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Welcome to the Victrex Q3 IMS. [Operator Instructions] Just to remind you, the conference is being recorded. Today, I am pleased to present Jakob Sigurdsson, CEO. Please begin your meeting.
So good morning, everyone, and welcome to Victrex Interim Management Statement Call for the third quarter of the financial year 2021, which covers the period from April 1 through June 30, 2021. So I'm Jakob Sigurdsson, CEO. I also have Richard Armitage, our CFO; and Andrew Hanson, our Head of IR, with me today. Firstly, I'd like to cover our key messages, and then Richard will cover the financial summary. Then I will come back with a few words on our mega programs and our outlook for the year, and we'll then open it up for Q&A.So overall, the key message today is that we've seen continued good momentum in most end markets. And we now see some upside potential for the full year 2021 expectations. This was driven by another strong quarter with volumes of just in excess of 1,200 tonnes, which was very much in line with the momentum that we saw in the second quarter. Whilst we are very mindful of some restocking effect within our recent performance, particularly in the Value Added Resellers area, our order book remains robust for the final quarter, although the anticipated run rates might be slightly lower, mainly reflecting some seasonality in our August predictions.If we look at the performance at an end-market level, we've seen continued strong trading in Electronics, Other Industrial and Value Added Resellers. We've seen a good year-on-year improvement in Automotive and Energy, whilst Aerospace remains a bit subdued, although we note that some of the recent encouraging signs with build rates that have been announced in recent weeks on some models set to increase later in the year and continue into 2022.Medical continues to see a gradual improvement in procedures both in Asia and in the U.S. The latest market indicators would suggest that the U.S. will be back to pre-COVID surgery levels around the end of 2021. And we are slowly sort of approaching our pre-COVID run rates in the Medical area, probably being a bit in excess of 90% of the run rate that we saw prior to COVID. China is now more or less back to pre-COVID rates of surgery, which is quite encouraging.I'll now hand it over to Richard for the financial summary. Richard?
Thank you, Jakob, and good morning to everybody. I would first like to remind everybody that we saw the most significant impact of COVID in quarter 3 of the prior year, which makes the year-on-year comparison difficult. But looking[Audio Gap]seen sales volume in line with quarter 2, which means that we have been able to continue the positive momentum reported at our interim results in May. As Jakob has noted, we do assume some restocking effects within the numbers, although that remains difficult to quantify.So to the numbers for quarter 3. Group revenue of GBP 80.7 million was 37% ahead of the prior year. Quarter 3 group sales volume of 1,202 tonnes was 49% ahead and, as I noted, in line with quarter 2 at 1,204 tonnes. On a year-to-date basis, group sales volume of 3,289 tonnes is 18% ahead of the prior year, which was 2,797 tonnes. And year-to-date group revenue of GBP 231.6 million is 10% ahead of the prior year at GBP 210.3 million. It is worth noting that sales mix remains skewed towards our industrial end markets although Medical is seeing an encouraging performance as some geographies start to see elective surgeries return in greater numbers. Both with industrial end markets driving stronger growth, our margin in the second half may remain similar to the first half, which was around 54%. Our average selling price at GBP 68 a kilo was slightly weaker than our guidance, which is simply the effect of industrial end markets driving growth faster than the Medical.If I turn briefly to our financial position. As always, one of the pillars of our investment case is that we retain a highly cash-generative business model. This supports our investment for growth as well as shareholder returns. Our cash position supports our high capital expenditure this year, principally in the development of our new Panjin VYX facility in China, which is progressing well towards commissioning in 2022. This facility will underpin our growth in China over the years ahead and further extend our PEEK portfolio. We also reinstated the interim dividend at pre-COVID levels, which was paid to shareholders in June. Consequently, cash on the 30th of June was GBP 88.3 million, which excludes GBP 10.6 million of cash ringfenced as part of our China joint venture. We guided originally to year-end cash being in the order of GBP 80 million to GBP 85 million. Subject to positive momentum remaining in the final quarter, our year-end cash balance could be higher. However, with the bulk of this year's capital expenditure being weighted to the second half, our year-end cash balance will be dependent on the timing of some significant contract payments. We continue to expect capital expenditure across FY '21 and FY '22 to be of the order of GBP 100 million as we complete our China manufacturing facility, commence the first phase of debottlenecking and continue to invest in additional capability underpinning customer-related programs in China. Thank you. And I will now hand back to Jakob.
