.6** | **347.2** | | At 30 September 2021 | 46.6 | 187.6 | 3.5 | 0.3 | 9.7 | 58.0 | 305.7 | | At 30 September 2020 | 48.7 | 196.1 | 1.5 | 0.3 | 6.9 | 20.2 | 273.7 | £0.5m of additions within assets in the course of construction relate to borrowing costs capitalised; see note 15 for further details. At 30 September 2022 and 30 September 2021, the Group leased a small number of assets, principally land and buildings | | Land and buildings £m | Water vehicle £m | Total £m | | --- | --- | --- | --- | | **Right of use assets** | | | | | Balance at 1 October 2020 | 6.6 | 0.3 | 6.9 | | Additions | 4.4 | 0.3 | 4.7 | | Depreciation charge for the period | (1.6) | (0.3) | (1.9) | | Balance at 30 September 2021 | 9.4 | 0.3 | 9.7 | | Additions | 1.5 | 0.1 | 1.6 | | Depreciation charge for the period | (1.9) | (0.2) | (2.1) | | **Balance at 30 September 2022** | **9.0** | **0.2** | **9.2** | The information in respect of the lease liabilities associated with the right of use assets is disclosed in note 19. Land and building right of use assets are primarily leases to support manufacturing capability. Reclassification relates to the movement from assets in course of construction to the relevant asset category when the assets are ready for their intended use. Details of significant projects reclassified are included in the Financial review. The fair value of property, plant and equipment is not materially different to its carrying value. The Company has no property, plant or equipment. Annual Report 2022 Victrex plc 195 FINANCIAL STATEMENTS FINANCIAL STATEMENTS ## Notes to the financial statements continued ### 10. Intangible assets Goodwill Goodwill arising on the acquisition of businesses is allocated, at acquisition, to the cash-generating units (‘CGUs’) that are expected to benefit from that business combination. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment. Any impairment provisions that arose during impairment testing would not be reversed. In respect of acquisitions prior to 1 October 2004, goodwill is included on the basis of its deemed cost, which represents the net amount recorded previously under UK GAAP. In respect of acquisitions that have occurred since 1 October 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the assets, liabilities and contingent liabilities acquired. Goodwill is tested annually for impairment by reference to the estimated future cash flows of the relevant CGU, discounted to their present value using risk-adjusted discount factors to give its value in use. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised if the carrying amount of the CGU to which goodwill has been allocated exceeds its recoverable value (the higher of value in use and fair value less costs to sell) and are recognised in the income statement. Other intangible assets Other intangible assets are stated at cost less accumulated amortisation and any provisions for impairment. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. The cost of intangible assets acquired in a material business combination is the fair value as at the date of acquisition. Other intangibles are assessed for impairment only when there is an indication that they might be impaired. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets not yet ready for use are not amortised but are subject to annual impairment reviews. Other intangible assets are amortised from the time they are first ready for use. Amortisation Amortisation is charged to sales, marketing and administrative expenses in the income statement over the estimated useful economic lives as follows: Computer software 3–7 years straight line Customer relationships 10 years systematic Brand name 5 years systematic Know-how 10 years straight line Amortisation on assets classified as in the course of construction commences when the assets are ready for their intended use, the point at which they are reclassified from assets in course of construction, on the same basis as other assets of that class. 156 Victrex plc Annual Report 2022 ## 10. Intangible assets continued | | Goodwill £m | Computer software £m | Customer relationships £m | Brand name £m | Know-how £m | Applying course of construction £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | | | At 1 October 2020 | 14.3 | 15.9 | 2.0 | 0.7 | 3.2 | 1.6 | 37.7 | | Additions | — | 0.4 | — | — | — | 1.7 | 2.1 | | Disposals | — | (0.5) | (0.3) | — | — | — | (0.8) | | Reclassification | — | 2.5 | — | — | — | (2.5) | — | | At 30 September 2021 | 14.3 | 18.3 | 1.7 | 0.7 | 3.2 | 0.8 | 39.0 | | Additions | — | 0.1 | — | — | — | 0.1 | 0.2 | | Disposals | — | (1.8) | — | — | — | (0.8) | (2.6) | | Reclassification | — | 0.1 | — | — | — | (0.1) | — | | **At 30 September 2022** | **14.3** | **16.7** | **1.7** | **0.7** | **3.2** | **—** | **36.6** | | **Accumulated amortisation** | | | | | | | | | At 1 October 2020 | — | 9.2 | 1.5 | 0.6 | — | — | 11.3 | | Amortisation charge | — | 2.5 | 0.5 | 0.1 | 0.3 | — | 3.4 | | Disposals | — | (0.2) | (0.3) | — | — | — | (0.5) | | At 30 September 2021 | — | 11.5 | 1.7 | 0.7 | 0.3 | — | 14.2 | | Amortisation charge | — | 2.3 | — | — | 0.3 | — | 2.6 | | Disposals | — | (0.4) | — | — | — | — | (0.4) | | **At 30 September 2022** | **—** | **13.4** | **1.7** | **0.7** | **0.6** | **—** | **16.4** | | **Carrying amounts** | | | | | | | | | **At 30 September 2022** | **14.3** | **3.3** | **—** | **—** | **2.6** | **—** | **20.2** | | At 30 September 2021 | 14.3 | 6.8 | — | — | 2.9 | 0.8 | 24.8 | | At 30 September 2020 | 14.3 | 6.7 | 0.5 | 0.1 | 3.2 | 1.6 | 26.4 | Computer software is an internally generated intangible asset. The average remaining useful life is three years (FY 2021: three years). The Group has know-how in respect of the hybrid overmoulding technology for brackets. The remaining useful life of the know-how is eight years. Goodwill recognised is assessed for impairment against discounted future pre-taxation cash flow projections for the relevant CGU (value in use model). Management has prepared cash flow projections for a five-year period derived from the business' 24-month forecast and the five-year strategy. These forecasts are the same ones used for both the going concern review and viability statement. Further details are included on pages 41 to 43. These forecasts include assumptions around volumes and sales prices, costs of manufacture, operating costs, working capital movements and capital expenditure. In measuring these assumptions, the Directors have taken into account: - → expected demand in the markets and geographies within which the Group operates, including industry trends and external market forecasts; - → operating profits, based on historical experience of operating margins including changes to the price of raw material and utility costs and production volumes; - → the timing and cost of major capital projects; - → cash conversion, based on historical rates; and - → the impact of climate change (see below). ### Impact of climate change The impact of climate change on the carrying value of goodwill has been considered. The majority of the goodwill relates to the acquisition of the monomer supply chain. As with all manufacturing areas the monomer supply chain is being assessed for its impact on the path to Net Zero with the potential for decarbonising, and reducing water usage and waste. The impact of this on the processes associated with the goodwill is not yet known, but current forecasts used for the consideration of impairment, see below, underpin the carrying value at 30 September 2022. This position will continue to be monitored as the approach to decarbonisation of the monomer supply chain is developed to support the Group's path to Net Zero. Climate change will potentially impact the future forecasts of the Group which are used for the aforementioned impairment review. The overall impact on the revenue of the Group is assessed as positive, with the majority of the growth programmes supporting carbon reduction in end markets, which will more than offset the adverse impact from reductions anticipated to be seen, for example, in all 8 gas and internal combustion engine related applications. The primary adverse impact is expected to be seen in carbon pricing and the cost of using greener energy sources. To reflect this in the forecast an amount of £20m per annum (growing by inflation) from 2024 has been included in the forecasts used for the impairment calculation. Further detail of this is included in the Sustainability report starting on page 44. Annual Report 2022 Victrex plc 107 FINANCIAL STATEMENTS FINANCIAL STATEMENTS # Notes to the financial statements continued # **10. Intangible assets continued** The sensitivity analysis performed as part of our viability assessment on the CGUs of the Group demonstrated a sufficient level of headroom as noted below; therefore, no specific adjustments or impairments have been made. The Group has two CGUs, Industrial and Medical, which are the smallest identifiable independent groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Where assets and costs are shared between the two CGUs a reasonable apportionment of these are made for the purpose of the impairment calculation. Goodwill is split between the two CGUs: Industrial £12.8m (FY 2021: £12.8m) and Medical £1.5m (FY 2021: £1.5m). The goodwill and other intangible assets that relate to the Industrial CGU include Kleria Gears Inc., Zyee Limited and Teir which have been fully integrated. These businesses are employed to generate revenue across all industrial geographies and markets. The long-term average growth rate used was 2.0% (FY 2021: 2.0%) which reflects the long-term inflation rates in the main territories within which the Group operates, and the risk-adjusted pre-tax discount rate was 9.1% (FY 2021: 9.6%). The impairment test results in more than 100% headroom (FY 2021 more than 100% headroom) and so it is unlikely that a reasonably possible change in a key assumption would result in an impairment of goodwill or other intangibles. # **Research & Development** Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised within the income statement as an expense as incurred. Development expenditure is recognised in the income statement as an expense as incurred unless it meets all the criteria to be capitalised under IAS 38 – Intangible Assets, including technical feasibility of completing the asset, intention to complete, probability of future economic benefits, the availability of resources to complete and the ability to reliably measure expenditure attributed to the development. Research & Development expenditure of £15.7m (FY 2021: £15.5m) was expressed to the income statement in the year within sales, marketing and administrative expenses. No development expenditure was capitalised (FY 2021: £nil) as the Directors consider there is insufficient evidence available that the criteria have been met for the reasons noted below. The Company has the intention and resources to complete the projects being undertaken, along with the ability to accurately measure attributable expenditure. Therefore whilst these criteria are met, the assessment of the technical feasibility and future economic benefits is more difficult. For Medical based development projects there are strict regulatory approvals which are required to be obtained before a new product can be brought to market. Prior to these approvals a varying degree of clinical trials need to be undertaken, many of which are multi-year in length. The vast majority of development expenditure is incurred up to the point of regulatory approval, however, the outcome cannot be considered probable until approval is obtained; without approval the Company or its customers cannot sell a medical product. Even with regulatory approval, market adoption remains uncertain and therefore the criteria for capitalisation is rarely met. Industrial based development projects typically do not have the same strict regulatory approvals, however, are often subject to rigorous qualification and testing programmes, often over a sustained period of time. Examples of this include wear testing within Automotive, Aerospace and Energy & Industrial. Potential customers are also often testing multiple solutions at the same time with a view to selecting one following the testing/qualification programme. As a result it is only when a successful outcome to the testing/qualification programmes is achieved that technical feasibility is reached and market adoption becomes the key assessment. At this point, whilst market adoption risk remains, the vast majority of development expenditure has been incurred and expensed. 118 Victrex plc Annual Report 2022 ### 11. Interests in other entities FINANCIAL STATEMENTS Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the investee and can affect those returns through its power over the investee. This can be determined either by the Group’s ownership percentage, or by the terms of the shareholder agreement. Where there is deemed to be an ability to affect the return, investments are consolidated from the date that ability commences until the date that it ceases. The acquisition method is used to account for business combinations. Goodwill represents the difference between the acquisition date fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree (if any) and the net of the acquisition date fair values of the identifiable assets acquired, including intangibles, and liabilities assumed, including contingent liabilities as required by IFRS 3. If this difference is negative, the amount is recognised directly in the consolidated income statement. A non-controlling interest is the proportion of net assets of the subsidiary entity owned by shareholders external to the Group. The value of non-controlling interests at the acquisition date is measured as the non-controlling interests’ proportionate share of net assets of the acquiree or at fair value. The choice of measurement basis is determined on an acquisition-by-acquisition basis as permitted by IFRS 3. Financial derivatives in place over the remaining equity of an entity are taken into account when calculating the proportionate share of the non-controlling interest. Any contingent consideration is measured at fair value at the date of acquisition. Subsequent changes to the fair value of contingent consideration are recognised in the consolidated income statement. Costs related to the acquisition, other than those associated with the issue of debt, that the Group incurs in connection with a business combination are expensed as incurred. Non-controlling interests in the net assets of consolidated subsidiaries are distinguished from the equity attributable to holders of the Parent. The value of non-controlling interests comprises the value of non-controlling interests on the date control commences adjusted for the non-controlling interests’ share of any subsequent changes in equity. Investment in subsidiaries Investments in subsidiaries are stated at cost less any impairment in the value of the investment. Investment in associated undertakings An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but where the Group does not have control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Investments in associates are carried in the Balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment. Any goodwill recognised on acquisition is included in the carrying values of the investment. Impairment is recognised when there is objective evidence that a loss event (or events) has arisen which adversely impacts the future cash flows from the net investment and therefore provides evidence of impairment. Where evidence exists an impairment test is performed whereby the carrying value of the investment is compared to the recoverable amount (higher of value in use and fair value less costs to sell). The Group’s share of the post-tax profits/(losses) of associates is included in the consolidated income statement. If the Group’s share of losses in an associate equals or exceeds its investment in the associate, the Group does not recognise further losses, unless it has incurred legal or constructive obligations to do so or made payments on behalf of the associate. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity. Interests in joint arrangements A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control. Joint arrangements are either joint operations or joint ventures. Joint operations A joint operation is a joint arrangement whereby the parties that have joint control have the rights to the assets, and obligations for the liabilities, relating to the arrangement or other facts and circumstances indicate that this is the case. The Group’s share of assets, liabilities, revenue, expenses and cash flows are combined with the equivalent items in the financial statements on a line-by-line basis. Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements. Annual Report 2022 Victrex plc 159 FINANCIAL STATEMENTS Notes to the financial statements continued # **11. Interests in other entities continued** # **Basis of consolidation continued** # **Financial assets held at fair value through the profit and loss** Financial assets held at fair value through the profit and loss comprise investments in unquoted companies and convertible loans made to associated undertakings. Investments in unquoted companies are initially carried at fair value, where neither control nor significant influence is held. The initial fair value is deemed to be cost where transactions are at arm's length. They are remeasured at subsequent reporting dates to fair value with any changes recognised directly in the income statement. Financial assets that are compound financial instruments from the holder's perspective are accounted for under IFRS 9. Under IFRS 9 financial assets are held at either amortised cost, fair value through other comprehensive income ('FVTOCI') or fair value through profit and loss ('FVTPL'). In making the assessment the Company's business model and the contractual terms are assessed against the conditions in IFRS 9. Where the conditions for holding an asset at amortised cost are not met and where no election is made to measure at FVTOCI, FVTPL is the default. At initial recognition financial assets are measured at fair value. This is assumed to be the transaction price unless there is evidence to the contrary. All transaction costs related to financial instruments designated as at fair value through profit or loss are expensed as incurred. Investments in unquoted companies and convertible loans are classified as level 3 in the financial hierarchy because there are no observable market inputs. For these assets unobservable inputs are used to measure the range of fair values, using an income approach to convert future cash flows into present values. Inputs into the valuation model include both Group forecasts and forecasts from the industry, with consideration given to performance against technical and commercial milestones. Where there is insufficient information to determine fair value or there is a wide range of possible fair value measures, and cost represents the best estimate in that range, then, as permitted by IFRS 9, cost will continue to be used as a proxy for fair value. Cost will not be used as a proxy if, at the balance sheet date, there is an identified change in value, which could be illustrated by significant performance variations to plan or the value implied by subsequent funding rounds or other equity transactions. # **Group** # **Material subsidiaries and non-controlling interest ('N/O')** Parish VYX High Performance Materials Co. Ltd ('PVYX') is a limited liability company set up during FY 2020, for the purpose of the manufacture of PAIN, polymer powder and granules, based in mainland China. The Group continues to hold a 75% equity interest with the remaining 25% held by Yingkou Xingfu Chemical Co. Ltd ('YX'). Consistent with prior years, with 75% of the voting equity and the majority of appointments on the board, the Group is considered to have control of PVYX and therefore it is accounted for as a subsidiary. The income statement and balance sheet of PVYX are fully consolidated with the share owned by YX represented by a non-controlling interest. In the year to 30 September 2022 the subsidiary incurred a loss of £2.9m (FY 2021: loss of £1.4m), of which £0.7m (FY 2021: £0.4m) is attributable to the non-controlling interest. Total non-controlling interest as at 30 September 2022 is £1.8m (FY 2021: £2.5m). The first tranche of investment of £8.6m in this company was made by the Group via Vichrex Hong Kong Limited, in March 2020. During FY 2021, the Group made further cash injections into PVYX, totalling £24.5m, split in the form of loans of £22.0m and further equity investment of £2.5m. YX also made loans to PVYX of £5.6m during FY 2021. See note 15 for further details of this loan. # **Investments in associates and financial assets held at fair value through profit and loss** | | Investment in associates £m | Financial assets held at fair value through profit and loss £m | Total £m | | --- | --- | --- | --- | | At 1 October 2021 | 11.4 | 12.7 | 24.1 | | Group's share of loss of Bond 3D High Performance Technology BV | (1.0) | — | (1.0) | | Disposal of investment in Magma Global Limited | — | (5.4) | (5.4) | | Convertible loans issued to Bond 3D High Performance Technology BV | — | 2.3 | 2.3 | | Interest on loans issued to Bond 3D High Performance Technology BV | — | 0.2 | 0.2 | | Gain on financial assets held at fair value – exchange differences | — | 0.3 | 0.3 | | **At 30 September 2022** | **10.4** | **10.1** | **20.5** | | Surface Generation Limited | — | 3.5 | 3.5 | | Bond 3D High Performance Technology BV | 10.4 | 6.6 | 17.0 | | **At 30 September 2022** | **10.4** | **10.1** | **20.5** | 146 Vichrex plc Annual Report 2022 ## 11. Interests in other entities continued ### Group continued #### Bond 3D High Performance Technology BV ('Bond') Bond is a company incorporated in the Netherlands, developing unique, protectable 3D printing (Additive Manufacturing) processes which are capable of producing high strength parts from existing grades of PEEK and PAEK polymers. The investment offers the potential of utilising this technology to help accelerate