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Hello, and welcome to the Victrex Q1 Interim Management Statement. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Jakob Sigurdsson. Please go ahead with your meeting.
Thank you. Good morning, everyone, and thank you for joining Victrex's Conference Call for our Q1 Interim Management Statement. I'm Jakob Sigurdsson, CEO of Victrex; and I'm also joined by Richard Armitage today, our Chief Financial Officer; and Andrew Hanson, our Head of Investor Relations. Firstly, I'd like to summarize the headlines of today's announcement, and then I will hand it over to Richard on the financials and then we'll come back on Q&A and cover the outlook towards the end. We will then, as I said, open it up for questions. So in summary, I am pleased to say that we made a solid start of FY '20. But we have to keep in mind that it was against a weaker comparative in the prior year period when we saw particularly weak performance impacted by Automotive, Electronics and our Value Added Resellers business. As we note today, our expectations for the year at this stage are unchanged. Q1, this year, certainly, did see a solid improvement, although it's early in the year and it is important to note and warn against any extrapolation based on these results. Automotive delivered a good year-on-year sequential growth, actually, at double-digit levels. All this partly reflects some phasing, whilst Electronics and Value Added Resellers continued to see some signs of stability. In Aerospace, we enjoyed good growth, although we're mindful of some headwinds within the industry, which are all flagged around the 737 MAX, and we are aware of those over the coming months. In Energy, in line with many peers who have reported recently, this was notably weaker for us during the period. Rig count is down well over 20% year-on-year, and we have certainly noticed the effects of that and actually spoke to that when we came out with our last earnings statement as well. In Medical, we continue to see stable performance with good growth continuing in Asia, even if the U.S. remains a bit more muted. On the financials and the specifics of those, I'll now hand it over to Richard.
Thank you, Jakob. Good morning, everyone. For quarter 1 as a whole, revenue of GBP 67.7 million was up 6% on prior year revenue of GBP 64.1 million. In volume terms, quarter 1 group sales volume of 877 tonnes was up 7% on the prior year of 822 tonnes. This growth was against weak comparatives. And with several end markets remaining challenging, it is important that we see how trading shapes up over the coming months. We will then expect that by our half year results in May, we will have a better view for the year as a whole. As Jakob has noted, though, at this early stage, our expectations for the full year are unchanged. Our trading since the end of the quarter has been in line with our expectations. January was broadly in line with the strong January of last year, and we remain ahead on a cumulative basis. There are 2 other areas I would like to flag. Firstly, on currency, there remains a modest tailwind for FY '20. With our hedging program largely complete, our guidance of a GBP 5 million to GBP 7 million benefit at PBT level remains unchanged. However, with sterling strengthening over recent months, we need to be mindful of the potential for a growing headwind of sterling through financial year '21.Secondly, we did signal some updated guidance for capital expenditure following our investment of the joint venture in China to build a new PEEK facility. We now estimate that capital expenditure in both financial year '20 and '21 will be of the order of GBP 40 million to GBP 45 million in each year. Based on current plans, we would then expect CapEx to normalize for financial year '22, although we do continue to review opportunities for downstream investments in support of our Polymer & Parts strategy. Thank you, and I will now hand back to Jakob.
Thanks, Richard. Before we go to the outlook, a brief word on our mega-program and the progress there. In Aerospace, I'm pleased to say that we have exercised the option to acquire the remaining equity in the TxV Aero Composites business from our partner, Tri-Mack. Our U.S. facility continues to manufacture a range of composite product, delivering commercial and prototype revenue already. This investment was approximately GBP 3 million in cash. In MAGMA, we are working hard to support the qualification of TechnipFMC's new hybrid flexible pipe, targeted at opportunities in Brazil. Several smaller projects are also expected to deliver revenue this year, including in the Gulf of Mexico, the North Sea and in West Africa. I would also add that Technip continued to put significant time and resource into their bid and the prework required, and the opportunities here remain significant. We do expect MAGMA growth in revenue this year even if Energy overall remains relatively tough. So on the outlook then. Although it is nice to see some year-on-year progress in Automotive and a quarter of growth overall, it is against a weaker comparative in prior year, and we shouldn't lose sight of that. January was a strong month, similar to prior year, but we will need to see how trading continues over the next couple of months and update you in May on the half year results. Much like other companies, we're also mindful of any potential impact from the coronavirus, even if, at this stage, we haven't seen anything specific and our China employees are safe. So in summary, our full year expectations are unchanged at this early stage. Our focus is on making a year-on-year progress. Looking further out, our Polymer & Parts strategy keeps us well placed to deliver our growth opportunities, and we've shown our willingness to invest in support of our growth strategy with many of the moves that you have observed from us lately. Thank you. And I will now open it up to questions and answers.