Thanks, Richard. Ever so briefly, we have talked of continuing to deliver significant milestones in our growth pipeline on the mega programs. So I'm very pleased that the one program which, until now, did not have what we can define as a technical milestone has hit a significant one, and that is in our Knee program, where we are now have seen 5 patients receiving a PEEK Knee as a part of clinical trial sites in Italy, Belgium and India. All of these have at least a 6-week clinical follow-up stage with no issues reported.The clinical trials to demonstrate the safety of the PEEK Knee and this involves the recruitment of around 35 patients overall. And the follow-up with patient is 18 months to 2 years in terms of collective period. Our partner, Maxx Orthopedics, will be making a further progress update in early 2022. But clearly, everyone that has been following us knows that this is a sizable market with a clear appetite for an alternative solution to metal. So all in all, this is a significant milestone for us and a great start. So stay tuned to further upgrades as we progress through the trials. Turning to our outlook finally. As we've said, our order book for the final quarter is robust, although with some benefits from restocking over recent months. We still anticipate run rates that might be slightly lower in the fourth quarter, as I said, mainly attributed to a bit of a holiday effect in August. We're continuing to see a solid recovery from the impact of COVID-19 on our business. And reflecting the volume strength on a year-to-date basis, we now see the potential for some upside to current full year expectations. Our internal assumptions are now closer to the upper end of the analyst range, with a range of forecast, it has been between GBP 79 million to GBP 92 million at the PBT level and consensus prior to date being at around GBP 85 million. So some upside potential for FY '21, but it's worth a brief word on FY '22. Whilst many end markets are continuing to show good progress, we continue to see a growing impact from foreign currency headwinds next year. Currently, we're looking at about GBP 11 million headwind as well as increasing raw material inflation and anticipated uplift in innovation spend to support our long-term growth pipeline and some costs associated with the commissioning of our China manufacturing facility. We do remain focused on growth for FY '22 as we move closer to the start of the new financial year, but it would be remiss of us not to signal that these effects will weigh on our FY '22 margins.Thank you. And I will now hand it over to Q&A.
[Operator Instructions] And our first question comes from Mubasher Chaudhry from Citi.
Two please. Could you break down the run rate that you're seeing in terms of how much is -- how much improvement you're seeing from VAR? And should we expect this kind of softening or the restocking trend to end as we go into the 1Q '22 from your perspective? And then looking at '22 a bit more. The second question is around the bridge. If I was to take the higher end of your -- or higher end of the analyst consensus at the moment, it looks like there will be negative GBP 11 million from FX and negative GBP 10 million from raw mat and innovation spend. Do you think that the softening volume picture, given that you've got a strong base, you'll be able to see growth in both a PBT and a volume basis in 2022?
Well, if I leave the bridge to Richard, and I'll take the restocking effect. I think it's interesting. We're not necessarily seeing much restocking yet at the level of the Value Added Resellers from that level for themselves. In other words, I think they are pretty much hand to mouth these days in coping. There was some significant uptick in demand also. I think we're probably seeing some restocking in the supply chain downstream from them. So we are sort of expecting this, what I sometimes call the takeoff phase, to last probably through the end of this year and we get to sort of more normalized growth rates after that. I think it's useful to think of it in a bit of a simpler context as well. I think what we're seeing now is that our core book of business, if you will, that we enjoyed during 2018, which then suffered some cyclicality and subsequently COVID, is still there. That nucleus is starting to grow again. In the meantime, we have gained new business as well in new applications, not lost much, if anything, that we know of. And then that nucleus, if you wish, is starting to grow up and clearly benefiting from early restocking effects in the numbers that we're looking at right now. So I think we've got every reason to believe, looking at macroeconomic factors that drive most of our end segments, that we see a good momentum into 2022. But clearly, we will not have the same takeoff effect that we've seen in the form of restocking for the past quarter or so. I think that's a useful way to look at it and can help you triangulate what your model needs to have inputted according to the different sectors and the -- what are drivers behind those. For the bridge, I'll hand it over to Richard.