the market adoption of 3D printed PEEK parts, with particular emphasis on the Medical market. The Group's investment in the ordinary share capital of Bond at 30 September 2022 is €14.7m/€12.9m (24.5%) at cost (30 September 2021: same), with a carrying value of £10.4m (30 September 2021: £11.4m) which includes the impact of the Group's share of losses since investment. As the Group is considered to have significant influence in Bond, the investment continues to be accounted for as an associate using the equity method. The Directors have considered whether there is any objective evidence that a loss event (or events) exists at 30 September 2022. No objective evidence has been identified with the investment performing in line with expectations for a company of its relative immaturity. In addition, there has been no transaction in the equity of Bond in the year, whereby a transaction at a discount to the price paid for the Group's equity stake would be an indicator of impairment. Accordingly, the investment has not been tested for impairment. In line with the agreed programme of further investments into Bond by Victrex and another investor, LaLune, Bond has received cash injections of €4.5m in the current financial year, of which €2.7m/€2.3m was made by Victrex in the form of convertible loans. The loans are convertible into ordinary shares of the entity, at the Group's option, or are to be repaid by Bond on or before the end of the five-year agreed term. Of the convertible loan balance of €7.4m/€6.6m at 30 September 2022, €2.0m/€1.8m is interest free, €0.3m/€0.2m is accruing interest at 3%, and the remainder is accruing interest at a rate of 6% per annum. The interest is capitalised into the value of the convertible loan on a monthly basis, attracting conversion rights in the same proportion as the original instrument. During the year €0.2m/€0.2m (FY 2021: €0.02m/€0.02m) of interest was capitalised into the convertible loan. The convertible loans in Bond do not meet the criteria to be classified as amortised cost nor FVTDCI (the cash flows are not solely payments of principal and interest due to the existence of conversion rights) and are therefore classified as FVTPL. The transaction value is considered materially equal to the fair value of the convertible loan for initial recognition. The lack of observable market inputs for subsequent fair value assessments of the unlisted convertible loan calculation results in the instrument being classified as Level 3 (see also note 16). At 30 September 2022 the convertible loans in Bond are considered to meet the criteria to use cost (the initial fair value) as the best estimate for fair value given the wide range of possible outcomes, a range in which the cost represents the best estimate within the range. Bond is an early-stage investment in new technology for the 3D printing of PEEK with a detailed programme of milestones to take it through its commercialisation. Technology is moving quickly within this space and whilst there is confidence that the Bond technology will win significant market share (which in itself has the potential for a high level of variability across different markets and applications), thus generating a fair value upside, the risk remains that this will not be the case resulting in fair value below cost. Given the relative immaturity of Bond and its current stage of development it is likely to be a longer time period before the range of outcomes can be reduced to such an extent that a fair value which is different to the initial fair value can be established. The fair value of the convertible loans receivable in future periods will be assessed on the basis of the most likely outcome of scenarios at the end of the convertible term, including the probability attached to each future outcome. Following the €4.5m convertible loans received in FY 2022, Bond is due to receive a further €3.0m from Victrex and La Lune during FY 2023 subject to the satisfactory completion of pre-determined development milestones. These cash injections will accrue interest at 6% but, if converted to equity, the interest will roll into the conversion rights, resulting in a total ownership at the end of the term at 43.5% for Victrex. #### Impact of climate change The impact of climate change on the Medical part of the business is expected to be limited with the applications into which the Group's products go providing proven clinical benefits to patients in a low-carbon way. The use of 3D printed PEEK being developed by Bond will only serve to reduce carbon usage through a lesser level of waste in the manufacturing process and therefore climate change is not expected to have a negative impact on the carrying value of assets associated with Bond, including the associate investment and the convertible loans. #### Disposal of investment in Magma Global Limited On 13 October 2021, the Group sold its investment in Magma Global Limited to TechnipFMC. This investment was recognised as a financial asset held at fair value through the profit and loss, with a fair value of £5.4m at 30 September 2021. The Group received cash of £4.2m at the point of disposal with £1.2m deferred consideration received on 13 October 2022. The deferred consideration was included within trade and other receivables at 30 September 2022. #### Company Shares in Group undertakings #### Cost and carrying value At 1 October 2021 and at 30 September 2022 131.9 The Company has considered impairment of its investment in subsidiaries. The results of the impairment tests described in note 10 have been used in this consideration. Given the results of those tests, the Directors do not consider that the carrying value of the Company's investment in subsidiaries has been impaired. Annual Report 2022 **Victrex plc** FINANCIAL STATEMENTS FINANCIAL STATEMENTS ## Notes to the financial statements continued ### 11. Interests in other entities continued Company continued The following is a full list of the Company’s interests: Company number Company status Registered office address Wholly owned subsidiary undertakings 1 | Victrex Manufacturing Limited | | 2845018 Trading entity Victrex Technology Centre, | | | | | --- | --- | --- | --- | --- | --- | | | 1 | | | Hillhouse International, | | | Invibio Limited | | | 4088050 Trading entity | | | | Invibio Knees Limited 8149440 Trading entity | | | | | Thornton Cleveleys, | Lancashire FY5 4QD, UK Invibio Device Component 8861250 Trading entity Manufacturing Limited Juvora Limited 8149439 Trading entity 1 Victrex Trading Limited 4956435 Dormant 1 Victrex Trustee Limited 3075501 Dormant 1 Victrex USA Holdings Limited 7752971 Dormant Zyex Limited 2890014 Dormant Zyex Group Limited 2839512 Dormant Zyex Reclaim Limited 2890 011 Dormant 1 Victrex USA Holdings Inc. Intermediate holding company 300 Conshohocken State Road, Suite 120, Victrex USA Inc. Trading entity West Conshohocken, PA 19428, USA Invibio Inc. Trading entity Invibio Device Components Trading entity Manufacturing Inc. 1 Victrex Europa GmbH Trading entity Langgasse 16, 65719 Hofheim, Germany 1 Victrex Japan, Inc. Trading entity Mita Kokusai Building Annex, 1-4-28 Mita, Minato-ku, Tokyo, 108/0073, Japan Victrex High Performance Materials Trading entity Victrex Asian Innovation & Technology Centre, (Shanghai) Co., Ltd Part B Building G, No. 1688, Zhuanxing Road, Xinzhuang Industry Park, Shanghai, 201108, China Invibio (Beijing) Trading Co., Limited Trading entity Room 7108, Building 7, Second Lane 5, The South of Xiang Jun, Chao Yang District, Beijing, 100020, China Kleiss Gears, Inc. Trading entity 390 Industrial Avenue, Grantsburg, WI 54840, USA TxV Aerospace Composites LLC Trading entity 55 Broadcommon Road, Bristol, Rhode Island, RI 02809, USA Victrex Hong Kong Limited Trading entity Level 54, Hopewell Centre 183, Queen’s Road East, Hong Kong Subsidiary undertakings with non-controlling interests Panjin VYX High Performance Trading entity Room 501–23, Technology Materials Co., Ltd Mansion, Qingyu Road East, Zhifang Street North, Liaodong Bay New District, Panjin, Liaoning Province, China Associates Bond 3D High Performance Trading entity Institutenweg 25A, 7521 PH, Technology BV Enschede, Netherlands Joint operations 2 Aghoco 1491 Limited 10523749 Trading entity Victrex Technology Centre, Hillhouse International, Thornton Cleveleys, Lancashire FY5 4QD, UK Investments Surface Generation Limited 4379384 Trading entity 7 Brackenbury Court, Lyndon Barns, Edith Weston Road, Lyndon, Oakham LE15 8TW, UK 1 Directly held by Victrex plc. 2 On 13 December 2016, the Group, via its subsidiary Victrex Manufacturing Limited, incorporated Aghoco 1491 Limited with AGC Chemicals Europe Limited. Aghoco 1491 Limited is a joint arrangement in which the Group holds equal ownership and rights over the entity. The purpose of Aghoco 1491 Limited is to build, operate and maintain an electrical substation (cost of c.£3m) for both parties’ own use to ensure continuity of electrical supply. Due to the terms of the joint arrangement, Aghoco 1491 Limited meets the criteria to be accounted for as a joint operation. 162 Victrex plc Annual Report 2022 ## 11. Interests in other entities continued ### Company continued The Group also had an investment in Magma Global Limited (company number 6528820, registered office address Magma House, Trafalgar Wharf, Hamilton Road, Portsmouth, Hampshire PO6 4PX) until 13 October 2021, when the Group disposed all of its shares. Annual reports and accounts are filed with Companies House for all UK dormant companies. All subsidiaries are wholly owned, with the exception of Parijn VYX High Performance Materials Co., Ltd ('PVYX'), and are involved in the principal activities of the Group. In the opinion of the Directors the recoverable amount of investments in and amounts due from the Company's subsidiary undertakings are at least the carrying value at which they are stated in the balance sheet. ## 12. Deferred tax assets and liabilities | | As at 30 September 2022 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Property, plant and equipment £m | Employee benefits £m | Inventories £m | Unremitted earnings £m | Other £m | Total £m | Set-off of deferred tax liabilities* £m | Net £m | | Deferred tax assets | — | 1.5 | 6.1 | — | 1.6 | 9.2 | (2.0) | 7.2 | | Deferred tax liabilities | (32.0) | (3.7) | — | (0.6) | — | (36.3) | 2.0 | (34.3) | | Net deferred tax (liabilities)/assets | (32.0) | (2.2) | 6.1 | (0.6) | 1.6 | (27.1) | — | (27.1) | | | As at 30 September 2021 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Property, plant and equipment £m | Employee benefits £m | Inventories £m | Unremitted earnings £m | Other £m | Total £m | Set-off of deferred tax liabilities* £m | Net £m | | Deferred tax assets | — | 2.0 | 5.5 | — | 1.4 | 8.9 | — | 8.9 | | Deferred tax liabilities | (27.4) | (3.5) | — | (0.5) | (0.2) | (31.6) | — | (31.6) | | Net deferred tax (liabilities)/assets | (27.4) | (1.5) | 5.5 | (0.5) | 1.2 | (22.7) | — | (22.7) | * At 30 September 2022, the Group has applied the tax consolidation legislation, in accordance with IAS 12, whereby deferred tax assets and liabilities recognised on consolidation have been allocated to the tax jurisdictions where they arise, resulting in an offset within deferred tax assets and deferred tax liabilities in the Balance sheet. | | Note | Property, plant and equipment £m | Employee benefits £m | Inventories £m | Unremitted earnings £m | Other £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Movement in net provision** | | | | | | | | | At 1 October 2020 | | (22.4) | (0.4) | 7.4 | — | 1.2 | (14.2) | | Prior period adjustment | | 0.1 | — | — | — | — | 0.1 | | Change in UK deferred tax rate | | (6.1) | (0.2) | 0.2 | — | — | (6.1) | | Recognised in income statement | 7 | 1.0 | 0.2 | (2.1) | (0.5) | — | (1.4) | | Recognised in other comprehensive income | | — | (1.1) | — | — | — | (1.1) | | At 30 September 2021 | | (27.4) | (1.5) | 5.5 | (0.5) | 1.2 | (22.7) | | Exchange differences | | — | — | — | — | 0.2 | 0.2 | | Prior period adjustment | | (1.7) | — | — | — | — | (1.7) | | Recognised in income statement | 7 | (2.9) | 0.5 | 0.6 | (0.1) | 0.2 | (1.7) | | Recognised in other comprehensive income | | — | (0.1) | — | — | — | (0.1) | | Recognised directly in equity | | — | (1.1) | — | — | — | (1.1) | | **At 30 September 2022** | | **(32.0)** | **(2.2)** | **6.1** | **(0.6)** | **1.6** | **(27.1)** | Of the net deferred tax liability of £27.1m (FY 2021: £22.7m), £4.5m net asset (FY 2021: £3.0m net asset) is expected to be recovered no more than 12 months after the reporting period, and £31.6m net liability (FY 2021: £25.7m net liability) is expected to be settled more than 12 months after the reporting period. Deferred tax liabilities of £0.6m (FY 2021: £0.5m) have been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of £11.8m of the EU subsidiaries, as the Group no longer benefits from the EU Parent Subsidiary Directive on dividends payable from 1 January 2021. It is likely that future amounts will be remitted as a dividend rather than being permanently reinvested. Outside the EU no deferred tax liabilities have been recognised (FY 2021: £nil) for the withholding tax and other taxes, as such amounts are permanently reinvested, and the Group can control the timing of any dividends. Unremitted earnings from non-EU subsidiaries totalled £54.2m at 30 September 2022 (FY 2021: £43.7m). Annual Report 2022 **Victrex plc** 143 FINANCIAL STATEMENTS FINANCIAL STATEMENTS Notes to the financial statements continued ## 12. Deferred tax assets and liabilities continued ### Impact of climate change Deferred tax assets are recognised to the extent that it is probable that future taxable profits are generated against which to utilise the carried forward tax losses and other timing differences. The majority of the deferred tax assets relates to profit in inventory generated when the UK manufacturing entities sell products to overseas subsidiaries prior to onward sale to the end customer. The targeted inventory levels at overseas locations is set at approximately three to four months, a time period considered to be too short to be impacted by climate change. The short time period between 30 September 2022 and the expected external sale of the aforementioned inventory makes the realisation of the deferred tax asset probable, supporting its recognition at the end of the year. ### Unrecognised deferred tax assets In the US, the Group has unrelieved net operating losses arising in the year ended 30 September 2022 of £xvi (FY 2021: £3.9m). The potential deferred tax asset on the cumulative unrelieved tax losses of £6.3m in the USA amounts to £1.6m (FY 2021: £2.0m), which have accumulated from the early stage losses resulting from the readiness investment in Kleiss Grays Inc. and TAV Aerospace Composites LLC. Given the early stage of these two entities and their alignment to individual mega-programmes, the time to profitably is uncertain with further losses expected in the short term. As a result it is not considered probable that the losses will be utilised over a reasonable time frame. In addition, the Group has unrelieved net operating losses arising in the year ended 30 September 2022 of £2.9m (FY 2021: £1.3m), which relate to the early stage losses in Ranjit VYX High Performance Materials Co. Ltd. The potential deferred tax asset on these losses amounts to £1.1m (FY 2021: £0.2m). The Company is now in the commissioning phase ahead of commencing manufacturing towards the end of FY 2023. The Company is not expected to become profitable until it produces at approximately 50% of its capacity. The uncertainty over the time period to profitability and therefore utilisation of the losses means that recovery within a reasonable time frame is not probable. ## 13. Inventories Inventories are measured at the lower of cost or net realisable value. The cost of inventories is based on the first-in, first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on the higher of actual and normal production levels). Cost is calculated using the standard cost method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. In calculating the estimated selling price a number of factors are taken into account, including the age of the inventory, customer order profiles, the quality status, alternative routes to market and options to reprocess. Where the net realisable value is below the cost of the inventory a provision is made to write down the inventory to the net realisable value which is expressed to the profit and loss account. If subsequently the value realised from the inventory is above the net realisable value the provision is written back to the profit and loss account. ### Critical judgements and key sources of estimation uncertainty in relation to valuation of inventories The carrying value of inventory, comprising raw materials, work in progress and finished goods totalling £86.8m, requires the use of estimates and judgement. The Group absorbs directly attributable costs over the higher of actual production and normal production to avoid absorbing more overheads than incurred in periods of high production or absorbing excess overheads in periods of low production. Judgement is required when assessing the level of normal production to compare with the actual production in determining the rate at which to absorb the directly attributable costs. This judgement considers historical production levels, budgeted production, as well as the relationship between production and sales when concluding on the appropriate level over which to absorb production costs. The primary estimate is in respect of the level of variations, including material usage and purchase price variances, between actual and standard cost absorbed into inventory at each period end. Management uses its detailed experience in the process of forming its view on the adjustments required to record inventory at cost. Management has assessed the range of possible outcomes which might result from a change in assumptions and has determined this to be from a £1.0m increase in inventory to a £6.0m reduction in inventory at 30 September 2022 and therefore could result in a material adjustment to the carrying value of inventory within the next 12 months. Inventory provisions are put in place for slow moving and potentially obsolete inventory as well as damaged and/or out of specification product where cost is considered to be higher than net realisable value. The level of provisioning is an estimate, with judgement required on ageing, customer order profiles, alternative routes to market and the option to reprocess. The estimation of the range of possible outcomes is an increase in the value of inventory of £2.0m to a decrease of £3.0m and is therefore not considered to materially impact the carry value of inventory within the next 12 months. ### Impact of climate change The impact of climate change on consumer behaviour may affect the demand for the Group's products resulting in obsolescence or reduced demand thus reducing the net realisable value. The Group targets carrying approximately three to four months of inventory at any point in time, a time frame over which the impact of climate change on consumer behaviour is not expected to impact. The majority of the Group's core products serve multiple applications in multiple markets further reducing the risk of material obsolete inventory over the longer term with each SKU's inventory holding levels and manufacturing plan regularly reviewed against forecast demand over the next 24 months. 144 Victrex plc Annual Report 2022 ### 13. Inventories continued | As at 30 September | 2022 £m | 2021 £m | | --- | --- | --- | | Raw materials and consumables | 16.7 | 11.7 | | Work in progress | 13.7 | 11.2 | | Finished goods | 56.4 | 47.4 | | | **86.8** | **70.3** | The amount of inventory expensed in the period is £147.1m (FY 2021: £131.6m). During the year the Group wrote down inventory by £3.2m (FY 2021: £4.0m) and reversed previously written down inventory by £2.5m (FY 2021: £1.5m) resulting in a net increase in the overall inventory write down charge in the year of £0.7m (FY 2021: increase of £2.5m). Victrex continues to focus on driving down aged and non-conforming product by working with suppliers and customers, reworking and repackaging product to realise value from this inventory. ### 14. Trade and other receivables Trade receivables are amounts due from customers for goods sold in the ordinary course of business. Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method less any impairment losses. The carrying amount of these balances approximates to fair value due to the short maturity of amounts receivable. Allowances are calculated by reference to credit losses expected to be incurred over the lifetime of the receivable using the simplified approach, as described in note 16. | As at 30 September | Group | | Company | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Trade receivables | 39.3 | 26.7 | — | — | | Amounts owed by Group undertakings | — | — | 191.9 | 152.7 | | Prepayments and accrued income | 20.1 | 12.2 | — | — | | Sales taxes recoverable | 5.6 | 8.4 | — | — | | Other receivables | 3.1 | 1.8 | — | — | | | **68.1** | **49.1** | **191.9** | **152.7** | Amounts owed by Group undertakings are interest free, unsecured and repayable on demand. These balances have been considered for impairment and no credit losses are expected on these balances. The value of MUPs recognised but not invoiced is included in prepayments and accrued income. The value at 30 September 2022 was £1.8m (30 September 2021: £1.7m). No credit loss has been recognised in respect of the MUPs balance at 30 September 2022 (30 September 2021: £n). No credit losses are expected on the sales taxes recoverable balance due to the financial strength of the counterparties. ### 15. Borrowings Borrowings are recognised initially at fair value, which equals the proceeds received less attributable transaction costs. Following the initial recognition, borrowings are subsequently held at amortised cost. | As at 30 September | 2022 £m | 2021 £m | | --- | --- | --- | | **Due within one year** | | | | Bank loans | 0.9 | — | | **Total due within one year** | **0.9** | **—** | | **Due after one year** | | | | Bank loans | 14.8 | — | | Loan payable to non-controlling interest | 6.8 | 5.9 | | **Total due after one year** | **21.6** | **5.9** | Bank loans are repayable in line with an agreed schedule up to December 2026. Interest is charged at the five-year Loan Prime Rate of the People's Republic of China, which has been in the range of 4.31%–4.65% in the period between the initial draw-down and 30 September 2022. The purpose of the loan is funding of capital expenditure in China and is guaranteed by Victrex plc. Interest payable is capitalised as part of the qualifying capital expenditure within property, plant and equipment. During the year £0.3m of interest has been capitalised accordingly. The loan from the non-controlling interest, YX, is unsecured and is repayable on 30 September 2026 or such date as may be mutually agreed by YX and Victrex Hong Kong Limited. Interest is charged at 4% per annum. Interest payable on the loan payable is rolled up into the value of the loan, until repayment occurs. The purpose of the loan is funding of capital expenditure in China, with the interest payable also capitalised as part of that qualifying capital expenditure within property, plant and equipment. During the year, interest of £0.2m has been capitalised accordingly. Annual Report 2022 Victrex plc 165 FINANCIAL STATEMENTS FINANCIAL STATEMENTS ## Notes to the financial statements continued ### 16. Financial instruments and risk management Derivative financial instruments and hedging activities Derivative financial instruments are primarily used by the Group to manage its exposure to changes in foreign exchange rates relating to overseas sales and purchases. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. The Group hedges a proportion of its net forecast sales, purchases and capital expenditure which are denominated in a foreign currency (cash flow hedge) using forward exchange contracts. The Board is responsible for setting the hedging policy which is detailed overleaf. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items including whether or not a net position is being hedged. A conclusion is reached as to whether the transaction qualifies as a cash flow hedge. Details on hedge documentation are shown below. Cash flow hedges As permitted by IFRS 9 B.6.6.1, the Group designates overall net positions as hedged items when: u transactions are managed as net positions for risk management purposes; u the hedges are for foreign currency risks; and u the initial hedge designation and documentation set out how the items within the net position will affect the income statement. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used inhedging transactions are effective in offsetting changes in cash flows of hedged items. These foreign exchange contracts are initially recognised at fair value, with most having maturities of less than one year after the balance sheet date. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, ora highly probable forecast transaction, the effective portion of changes in fair value is recognised in equity via the Statement ofcomprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement, throughsales, marketing and administrative expenses. The recognition of any cumulative gain or loss existing in equity is aligned to the timing of the hedged transaction impacting the income statement and is classified as follows: u hedging of a net position – separately on the face of the income statement within gains/(losses) on foreign currency net hedging; and u other cash flow hedges – cumulative gain or loss existing in equity at the time when the forecast transaction occurs is recognised in the income statement in the corresponding line that the hedged item goes through being revenue, cost of sales or sales, marketing and administrative expenses. When a forecast transaction is no longer expected to occur, and therefore does not meet the criteria for cash flow hedge accounting, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement, through sales, marketing andadministrative expenses. Hedge documentation and effectiveness testing The documentation includes identification of the hedging item(s), the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements. Hedge effectiveness is a qualitative assessment of effectiveness performed in accordance with IFRS 9. A hedging relationship qualifies forhedge accounting if it meets all the following effectiveness requirements: u there is an economic relationship between the hedged item and the hedging instrument; u the effect of the credit risk does not dominate the value changes that result from the economic relationship; and u the hedge ratio of the hedging relationship is the same as that used for risk management purposes. For financial instruments not designated in hedge accounting relationships or that do not meet the criteria for hedge accounting, the gain or loss on remeasurement to fair value is recognised immediately in the income statement through sales, marketing and administrative expenses. Other derivative financial instruments Other financial derivatives are stated at the present value of the exercise price which is based on the expected cash payment associated with the arrangement and are included as a liability in the Group’s balance sheet. Subsequent changes in the value of the liability to fair value are recognised in the income statement. If the financial derivative expires unexercised, the liability is derecognised and a corresponding non-controlling interest is recognised, withany difference being recognised in equity. 166 Victrex plc Annual Report 2022 ## 16. Financial instruments and risk management continued ### Group #### Currency risk Currently, the Group exports in excess of 98% of sales from the UK and also makes raw material purchases overseas. Currency risk is managed by the Currency Committee, which is chaired by the Chief Financial Officer and comprises the Chief Executive Officer and senior finance executives. It meets monthly to review and manage the Group's currency hedging activities, in line with the hedging policy approved by the Board. The Group's hedging policy is to defer the impact on profits of currency movements by hedging: - → a minimum of 80% and a maximum of 100% of projected transaction exposures arising from trading in the forthcoming six-month period; and - → a minimum of 75% and a maximum of 100% of projected transaction exposures arising in the following six-month period. Profitability can vary due to the impact of fluctuating exchange rates on the unhedged portion of the transaction exposures and from revised forecasts of future trading, which can lead to an adjustment of currency cover in place. In addition, the Group includes a number of foreign subsidiaries. As a result of these factors, the Group's financial statements are exposed to currency fluctuations. The currencies giving rise to this risk are primarily US Dollar and Euro. #### Sensitivity analysis The impact of a 5% strengthening in the average Sterling/US Dollar and Sterling/Euro rates reduces profit for 2022 by £4.8m and £6.0m (FY 2021: £5.1m and £5.7m) respectively. The impact of a 5% strengthening in the average Sterling/US Dollar and Sterling/Euro rates reduces equity for 2022 by £3.2m and £1.1m (FY 2021: £1.9m and £1.3m) respectively. In accordance with IFRS 9, the fair value of gains and losses recognised on cash flow hedges is recognised in the consolidated income statement as part of gross margin. The notional contract amount, carrying amount and fair value of the Group's forward exchange contracts and swaps are as follows: | | As at 30 September 2022 | | As at 30 September 2021 | | | --- | --- | --- | --- | --- | | | Notional contract amount £m | Carrying amount and fair value £m | Notional contract amount £m | Carrying amount and fair value £m | | Current assets | — | — | 61.2 | 2.9 | | Current liabilities | **197.5** | **(19.9)** | 106.9 | (1.9) | | | **197.5** | **(19.9)** | 168.1 | 1.0 | The fair values have been calculated by applying (where relevant), for equivalent maturity profiles, the rate at which forward currency contracts with the same principal amounts could be acquired at the balance sheet date. These are categorised as Level 2 within the fair value hierarchy under IFRS 7. The following table indicates the periods in which cash flows associated with the maturity date of the forward foreign exchange contracts for which hedge accounting is applied are expected to occur: | | As at 30 September 2022 | | | | As at 30 September 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Expected cash flows £m | 6 months or less £m | 6 to 12 months £m | 12 to 18 months £m | Expected cash flows £m | 6 months or less £m | 6 to 12 months £m | 12 to 18 months £m | | Forward exchange contracts: | | | | | | | | | | – Assets | — | — | — | — | 61.2 | 46.2 | 8.7 | 6.3 | | – Liabilities | **197.5** | **85.8** | **90.1** | **21.6** | 106.9 | 36.4 | 61.4 | 9.1 | | | **197.5** | **85.8** | **90.1** | **21.6** | 168.1 | 82.6 | 70.1 | 15.4 | The average exchange rates on open forward currency contracts are: | US Dollar | **1.34** | **1.29** | **1.27** | 1.33 | 1.39 | 1.37 | | --- | --- | --- | --- | --- | --- | --- | | Euro | **1.17** | **1.16** | **1.15** | 1.12 | 1.16 | 1.15 | Gains and losses deferred in the hedging reserve in equity on forward foreign exchange contracts at 30 September 2022 will be recognised in the income statement during the period in which the hedged forecast transaction affects the income statement, which is typically one to two months prior to the cash flow occurring. At 30 September 2022, there are a number of hedged foreign currency transactions which are expected to occur at various dates during the next 12 months. During the year, losses of £3.1m (FY 2021: gains of £0.8m) relating to unsettled forward exchange contracts on the balance sheet at 30 September 2022 were released to the income statement. Gains and losses recognised in the income statement on contracts which are yet to settle are adjusted as a non-cash movement on the Cash flow statement. This equated to a loss of £4.0m in the year (FY 2021: gain of £0.5m). There was no hedge ineffectiveness during the year (FY 2021: nil). The hedge ratio is 1:1 in all instances. Annual Report 2022 Victrex plc 147 FINANCIAL STATEMENTS FINANCIAL STATEMENTS # Notes to the financial statements continued # **16. Financial instruments and risk management continued** # **Group continued** # **Credit risk** The Group manages exposure to credit risk at many levels ranging from Executive Director approval being required for the credit limits of larger customers, to the use of letters of credit and cash in advance where appropriate. Internal procedures require regular consideration of credit ratings, both internally for lower value customers and recognised credit reference agencies for higher value customers, payment history, aged items and proactive debt collection. All customers are assigned a credit limit which is subject to annual review. Consideration is given to significant adverse changes in business, financial and economic conditions that may cause a significant change in the ability of customers to meet their obligations. Any adverse data relating to these factors is considered in determining whether there has been a significant increase in credit risk of a financial asset on an ongoing basis throughout each reporting period. Regardless of the analysis, an increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment. The Group has applied the simplified approach to measuring expected credit losses, which requires lifetime expected losses to be recognised from initial recognition for trade receivables. Lifetime expected credit losses for trade receivables are calculated based on historical loss rates and adjusted where necessary for relevant forward-looking estimates. Trade receivables have been grouped for this analysis based on shared credit risk characteristics, including the segment and country/region in which the customer operates. The model, which considers macroeconomic information, has been applied to the Group's two segments differently. For trade receivables in the industrial sector, a different loss rate has been applied to the US and Japan compared to the remainder of the segment's geographical markets. In the Medical sector, a single higher rate of allowance has been used to reflect the higher risk of default of the customer base. The Group's payment terms typically range from 30 to 60 days depending on geography. Trade receivables are specifically impaired and considered in default when the amount is in dispute, when customers are believed to be in financial difficulty, or if any other reason exists which implies that there is doubt over the recoverability of the debt. They are written off when there is no reasonable expectation of recovery, based on an estimate of the financial position of the customer. # **Impact of climate change** Climate change will impact the Group's customers in different ways and uses different time horizon. Whilst the overall impact of climate change on the Group's revenue is anticipated to be positive, there will be market/electors which are adversely impacted. This is not anticipated to have an adverse impact in the short-term assessment of recoverability, i.e. over the life of the receivables on the balance sheet at 30 September 2022. The ageing of trade receivables is shown below with 89% (opt up) due of which the vast majority will be cleared within 60 days of the year end. The Group monitors the ageing and profile of the receivables on a regular basis, including the regular use of external credit rating agencies, and updates the expected credit loss model assumptions if evidence of changing trends or risk profiles emerges. Trade receivables, being 'held to collect' assets, can be analysed as follows: | As at 30 September | 2022 £m | 2021 £m | | --- | --- | --- | | Amounts not past due | 36.0 | 24.4 | | Amounts past due: | | | | – Less than 30 days | 2.3 | 2.2 | | – 30–60 days | 0.9 | 0.3 | | – More than 60 days | 1.2 | 0.1 | | Total past due | 4.4 | 2.6 | | Lifetime expected credit losses | (1.1) | (0.3) | | Amounts specifically impaired | 0.1 | 0.5 | | Specific allowances for bad and doubtful debts | (0.1) | (0.5) | | Carrying amount of impaired receivables | — | — | | **Trade receivables net of allowances** | **39.3** | **26.7** | | Movements in the allowance for impairments were: | | | | | 2022 £m | 2021 £m | | At beginning of year | 0.8 | 1.3 | | Charge in the year | 1.4 | — | | Release of allowance | (1.0) | (0.5) | | **At end of year** | **1.2** | **0.8** | Victrex plc Annual Report 2022 ## 16. Financial instruments and risk management continued Group continued Credit risk continued The range of estimated credit loss ('ECL') allowance is as follows: | | Current £m | Less than 90 days over the £m | 90 to 99 days over the £m | 80 to 99 days over the £m | More than 90 days over the £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | | **2022** | | | | | | | | % allowance | 0%–0.3% | 0.5%–1.5% | 20%–50% | 50%–60% | 75%–100% | | | Trade receivables | 36.0 | 2.3 | 0.9 | 0.6 | 0.7 | **40.5** | | Allowance (inclusive of specific provision) | (0.1) | (0.1) | (0.2) | (0.3) | (0.5) | **(1.2)** | | | | | | | | **39.3** | | **2021** | | | | | | | | % allowance | 0%–0.3% | 0.5%–1.5% | 20%–50% | 50%–60% | 75%–100% | | | Trade receivables | 24.4 | 2.2 | 0.3 | 0.1 | 0.5 | 27.5 | | Allowance (inclusive of specific provision) | (0.1) | — | (0.1) | (0.1) | (0.5) | (0.8) | | | | | | | | **26.7** | The credit risk in respect of cash and cash equivalents, other financial assets and derivative financial instruments is limited because the counterparties with significant balances are established international banks whose credit ratings are monitored on an ongoing basis. These balances are therefore considered to have low credit risk on initial recognition. ### Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and other short-term deposits with original maturities typically of three months or less. The cash and cash equivalents disclosed in the Group balance sheet and in the Group statement of cash flows include £2.8m ring-fenced in the Group's Chinese subsidiaries, which is committed to capital expansion (FY 2021: £12.5m) and therefore is not available for general use by the other entities within the Group. ### Other financial assets Cash invested in term or notice deposits with original maturities greater than three months in duration does not meet the criteria to be classified as cash and cash equivalents. Accordingly, these deposits have been presented within other financial assets and are carried at amortised cost in accordance with IFRS 9. As at 30 September 2022, the maximum exposure with a single bank for deposits (cash and cash equivalents and other financial assets) was £26.3m (FY 2021: £32.5m) for the Group. As at 30 September 2022, the largest mark to market exposure for gains on forward foreign exchange contracts to a single bank was £ml (FY 2021: £1.7m) as all forward foreign exchange contracts were 'out of the money' at this date. The amounts on deposit at the year end represent the Group's maximum exposure to credit risk on cash and deposits. ### Liquidity risk The Group's objective in terms of funding capacity is to ensure that it always has sufficient short-term and long-term funding available, either in the form of the Group's cash resources or committed bank facilities. The Group has sufficient funds available to meet its current funding requirements for both revenue and capital expenditure. In order to further manage liquidity risk to an acceptable level, the Group has a bank facility of £40m (£20m committed and £20m accordion), which expires in October 2024, all of which was undrawn at the year end. The facility contains covenant measures that are tested biannually. They consist of leverage, measuring debt to equity, and interest cover, measuring the interest charge related to profit before interest. As at 30 September 2022, the Group had a cash and cash equivalents balance of £58.7m (FY 2021: £74.9m). In addition to this, the Group had cash held on 95-day notice deposit accounts of £10.1m (FY 2021: £37.5m). The maximum deposit length utilised by the Group when cash is invested both during the year ended 30 September 2022 and up to the date of this report is 95 days (FY 2021: 95 days). ### Price risk The Group's products contain a number of key raw materials and its operations require energy, notably electricity and natural gas. Any increase or volatility in prices and any significant decrease in the availability of raw materials or energy could affect the Group's results. Victrex strives to obtain the best prices and uses contractual means to benefit where appropriate and possible. The Group has a significant degree of control over its supply chain which enables it to effectively manage the risk in this area. FINANCIAL STATEMENTS Annual Report 2022 **Victrex plc** 149 FINANCIAL STATEMENTS Notes to the financial statements continued # **16. Financial instruments and risk management continued** # **Group continued** # **Capital management** The Group defines the capital that it manages as the Group's total equity. The Group's policy for managing capital is to maintain a strong balance sheet with the objective of maintaining customer, supplier and investor confidence in the business and to ensure that the Group has sufficient resources to be able to invest in future development and growth of the business. The Board does not expect to make significant share repurchases in 2022, although there is a resolution proposed at each AGM to authorise the Company to make one or more market purchases of its ordinary shares up to a maximum number of shares equal to 10% of its issued ordinary share capital as at the date of the Notice of Annual General Meeting. The Group's capital and equity ratio is as follows: | As at 30 September | 2022 £m | 2021 £m | | --- | --- | --- | | Total equity | **490.6** | 511.7 | | Total assets | **641.6** | 615.3 | | **Equity ratio** | **76%** | 83% | # **Financial instruments** # **Summary of categories of financial assets and liabilities** | As at 30 September | Note | Classification under 3Q 8 | Correspondents and fair value | | | --- | --- | --- | --- | --- | | | | | 2022 £m | 2021 £m | | **Financial assets** | | | | | | Forward exchange contracts used for hedging (derivative instruments) | | Fair value – hedging instrument | — | 2.9 | | Unquoted investments | 11 | FVTPL | **3.5** | 8.9 | | Other financial assets held at fair value | | FVTPL | **6.6** | 3.8 | | Trade and other receivables | 14 | Amortised cost | **42.4** | 28.5 | | Cash and cash equivalents | | Amortised cost | **58.7** | 74.9 | | Other financial assets | | Amortised cost | **10.1** | 37.5 | | **Financial liabilities** | | | | | | Forward exchange contracts used for hedging (derivative instruments) | | Fair value – hedging instrument | **(19.9)** | (1.9) | | Borrowings – due within one year | 15 | Amortised cost | **(0.9)** | — | | Borrowings – due after one year | 15 | Amortised cost | **(21.6)** | (5.9) | | Trade and other payables | 18 | Other financial liabilities | **(59.7)** | (49.4) | # **Financial assets and liabilities held at fair value** Fair value is determined using the fair value hierarchy which takes into account the availability of input data into the fair value calculation, with levels going from Level 1 (quoted market prices available) through to Level 3 (unobservable inputs) with more assumptions inherent in the fair value calculation of Level 3 assets. Where observable inputs are not available then another valuation technique is used, such as an income approach or market approach. All financial assets and liabilities measured at fair value are categorised as Level 2 within the fair value hierarchy, with the exception of investments in unquoted companies and other financial assets held at fair value which are categorised as Level 3. The maturity profiles of the derivative instruments in designated hedge accounting relationships and trade receivables are given on pages 167 and 168 respectively. Information on the maturity of the financial liabilities is included both within this note and within note 15. For trade and other payables there are no amounts due after one year, the majority falling due in 30 days or less. All fair value measurements are recurring. VICTRAX plc Annual Report 2022 ### 16. Financial instruments and risk management continued FINANCIAL STATEMENTS Reconciliation of movement in net funds/(debt) Net funds/(debt) consists of cash and cash equivalents together with other financial assets, long-term and short-term loans and finance lease liabilities. | | | At | Exchange and | | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 October | | other non-cash | Long-term | | 30 September | | | Note | | 2021 Cash flow | movements | | loans | | 2022 | Cash and cash equivalents 16 74.9 (18.6) 2.4 — 58.7 Other financial assets 16 37.5 (27.4) — — 10.1 Borrowings – due within one year 15, 16 — — — (0.9) (0.9) Borrowings – due after one year 15, 16 (5.9) 0.3 (2.3) (13.7) (21.6) Lease liabilities 19 (10.0) 2.1 (1.7) — (9.6) Net funds 96.5 (43.6) (1.6) (14.6) 36.7 | | | At | Exchange and | | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 October | | other non-cash | Long-term | | 30 September | | | Note | | 2020 Cash flow | movements | | loans | | 2021 | Cash and cash equivalents 16 73.1 2.2 (0.4) — 74.9 Other financial assets 16 — 37.5 — — 37.5 Borrowings – due after one year 15, 16 — — — (5.9) (5.9) Lease liabilities 19 (7.1) 1.8 (4.7) — (10.0) Net funds 66.0 41.5 (5.1) (5.9) 96.5 Company The only receivables of the Company are amounts owed by subsidiary undertakings. These are carried at amortised cost subsequent to initial recognition. There are no future expected credit losses on amounts owed by Group undertakings. ### 17. Retirement benefits Employee benefits Defined contribution pension schemes Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred. Defined benefit pension schemes The Group’s net obligation in respect of defined benefit pension schemes recognised in the balance sheet is the present value of the future benefits that employees have earned in return for their service in the current and prior periods, less the fair value of plan assets. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and have terms to maturity approximating to the terms of the related pension liability. When the calculation results in a benefit to the Group, the recognised asset is the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply. An economic benefit is available to the Group if it is realisable during the life of the plan or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised in profit or loss. Actuarial gains and losses are immediately recognised in full through the Statement of comprehensive income. Critical judgements and key sources of estimation uncertainty in relation to pension scheme valuation The valuation of pension scheme liabilities is calculated in accordance with Group policy. The valuation is prepared by independent qualified actuaries, but significant estimates are required in relation to the assumptions for pension increases, inflation, the discount rate applied and member longevity, which underpin the valuations. Information about the assumptions relating to retirement benefit obligations and also the sensitivity of the pension liability to movements in these assumptions is presented below. The sensitivity shows that a change in the estimation assumptions could result in a material change in the carrying value of the scheme assets and/or liabilities within the next 12 months. Annual Report 2022 Victrex plc 171 FINANCIAL STATEMENTS Notes to the financial statements continued # **17. Retirement benefits continued** # **Employee benefits continued** # **Impact of climate change** The impact of climate change has been discussed with the UK pension trustee. Whilst not an income statement impacting change, a movement in the net defined benefit pension balance would potentially impact long-term cash flows if further contributions were required or a lower surplus were returned to the Company on satisfaction of all outstanding liabilities. The potential impact of climate change would most likely seen in the value of scheme assets if they were not appropriately managed. At 30 September 2022, the scheme holds approximately 20% of its assets in equities and growth funds spread across a number of funds, each of which is tasked with maximizing return within an appropriate risk framework. In addition, the pension trustees are working on their own ESG policy, into which the Company will have an input, which is likely to result in an ESG linked investment strategy. This will align to the Company's strategy and also ensure that investments are not 'stuck' in declining equities thus raising under performance. As a result, the Directors have concluded that no climate-related risk adjustment is required at 30 September 2022. The Group operates a number of pension schemes for its employees throughout the world. Outside the UK and Germany, the Company operates defined contribution pension schemes. # **Victrex Pension Fund (UK)** The principal scheme operated by the Group is a funded UK pension scheme, which is subject to the statutory funding objective under the Pensions Act 2004, in which employees of UK subsidiary undertakings participate. The scheme has two sections. One section provides benefits on a defined benefit basis with benefits related to final pensionable pay. The defined benefit section was closed to new members from 31 December 2001. From this date new employees have been invited to join the second section that provides benefits on a defined contribution basis. The defined benefit scheme closed to future accrual on 31 March 2016, with employees in the scheme eligible to join the defined contribution scheme. The latest triennial valuation was performed to 31 March 2019 and showed a scheme surplus of £7.9m. The surplus position means the Company has no current obligation to make further contributions to the scheme, although this may change following future valuations. The Company made additional contributions of £1.0m during the years ended 30 September 2020 and 2021 as part of an ongoing programme with the trustees to work towards self-sufficiency. The triennial valuation at 31 March 2022 is in the process of being finalised which is expected to show that the scheme remains in surplus. The Company remains committed to working towards self-sufficiency and intends to continue to make voluntary contributions where appropriate. A contribution of £1m will be made following finalisation of the triennial valuation at 31 March 2022 and the associated investment strategy, unless the outcome of those activities shows that further contributions are not required. The current investment strategy was agreed with the trustees following the last triennial valuation and focused on working towards self-sufficiency with the assets increasingly matched to the nature and term of the liabilities. This included reducing the exposure to equities and increasing the use of liability-driven investments to better manage the scheme's exposure to interest rate risk. A level of growth assets was retained aligned with the longer-term goal of reducing the deficit on a self-sufficiency basis. The investment strategy is reviewed on a regular basis with the trustees and scheme advisors. # **Victrex Europa GmbH Pension Fund (Germany)** The Company operates another defined benefit scheme in Germany for the benefit of one, now retired, employee. Due to the small size of this scheme the disclosure has historically been combined with that of the UK defined benefit scheme. The Company operates another defined benefit scheme in Germany for the benefit of one, now retired, employee. In the prior financial year, the insurance policies which comprise the assets of the scheme have started to mature. At this point, under German law, having received permission from the beneficiary, the Company elected to assume the benefit of these assets for use in the business and leave the scheme unfunded – making the pension payments from Company cash flow. As a result the net liability of the scheme increased in the prior year, and has increased further during the year ended 30 September 2022, as the last remaining assets were transferred to the Company. # **Risks associated with the defined benefit scheme** # **Investment risk** The scheme holds investments in asset classes, such as equities, which have volatile market values, and while these assets are expected to provide real returns over the long term, the short-term volatility can cause additional funding to be required if a deficit emerges. # **Interest rate risk** The scheme's liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the scheme holds assets such as equities the value of the assets and liabilities may not move in the same way, although this is mitigated to some extent by the scheme's liability-driven investment holdings which, although not based on changes in corporate bonds, would be expected to move in a similar way to the liabilities. # **Inflation risk** A significant proportion of the benefits under the scheme are linked to inflation. Although the scheme's assets are expected to provide a good hedge against inflation over the long term, in particular through the scheme's liability-driven investment holdings, movements in the short term could lead to deficits emerging. # **Longevity risk** In the event that members live longer than assumed, an additional deficit will emerge in the scheme, as the present value of the defined benefit liabilities is calculated with regards to a best estimate of the mortality of plan members. Where the IAS 19 valuation shows scheme assets in excess of scheme liabilities, an asset is recognised based on the fact that under the terms of the Trust Deed agreement, the sponsoring company is entitled to any assets that remain in the scheme after the settlement of all pension liabilities. There are no restrictions on the current realizability of the surplus. **Victrex plc** Annual Report 2022 ![img-16.jpeg](img-16.jpeg) ### 17. Retirement benefits continued FINANCIAL STATEMENTS IAS 19 disclosures relating to defined benefits are as follows: Principal actuarial assumptions As at 30 September 2022 – UK Scheme 2022 – German Scheme 2021 – UK Scheme 2021 – German Scheme Discount rate 5.05% 3.72% 1.95% 0.64% RPI inflation 3.80% n/a 3.60% n/a CPI inflation 3.20% 2.00% 3.00% 1.75% Future pension increases 3.50% n/a 3.40% n/a Mortality tables: – Male 92% of S3PMA 100% of RT2018G 92% of S3PMA 100% of RT2018G – Female 95% of S3PFA n/a 95% of S3PFA n/a Mortality improvements: – Model CMI 2021 RT2018G CMI 2020 RT2018G – Long-term rate of improvement 1.25% Individual 1.25% Individual – Initial addition 0.25% Individual 0.50% Individual Life expectancy from age 62 of current pensioners: | | 1 | | | 1 | | 2 | | | 2 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | – Male 25.4 yrs | | 23.4 yrs | | | 25.5 yrs | | 23.2 yrs | | | | | 1 | | | | | 2 | | | | | – Female 27.7 yrs | | | n/a 27.8 yrs | | | | | n/a | | Life expectancy from age 62 of active anddeferred members: | | 3 | | | 3 | | 4 | | | 4 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | – Male 26.6 yrs | | 25.8 yrs | | | 26.7 yrs | | 25.7 yrs | | | | | 3 | | | | | 4 | | | | | – Female 28.9 yrs | | | n/a 29.0 yrs | | | | | n/a | | 1 Life expectancy from age 62 for members aged 62 in 2022. 2 Life expectancy from age 62 for members aged 62 in 2021. 3 Life expectancy from age 62 for members aged 45 in 2022. 4 Life expectancy from age 62 for members aged 45 in 2021. The average duration of the benefit obligation at the end of the reporting period is 17 years (FY 2021: 22 years). Significant actuarial assumptions for the determination of the defined benefit surplus are discount rate and inflation rate. The sensitivity analysis below has been determined based on reasonably possible changes in the assumptions occurring at the end of the reporting period assuming that all other assumptions are held constant: UK Scheme – reduction in fund surplus as at 30 September 2022 2021 Change in assumption £m £m Reduce discount rate by 1% p.a. 8.6 19.0 Increase inflation expectations by 1% p.a. 5.8 15.1 Increase life expectancy by 1 year 1.3 3.0 Interrelationships between the assumptions, especially between discount rate and expected inflation rates, are expected to exist in practice. The above analysis does not take the effect of these interrelationships into account. Amounts recognised in the balance sheet 2022 2021 As at 30 September £m £m Retirement benefit assets UK Scheme 14.9 14.2 Total retirement benefit assets 14.9 14.2 Retirement benefit liabilities German Scheme (2.7) (1.9) Total retirement benefit liabilities (2.7) (1.9) Annual Report 2022 Victrex plc 173 FINANCIAL STATEMENTS Notes to the financial statements continued # **17. Retirement benefits continued** # **UK Scheme/Combined Scheme disclosures** | As at 31 September | UK Scheme | | Combined Schemes | | | | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2020 £m | | Present value of funded obligations | (49.2) | (81.1) | (88.2) | (85.8) | (72.1) | | Fair value of scheme's/schemes' assets | 64.1 | 95.3 | 95.7 | 94.9 | 85.6 | | Net asset before deferred taxation | 14.9 | 14.2 | 7.5 | 9.1 | 13.5 | | Related deferred taxation liability | (3.7) | (3.6) | (1.4) | (1.5) | (2.3) | | **Net asset after deferred taxation** | **11.2** | **10.6** | **6.1** | **7.6** | **11.2** | | Change in assumptions and experience adjustments arising on scheme's/schemes' liabilities | 30.8 | (0.4) | (2.2) | (14.8) | 2.0 | | Experience adjustments arising on scheme's/schemes' assets | (31.4) | 4.1 | (0.8) | 8.9 | 3.6 | # **Changes in the present value of the funded obligation** | | UK Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Defined benefit obligation at beginning of year | (81.1) | (88.2) | | German Scheme obligation disclosed separately in 2021 | — | 4.6 | | Interest cost | (1.6) | (1.3) | | Actuarial gains/(losses) | 30.8 | (0.4) | | Benefits paid | 2.7 | 4.2 | | **Defined benefit obligation at end of year** | **(49.2)** | **(81.1)** | # **Changes in the fair value of the scheme assets** | | UK Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Fair value of scheme assets at beginning of year | 95.3 | 95.7 | | German Scheme assets disclosed separately from 2021 | — | (2.7) | | Interest income on assets | 1.9 | 1.4 | | Return on assets excluding interest | (31.4) | 4.1 | | Contributions by employer | 1.0 | 1.8 | | Benefits paid | (2.7) | (4.2) | | **Fair value of scheme assets at end of year** | **64.1** | **95.3** | # **Major categories of scheme assets** | As at 31 September | UK Scheme | | | UK Scheme | | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 Quoted £m | 2021 Unquoted £m | 2022 Total £m | 2021 Quoted £m | 2021 Unquoted £m | 2021 Total £m | | UK equities | — | 0.3 | 0.3 | — | 0.8 | 0.8 | | Non-UK equities | — | 9.0 | 9.0 | — | 11.1 | 11.1 | | Diversified growth and absolute return funds^{1} | — | 10.3 | 10.3 | — | 12.8 | 12.8 | | Liability-driven instruments^{1} | 19.7 | — | 19.7 | 41.1 | — | 41.1 | | Debt instruments | 5.8 | 16.9 | 22.7 | 7.6 | 20.6 | 28.2 | | Cash in transit | 1.9 | — | 1.9 | — | — | — | | Cash | 0.2 | — | 0.2 | 1.3 | — | 1.3 | | **Fair value of scheme assets at end of year** | **27.6** | **36.5** | **64.1** | **50.0** | **45.3** | **95.3** | 1 Diversified growth and absolute return funds are funds that invest in a wide variety of asset classes in order to deliver real capital appreciation over the medium to long term, typically aiming for a certain level of absolute return. 2 Liability-driven instruments are a portfolio of assets that are linked to the drivers of movements in pension liabilities such as inflation and interest rates. These are assets designed to deliver geared movements in the underlying liabilities as they reflect changes to inflation and interest rates. Quoted assets are those with a quoted price in an active market. Unquoted assets are those which do not have a daily market price and are valued by Investment Managers, except for the insurance policies which are valued at surrender price. 114 Victrex plc Annual Report 2022 ## 17. Retirement benefits continued ### Amounts recognised in the income statement | | Note | UK Scheme | | | --- | --- | --- | --- | | | | 2022 £m | 2021 £m | | Interest on liabilities | | (1.6) | (1.3) | | Interest income on assets | | 1.9 | 1.4 | | **Total included in 'staff costs'** | **5** | **0.3** | **0.1** | The total included in 'staff costs' of £0.3m is included within sales, marketing and administrative expenses (FY 2021: £0.1m). ### Gross amounts of actuarial gains and losses recognised in the Statement of comprehensive income | | UK Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | UK Scheme at beginning of year | 3.7 | — | | (Loss)/gain in year | (0.6) | 3.7 | | **Cumulative amount at end of year** | **3.1** | **3.7** | Up to and including the year ending 30 September 2020 the cumulative amount of actuarial gains and losses on the UK and German schemes were presented on a combined basis and totalled a loss of £16.3m. Obtaining a historical split of this balance between this schemes was not practical and therefore, from 1 October 2021, following the presentation of these schemes gross, the individual cumulative effects were restarted from £nil. The cumulative aggregate amount of actuarial gains and losses on the UK and German schemes at 30 September 2022 was a loss of £13.5m (30 September 2021: loss of £11.8m). ### Actuarial gains and losses arising from changes in demographic and financial assumptions | | UK Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Changes in demographic assumptions | 0.3 | 0.9 | | Changes in financial assumptions | 34.1 | (2.7) | | Experience (losses)/gains on liabilities | (3.6) | 1.4 | | **Total actuarial gains/(losses) on scheme liabilities** | **30.8** | **(0.4)** | | Return on assets excluding interest | (31.4) | 4.1 | | **Total actuarial (losses)/gains** | **(0.6)** | **3.7** | ### German Scheme disclosures | As at 30 September | Bendula Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Present value of funded obligations | (2.7) | (3.5) | | Fair value of scheme assets | — | 1.6 | | Net liability before deferred taxation | (2.7) | (1.9) | | Related deferred taxation asset | 0.7 | 0.5 | | **Net liability after deferred taxation** | **(2.0)** | **(1.4)** | | Change in assumptions and experience adjustments arising on scheme's liabilities | 0.8 | 0.7 | | Experience adjustments arising on scheme's assets | — | 0.1 | ### Changes in the present value of the funded obligation | | German Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Obligations at beginning of year | (3.5) | (4.6) | | Exchange (loss)/gain on opening obligations | (0.1) | 0.4 | | Interest cost | — | (0.1) | | Actuarial gains | 0.8 | 0.7 | | Benefits paid | 0.1 | 0.1 | | **Defined benefit obligation at end of year** | **(2.7)** | **(3.5)** | FINANCIAL STATEMENTS Annual Report 2022 Victrex plc 175 FINANCIAL STATEMENTS Notes to the financial statements continued # **17. Retirement benefits continued** Changes in the fair value of the scheme assets | | German Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Assets at beginning of year | 1.6 | 2.7 | | Exchange gain/(loss) on opening assets | 0.1 | (0.2) | | Return on assets excluding interest | — | 0.1 | | Contributions by employer | — | 0.1 | | Benefits paid | (0.1) | (0.1) | | Assets distributed to employer | (1.6) | (1.8) | | **Fair value of scheme assets at end of year** | **—** | **1.6** | The scheme assets were all held as unquoted insurance policies. Amounts recognised in the income statement in respect of the German Scheme were less than £0.1m (FY 2021, less than £0.1m). The gross amount of actuarial gains and losses recognised in the Statement of comprehensive income in respect of the scheme was £0.8m. | | German Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | German Scheme at the beginning of the year | 0.8 | — | | Movement in year | 0.8 | 0.8 | | **Cumulative amount at end of year** | **1.6** | **0.8** | Actuarial gains and losses arising from changes in demographic and financial assumptions | | German Scheme | | | --- | --- | --- | | | 2022 £m | 2021 £m | | Changes in demographic assumptions | — | 0.4 | | Changes in financial assumptions | 0.8 | 0.2 | | Experience gains on liabilities | — | 0.1 | | **Total actuarial gains on scheme liabilities** | **0.8** | **0.7** | | Return on assets excluding interest | — | 0.1 | | **Total actuarial gains** | **0.8** | **0.8** | # **18. Trade and other payables** Trade payables are obligations to pay for goods acquired in the ordinary course of business from suppliers. Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. | As at 30 September | Group | | Company | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Trade payables | 7.3 | 4.7 | — | — | | Accruals | 40.1 | 38.9 | 0.1 | — | | Other | 12.3 | 5.8 | — | — | | | **59.7** | **49.4** | **0.1** | **—** | The fair value of trade and other payables approximates to their carrying value. 