[Operator Instructions] And our first question comes from the line of Alex Stewart from Barclays.
Why did Tri-Mack wants to sell its stake in the venture? Could you give us some -- a bit more information about that section? That would be great...
Alex, this is quite straightforward, actually. So this was an automatic earnout that they had in their contract based on the fulfillment of certain performance criteria. Those performance criteria were related to them providing us with facilities and services to help us set up the manufacturing operations. So once the facility was set up, was fully invested and ready to operate, they had fulfilled those criteria, and therefore, were eligible to take their earnout. Nothing unusual or untoward in that at all.
But just to be clear, and presumably that was an option to sell rather than a requirement to sell.
Like all these things, it is an option. It was a put option, but the commercial intention was very much that their expertise be used to help us establish the facility, put the processes in place, their expertise is particularly in injection molding, for instance. And once established, they would withdraw and leave our newly created team to manage the business.
Do you have a rough sense of the amount of cash they put into the venture? And how that compares to the GBP 3 million buyout, which you gave them?
The investment that we have put in, that we have not disclosed, has been put in by us. So I think, again, their principal contribution was in the expertise and local knowledge needed to allow us to establish the manufacturing operation.
And our next question comes from the line of Dominic Convey from Peel Hunt.
Just a few questions, if I may. I noticed in the wording for the Chinese JV that it refer to subject to certain performance conditions. I wondered if you might just elaborate on that a little. I don't recall seeing that in the original announcement. Secondly, I think previous guidance was for broadly flat volumes in the first half of this year, clearly, Q1 running ahead, but we're mindful not to extrapolate that for the second half -- sorry, for the second quarter. But is flat still broadly the right number?And then, I guess, in terms of the Aerospace outlook, you mentioned 737 MAX as a headwind for this year. But I wonder if you might talk a little bit more about the 787, which is, obviously, I think, there's more content on that for you. And obviously, Boeing, its decision to cut from 14 ultimately to 10 early next year, if you could just remind us how big a proportion of Aerospace that is for you guys.
So if I take the question on China, we have actually make reference in the IS in January that the investment is subject to performance conditions. What those are is basically obtaining the rights to use the relevant piece of land and operating permits. So what one has to do forming this kind of joint venture in China is actually form the joint venture, which requires going through the process of establishing the joint venture agreements and so on with our other party. The JV then has to make the applications to government. And there is always, of course, the risk that the government may decide that there is something they don't like about the project, and therefore, there is a risk. Albeit, we think, a very small one, that the project would be stopped in due course. In order to mitigate that risk, we have sought and retained very strong support from a number of different levels of the Chinese government. So we believe that risk as being very small indeed. But that was the point of that reference. And perhaps, Jakob, some comments on the...
Yes. So on the Aerospace side, when we spoke together last time in December, the ramp down in 787 was sort of more or less known and the time frame over which that would happen. So that was sort of already, to a largest extent, factored into our guidance. I think the new news since then or the confirmed changes since then, obviously, relate to MAX, and that's why we're being a bit more cautious on the outlook for Aerospace, and that is really the sole reason for that. As it relate to the overall volume guidance, we have not changed that even if the first quarter is a bit stronger than we might have expected. And even if Q2 is starting at a stronger rate than we might have expected also, I think there is still a number of macroeconomic factors that are changing quite rapidly these days. We certainly, on the Automotive side, note that IHS is putting out or pulling down their forecast month-by-month as well. And any growth in Automotive, in general, is not expected to materialize until the fourth calendar quarter, which is then in the first quarter of our next financial year, as an example. I mentioned the rig count in my intro as well. We're now seeing about, obviously, 737 MAX. And on top of that, we have coronavirus. So I think even if we are pleased to have landed what we've landed so far, there's plenty of challenges ahead that we need to navigate, and therefore, it's unsubstantiated to improve the guidance based on what is admittedly a good start.