Yes. Thank you. So building on what Jakob said, this restocking effect does make projecting volume growth next year a little bit tricky. Certainly, we would expect it to have largely worked its way through. And we would expect to see some degree of revenue growth at constant currency next year. Volumes, I think we'll have to see. Volumes could be reasonably flat or maybe a very slight growth. But I think we've got to get through this quarter really to get a firmer grip on what's going to happen next year. And then on the margin bridge, we spoke at the interims about the currency headwind of around GBP 10 million. That's probably slightly higher, probably GBP 11 million. We're seeing raw material inflation in common with many other participants in our industry, probably low single digits in millions. And then there will be commissioning costs associated with our investment in China. So the way to look at that is we would expect to see a small improvement in gross margin next year, but it would be the year after before we see a more substantial return back towards a 60% kind of level of gross margin.
Our next question comes from Andrew Stott from UBS.
So a couple of questions, please. The first is a sort of issue around the Knee trials. I just wondered if you could educate me a bit about the process. How meaningful is a 6-week response? I imagine very meaningful. But I just wondered if you could talk me through that particular chronology and the importance of that milestone. And then why do you need 2 years? Or I think you stated in this morning's release up to 2 years, to then proceed from that point? So really, just if you can talk me through the milestones and the design of the trials. Second question was actually really straightforward. I don't think I've seen a comment on your sales in Q3 for Medical. I wondered if you could state what they were year-on-year, please.
So you want to take the first one, Richard, and we'll take the Knee one after that?
Yes, we did see a reasonable recovery year-on-year. I'm actually going to pull up the exact percentage, which I will give you. But basically, what we've seen is a broad growth across our markets. Asia recovering very substantially in line with pre-COVID levels. To the extent that we sell in Europe, fractionally behind but substantially recovered. And still the U.S., about sort of 10% or 12% down from pre-COVID levels. And I will quote the overall sales growth number in a minute.
6 weeks chronology is important, Andrew. That's sort of the first readout, if you wish, after the operation. And there should have been progression much related to the adaptation and more clear signs of the outcome of the success of the operation itself. Two years is the maximum time. It's likely to be 18 months on average. But we're saying, based on the fact that it's a phased-out rollout, we would expect to see the end results in about 18 to 24 months' time. And the way the trial is structured, we're not allowed to move to Stage 2 until we've had the 6-week readout from the first set of patients. So hence, you see the phasing out in time of the number of patients that will enter the trial and that, to some extent, obviously defines the end point then.
So Jakob, the Stage 2 would begin when on the best case?
So we began in late March. That's when we had the first implant. So 2 years from then would be March 2023 that we would be sort of looking at having concluded with the trial. And that's assuming that we won't have any further issues that would impact recruitment as it has done year-to-date because of COVID and of just caveats like that. But clearly, this is a milestone that we've been waiting for a long, long time. So it's one that we received with joy. And it is progressing very well so far, and we'll be happy to update you as we go forward.
Our next question comes from Sam Perry from Credit Suisse.
Just have 2 questions actually. Firstly, on the balance sheet, I noticed your cash balance is GBP 88 million. That's above your threshold for special dividends, I believe. So correct me if I'm wrong. I imagine that there's some discussion around whether this gets paid to the Board meeting at end of the year. But -- and I know that you've also said CapEx is 2H-weighted and there might be a working capital outflow in the second half. Let's say you do finish the year with a cash balance GBP 88 million, what are sort of your initial thoughts on capital allocation around the special dividend or given the China around sort of ramp and CapEx allocation to that, whether it be sort of a secondary consideration?
Yes, that's obviously a very good question. I think our one reason for a little bit of caution is we are in a very significant capital program. And we do have some significant contract payments around our year-end. You can see from the profile of our CapEx this year that it's very back-end-weighted. But if we do exceed GBP 85 million at year-end and subject to us assessing investment needs, new opportunities, anything else that might arise, I think we would be feeling positive about wanting to pay a special dividend, but I do have to stress it will be subject to us assessing where we are when we get to December.
Great. And then sort of secondly, just on the guidance, it sort of implies Q4 volumes sort of down 25% year-over -- sequentially to get to the top end of consensus number. Is there anything suggesting that there's limited seasonality? I know you've spoken about August being a weak month, but that you would actually end up at down 25% sequentially. And then sort of on top of that, if you're happy with the -- with the top end of consensus, that basically implies 2H volumes up 2% sequentially. Given there's some improvement in mix from Medical in the second half as well, would that actually imply that you're happy with above the top end of PBT consensus given that, that went down 5% sequentially?