176 **Victrex plc** Annual Report 2022 ## 19. Lease liabilities ### Lease liabilities After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The Group has elected not to recognise ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less and those leases of low-value assets. Payments associated with short-term leases and leases of low-value assets are recognised on a straight line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less that do not contain a purchase option. Low-value assets mainly comprise office equipment. Lease liabilities are initially measured at their present value, which includes the following lease payments: fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate (using the index or rate in place at transbon); amounts expected to be payable by the Group under residual value guarantees; the exercise price of a purchase option if the Group is reasonably certain to exercise that option; payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option; and payments to be made under reasonably certain extension options. Lease liabilities and the corresponding right of use asset are subsequently remeasured where there is a change in future lease payments resulting from a rent review or change in index or rate. The lease payments are discounted using the Group's incremental borrowing rate. Each lease payment is allocated between the principal and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. Lease liabilities recognised at 30 September are recognised as follows: | | £m | | --- | --- | | **Lease liabilities** | | | Balance at 1 October 2020 | 7.1 | | Additions | 4.5 | | Payments in the period | (1.8) | | Interest on lease liabilities | 0.2 | | Balance at 30 September 2021 | 10.0 | | Additions | 1.5 | | Payments in the period | (2.1) | | Interest on lease liabilities | 0.2 | | **Balance at 30 September 2022** | **9.6** | The maturity of these lease liabilities at 30 September is as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Due within one year | **1.8** | 1.8 | | Due between two and five years | **3.3** | 3.5 | | Due after five years | **4.5** | 4.7 | | **Total** | **9.6** | 10.0 | ## 20. Contingent liabilities ### Contingent liabilities Contingent liabilities are potential future cash outflows, where the likelihood of payment is considered more than remote but is not considered probable or cannot be measured reliably. At 30 September 2022, the Group had no contingent liabilities (FY 2021: none). FINANCIAL STATEMENTS Annual Report 2022 Victree plc V17 FINANCIAL STATEMENTS Notes to the financial statements continued ## 21. Share-based payments ### Share-based payment transactions and employee share ownership trusts ('ESOT') The fair value of the employee services received in exchange for the grant of the options is recognised as an expense with a corresponding increase in equity. Share-based payment transactions are recharged from the Company to those subsidiaries benefiting from the service of the employees to whom options are granted. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest and include employee service periods and performance targets which are not related to the Company's share price, such as earnings per share growth. The fair value of the options is measured by the Stochastic model, taking into account the terms and conditions upon which the instruments were granted. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates; if any, in the income statement and a corresponding adjustment to equity over the remaining vesting period. Any failure to meet market conditions, which include performance targets such as share price or total shareholder return, would not result in a reversal of original estimates in the income statement and any remaining charges would be accelerated. The proceeds received, net of any directly attributable costs, are credited to share capital (nominal value) and share premium when the options are exercised. The Group and Company provide finance to the ESOT to purchase Company shares in the open market. Costs of running the ESOT are charged to the income statement. The cost of shares held by the ESOT is deducted in arriving at equity until they are exercised by employees. All share-based payment costs are recharged to the trading entities. All options are settled by the physical delivery of shares. The terms and conditions of all the grants are as follows: ### Victrex 2005/2015 Executive Share Option Plan ('ESOP') All employees are eligible to participate. The Remuneration Committee currently excludes Executive Directors from participating in this plan. Option awards are based on a percentage of basic salary, not exceeding 100% of salary in each financial year. The exercise price of the options is equal to the market price of the shares on the date of grant. ESOP options are conditional on the employee completing three years' service (the vesting period) and achieving the performance condition where applicable. The level of awards vesting will vary depending on EPS growth. In order for awards issued prior to December 2020 to reach the threshold level of vesting, the EPS growth of the Group must exceed 2% per annum with some awards requiring this growth to be above the Retail Price Index. For awards over 33% of salary, the threshold increases to 3%, and then to 4% for awards over 66%. Straight line vesting will occur to the extent that EPS growth falls between these annual EPS growth targets. For awards issued in December 2020 and May 2021, where awards granted are at less than 50% of salary, to reach the threshold level of vesting, the EPS growth of the Group must exceed 5.8% per annum. Shares will vest up to 100% on a straight line basis if the EPS grows by 9.9% over the three-year period. For awards granted at 50% of salary, EPS must be at least 89.25p per ordinary share in the final financial year of the performance period to vest at 20%. Vesting will increase to a maximum vesting of 100% at 100.0p per share in FY 2023, with the options vesting on a straight line basis between these targets. All ESOP options are exercisable from the date of vesting to the 10-year anniversary of the grant date. For awards issued on or after December 2021, where awards granted are at less than 50% of salary, to reach the threshold level of vesting, the EPS growth of the Group over the three-year period must exceed 5%. For awards over 33% of salary, the threshold increases to 7.5%. Straight line vesting will occur to the extent that EPS growth falls between these annual EPS growth targets. For awards granted at 50% of salary, EPS must be at least 98.5p per ordinary share in the final financial year of the performance period to vest at 20%. Vesting will increase to a maximum vesting of 100% at 111.0p per share in FY 2024, with the options vesting on a straight line basis between these targets. All ESOP options are exercisable from the date of vesting to the 10-year anniversary of the grant date. ### Victrex 2015 Shareeave Plan UK resident employees and full-time Directors of the Company or any designated participating subsidiary are eligible to participate. The exercise price of the granted Shareeave Plan options is equal to the market price of the ordinary shares less 20% on the date of grant. ### Victrex 2015 Employee Stock Purchase Plan US-based employees (including Executive Directors) are eligible to participate. The price payable for each ordinary share shall be a price determined by the Board, and it shall not be less than 85% of the lower of the market value of an ordinary share on the date of grant or the date of purchase. Awards may be granted over a number of ordinary shares determined by the amount employees have saved by the end of a one-year savings period. ### Victrex 2009/2019 Long Term Incentive Plan Each year Executive Directors, and senior executives by invitation, are eligible to be awarded options to acquire, at no cost, market purchased ordinary shares in the Company up to a maximum equivalent of 150% of basic salary. In exceptional circumstances, such as recruitment or retention, this limit is increased to 200% of an employee's annual basic salary. Details of the 2019 LTIP can be found within the Directors' remuneration report on page 110. 178 Victrex plc Annual Report 2022 ## 21. Share-based payments continued ### Victrex 2017 Deferred Bonus Scheme ('DBS') Adopted by the Remuneration Committee on 9 October 2017, this plan requires Executive Directors to defer up to a maximum of 100% of their earned bonus into shares for three years. #### Number and weighted average exercise prices of share options | | ESOP | | Sharesave Plan | | Stock Purchase Plan | | LTIP | | DBS | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | | Outstanding at 1 October 2020 | 2,150p | 1,293,036 | 1,815p | 328,898 | — | — | nil p | 243,462 | nil p | 14,190 | | Granted during the year | 2,163p | 198,031 | 1,960p | 89,000 | 2,153p | 11,081 | nil p | 149,702 | — | — | | Forfeited during the year | 2,434p | (332,608) | 1,923p | (13,537) | — | — | nil p | (56,420) | — | — | | Canceled during the year | — | — | 1,972p | (35,196) | — | — | — | — | — | — | | Exercised during the year | 1,829p | (249,619) | 1,486p | (90,291) | 2,153p | (11,081) | nil p | (15,633) | — | (4,543) | | Outstanding at 30 September 2021 | 2,137p | 908,840 | 1,942p | 278,874 | — | — | nil p | 321,111 | nil p | 9,647 | | Granted during the year | 2,369p | 239,359 | 1,891p | 113,785 | 2,153p | 8,059 | nil p | 152,161 | nil p | 23,382 | | Forfeited during the year | 2,212p | (272,910) | 1,939p | (21,204) | — | — | nil p | (131,995) | nil p | — | | Canceled during the year | — | — | 1,962p | (21,939) | — | — | nil p | — | nil p | — | | Exercised during the year | 1,771p | (9,559) | 1,648p | (8,838) | 2,153p | (8,059) | nil p | (14,550) | nil p | (5,237) | | **Outstanding at 30 September 2022** | **2,182p** | **865,730** | **1,932p** | **340,678** | **—** | **—** | **nil p** | **326,727** | **nil p** | **27,792** | | **Range of exercise prices 2022** | **1,502p–2,730p** | | **1,891p–2,164p** | | **—** | | **nil p** | | **n/a** | | | 2021 | 1,502p–2,730p | | 1,286p–2,164p | | — | | nil p | | n/a | | | **Weighted average contractual life (years) 2022** | **6.9** | | **1.9** | | **0.4** | | **8.3** | | **6.8** | | | 2021 | 7.1 | | 2.3 | | 0.4 | | 8.0 | | 5.3 | | | **Exercisable at end of year 2022** | **1,920p** | **285,286** | **1,920p** | **95,022** | **—** | **—** | **nil p** | **7,159** | **—** | **—** | | 2021 | 1,899p | 268,125 | 1,929p | 1,806 | — | — | nil p | 21,709 | — | — | During the year, the weighted average share price at the date of exercise was 2,069p for ESOPs and was 1,784p for the Sharesave Plan. Details of the LTIP and DBS exercises are included in the Directors' remuneration report on pages 121 and 123. #### Fair value of share options and assumptions ##### Fair value of share options and weighted average assumptions | | As at 30 September 2022 | | | | | As at 30 September 2021 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | ESOP | Sharesave Plan | Stock Purchase Plan | LTIP | DBS | ESOP | Sharesave Plan | Stock Purchase Plan | LTIP | DBS | | Fair value at measurement date | 388p | 478p | 164p | 1,899p | 2,272p | 394p | 503p | 363p | 1,721p | 2,094p | | Share price at grant | 2,188p | 2,225p | 1,948p | 2,358p | 2,444p | 2,135p | 2,300p | 2,096p | 2,245p | 2,266p | | Exercise price | 2,181p | 1,932p | n/a | nil p | n/a | 2,136p | 1,942p | n/a | nil p | n/a | | Expected volatility | 29% | 28% | 22% | 28% | n/a | 28% | 27% | 29% | 28% | n/a | | Expected dividends | 2.5% | 2.6% | 3.1% | 2.6% | 2.4% | 2.5% | 2.5% | 2.5% | 2.7% | 2.6% | | Risk-free interest rate | 0.5% | 0.8% | 0.3% | 0.3% | n/a | 0.6% | 0.5% | 0.8% | 0.3% | n/a | | Option life | 10 years | 3 years | 1 year | 10 years | 8 years | 10 years | 3 years | 1 year | 10 years | 8 years | The Company uses the Black-Scholes model for calculating the fair value of the share options where there are no market-based performance conditions. Where there are market-based performance conditions a stochastic model is used. The expected volatility is based on historical volatility over the period prior to grant equal to the expected term. All share options are granted under a service condition and, for ESOP and LTIP, a non-market condition ('EPS'). Such conditions are not taken into account in the grant date fair value measurement of services received. In addition, the LTIP has a market condition ('TSK') (and for the LTIPs issued in FY 2022, a further non-market condition for ESG), which is taken into account in the grant date measurement of fair value. Annual Report 2022 Victrex plc FINANCIAL STATEMENTS FINANCIAL STATEMENTS Notes to the financial statements continued # **21. Share-based payments continued** # **Staff costs – equity-settled share-based payment transactions** | | Note | 2022 Qtr | 2021 Qtr | | --- | --- | --- | --- | | ESOP | | (0.5) | — | | Sharesave Plan | | 0.3 | 0.6 | | LTIP and Deferred Bonus Scheme | | 1.5 | 0.8 | | Total equity-settled share-based payment transactions recognised in staff costs | 5 | 1.3 | 1.4 | | Reclassified from trade and other payables | | 0.5 | — | | Amount recognised directly in equity | | 1.8 | 1.4 | # **22. Share capital and reserves** # **Share capital** | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Number | Qtr | Number | Qtr | | **Allotted, called up and fully paid shares of 1p each** | | | | | | **Ordinary shares** | | | | | | At beginning of year | 86,968,573 | 0.9 | 86,617,582 | 0.9 | | Issued for cash | 26,456 | — | 350,991 | — | | **At end of year** | **86,995,029** | **0.9** | **86,968,573** | **0.9** | The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per ordinary share at meetings of the Company. # **Share premium** During the year 26,456 (FY 2021: 350,991) shares were issued for cash, resulting in an increase in share premium of £0.4m (FY 2021: £6.1m). # **Retained earnings** Retained earnings have been reduced by the reserve for own shares, which consists of the cost of shares of Victrex plc held by employee trusts, and are administered by independent trustees. The total number of shares held in trust as at 30 September 2022 was 87,903 (FY 2021: 108,977). Distribution of shares from the trusts is at the discretion of the trustees. Dividends attaching to these shares have been waived. # **Translation reserve** The translation reserve comprises all foreign exchange differences, since 1 October 2004 (as permitted by IFRS 1), arising from the translation of the financial statements of foreign operations, adjusted for exchange differences arising on intragroup monetary items, that, in substance, form part of the entity's net investment in a foreign operation. # **Hedging reserve** The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to forecast hedged transactions. # **Dividends to shareholders** | | 2022 Qtr | 2021 Qtr | | --- | --- | --- | | **Dividend distribution** | | | | Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved. | | | | **Year ended 30 September 2020** | | | | – Final dividend paid February 2021 at 46.14p per ordinary share | — | 40.0 | | **Year ended 30 September 2021** | | | | – Interim dividend paid July 2021 at 13.42p per ordinary share | — | 11.6 | | – Final dividend paid February 2022 at 46.14p per ordinary share | 40.0 | — | | – Special dividend paid February 2022 at 50.00p per ordinary share | 43.5 | — | | **Year ended 30 September 2022** | | | | – Interim dividend paid June 2022 at 13.42p per ordinary share | 11.7 | — | | | **95.2** | **51.6** | A final dividend in respect of 2022 of £40.1m (46.14p per ordinary share) has been recommended by the Directors for approval at the Annual General Meeting in February 2023. These financial statements do not reflect these dividends. Victrex plc Annual Report 2022 ## 23. Related party transactions ### Identity of related parties Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and so are only disclosed for the Company's financial statements. | | Note | Company | | | --- | --- | --- | --- | | | | 2022 £m | 2021 £m | | **Trading transactions with subsidiaries** | | | | | Administrative expenses paid on Company's behalf by subsidiaries | | 0.4 | 0.5 | | Amounts receivable from subsidiaries | 14 | 191.9 | 152.7 | | **Financing transactions with subsidiaries** | | | | | Dividends received from subsidiaries | | 132.8 | 5.7 | | Cash transfers received from subsidiaries | | 144.5 | 5.7 | | Cash transfers made to subsidiaries | | 191.9 | 152.7 | The Group's retirement benefit plans are related parties and the Group's and Company's transactions with them are disclosed in note 17. Details of transactions during the year relating to the Company's investments in subsidiaries can be found in note 11. Bond 3D High Performance Technology BV ('Bond'), in which the Group has a 24.5% shareholding (FY 2021: 24.5%), is an associated company. The Group's transactions with Bond in the year comprises the sale of material to Bond of £33,000, the additional tranches of convertible loans made to Bond, and the share of loss recognised as set out in note 11. ### Transactions with key management personnel The key management of the Group and Company are those people having authority and responsibility for planning, directing and controlling the activities of the Group and consist of the Board of Directors. Compensation of key management personnel is shown in the table below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Short-term employment benefits | 2.5 | 3.0 | | Post-employment benefits | 0.2 | 0.2 | | Share-based payment benefits | 0.5 | — | | | 3.2 | 3.2 | More detailed information concerning Directors' remuneration, including non-cash benefits and contributions to post-employment defined benefit plans, is given in the Directors' remuneration report on pages 104 to 127. Directors of the Company control 0.05% of the voting shares of the Company, details of which are given on page 122. Details of Directors' indemnities are given on page 129. ## 24. Exchange rates ### Foreign currency translation #### Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operated (the 'functional currency'). The consolidated financial statements are presented in Sterling, which is the Company's functional and presentation currency. #### Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rate prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation to balance sheet date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges. In addition, where an exchange difference arises on an intragroup monetary item that, in substance, forms part of the entity's net investment in a foreign operation, these differences are recognised in other comprehensive income in the consolidated financial statements and accumulated in equity until the disposal of the foreign operation. #### Group companies The results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: - assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; - income and expenses for each income statement are translated at weighted average exchange rates; and - all resulting exchange differences, from 1 October 2004, are recognised as a separate component of equity. Annual Report 2022 Victrex plc 191 FINANCIAL STATEMENTS FINANCIAL STATEMENTS # Notes to the financial statements continued # 24. Exchange rates continued # Foreign currency translation continued The most significant Sterling exchange rates used in the financial statements under the Group's accounting policies are: | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Average spot | Closing | Average spot | Closing | | US Dollar | 1.30 | 1.10 | 1.36 | 1.34 | | Euro | 1.16 | 1.13 | 1.14 | 1.18 | The average exchange rates in the above table are the weighted average spot rates applied to foreign currency transactions, excluding the impact of foreign currency contracts. Any gains and losses on foreign currency contracts, where net hedging has been applied for cash flow hedges, have been separately disclosed in the income statement as required, in accordance with IFRS 9. # 25. Alternative performance measures This section includes a reconciliation of certain Alternative performance measures ('APMs') to the most directly reconcilable line items in the financial statements. The presentation of APMs should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS. The APMs presented in this report may differ from similarly titled measures used by other companies. Where one APM is derived from another APM, a cross reference to the relevant APM has been included, which then provides the reconciliation to the most directly reconcilable line items. The 10 APMs below have been calculated on a consistent basis from prior year. Following an internal review, the following metrics presented as APMs in the prior year do not meet the definition of an APM, but are internal ratios/metrics, and have therefore been removed: - → New product sales as a percentage of Group sales; - → Research & Development expenditure as a percentage of Group sales; and - → Project-based Research & Development spend on sustainable products as a percentage of Project-based Research & Development spend. All three of these internal ratios are still included within the Strategic report, and are defined accordingly within this section. **APM 1** Operating profit before exceptional items (referred to as **underlying operating profit**) is based on operating profit before the impact of exceptional items. This metric is used by the Board to assess the underlying performance of the business excluding items that are, in aggregate, material in size and/or unusual or infrequent in nature. Exceptional items for 2022 is a charge of £7.9m (FY 2021: credit of £0.8m) relating to the implementation of SaaS ERP system (FY 2021: relating to restructuring costs), further details of which are disclosed in note 3. | | 2022 £m | 2021 £m | | --- | --- | --- | | Operating profit | 88.5 | 93.4 | | Exceptional items | 7.9 | (0.8) | | Underlying operating profit | 96.4 | 92.6 | **APM 2** Profit before exceptional items and tax (referred to as **underlying profit before tax**) is based on profit before tax ('PBT') before the impact of exceptional items. This metric is used by the Board to assess the underlying performance of the business excluding items that are, in aggregate, material in size and/or unusual or infrequent in nature. Exceptional items for 2022 is a charge of £7.9m (FY 2021: credit of £0.8m) relating to the implementation of SaaS ERP system (FY 2021: relating to restructuring costs), further details of which are disclosed in note 3. | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit before tax | 87.7 | 92.5 | | Exceptional items | 7.9 | (0.8) | | Underlying profit before tax | 95.6 | 91.7 | **APM 3** **Constant currency metrics** are used by the Board to assess the year on year underlying performance of the business excluding the impact of foreign currency rates, which by nature can be volatile. Constant currency metrics are reached by applying current year (FY 2022) weighted average spot rates to prior year (FY 2021) transactions. Gains and losses on foreign currency net hedging are shown separately in the income statement and are excluded from the constant currency calculation. | Group | 2022 £m | 2021 £m | % change | | --- | --- | --- | --- | | At reported currency | 341.0 | 306.3 | 11% | | Impact of FX retranslation | — | 2.5 | | | Revenue at constant currency | 341.0 | 308.8 | 10% | 142 Victrex plc Annual Report 2022 ## 25. Alternative performance