And the next question comes from the line of Kevin Fogarty from Numis Security.
I appreciate it's Q1, and you've given us sort of volume and sales numbers. I just wondered if there's any sort of granularity you can give us perhaps behind Automotive, Electronics and the Value Added Reseller channel, just in terms of sort of how they've performed during the quarter, perhaps some numbers around that.I just wondered, obviously, you talked about stability in Value Added Reseller channel, do you have any idea what sort of markets that's -- is implying, any greater stability on? And just secondly, from a sort of financial perspective, obviously, the CapEx guidance is helpful. And just if there was any idea of the phasing over H1 versus H2 this year, that would be very useful.
Let me start with the CapEx point, Kevin, if I may. Sorry to be unhelpful. It's probably slightly too early to determine that. I mean at the moment, we're expecting a relatively even phasing of CapEx. But I think we have to make the point in relation to China that, whilst the overall CapEx estimate is a good estimate, we're right now working through procurement contracts and so on that will establish the phasing of that spend. So we will have a much better view on phasing by the time we get to our interims. So a sort of roughly even phasing for now would probably be reasonable.
And then on Automotive, we did see very strong growth. It is explained by sort of 2 major things. There are certain sort of environmental regulations associated with a different polymer than we make that are taking place in Asia predominantly. We are used in a blend with that kind of a polymer. And because of that regulatory change, there is a bit of a pull-through of our polymer because our customers are making those blends ahead of the regulatory change. So that explains a little bit of a pull-through in Automotive. On top of that, we have seen good growth against a range of new product launches, mainly in existing applications in certain markets. And that is sort of -- these are sort of 2 main root causes of what we have seen as a solid growth in Auto, which was actual about 20% year-on-year. But I treat that number with a good amount of caution, particularly in light of what I said about industry dynamics in my answer to Dom before, Kevin.
Okay. Okay. And that's sort of, hence, the caution on phasing, I guess...
Exactly. Exactly. And on your question on Value Added Resellers, they've been stable in the quarter and it started well in the year as well. So year-on-year, they were slightly ahead of last year, and January has started well in that segment. And probably, we're seeing some impact of Automotive in that as well of a similar nature.
And our next question comes from the line of Sebastian Bray from Berenberg.
I would have 2, please. The first has 2 parts, which is the -- on the joint venture established in China to produce PEEK. The capacity utilization of Victrex Group at the moment is, relatively speaking, quite low. And I'm wondering how aggressively does the company -- or how quickly does the company want to ramp volumes in China once this is complete? Is there a difference in cost structure? And really, what is the rationale for adding capacity now when there is probably at least 5 to 6 years of spare capacity at the group? That's my first question. The second one is a bit on the accounting. I assume that this is just fully consolidated and then paid out to the minority partner. Is that correct? And the third is a quick one on Automotive. I think, Jakob, you referred to the changes in CO2 legislation coming that would promote lightweighting in Automotive. Is this something which I think should continue from Q2 through Q3, Q4 into the run-up to this legislation? I'm just trying to understand why would this affect Q1 only.