So I think to get to that upper end of consensus number on volume, we would be of the order of 1,000 tonnes in quarter 4, which is obviously 20% down. This has happened before. We can see quite a significant seasonal effect going into August and September, influenced, to a degree, by the holiday period in Europe. And it would only be that. So we are allowing for the fact that we may see that seasonal effect again.And I think that probably answers your second question. I don't think we'd want there to be an assumption that we could exceed the upper end of the PBT range simply because we've got to allow for the seasonality.
Our next question comes from Sebastian Bray from Berenberg.
I would have 3, please. The first is an update on the debottlenecking exercise that the company paused. Is there a chance in the U.K. that this restarts next year?The second question is on the ability to offset the headwinds flagged as regards to FX, inflation, raw material costs next year. FX, I assume, there's not much to be done, but the low single-digit million raw material effects, can that be compensated for with price? The reason that I'm asking this is because if I take, let's say, a figure of GBP 95 million, okay, it's a bit above where the top end of consensus is, assume you have a bit of volume growth and deduct GBP 15 million from that for 2022, you come out to the figure substantially below where consensus is sitting.And the third question is on the China cash, the JV. Once this has started up, is it possible to take the cash out of the JV? Or does this have to stay permanently ringfenced?
Let me take the first one, debottlenecking, then hand it over to Richard for the second and the third one. I think, as we went through COVID, I think we utilized the time quite well to figure out how we could do this in the most economical way, number one; and the least disruptive one, number two, with both being important. I think we're likely to undertake the first phase of that next year, and that's included in our assumptions around CapEx that Richard's decided before. It's likely to spread out over a longer period, though. So the impact of that in any given year won't be as significant as it otherwise would have been. So I think we found a good way to distribute that capital program over probably 2 to 3 years with the same end effect in terms of the capacity that it would release. And the second and the third, I'll hand it over to Richard.
Sebastian, so on inflation, I think carefully about how to recover that. So we're not going to guarantee exactly what sort of money we're going to go after, but there will be various actions taken to try and mitigate that to some extent. And you would be right about currency. It would be the wrong thing to do to set out to recover all of that currency impact through something like price.And then China cash is a very good question. There are plenty of stories about companies having difficulty getting cash out of China. We are going to mitigate that to some degree by putting in place some local borrowing. Beyond that, we've done some fairly careful financial planning, and we think we would be able to withdraw sufficient cash in then we do it -- in accordance with our needs over time. So I hope that helps on that one.I realize I didn't answer Andrew's question on Medical revenue growth. So that was 26% in the third quarter, which is why you can see the balance in the third quarter has been weighted towards industrial growth and hence the impact on overall average selling prices.
That is helpful. Just to clarify on this is -- from where things stand today, is it a plausible outcome that earnings are down substantially in 2022 relative to 2021 based upon what you've said?
We wouldn't expect earnings to be down.
Our question comes from Kevin Fogarty from Numis Securities.
Just two, if I could do. I mean, firstly, just in terms of the cash performance suggests that the kind of inventory unwind is proceeding as planned. I just wondered if you could just sort of confirm that 3 quarters into the year, just in terms of kind of where you see inventories at the back end of the year, if there's really been any change in your thinking on that.And just a follow-up, I guess, in terms of the upgraded guidance today. I guess sort of what does that do to your assumption for bonus accruals for the full year?
Kevin, I think I can deal with those. So yes, you are absolutely right about the inventory reduction. We had set an internal target of around about GBP 77 million, and we actually hit that about a month ago. Where will we be at year-end? Could be a little higher, could be a little lower. There are various things we're considering, including recent disruption to global supply chains and whether we need to increase inventories in one or two areas, but we're at -- we're, roughly speaking, at that target level. So that's been good for our cash generation this year.
Right. And bonus accruals?
Sorry. Yes. So the guidance implies we will be paying out at the upper end of the range that we could pay for bonuses. Bear in mind, this is primarily driven by our employee bonus scheme, so we would be anticipating bonus costs in total of the order of GBP 8 million to GBP 9 million. Worth noting that we have changed the scheme a little bit, which means that, that accrual is a little bit lower than it might have been in the past.