measures continued ### APM 3 Constant currency metrics continued | Industrial | 2022 £m | 2021 £m | % change | | --- | --- | --- | --- | | At reported currency | 282.7 | 255.2 | 11% | | Impact of FX retranslation | — | 0.3 | | | Revenue at constant currency | 282.7 | 255.5 | 11% | | Medical | 2022 £m | 2021 £m | % change | | At reported currency | 58.3 | 51.1 | 14% | | Impact of FX retranslation | — | 2.2 | | | Revenue at constant currency | 58.3 | 53.3 | 9% | **APM 4 Operating cash conversion** is used by the Board to assess the business' ability to convert operating profit to cash effectively, excluding the impact of financing activities and non-capital expenditure related investing activities. Operating cash conversion is underlying operating profit, depreciation and amortisation, working capital movements and capital expenditure/operating profit before exceptional items. | | 2022 £m | 2021 £m | | --- | --- | --- | | Underlying operating profit (APM 1) | 96.4 | 92.6 | | Depreciation, amortisation and loss on disposal | 24.0 | 22.7 | | Change in working capital | (27.5) | 19.6 | | Capital expenditure | (45.5) | (41.9) | | Operating cash flow | 47.4 | 93.0 | | Operating cash conversion | 49% | 100% | **APM 5 Available cash** is used to enable the Board to understand the true cash position of the business when determining the use of cash under the capital allocation policy. Available cash is cash and cash equivalents plus other financial assets (cash invested in term deposits greater than three months in duration) less cash ring-fenced in the Group's Chinese subsidiaries which is committed to capital expansion and therefore not available to the wider Group. This is calculated as: | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash and cash equivalents | 58.7 | 74.9 | | Cash ring-fenced in Chinese subsidiaries | (2.8) | (12.5) | | Other financial assets | 10.1 | 37.5 | | Available cash | 66.0 | 99.9 | **APM 6 Underlying EPS** is earnings per share based on profit after tax but before exceptional items divided by the weighted average number of shares in issue. This metric is used by the Board to assess the underlying performance of the business excluding items that are, in aggregate, material in size and/or unusual or infrequent in nature. | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit after tax attributable to owners of the Company | 76.2 | 73.2 | | Exceptional items | 7.9 | (0.8) | | Tax on exceptional items | (1.5) | — | | Profit after tax before exceptional items net of tax | 82.6 | 72.4 | | Weighted average number of shares | 86,897,353 | 86,704,789 | | Underlying EPS (pence) | 95.0 | 83.4 | **APM 7 Underlying dividend cover** is used by the Board to measure the affordability and sustainability of the regular dividend. Underlying dividend cover is underlying earnings per share/total dividend per share. This excludes special dividends. | | 2022 £ | 2021 £ | | --- | --- | --- | | Underlying earnings per share (APM 6) | 95.0 | 83.4 | | Total dividend per share | 59.56 | 59.56 | | Underlying dividend cover (times) | 1.6 | 1.4 | FINANCIAL STATEMENTS Annual Report 2022 Victrex plc 183 FINANCIAL STATEMENTS Notes to the financial statements continued # **25. Alternative performance measures continued** **APM 8 Return on capital employed ('ROCE')** is used by the Board to assess the return on investment at a Group level. ROCE is profit after tax/total equity attributable to shareholders at the year end. | | 2022 £m | 2021 £m | | --- | --- | --- | | Profit after tax | 75.5 | 72.8 | | Total equity | 490.6 | 511.7 | | ROCE % | 15% | 14% | **APM 9 Return on sales** is used by the Board to assess the overall profitability of the Group. It measures underlying profit before taxation as a percentage of total sales. | | 2022 £m | 2021 £m | | --- | --- | --- | | Underlying profit before tax (APM 2) | 95.6 | 91.7 | | Total sales | 341.0 | 306.3 | | Return on sales % | 28% | 30% | **APM 10 Operating overheads** is made up of sales, marketing and administrative expenses before exceptional items. This metric is used by the Board to assess the underlying performance of the business excluding items that are, in aggregate, material in size and/or unusual or infrequent in nature. | | 2022 £m | 2021 £m | | --- | --- | --- | | Sales, marketing and administrative expenses | 86.0 | 71.9 | | Exceptional items | (7.9) | 0.8 | | Operating overheads | 78.1 | 72.7 | # **26. Commitments** Capital expenditure authorised and contracted for which has not been provided for in the financial statements amounted to £16m (FY 2021: £6m) in the Group and £nil (FY 2021: £nil) in the Company. At 30 September 2022, the Group and another investor in Bond, LaLune, have an agreed programme of further investments during FY 2023 for a further €3.0m, subject to Bond achieving pre-determined development milestones. See also note 11. 144 Victrex plc Annual Report 2022 SHAREHOLDER INFORMATION # Five-year financial summary for the year ended 30 September and as at 30 September | | 2018 3+ | 2019 3+ | 2020 3+ | 2021 3+ | 2022 3+ | | --- | --- | --- | --- | --- | --- | | **Results** | | | | | | | Revenue | 326.0 | 294.0 | 266.0 | 306.3 | **341.0** | | Profit before tax | 127.5 | 104.7 | 63.5 | 92.5 | **87.7** | | **Balance sheet** | | | | | | | Property, plant, equipment and intangible assets | 281.0 | 288.2 | 300.1 | 330.5 | **367.4** | | Investments | 4.5 | 16.2 | 20.3 | 24.1 | **20.5** | | Inventories | 69.3 | 92.2 | 98.5 | 70.3 | **86.8** | | Net cash | 71.2 | 72.5 | 73.1 | 74.9 | **58.7** | | Other financial assets | 73.2 | 0.3 | — | 37.5 | **10.1** | | Trade receivables and other assets | 51.1 | 57.7 | 50.0 | 63.8 | **83.2** | | Retirement benefit asset | 13.5 | 9.1 | 7.5 | 14.2 | **14.9** | | Retirement benefit obligation | — | — | — | (1.9) | **(2.7)** | | Borrowings | — | — | — | (5.9) | **(22.5)** | | Trade payables and other liabilities | (73.9) | (74.6) | (68.5) | (95.8) | **(125.8)** | | Equity shareholders' funds | 489.9 | 461.6 | 481.0 | 511.7 | **490.6** | | **Cash flow** | | | | | | | Net cash flow from operating activities | 129.0 | 80.1 | 69.4 | 127.1 | **80.0** | | Capital expenditure | (9.9) | (22.7) | (24.9) | (41.9) | **(45.5)** | | (Deposit) withdrawal of cash invested for greater than three months | (73.2) | 72.9 | 0.3 | (37.5) | **27.4** | | Other investing activities | — | (11.8) | (4.9) | (3.8) | **1.9** | | Proceeds from non-controlling interest | — | — | — | 5.6 | — | | Bank borrowings received | — | — | — | — | **14.5** | | Dividends and other financing items | (95.1) | (118.1) | (38.7) | (47.3) | **(96.9)** | | Net (decrease)/increase in cash and cash equivalents | (49.2) | 0.4 | 1.2 | 2.2 | **(18.6)** | | **Ratios** | | | | | | | Earnings per ordinary share – basic | 128.8p | 107.2p | 62.6p | 84.3p | **87.6p** | | Full-year dividend per ordinary share | 59.56p | 59.56p | 46.14p | 59.56p | **59.56p** | | Special dividend per ordinary share | 82.68p | — | — | 50.00p | — | | Return on capital employed ('ROCE') | 23% | 20% | 11% | 14% | **15%** | | **Sales volume** | | | | | | | Tonnes | 4,407 | 3,751 | 3,492 | 4,373 | **4,727** | SHAREHOLDER INFORMATION Annual Report 2022 Victrex plc 195 SHAREHOLDER INFORMATION ## Cautionary note regarding forward-looking statements This Annual Report contains ‘forward-looking statements’ in relation to the future financial and operating performance and outlook of Victrex, as well as other future events and their potential effects on Victrex. Generally, the words ‘will’, ‘may’, ‘should’, ‘continue’, ‘believes’, ‘targets’, ‘plans’, ‘expects’, ‘estimates’, ‘aims’, ‘intends’, ‘anticipates’, or similar expressions or negatives thereof identify forward-looking statements. Forward-looking statements include statements relating to the following: expected developments in our product portfolio, expected revenues in our businesses, expected margins, expected trends, expected growth in our business (including our mega-programmes), expected operating costs savings, expected future cash generation, expected future tax rates, expected future orders and increase in market share, expected timing of product releases and expected timing of product development milestones, expected incorporation of our products into those of our customers, adoption of new technologies, the expectation of volume shipments of our products, expected product markets and their expansion or contraction, opportunities in our industry and our ability to take advantage of those opportunities, the potential success to be derived from strategic partnerships, potential acquisitions, the effect of our financial performance on our share price, the impact of government regulation, expected performance against adverse economic conditions, and other expectations and beliefs of our management. Actual results and developments could differ materially from those expressed or implied by these forward-looking statements as a result ofnumerous risks and uncertainties. These factors include, but are not limited to: u Victrex’s ability to ensure development and timely delivery of new products or solutions in accordance with the requirements of customers; u any change in demand for consumer products due to challenging and uncertain economic conditions; u increased expenses associated with new product introductions or required capital investment; u risks relating to forecasting demand for and market acceptance of Victrex’s products and timing for the introduction of products that useVictrex’s own products; u declines in the average selling prices of Victrex’s products; u cancellation of existing orders or the failure to secure new orders; u difficulties related to distributors which support the supply of our products to customers; u Victrex’s ability to secure sufficient capacity from the third parties and strategic partners that manufacture raw materials or product onourbehalf; u Victrex’s ability to develop, acquire and protect intellectual property and other commercially sensitive information; u the chemical industry and several of those sectors in which we supply; u the potential for disruption in the supply of raw materials due to changes in business conditions, natural disasters, terrorist activities, publichealth concerns or other factors; u Victrex’s ability to attract and retain key personnel, including engineers and technical personnel; u the difficulty in predicting future results; and u other risks and uncertainties discussed in this Annual Report, including, without limitation, under the heading ‘Principal risks’ on pages36 to 40. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. Neither Victrex nor any other person undertakes any obligation to update or revise publicly any of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent legally required. 186 Victrex plc Annual Report 2022 # Notice of Annual General Meeting Notice is hereby given that the 30th Annual General Meeting ('AGM') of the members of Victrex plc (the 'Company') will be held at 11am on Friday 10 February 2023, at the offices of J.P. Morgan, 1 John Carpenter Street, London EC4Y 0JP, to transact the business set out below. Resolutions 1 to 18 will be proposed as Ordinary Resolutions and Resolutions 19 to 22 will be proposed as Special Resolutions. ## Ordinary Resolutions 1. To receive the Company's audited financial statements and the Auditors' and Directors' reports for the year ended 30 September 2022. 2. To approve the Directors' remuneration report (other than the part containing the Directors' remuneration policy) in the form set out in the Annual Report and Accounts for the year ended 30 September 2022. 3. To approve the Directors' remuneration policy (contained in the Directors' remuneration report) in the form set out in the Annual Report and Accounts for the year ended 30 September 2022. 4. To declare a final dividend of 46.14p per ordinary share in respect of the year ended 30 September 2022. 5. To elect Ian Melling as a Director of the Company. 6. To re-elect Vivienne Cox as a Director of the Company. 7. To re-elect Jane Toogood as a Director of the Company. 8. To re-elect Janet Ashdown as a Director of the Company. 9. To re-elect Brendan Connolly as a Director of the Company. 10. To re-elect David Thomas as a Director of the Company. 11. To re-elect Rox Roaz as a Director of the Company. 12. To re-elect Jakob Sigurdsson as a Director of the Company. 13. To re-elect Martin Court as a Director of the Company. 14. That: a) the rules of the Victrex plc Share Incentive Plan and related trust deed, in the form produced to the meeting and initialled by the Chair of the meeting for the purposes of identification (the 'SIP'), and the principal terms of which are summarised in the Appendix to this Notice of AGM, are approved; and b) the Directors of the Company are authorised to: i) adopt the SIP and do all acts and things which they may, in their absolute discretion, consider necessary or desirable to establish and give effect to the SIP, including making any changes to the rules and/or trust deed of the SIP necessary or desirable in order to ensure that the Directors can make a valid declaration to HM Revenue & Customs that the SIP satisfies the requirements of Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003; and ii) adopt further plans based on the SIP but (where required) modified to take account of local tax, exchange control or securities law in overseas territories, provided that any shares made available under such further plans are treated as counting against any limits on individual or overall participation in the SIP. 15. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company until the conclusion of the next AGM of the Company at which accounts are led before the meeting. 16. To authorise the Audit Committee, acting for and on behalf of the Board, to set the auditors' remuneration. 17. That, in accordance with sections 366 and 367 of the Companies Act 2006, the Company and all companies that are subsidiaries of the Company at any time during the period for which this resolution has effect are authorised, in aggregate, during the period beginning with the date of the passing of this resolution and ending on the conclusion of the next AGM of the Company (unless such authority is previously renewed, varied or revoked by the Company in a general meeting), to: a) make political donations to political parties and/or independent election candidates not exceeding £12,500 in total; b) make political donations to political organisations other than political parties not exceeding £12,500 in total; and c) incur political expenditure not exceeding £12,500 in total, provided that the authorised sums referred to in paragraphs (a), (b) and (c) above may be comprised of one or more amounts in different currencies which, for the purposes of calculating that authorised sum, shall be converted into Pounds Sterling at such rate as the Board in its absolute discretion may determine to be appropriate. For the purposes of this resolution the terms 'political donation', 'political parties', 'independent election candidates', 'political organisations' and 'political expenditure' shall have the meanings given by sections 363 to 365 of the Companies Act 2006. SHAREHOLDER INFORMATION Annual Report 2022 Victrex plc 147 SHAREHOLDER INFORMATION Notice of Annual General Meeting continued # Ordinary Resolutions continued 18. That the Directors are generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company: a) up to an aggregate nominal amount of £289,989 (such amount to be reduced by the aggregate nominal amount of any equity securities allotted or rights granted under paragraph (b) below in excess of such sum); and b) comprising equity securities (as defined in section 560(1) of the Companies Act 2006), up to an aggregate nominal amount of £579,978 (such amount to be reduced by the aggregate nominal amount of shares allotted or rights granted under paragraph (a) above) in connection with a rights issue (as defined in the Listing Rules published by the Financial Conduct Authority): i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and ii) to holders of other equity securities or as required by the rights of those securities as the Directors otherwise consider necessary, and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirement of any regulatory body or stock exchange or any other matter, provided that this authority shall expire at the close of business on 29 March 2024 or, if earlier, at the conclusion of the Company's next AGM, save that the Company may make any offers and enter into agreements before such expiry which would, or might, require shares to be allotted or rights to be granted after the authority expires and the Directors may allot shares or grant rights under any such offer or agreement as if the authority had not expired. All authorities vested in the Directors on the date of this Notice of AGM to allot shares or to grant rights that remain unexercised at the commencement of this meeting are revoked. # Special Resolutions 19. That, conditional upon Resolution 18 in this Notice of AGM being passed, the Directors are empowered to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash under the authority given by that resolution (or by way of a sale of treasury shares), as if section 561 of the Companies Act 2006 did not apply to such allotment or sale, provided that such power is limited to: a) the allotment of equity securities and/or sale of treasury shares in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (b) of Resolution 18, by way of a rights issue only): i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and ii) to holders of other equity securities, as required by the rights of those securities, or as the Directors otherwise consider necessary, and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirement of any regulatory body or stock exchange or any other matter; and b) the allotment of equity securities and/or sale of treasury shares (otherwise than under paragraph (a) above) up to a maximum aggregate nominal amount of £43,498. Such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 18 in this Notice of AGM, save that the Company may make offers, and enter into agreements, before such expiry which would, or might, require equity securities to be allotted (and/or treasury shares to be sold) after the power expires and the Directors may allot equity securities (and/or sell treasury shares) under any such offer or agreement as if the power had not expired. 20. That, conditional upon Resolution 18 in this Notice of AGM being passed and in addition to the power contained in Resolution 19, the Directors are empowered to allot equity securities (as defined in section 560(1) of the Companies Act 2006) for cash under the authority given by Resolution 18 (or by way of a sale of treasury shares), as if section 561 of the Companies Act 2006 did not apply to such allotment or sale, provided that such power is a) limited to the allotment of equity securities and/or sale of treasury shares up to a maximum aggregate nominal amount of £43,498; and b) used only for the purposes of financing (or refinancing, if the power is to be used within six months after the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this Notice of AGM. Such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 18 in this Notice of AGM, save that the Company may make offers, and enter into agreements, before such expiry, which would, or might, require equity securities to be allotted (and/or treasury shares to be sold) after the power expires and the Directors may allot equity securities (and/or sell treasury shares) under any such offer or agreement as if the power had not expired. 148 Victrex plc Annual Report 2022 ### Special Resolutions continued SHAREHOLDER INFORMATION 21. That the Company is authorised generally and unconditionally pursuant to section 701 of the Companies Act 2006 to make one or more market purchases (as defined in section 693(4) of the Companies Act 2006) of its ordinary shares in the capital of the Company (‘Ordinary Shares’), provided that: a) the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 86,996,699; b) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be an amount equal to the higher of: i) 5% above the average market value of an Ordinary Share for the five business days immediately preceding the day on which that Ordinary Share is contracted to be purchased; and ii) the higher of the price of the last independent trade and the highest current independent bid for an Ordinary Share on the trading venue where the purchase is carried out at the relevant time; c) the minimum price (exclusive of expenses) which may be paid for an Ordinary Share is its nominal value; and d) such authority shall expire at the close of business on 29 March 2024 or, if earlier, at the conclusion of the Company’s next AGM, but so that the Company may before such authority expires enter into a contract under which a purchase of Ordinary Shares may be completed or executed wholly or partly after the authority expires and the Company may purchase Ordinary Shares in pursuance of such contract as if the authority had not expired. 22. That a general meeting of the Company, other than an AGM, may be called on not less than 14 clear days’ notice. By order of the Board Jane Brisley Company Secretary 6 December 2022 Registered office: Victrex Technology Centre Hillhouse International Thornton Cleveleys Lancashire FY5 4QD Registered in England and Wales 2793780 Annual Report 2022 Victrex plc 189 SHAREHOLDER INFORMATION ## Notice of Annual General Meeting continued ### Notes 1. A member who is entitled to attend and vote at the AGM is entitled to appoint another person, or two or more persons in respect ofdifferent shares held by him/her, as his/her proxy to exercise all or any of his/her rights to attend, speak and vote at the meeting. Aproxy need not be a member of the Company. 