Yes. So if I take the Automotive question first, Sebastian, what I was referring to in my previous answer to Kevin was the fact that there is a change in legislation that is around PVDF actually, in Asia in particular, where there's a certain residual amount in that polymer that is being reduced below a certain permissible level. Our polymer is used a combination with that polymer for certain applications. Producers have permission to sell products made before a certain time even if the residual levels of this particular contaminant in another polymers than ours are higher than new limits. So that means that there's basically a pull-forward of demand for our polymer for that specific use. So that's the explanation that -- explanation to that. It has nothing to do with the carbon footprint as such or reduction in CO2 levels and carbon emissions. So let me be very clear on that. Now obviously, that's having a much broader impact on the industry as a whole, clearly, but that's of a totally different nature. As it relates to capacity, when we look our overall demand plan, coupled with our assumptions around when some of the mega-programs are going to land, we are looking at new capacity needs towards the beginning of 2023, 2024. We announced this already in 2018. Fair enough, economic cycles have gone down versus then, but we're pretty sure that they will cover in due time. There is a lead time for us from the point in time that we decide to add new capacity until new capacity comes on stream. And to put it in perspective, when we put the last capacity on-stream in 2015, it took us around 3 years to build. We have, since then and since we announced this in 2018, looked for ways to add capacity in a more incremental fashion with an independent set of options that then better allow us to mirror actual capacity with demand, still allowing us some headspace to meet and be able to absorb the growth opportunities that we have in the business. So what you're seeing us do both in terms of debottlenecking at Hillhouse, number one, which we should see the benefits of towards the end of 2021; and then with a recent announcement on capacity expansion in China, which should be on stream, let's say, mid-2022, towards the end of -- or beginning of '23, we have sort of paved the way for capacity expansion that will serve us well over the mid part of this decade. And knowing -- as you would know, knowing us well, Sebastian, Victrex has always invested ahead of demand. And it has proven successful, and it is a rational approach in a market that is growing at the rate that PEEK has been growing in recent times, even if the business has been facing short-term headwinds in 2019. So the rationale is clearly there. And to be able to do it in a more incremental fashion with independent options, not to mention the fact that it's obviously a big strategic move for us to build the polymer capacity and a polymer plant in China to serve that business and our key customers in that area, not just in China, but in Asia broadly from a closer distance, is clearly an important step for us and shouldn't just be looked at from the perspective of a capacity, if you wish. So I hope that gives you color on that, Sebastian.
That's helpful. And just as a quick question on the accounting, I assume it's fully consolidated and then paid out in minorities? Is this right?
Yes, that's right, Sebastian.
Our next question comes from the line of Thomas Beevers from Stockviews.
Yes. Two questions from me, please. First one on Gears. I think on the last call, you had mentioned the contract with the German OEM had been rescoped and pushed out to FY '20. Just wonder if you could give us an update on where you are with that and whether orders have started to come through yet? And then the second question on Electronics. I think the last update here was -- you mentioned the industry forecast for FY '20. We're running at about 6%, but that you were a little bit more cautious than that. Just wonder if you could give us a bit of an update there on how you stand versus those industry forecasts?
Yes, I'd be happy to do that. I think if we start with the Electronics one, the WSTS forecast, they are assuming 5.9% growth in 2020. So more or less around 6%. I think we're starting to see some of the impact of that. I think we were just a bit cautious as far as direct extrapolation onto what it would mean for our business. But I think the growth assumptions that we had when we spoke last time in December of the industry growing at around 6% are still holding out, and we are certainly starting to see the impact of that in the Electronics business. Then on the Gears side, what we were talking about here was actually a contract with an American OEM that was rescoped, and that is basically -- we're running 3 programs altogether with that OEM. This one was rescoped, and it was rescoped back to a conventional steel-based approach for a variety of reasons. That actually had very little to do with the qualification and the value proposition that the material had in the application. It was just -- for them to be able to address the entirety of the platform that they wanted to address potential issues on, they decided to go for a single approach that will cover all situations. So even if PEEK was able to address 90% of the platform, roughly, give or take, they needed a single solution at the end and changed the scope so that they could go with a metal solution that covered 100% of the cases. Now that being said, that was obviously not good news for us. But the good news are that we continue to work with them on a number of other opportunities. And to put it in perspective, we now have development programs in Gears in all major markets with a number of different OEMs, probably to the tune of around 12 to 13 projects right now that will have SOP in the years of '21 and '22.