The next question comes from Martin Evans from HSBC.
Just picking up again the comment on raw material inflation potentially in 2022. I seem to recall in the past, raw materials have not been a particular problem for Victrex because you do have this VDF operation where you blend your own raw materials as you model and giving you a sort of up to a years' supply and, therefore, stability in your cost. And that's worked pretty well in the past.The fact that you flag it obviously is an issue now for 2022. I'm assuming simply that's a phasing issue on the basis that, therefore, for this year, '21, there's no real cost inflation because you're using up the pre-existing supplies of the benzo phenol chain that you've got, but you are anticipating the cost inflation next year. So that's the first question. Does the VDF supply still work to your advantage on balance? And secondly, I guess, following up on Sebastian's question about pricing. Because you've historically had a lot of stability in your costs, does that make it more difficult for you to go back to customers and try and pass on, albeit a temporary cost that you're experiencing, on the basis that PEEK is a pretty expensive product anyway?
Yes. Thanks, Martin. I'm happy to talk about the advantage that we have from our own monomer production, which is clearly as important now as it was in the past. But don't forget the fact that into VDF, there are some obviously key ingredients that are needed to form that. And it's a -- we see inflation in some of those. So the input into VDF and then the raw material input into -- that goes into converting the VDF into PEEK. More strategically, it's important for us to have other raw material sets because it allows us to make our own monomers, which allows us to make Victrex' unique PEEK, if you wish. But there are certainly cost dynamics about the feedstocks for those even if we convert them ourselves into VDF, which is the main monomer for PEEK. .And then as it relates to the price increase mechanism, I'll hand it over to Richard again.
Yes. Thanks, Martin. Yes, your question is a good one. I mean, in a way, I suppose you're right. We're always mindful of the need to provide the right value in terms of the way that we price our products at the end of the day. And as you would know, we're out there in terms of growth, often trying to displace metal in certain applications. And therefore, value pricing is very important to us.So I'd probably sort of turn the point around a little bit and say that, because our exposure to raw material prices and particularly swings and underlying commodity prices is much less than might impact other businesses in our sector, we're able to maintain relatively stable pricing. And that helps as we go out and develop our business. So we will certainly aim for some degree of recovery next year, but we'll be careful how we do it.
The next question comes from Chetan Udeshi from JPMorgan.
I have 3 questions. First -- maybe first couple for Richard. I think, if I'm not wrong, last year in 2020, you guys had roughly GBP 12 million of under-absorption costs. Can you remind us what are the under-absorption costs for 2021? And how do you see the production next year versus what we've seen over the last 2 years in general? So that's first.Second, again, more a reminder, what is the mix sort of headwind from Medical mix? If you can quantify again over the last 2 years in terms of percentage impact on gross margin or earnings, that would be useful.And third is a bit more a philosophical question, if you will. We've seen Victrex' volumes already above 2018 levels. But the PBT from what consensus is for 2022 is still well below 2018 levels. So -- and I understand there is some FX headwinds that we've seen, but also you've had cost taken out. How do you think about that dynamic? Just given the volumes have recovered, but PBT is lagging so much, when do we see that PBT inflection closer to 2018 numbers in general?
Chetan, those are good questions. So firstly, on the under-recovery. So you're right, we saw about GBP 12 million last year. This year, we're around the GBP 8 million or GBP 9 million mark and substantially be removed by FY '22. Or if you will, our production volumes would have recovered to such an extent there is minimal under-recovery. And to an earlier question about how the various headwinds are dropping through, that goes some way to explain why, and although there are significant headwinds, not all of them dropped through straight to the P&L. So hopefully, that answers that one.The Medical headwind, so that would account for about 4 percentage points of margin. It depends which period you compare, but let's call it 4 percentage points, which also will have some degree of benefit next year. We wouldn't expect all of that to come back next year, but there will be a little bit of a benefit from that.And then I think the question about 2018 is also a good one. So when you look across that period, the most significant impact is actually currency. And I haven't updated my estimate recently, but I would [indiscernible] GBP 14 million or GBP 15 million across that period, maybe a little less than that. The Medical mix is a significant impact. There has been some inflation underlying that. So those would be the main drivers. And actually, when you sort of put those into the mix, you can see why, on a comparable volume basis, PBT would be sub-GBP 100 million.