2. To be entitled to attend and vote at the AGM (and for the purposes of determining the number of votes that may be cast), a member must be registered in the Register of Members of the Company as the holder of ordinary shares at the close of business on Wednesday 8 February 2023 at 6.30pm (or, in the event of any adjournment, at the close of business on the day two business days prior to the adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights ofany person to attend and vote at the AGM. 3. A member wishing to attend and vote at the AGM in person should arrive prior to the time fixed for its commencement. A member that is a corporation can only attend and vote at the meeting in person through one or more representatives appointed in accordance with section 323 of the Companies Act 2006. Any such representative should bring to the meeting written evidence of his or her appointment, such as a certified copy of a Board resolution of, or a letter from, the corporation concerned confirming the appointment. Any member wishing to vote at the AGM without attending in person or (in the case of a corporation) through its duly appointed representative must appoint a proxy to do so. Members, appointed representatives and proxies are requested not to attend the meeting if they have tested positive for COVID-19 or if they are displaying symptoms of COVID-19. 4. A hard copy form of proxy (‘Form of Proxy’) which may be used to appoint a proxy and give instructions accompanies this Notice. To be valid, a Form of Proxy must be delivered to the Company’s Registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, so as to be received by no later than 11am on Wednesday 8 February 2023. Alternatively, members may appoint a proxy online by following the instructions in note 5 below. Members who hold their shares in uncertificated form may also use ‘the CREST voting service’ to appoint a proxy electronically as explained in notes 6 to 8 below. The return of a completed Form of Proxy, an electronic proxy appointment instruction or any CREST Proxy Instruction will not prevent a member attending the AGM and voting in person if he/she wishes to do so. Any power of attorney or other authority under which an appointment of proxy is signed or authenticated (or a notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 of that power or authority) must, unless previously registered with the Company, be received at the relevant address specified in these notes for receipt of such proxy appointment by the latest time indicated for receipt of such proxy appointment. 5. Members who prefer to register the appointment of their proxy electronically via the internet can do so through Equiniti’s website at www.sharevote.co.uk. Full details of the procedure are given on the website. The Voting ID, Task ID and Shareholder Reference Number printed on the Form of Proxy will be required in order to use this electronic proxy appointment system. Alternatively, members who have already registered with Equiniti’s online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk and clicking on the ‘Vote Online’ link. The on-screen instructions give details of how to complete and submit a proxy appointment. A proxy appointment made electronically will not be valid if sent to any address other thanthose provided or if received after 11am on Wednesday 8 February 2023. 6. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual available via www.euroclear.com. CREST personal members or other CREST sponsored members, and those CREST members who have appointed (a) service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 7. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & International Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent Equiniti (ID RA19) by 11am on Wednesday 8 February 2023. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. 8. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & International Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or,if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted bymeans of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) ofthe Uncertificated Securities Regulations 2001 (as amended). 190 Victrex plc Annual Report 2022 ## Notes continued 9. Any person to whom this Notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') may, under an agreement between him/her and the member by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. The statement of the rights of members in relation to the appointment of proxies in note 1 above does not apply to Nominated Persons. Such rights can only be exercised by members of the Company. 10. As at 25 November 2022 (being the latest practicable date prior to the publication of this document) the Company's issued share capital consisted of 86,996,699 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 25 November 2022 were 86,996,699. There were no shares in treasury as at that date. 11. Under section 527 of the Companies Act 2006, members meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: a) the audit of the Company's financial statements (including the Auditors' report and the conduct of the audit) that are to be laid before the AGM; or b) any circumstance connected with auditors of the Company ceasing to hold office since the previous meeting at which annual reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company's auditors not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website. 12. Each member attending the AGM has the right to ask questions relating to the business of the meeting which, in accordance with section 319A of the Companies Act 2006 and subject to some exceptions, the Company must cause to be answered. Members who wish to ask questions relating to the business of the meeting can do so by sending them in advance of the meeting to ir@victrex.com. A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.victrexplc.com. 13. All resolutions in this Notice will be put to vote on a poll at the AGM, as permitted by the Company's Articles of Association. On a poll, each member has one vote for every share held, which results in a more accurate reflection of the view of members. 14. Personal data provided by members at or in relation to the AGM (including, for example, names, contact details, votes and Shareholder Reference Numbers) will be processed in line with the Company's privacy policy, which can be accessed here: www.victrex.com/en/privacy-policy. 15. Except as provided above, members who have general queries about the meeting should email the General Counsel & Company Secretary at www.victrex.com or ir@victrex.com (no other methods of communication will be accepted). A member may not use any electronic address provided in either this Notice of AGM or any related documents (including the Form of Proxy) to communicate with the Company for any purpose other than those expressly stated. SHAREHOLDER INFORMATION Annual Report 2022 **Victrex plc** 191 SHAREHOLDER INFORMATION # Explanatory notes ## Resolution 1 – Annual Report and Accounts The Companies Act 2006 requires the directors of a public company to lay its annual report and accounts before the company in general meeting. The Annual Report and Accounts comprises the audited financial statements, the Auditors' report, the Strategic report, the Directors' report and the Directors' remuneration report. In accordance with best practice, the Company proposes a resolution on its Annual Report and Accounts for the year ended 30 September 2022 (the 'Annual Report 2022'). This Ordinary Resolution will provide members with the opportunity to ask questions on the contents of the Annual Report 2022. ## Resolution 2 – Approval of the Directors' remuneration report In accordance with the Companies Act 2006, the Company proposes an Ordinary Resolution to approve the Directors' remuneration report for the financial year ended 30 September 2022. The Directors' remuneration report is set out on pages 104 to 127 of the Annual Report 2022 and, for the purposes of this resolution, does not include the parts of the Directors' remuneration report containing the Directors' remuneration policy which is set out on pages 107 to 111. The vote on this resolution is advisory only and the Directors' entitlement to remuneration is not conditional on its being passed. ## Resolution 3 – Approval of the Directors' remuneration policy The Companies Act 2006 requires the Company to obtain shareholder approval of its Directors' remuneration policy at least every three years unless there is a change in the approved policy within the three-year period. The Directors' remuneration policy was last approved by shareholders at the 2020 Annual General Meeting. The Company is therefore seeking shareholder approval of a new policy at this year's AGM. The proposed Directors' remuneration policy can be found on pages 107 to 111 of the Annual Report 2022. It sets out the Company's future policy on Directors' remuneration. If this resolution is approved, the Directors' remuneration policy will be effective from the conclusion of the AGM. Resolution 3 is a binding shareholder vote and therefore, once the Directors' remuneration policy is approved, the Company will not be able to make a remuneration payment to a current or future Director, or a payment for loss of office to a current or past Director, unless that payment is consistent with the policy or an amendment to the policy authorising the Company to make such a payment has been approved by a resolution of the shareholders. If Resolution 3 is not passed, the remuneration policy approved at the 2020 Annual General Meeting will continue in effect. ## Resolution 4 – Declaration of final dividend A final dividend of 46.14p per ordinary share has been recommended by the Directors for the year ended 30 September 2022. In accordance with the requirements of HM Revenue & Customs, all dividends are declared and paid net of income tax at the standard rate. If approved, the final dividend will be paid on 17 February 2023 to shareholders on the register at the close of business on 20 January 2023. ## Resolutions 5 to 13 – Election and re-election of Directors Resolutions 5 to 13 relate to the election and re-election of the Company's Directors. The Company's Articles of Association require a Director (determined by the Board to be a Director as at the date of this Notice) who has been appointed by the Board since the last AGM (and who is willing to continue as a Director) to stand for election by the shareholders at the next AGM. Ian Melling was appointed as a Director by the Board with effect from 4 July 2022. Accordingly, he stands for election by shareholders for the first time at the AGM. In accordance with the provisions of the UK Corporate Governance Code and as permitted by the Company's Articles of Association, the Board has decided that all of the other Directors of the Company as at the date of this Notice will seek re-election by shareholders. The Chair confirms that, following formal evaluation (as referred to on page 90 of the Annual Report 2022), each Director standing for election or re-election continues to contribute effectively to the Board and to demonstrate commitment to the role (including commitment of time for Board and Board Committee meetings). The biographical details, skills and experience of each Director standing for election or re-election are set out below: ### Dr Vivienne Cox DBE, Non-executive Chair Vivienne Cox was appointed to the Board on 1 December 2021, becoming Chair on 11 February 2022, and has a wealth of experience in executive and non-executive roles over more than 40 years, with a particular focus on sustainability, innovation and alternative energy. Vivienne was appointed Commander of the Order of the British Empire ('CBE') in 2016 for services to the economy and sustainability and was made a Dame Commander of the Order of the British Empire ('DBE') in the 2022 New Year Honours List for services to sustainability, diversity and inclusion in business. Vivienne holds an MA (Honours) in chemistry from Oxford University, an MBA from INSEAD and honorary doctorates from the University of Hull and the University of Hertfordshire. Vivienne's previous non-executive roles include serving on the boards of Eurotunnel plc, BG Group plc and Rio Tinto plc, as senior independent director of Pearson plc, as chair of Vallouriel SA and as the lead non-executive director for the UK Department for International Development. She also chaired Climate Change Capital, a private asset management and advisory group developing solutions for climate change and resource depletion. Until recently she was a non-executive director of GSK as well as GSK's workforce engagement director. Vivienne is currently a non-executive director of Haleon plc, Stena AB in Sweden and Ventera Group plc (a non-listed company), chair of the Rosalind Franklin Institute and deputy chair of the Said Business School in Oxford. Vivienne's extensive board, corporate governance and sector experience, as well as her leadership in and passion for sustainability and diversity matters, enables strong leadership of the Board. 192 Vivienne plc Annual Report 2022 ## Resolutions 5 to 13 – Election and re-election of Directors continued ### Ms Jane Toogood, Non-executive Director Jane Toogood was appointed to the Board in September 2015. Jane has a wealth of experience across a number of business management, senior commercial and business development roles within the global chemical industry and holds an MA in natural sciences (chemistry) from the University of Oxford and a Fellow of the Royal Society of Chemistry. Jane held senior roles at Borealis, ICI and Unigema. She was non-executive director of NHS Harrogate and District Foundation Trust. Jane is the chief executive of Catalyst Technologies at Johnson Matthey Plc and during the year was appointed as the UK government's first Hydrogen Champion. She brings strategic and industry expertise and insights drawing on her extensive international experience across multiple sectors. Jane is a current senior executive leading growth and transformation in a portfolio of businesses to meet future market demands including decarbonisation, the energy transition and deployment of hydrogen and circularity. ### Ms Janet Ashdown, Non-executive Director Janet Ashdown was appointed to the Board as a Non-executive Director in February 2018. She has over 30 years' experience in the international energy sector working across the value chain from customer facing through to manufacturing in increasingly senior roles with an additional 10+ years as a non-executive director. Janet had a distinguished career working for BP plc for 30 years where her last role was head of the UK fuels business unit. She was CEO of Harvest Energy, an international private equity backed business, from 2010 to 2012. She was non-executive director at SIG Plc, Coventry Building Society and Marshalls plc. Janet is a non-executive director, chair of the remuneration committee and chair of the sustainability committee of RHI Magnesia NV, is senior independent director and chair of the environment safety and security committee of the Nuclear Decommissioning Authority and is also a non-executive director of Stolt-Nielsen Norway A5. Janet contributes her extensive international executive and non-executive experience having served on remuneration committees across different sectors for over 10 years and being a chair for five years. ### Mr Brendan Connolly, Non-executive Director Brendan Connolly was appointed to the Board as a Non-executive Director in February 2018. Brendan has over 35 years' experience in the international oil & gas industry serving in a number of senior executive roles. Until June 2013, Brendan was a senior executive at Intertek Group plc and had previously been chief executive officer of Moody International (acquired by Intertek in 2011). Prior to Moody, he was managing director of Atos Origin UK, and spent more than 25 years of his career with Schlumberger in senior international roles over three continents. Brendan is senior independent director and chair of the remuneration committee of Synthomer plc, a non-executive director of Pepco Group N.V. and also an independent director on the board of Applus Services, S.A. as well as a member of its Environment, Social and Governance Committee and the Appointments and Compensations Committee. He is also on a private equity board. With extensive executive and non-executive experience, Brendan brings operational, commercial and strategic expertise and insights; his role as the designated Non-executive Director for Workforce Engagement enhances the Board's understanding of the views of employees and the culture of the Company. ### Mr David Thomas, Non-executive Director David Thomas was appointed to the Board in May 2018 and chairs the Audit Committee. David was chief financial officer at Invensys plc from 2011 until his retirement in 2014, having held senior roles across the business since 2002. Prior to joining Invensys, he was a senior partner at Ernst & Young, specialising in long-term industrial contracting businesses, and is a former member of the Auditing Practices Board. David is senior independent director and chair of the audit committee at Dialight plc. David contributes his expertise in Finance and his understanding of the investment community and regulators as both a Board member and Chair of the Audit Committee, as well as his industry knowledge to enhance the risk lens for Board decision making. ### Dr Ros Rivaz, Senior Independent Director Ros Rivaz was appointed as a Non-executive Director and the Senior Independent Director with effect from 1 May 2020. Ros holds a Bachelor of Science (Honours) degree in chemistry and an honorary doctorate from Southampton University and has deep international experience in the areas of supply chain management, logistics, manufacturing, IT, procurement and systems in the engineering, manufacturing and chemicals industries. Ros' executive career spans nearly 30 years. She held senior executive roles at Exxon Chemical Corporation, Tate & Lyle, ICI, Diageo and Premier Foods. Ros served as global chief operating officer for Smith & Nephew from 2011 to 2014. Ros was non-executive director at Corvolfec plc, RPC Group plc, Bioparen Holdings Limited, Rexam plc and CEVA Logistics AG. Ros is currently senior independent director, employee engagement director and chair of the remuneration committee of Computacenter plc. She is lead independent director of Aperam S.A. She is chair of the Nuclear Decommissioning Authority and non-executive director of the Ministry of Defence Equipment and Support board. Ros' strong track record as both a non-executive and executive across a range of listed companies, particularly in the medical industry, is instrumental in driving growth and supporting the Chair in her role as Senior Independent Director. SHAREHOLDER INFORMATION Annual Report 2022 Victrea plc 93 SHAREHOLDER INFORMATION # Explanatory notes continued ## Resolutions 5 to 13 – Election and re-election of Directors continued **Mr Jakob Sigurdsson, Chief Executive Officer** Jakob Sigurdsson was appointed to the Board in October 2017 and is the Company's Chief Executive Officer. Jakob has more than 20 years' experience in large multinational companies, both listed and private, including nine years with Rohm & Haas (now part of Dow Chemical) in the US. He was chief executive at Alfasca, Promera and VIS. Jakob holds a BSc in chemistry from the University of Iceland and a MBA from Northwestern University in the US. His executive responsibilities have spanned marketing, supply chain, business development, strategy and M&A, with particular emphasis on growth in new or developing markets. Jakob is non-executive director of Coats Group plc. Jakob brings his diverse and international background in chemicals coupled with wider business, executive and non-executive experience to inspire and lead the Group. **Dr Martin Court, Chief Commercial Officer** Martin Court was appointed to the Board as an Executive Director in April 2015. He joined Victrex in February 2013 as Managing Director of Invibio, from Cytec Industries where he served as VP in process separation and VP R&D, previously having held senior leadership roles at UCB S.A. and ICI. Martin is an INSEAD alumnus and holds a doctorate in the field of surface chemistry and fracture mechanics and a BSc (Eng) in mineral technology from the Imperial College of Science and Technology. He has broad international experience in strategy, innovation-driven growth and organisational change in high performance materials and chemical industries, having held both senior commercial and technical leadership roles. Martin's significant diverse international experience and focus on value creation and achieving business growth through innovation and geographic expansion enable him to drive Victrex's commercial and innovation strategies ensuring an appropriate balance between disruptive and non-disruptive change. He is a non-executive director at James Cropper plc. **Mr Ian Melling, Chief Financial Officer** Ian Melling was appointed to the Board with effect from 4 July 2022 and is the Chief Financial Officer. Ian is a Chartered Accountant and holds a first class master's degree in chemistry from Oxford University in the UK. Most recently Ian held the role of senior vice-president, corporate finance and R&D for Smith & Nephew plc, the medical technology company, having served as interim chief financial officer during 2020. Ian has worked in a number of senior finance roles in the UK and internationally for Smith & Nephew, including those with divisional and functional responsibility, having joined the Group in 2006. He was senior vice-president group finance for five years until October 2021. Ian started his career and qualified as a Chartered Accountant at Deloitte LLP. Ian is a member of the UK Endorsement Board Preparer Advisory Group. Ian contributes his significant financial experience as well as his background in the medical Device sector which is relevant to the Company's growth plans. ## Resolution 14 – Approval of the rules of the Victrex plc Share Incentive Plan and related trust deed Resolution 14 is to authorise the re-adoption of the rules of the Victrex plc Share Incentive Plan ('SIP') (formerly known as the Victrex plc All-Employee Share Ownership Scheme) and the related trust deed. The SIP is an all-employee share incentive plan, which takes advantage of the tax beneficial status of share incentive plans which comply with Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003. Participation will be open to all employees of participating companies. The SIP was originally adopted in 2003 (as the Victrex plc All-Employee Share Ownership Scheme), and was last approved by shareholders on 5 February 2013, with such approval expiring on 4 April 2023. The provisions of the rules of the SIP and related trust deed are substantially the same as the existing rules and trust deed, subject to amendments to take into account changes to the relevant legislation and HMRC practice. The rules of the SIP and related trust deed will be available for inspection at the place of the AGM for at least 15 minutes before, and during, the meeting and on the National Storage Mechanism from the date this document is sent to shareholders. Summary of the principal terms of the SIP is set out in the Appendix to the Notice of AGM that follows these Explanatory Notes. ## Resolutions 15 and 16 – Re-appointment and remuneration of the auditors At each meeting at which the Annual Report and Accounts are laid, the Company is required under the Companies Act 2006 to appoint auditors to serve until the next such meeting. PricewaterhouseCoopers LLP ('PwC') have indicated their willingness to continue as the Company's auditors. The Audit Committee has recommended to the Board, and the Board now proposes to shareholders, that PwC be re-appointed as the Company's auditors. The Audit Committee has confirmed to the Board that its recommendation is free from third-party influence and that no restrictive contractual provisions have been imposed on the Company limiting its choice of auditors. Resolution 15, therefore, proposes PwC's re-appointment as auditors to hold office until the Company's next AGM at which its accounts are laid before shareholders. Resolution 16 authorises the Audit Committee to set the auditors' remuneration. Under the Competition and Markets Authority's Statutory Audit Services Order, the Audit Committee has specific responsibility for negotiating and agreeing the statutory audit fee for and on behalf of the Board. Details of the remuneration paid to the auditors during the last financial year and details of how the effectiveness and independence of the auditors are monitored and assessed can be found on pages 151 and 97 to 103 of the Annual Report 2022. 