I see. But in terms -- so in terms of FY '20, do you expect meaningful revenue at all from that Gears business or is it basically saying...
No. Meaningful revenue, we're going to push out to '21 as a consequence of this.
Our next question comes from the line of Samuel Perry from Crédit Suisse.
Just one question, please. With your capacity expansion in China with your JV partner, what is Victrex's strategy surrounding IP protection?
Samuel, we clearly take this particular aspect of what we're doing extremely seriously. There are actually many measures that we are taking to protect our IP. And some of those are practical, so things around electronic control of documents, things like how we manage design processes, things like how we manage interactions with service providers in the course of design and environmental studies and those sort of things. I probably don't want to go into too much more detail about that, but there are many things we're doing around those sort of things. And then one of the things we have to remember as we did state in our statement, this is a type 2 PEEK. There are producers in China that were able to produce something like that kind of PEEK. So equally, we're not taking sort of all of our technology. So I probably don't want to go into too much more detail, but there is a whole range of controls and measures around how we do that.
And our next question comes from the line of Martin Evans from HSBC.
Can we just go back to the guidance for this year, I'm afraid. And maybe, Richard, if you could help us just bridge how you view the year-on-year progress using GBP 106 million, I guess, as the base. I say that simply because you put a lot of caveats in the release, which you're very helpful about: mindful of headwinds in Aerospace; Energy being notably weaker, the phasing of Autos; and also, of course, you have flagged for this year the overhead costs, the bonus accrual and so on, raw material inflation. I mean putting all that together, I guess, the concern is that rather like last year, you start the year fairly optimistically. And then as the year progresses, appear to be disappointed with what you see. So what's your level of confidence? And could you just clarify again for us what you view as year-on-year progress?
So I think, Martin, the starting point is the consensus for PBT pre-exceptionals is currently of the order of EUR 109 million to EUR 110 million, and that would be the expectation with which we are reasonably comfortable and that has been the case for some time. Whilst quarter 1 in headline terms looks like a good improvement, as Jakob has, I think been very clear about, firstly, that's against a particularly weak comparison last year. Secondly, we remain cautious about some of our end markets, particularly Automotive. So I don't think we are actually starting the year in a position of optimism that could then get undermined. I think we remain cautious about those end markets. So I think what we're thinking is that although the signs in the first quarter are a little more encouraging than they have been, there is still plenty of growth to go in terms of how those markets might turn this year. And we'll come back at the interims and hopefully be in a better place to give a clearer viewpoint as to how they're evolving.
Okay. And just to clarify, the FX, the tailwinds this year, is it still around -- forecasted around GBP 5 million to GBP 6 million on the pretax line?
Yes. We said GBP 5 million to GBP 7 million, and that is still where that's at, and we are pretty much covered for the year now.
Next question comes from the line of Mubasher Chaudhry from Citi.
Just going back to the Gears mega-program, could you just give some color around which part of the solution -- is it not about -- PEEK could provide about 90% of the solution? And then if there is particular part that PEEK was unsuitable for. That's one.And two, how much did economics come into the -- into question for the customer given the kind of PEEK and steel price differential?
It's very simple. I think at the outset, PEEK was not intended to solve this particular issue at very high torque levels. Then the scope was changed so that the customer felt that there was a need to carry a single solution across the whole platform, which then included torque levels that we never expected PEEK to be -- PEEK to be able to perform at this stage. And with that scope change, they reverted back to a metal-based solution even if it didn't solve all the issues around performance that PEEK was able to solve. Economics did not play a role in the equation.
And our next question comes from the line of [indiscernible] from [indiscernible].
I just wanted to ask about the phasing of electric vehicles because of the changes in legislation next year for Europe sort of -- we expect that there will be quite a lot of EV launches in the second half of this year, and diesel is clearly losing market share. So I was trying to understand whether it can be potentially beneficial for you. And how do we estimate the penetration of PEEK into EV? Because you gave this guidance of 100 grams, but it's sort of -- if you would have more details, it would be really great.
Yes. I think that is a very sort of fluid picture as we speak right now. And clearly, with the carbon emission taxes sort of being introduced these days, then that's going to catalyze the adoption of electrified vehicles and hybrids for that matter as well. How quickly this change is going to happen is difficult to sort of pin down, and you will have as many opinions of that as there are people in the world almost. But I think in our case, the movement from internal combustion engine through to a pure EV world or a battery-powered world is, overall, a positive one. No matter how we look at it, obviously, positive for the environment or I guess so depending on how we look at life-cycle analysis. But in any event, from a business perspective, it's a good move for us. And even one would say that a hybrid situation is probably in the sweet spot in many ways because then many of the parts that we are specced on and relate directly to the internal combustion engine will be needed. And some of the past -- and technologies that we supply and will supply into the battery-powered world will start to pick up again. So that's sort of roughly the journey that where we say that on average in a passenger car, you might have 8 grams of PEEK today. In a pure EV world, we think, with our initial estimate spend based on what we're seeing in projects with some Tier 1s and OEMs, could reach roughly 100 grams a vehicle over the long term. But the difficulty is in projecting how quickly those figures are going to change and move upwards.
Yes. And another question on MAGMA because Technip had another failure of a riser in -- a flexible riser in Brazil and sort of -- I sort of might accelerate the -- your type of pipe adoption because clearly, the metal erodes much faster than Technip expected after 2 years instead of 5 years, et cetera. So how do you view that?
Well, whatever material that pipe might have been made out of, it would not have been PEEK because this...
Yes, exactly. So -- but I was wondering if it helps in sort of accelerated adoption of the PEEK because it's more resistant to corrosion than steel?
I think it's certainly served to improve the value proposition and the attractiveness of the technology. The MAGMA program as such is in a very defined time line that requires a variety of different qualifications that we're knocking off one after the other, and the expectation there is that we will have a better visibility of the actual adoption when we get into 2021 for potential start-up deployment in 2022. So whatever incidents may happen with different technologies along that journey, I don't think they will accelerate the adoption, but they certainly serve us yet another data point to probably validate and hopefully -- yes, further validate, I think, the merit of the flexible technology.
And our next question comes from the line of Charlie Webb from Morgan Stanley.
Just a couple of qualification questions for me. Just first, in terms of the change in legislation around the blended PVDF polymer. Just trying to understand this. So effectively, there are going to be in -- limitations put on this polymer in the future, and therefore, you're seeing a pull-forward in demand ahead of that change in regulation? Just to be sure that's the message, which is a positive, which you kind of flagged obviously in the release as phasing.And then just a second qualification on what you were saying there on EVs. Today, how many platforms are you qualified or expecting to be qualified on for EVs in the next -- this year or next year? Would be helpful. Or are we more talking around longer term, and the approval process is probably still a bit more than 24 months to run for you guys. Just trying to gauge the time frame of that would be helpful in terms of your comments.
Right. So on the pull-through in Automotive, so basically, we are used in a blend with a different polymer for a certain application in automotive. That polymer is subject to certain legislations right now where residual levels of impurities -- the permissible levels of impurities is being reduced. It has nothing to do with PEEK, and I want to completely make that explicit. Now because we're used in that blend and our customers are pulling forward manufacturing of that polymer blend, that creates a pull-through of volumes into the early part of this year that otherwise would have been produced in the latter part of our financial year, and it's as simple as that. Then as it relates to electrification and when we will start to see real impacts on that, we're starting to see some impact on it. But it's fair to say that once you start to see more demand for higher voltage, faster charging, that's when you really start to see the impact of -- and the value merits of PEEK in a variety of different applications. Lower voltage, there are probably other things, other materials that can do the job. But what we're seeing right now is that the consumer seems to be looking at 3 key things. They'll be looking at range, they'll be looking at the speed of charging and they'll be looking at cost. Speed of charging and range, and therefore, better batteries with more power sort of bode well for the application for the use of PEEK. And that's why we're seeing a great interest in the variety of applications associated with both wires and batteries because of that trend. And I want to say, again, with PTFE and the blend, there is a residual in there, without becoming -- putting my chemistry hat too solidly on, residuals in PTFE, called PFOA. That basically is subject to reduction in residual levels, and that's driving the adoption of a different range of PTFEs that are rid of these residuals. And prior to launching the new grades of PTFEs, there is a pull-through for PEEK to be used in combination with the old types of PTFEs. So I hope that explains this.