114 Victrex plc Annual Report 2022 ## Resolution 17 – Political donations and expenditure Subject to limited exceptions, Part 14 of the Companies Act 2006 imposes restrictions on companies making political donations to any political party or other political organisation or to any independent election candidate or incurring political expenditure unless they have been authorised to do so at a general meeting. It has always been the Company's policy that it does not make political donations nor incur political expenditure either directly or through any subsidiary. This remains the case. Nevertheless, the Companies Act 2006 includes broad and ambiguous definitions of the terms 'political donations' and 'political expenditure' which may apply to some normal business activities which would not generally be considered to be political in nature. As in previous years, the Board considers that it would be prudent to obtain shareholder approval to make donations to political parties, political organisations and independent election candidates and to incur political expenditure up to the limit specified in the resolution. As is common practice among many UK public companies, this authority is sought as a precautionary measure to guard against any inadvertent breach of the statutory restrictions by the Company or its subsidiaries. The Board confirms that it has no intention of making any political donations, incurring political expenditure nor entering into party political activities. ## Resolution 18 – Authority to allot shares The Directors currently have a general authority to allot shares or grant rights to subscribe for or to convert any securities into shares in the Company. This authority is, however, due to expire at the conclusion of the AGM. Accordingly, the Board would like to seek a new authority to provide the Directors with the flexibility to allot new shares and grant rights up until the Company's next AGM within the limits prescribed by The Investment Association. The Investment Association's guidelines on directors' allotment authority state that the Association's members will regard as routine any proposal at a general meeting to seek a general authority to allot an amount up to two thirds of the existing share capital, provided that any amount in excess of one third of the existing share capital is applied to fully pre-emptive rights issues only. Accordingly, the proposed authority in Resolution 18 will allow the Directors to allot ordinary shares in the Company ('Ordinary Shares') or grant rights to subscribe for or convert any securities into Ordinary Shares in any circumstances up to a maximum nominal amount of approximately, but not exceeding, one third of the issued share capital as at 25 November 2022 (being the latest practicable date before the publication of this Notice). In addition, it will allow the Directors to allot (or grant rights over) new Ordinary Shares, in the case of a rights issue only, up to an additional maximum nominal amount of approximately, but not exceeding, one third of the Company's existing issued share capital. The Directors have no current intention of exercising this authority; however, the Board considers it prudent to maintain the flexibility that it provides to enable the Directors to respond to any appropriate opportunities that may arise. If passed, this authority will expire at the close of business on 29 March 2024 or, if earlier, at the conclusion of the Company's next AGM. The Company held no treasury shares as at 25 November 2022. ## Resolutions 19 and 20 – Power to allot a limited number of shares other than to existing shareholders Under the Companies Act 2006, when shares are issued for cash, they normally have to be offered first to existing shareholders in proportion to their current shareholding. Section 570 of the Companies Act 2006, however, permits the disapplication of such pre-emption rights. Resolution 19, which is proposed as a special resolution, will enable the Directors to allot shares for cash and/or sell treasury shares free from statutory pre-emption rights: (i) in connection with a rights issue, open offer or other pre-emptive offer; and (ii) otherwise than in connection with any such offer, up to a nominal amount of £43,498 representing approximately 5% of the issued Ordinary Share capital as at 25 November 2022 (the latest practicable date before the publication of this Notice). The Directors have no current intention of exercising this power and confirm their intention that not more than 7.5% of the issued Ordinary Share capital will be allotted or treasury shares sold for cash on a non-pre-emptive basis in any rolling three-year period, other than with prior consultation with shareholders or in connection with an acquisition or specified capital investment as referred to below. Resolution 20 is in addition to Resolution 19 and will also be proposed as a special resolution. Within the limits supported by the Statement of Principles, Resolution 20 will enable the Directors to allot shares for cash and/or sell shares out of treasury free from statutory pre-emption rights up to a further nominal amount of £43,498, representing approximately 5% of the issued Ordinary Share capital as at 25 November 2022 (the latest practicable date before the publication of this Notice) in connection with an acquisition or a specified capital investment only. The Board confirms that it will only allot shares or sell shares out of treasury pursuant to this power where the relevant acquisition or specified capital investment is announced contemporaneously with the allotment, or has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. The Directors have no current intention of exercising this power. If it is used, the Company will publish details of its use in its next Annual Report and Accounts and as required by the Pre-Emption Group's Statement of Principles. SHAREHOLDER INFORMATION Annual Report 2022 Victrex plc 95 SHAREHOLDER INFORMATION ## Explanatory notes continued ### Resolution 21 – Authority to purchase own shares In certain circumstances, it might be advantageous to the Company to purchase its own shares. Resolution 21 will be proposed as a special resolution. If passed, it will authorise the Company to make market purchases of its own ordinary shares up until the close of business on 29 March 2024 or, if earlier, the conclusion of the Company’s next AGM, subject to specific conditions relating to price and volume. The proposed resolution specifies the maximum number of shares which may be acquired (approximately 10% of the Company’s issued Ordinary Share capital as at 25 November 2022 (the latest practicable date before the publication of this Notice)) and the maximum and minimum prices at which shares may be bought. The Directors intend to use the authority only if, in light of market conditions prevailing at the time, they believe that the effect of such purchase would result in an increase in earnings per share and would be in the best interests of the Company and its shareholders generally. Other investment opportunities, appropriate gearing levels and the overall position of the Company will be taken into account in reaching such a decision. Any shares purchased in this way will either be cancelled and the number of shares in issue will be reduced accordingly, or be held as treasury shares depending on which course of action is considered by the Directors to be in the best interests of the shareholders at that time. Shares held as treasury shares can in the future be cancelled, resold or used to provide shares for employee share schemes. The Company currently has no Ordinary Shares in treasury. As at 25 November 2022, options over a total of 1,092,842 Ordinary Shares were outstanding and not exercised. That number of Ordinary Shares represented 1.26% of the Company’s issued Ordinary Share capital at 25 November 2022. It would represent 1.4% of the issued Ordinary Share capital at that date if the authority to buy the Company’s own shares given at the previous AGM and the authority now being sought by Resolution 21 were to be fully used. ### Resolution 22 – Authority to hold general meetings (other than Annual General Meetings) ### on 14 clear days’ notice This Special Resolution renews an authority given at last year’s AGM and is required as a result of section 307A of the Companies Act 2006. The Company is currently able to call general meetings (other than an AGM) on not less than 14 clear days’ notice and would like to maintain this ability. In order to do so, the Company’s shareholders must approve the calling of such meetings on not less than 14 clear days’ notice. Resolution 22 seeks such approval. If given, the approval will be effective until the Company’s next AGM, when it is intended that a similar resolution will be proposed. The shorter notice period would not be used as a matter of routine for such meetings, but only where the flexibility is merited by the business of the meeting and is thought to be to the advantage of shareholders as a whole. Recommendation The Directors consider that all the proposed resolutions set out in the Notice of AGM are in the best interests of the Company and of its shareholders as a whole and they unanimously recommend that you vote in favour of them, as they intend to do so in respect of their own shares (save in respect of those matters in which they are interested). 196 Victrex plc Annual Report 2022 ## Appendix to Notice of Annual General Meeting ### Summary of the principal terms of the Victrex plc Share Incentive Plan (‘SIP’) SHAREHOLDER INFORMATION General The SIP is a share incentive plan designed to take advantage of the tax beneficial status of share incentive plans which comply with Schedule2 to the Income Tax (Earnings and Pensions) Act 2003 (‘Schedule 2’). The SIP shall be administered by the Board of Directors of the Company (‘Board’) or a duly authorised committee of the Board. Eligibility All employees of the Company and participating subsidiaries who have been employed for a minimum period (not exceeding the period specified from time to time in Schedule 2) and who otherwise satisfy the eligibility requirements in Schedule 2 are entitled to participate inthe SIP. How the SIP may be operated The Board can operate the SIP in a number of ways. It can: u make an award of ‘free shares’; and/or u give employees the opportunity to invest in ‘partnership shares’; and/or u make an award of ‘matching shares’ to those employees who have invested in ‘partnership shares’ (free shares, partnership shares andmatching shares – together ‘Plan Shares’); and/or u require or allow employees to re-invest any dividends paid on their Plan Shares in further ordinary shares (‘Dividend Shares’). Free shares The Company may award free shares up to a maximum annual value specified in Schedule 2 from time to time. The current maximum annual value is £3,600 per employee. If the Company wishes, the award of free shares can be based on the achievement of individual, team, divisional or corporate performance measures which must be fair and objective. Otherwise, free shares must be awarded to employees on the same terms, although awards can vary by reference to remuneration, length of service or hours worked. Partnership shares The Company may provide employees with the opportunity to acquire partnership shares from their gross monthly salary, up to a maximum value specified in Schedule 2 from time to time, currently £1,800 per year. The Company may set a minimum monthly deduction which may not be greater than £10 (or such other amount specified in Schedule 2 from time to time). Ordinary shares will be acquired on behalf of employees within 30 days after each deduction at the market value of the ordinary shares on the date they are acquired. Alternatively, deductions can be accumulated during any accumulation period of up to 12 months. In this case, ordinary shares will be acquired on behalf of employees within 30 days after the end of the accumulation period, at the lower of the market value of the ordinary shares at the beginning of the accumulation period or the date when they are acquired (or the market value of the ordinary shares at either the beginning of the accumulation period or the end of the accumulation period). Matching shares The Company may award matching shares for free up to a maximum number of matching shares for each partnership share acquired by the employee, as specified in Schedule 2 from time to time. The current maximum is two matching shares for each partnership share. Dividend shares The Company can either give employees the opportunity, or require employees, to re-invest any dividends paid on any of their Plan Shares in further ordinary shares. Trust The SIP operates through a trust, which will acquire ordinary shares by purchase, by subscription or by the acquisition of ordinary shares held in treasury and will hold the ordinary shares on behalf of the employees. Holding period Free and/or matching shares must generally be held in trust for a period specified by the Company, which must not be less than three years nor more than five years from the date on which the shares are awarded to employees. Dividend Shares must generally be held in trust for three years. Cessation of employment, forfeiture of shares and non-transferability The Company may specify that free shares and/or matching shares are forfeited if employees cease employment with a member of the Group (other than because of certain circumstances such as death, redundancy, injury, disability, retirement, transfer of the employing business or change of control of the employing company) within the period of up to three years from the date on which shares were awarded. Employees can withdraw their partnership shares from the SIP at any time. The Company can stipulate that matching shares will be subject to forfeiture if the corresponding partnership shares are withdrawn within a specified period after they are awarded, not exceeding three years. To the extent not forfeited, Plan Shares and Dividend Shares must be withdrawn from the SIP trust if the participant ceases employment with a member of the Group. Annual Report 2022 Victrex plc 197 SHAREHOLDER INFORMATION ## Appendix to Notice of Annual General Meeting continued ### Summary of the principal terms of the Victrex plc Share Incentive Plan (‘SIP’) continued Limits on the issue of shares The use of newly issued ordinary shares under the SIP is limited to 10% of the issued share capital of the Company from time to time, taking into account ordinary shares issued or to be issued over the previous 10-year period under the SIP and any other employees’ share plans adopted by the Company. For the purposes of calculating this limit, ordinary shares transferred from treasury will be treated the same as newly issued ordinary shares. Amendments to the SIP The Board will have authority to amend the SIP, provided that no amendment to the advantage of participants or qualifying employees may be made to provisions relating to eligibility, limits on participation and the number of new shares available under the SIP, the basis for determining a participant’s entitlements in the event of a variation in the Company’s share capital, and the amendment provisions themselves, without the prior approval of the shareholders in a general meeting (unless an amendment is minor and made to benefit the administration of the SIP, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for the Company, any participating company or for participants or qualifying employees). Authority to operate the SIP No invitations to participate in awards under the SIP may be issued after the 10th anniversary of its date of approval by shareholders. Awards non-pensionable Benefits under the SIP are not pensionable. 198 Victrex plc Annual Report 2022 ## Financial calendar Ex-dividend date 19 January 2023 SHAREHOLDER INFORMATION 1 Record date 20 January 2023 AGM 10 February 2023 Payment of final dividend 17 February 2023 Announcement of 2022 half-yearly results May 2023 Payment of interim dividend June/July 2023 1 The date by which shareholders must be recorded on the share register to receive the dividend. Annual Report 2022 Victrex plc 199 SHAREHOLDER INFORMATION # Advisors # **Independent auditors** **PricewaterhouseCoopers LLP** **Chartered Accountants and Statutory Auditors** 1 Hardman Square Manchester M3 3EB # **Broker and financial advisor** **J.P. Morgan Cazenove** 25 Bank Street Floor 27 Canary Wharf London E14 5JP # **Lawyers** **Addleshow Goddard LLP** One St Peter's Square Manchester M2 3DE # **Slaughter and May** One Bunhill Row London EC7Y 8YY # **Bankers** **Barclays Bank PLC** 3 Hardman Street Manchester M3 3AX # **Registrars** **Equiviti** Asport House Spencer Road Lancing BN99 6DA Visit www.victreeplc.com or scan with your QR code reader to visit our Group website. This is the Annual Report of Victrex plc for the year ended 30 September 2022. This Annual Report has been sent to shareholders who have elected to receive a copy. A Notice of the AGM to be held on 10 February 2023 is also included within the report commencing on page 187. In this Annual Report, references to 'Victrex', 'the Group', 'the Company', 'we' and 'our' are to Victrex plc and its subsidiaries and lines of business, or any of them as the context may require. References to the years 2022, 2021, 2020 and 2019 are to the financial years ended 30 September 2022 (for 2022), 30 September 2021 (for 2021), 30 September 2020 (for 2020) and 30 September 2019 (for 2019). Unless otherwise stated, all non-financial statistics are at 30 September 2022. This Annual Report contains forward-looking statements with respect to the Group's financial condition, operating results and business strategy, plans and objectives. Please see the discussion of our principal risks and uncertainties in the sections entitled 'Risk management' and 'Principal risks', and the section entitled 'Cautionary note regarding forward-looking statements'. This Annual Report contains references to Victrex's website. These references are for convenience only – we are not incorporating by reference any information posted on www.victreeplc.com. This Annual Report has been drawn up and presented in accordance with and in reliance upon applicable English company law and the liabilities of the Directors in connection with this report shall be subject to the limitations and restrictions provided by such law. The Directors' report – Strategic report has been prepared to inform the Company's shareholders and help them assess how the Directors have performed their duty to promote the success of the Company for the benefit of the Company's shareholders as a whole. It should not be relied upon by anyone, including the Company's shareholders, for any other reason. The Directors' report – Strategic report contains a fair review of the business of the Group and a description of the principal risks and uncertainties that the Group faces. As a consequence, the Directors' report – Strategic report only focuses on material issues and facts. This Annual Report does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Victrex plc shares. 246 **Victrex plc** Annual Report 2022 Victrex plc’s commitment to environmental issues is reflected inthis Annual Report, which has been printed on Arena Smooth ® Extra White, an FSC certified material. This document was printed by Park Communications using its environmental print technology, which minimises the impact of printing on the environment. Vegetable-based inks have been used and 99% of dry waste is ® diverted from landfill. The printer is a CarbonNeutral company. Both the printer and the paper mill are registered to ISO 14001. CBP016114 ### Victrex plc Victrex Technology Centre Hillhouse International Thornton Cleveleys Lancashire FY5 4QD United Kingdom Tel: +44 (0) 1253 897700 Fax: +44 (0) 1253 897701 Web: www.victrexplc.com Victrex plc Annual Report 2022 Victrex plc Annual Report 2022