Sure. Just -- sorry, just to be clear on the EV one. Sorry to come back to that. You must have some good visibility, right? The approval process is fairly long in Automotive, and so these kind of higher-voltage solutions that you're hoping to have more PEEK in for -- are we talking that you expect to see them with the big ramp-up in EVs in Europe in 2021 or even this year? Or are we saying that you still see that in terms of your discussions further down the line? Just to be clear.
There is a little bit of a mixture here. There's probably a few short-term opportunities, but I think the bigger opportunities will be sort of beyond '22 and going forward from there.
And we have a follow-up question from the line of Alex Stewart from Barclays.
Alex, are you there?
And since we cannot get a response from Alex, our next question comes from Andrew Stott from UBS.
Just wanted to come on to the Medical side. Apologies, I was late to the call, so sincere apologies if this has been asked, but it was 2 things. One, the comments you make on the -- getting closer to another collaboration. I just wonder if you could talk around the project overall and the timing of commercialization as you see it.And then secondly, just the performance in Q1 of Medical overall. Again, I'm just wondering if you can talk around that. I see you said stable. I just wanted to know what that means in revenue terms or that meant also for ASPs for the group, which I didn't see in the press release?
Yes. So I'll give you a color on Knee. So in Knee, basically, recruitment has started. There's no implant taking place yet, but we would expect that any day. We're expecting the trial to involve around 30 patients, take probably around 18 months. So towards the end of calendar year '21, we probably will have the outcome from the trial. I think it's fair to say that the closer we get to implants, we see a greater interest from channel partners. So there's a number of discussions taking place on potential partnerships in that area based on that. On the business results, Richard can add more color to the actual numbers on Medical year-to-date.
So yes, I mean, Medical in the first quarter, when we say stable, that's a very small level of overall growth, in line with our expectations. And we're seeing some reasonable growth continuing in Asia. In North America, particularly the spine market is relatively flat. So continuation of those sort of dynamics. Our expectations for average selling price for the year is that there is a small increase in average selling price, primarily driven by the currency benefit. So think something of the order of 2% to 3%. And that pretty much points to underlying selling prices by market, again, being roughly stable. So a very similar position as have we reported in the last few reporting periods.
And Richard, can I just follow up on FX? You mentioned, obviously, with the reference to ASPs. But the comment on 2021 in the press release, if you mark-to-market on current spot, what sort of hit do you think you're looking at for '21?
Clearly, there'll be some uncertainty in that, we are not particularly highly covered for 2021. But if you did move to current spots and allow for some forward premium, then we would be thinking about the current year's tailwind reducing to -- or reversing would be the way to look at it.
Reversing to the same level, so around 5 to 7 as a negative? Or you mean reversing to 0?
No. So reversing towards -- it could be 5-ish million, maybe 6 million. We'd make the point that it's early days to be making that kind of call.
Sure. Sure. But -- and just saying with FX, you said before you were thinking of revising the policy. So do I assume, therefore, that the hedging stays in place? Is that where we've got to?
For the time being, you should assume the hedging stays in place. We haven't made any decisions to revise the policy. So you shouldn't assume any difference there.
And we go back to Alex Stewart.
Can you hear me this time?
Yes, we can.
There was a problem, so I actually -- I don't want to disappoint you, but my question has been answered. So thanks for the opportunity to ask an additional, [ but I could have been any ].
Thanks for joining us anyway.
Since we have no more questions registered, I'll now hand back to our speakers for any closing comments.
So thanks, everybody, for joining us this morning, and we look forward to catching up with you again in May.
And this now concludes our conference. Thank you all for attending, and you may now disconnect.