Our next question comes from [ JD Andiov from Andiov Research ].
Just a question around 3D printing. Could you just tell us how much of your exposure today includes end markets like aerospace, automotive, electronics, what have you, is the 3D printing-related? And there is an overdraft of polyamide 12 capacity coming in the next 2, 3 years from several of your peer competitors. How do you see the future for 3D printing for PEEK in the sort of set of family of thermoplastics? That's my first question.And my second question really is when you think about your Chinese project and the exposure that we want to target in China, could you just give us some color how will it be different compared to the historic strategy of Victrex? That's my second question.
Yes, happy to field those. So on the 3D printing side, in our current book of business, it is a very, very small amount. We've taken 2 approaches to it. On one hand, we've been working with developing special grades in conjunction with partners like the University of Exeter, as an example. These grades are now sort of just starting to be commercialized. Secondly, we've been looking at the filaments-using approach, and that's where we took an equity stake in a company that's called Bond 3D printing out of the Netherlands. We look at the opportunity there very much in the context of our Medical business, but also related to Aerospace and Energy, to some extent. But primary interest, though, has been evolving around the Medical side.And if you look at this as the avenue to get towards a generation of products in the form of 3D-printed spinal cases, this will give the porosity that will allow volume growth. So that's very much the objective of our investment in Bond. And that's progressing very well. And we're lining up commercial partners to take that forward as well.I think we are equally as excited about the prospects of 3D printing. It has been difficult to 3D print PEEK. The strength and the set direction has always been an issue, but we feel that, with the technology that Bond has, and we continue to be more and more convinced the more we see from the evolution of their development that we found a technology there that can allow for 3D-printed parts out of that to deliver at some direction strength and so all the issues that might have otherwise hampered the progress for PEEK in 3D-printed applications. So 2 approaches, both related centering and filament fusion, both progressing well. Key areas of focus for us being mainly Medical, but also quite interesting opportunities, I think, potentially in Aerospace and Energy.Now on the China side, we obviously have enjoyed tremendous growth in China over the recent past and even through COVID. We grew our business there at significant rates. Many of our global customers are setting up operations there or have already set up operations there and are looking for us to supply them with material into their local operations from a local source, part of it covered by the Made in China 2025 initiative. We took the approach there to do this with a long and established Chinese partner in the manufacturing JV, where we own 75% and they 25%. The sole customer of that JV will be [ Victrex Assets ]. We'll be extending our product line there into a product that is fit for purpose for the Chinese market. And we see sort of the main end markets being Automotive, Electronics and sort of general industrial applications to begin with. And as Richard has said before, we would expect to be commissioning that plant in late 2022, and we're on track towards that.
Just a follow-up really on Automotive. Historically, you've spoken a lot about years and obviously see that as a plastic has found good applications in the auto industry to replace metal. When it comes to EV, obviously, the structural things between media and IT, do you see penetration opportunities higher in an EV versus an ICE? And do they come at an expense of mix? Or actually, they are also mix-enhancing?
I think, in our previous presentations and communications, we've always emphasized the attractiveness of the trend movement, if you wish, from ICE to EVs, particularly when it gets some more sort of sophisticated motors and batteries and the like. And I think hypothesis or hypotheses around that from years back are actually panning out these days, and they're panning out to be true. There will be carryovers from some applications along chassis into the EV world from the ICE world. But in addition to that, I think the properties of PEEK that are associated with chemical resistance, but probably even more so with electrical insulation properties and thermal insulation properties, become more pronounced. So at the end of the day, very roughly, we think there is a much larger opportunity that awaits us in the EV world than we ever saw in the ICE world.And some of the Gears programs might actually be a parallel in the form of upshares. So overall, I think we would expect that to see panning out at a pretty similar rate as it relates to average price and/or margins from the industry or from the sector as a whole. And it's a fair base assumption.
Our next question is a follow-up question from Andrew Stott from UBS.
Thanks letting me back on, a couple more. The innovation comments for next year in terms of costs, sort of more interested in the sort of flip side of that in terms of the reason for it potentially for future growth. So what projects are you actually working on that's seeing this inflation in 2022?And then second question is just wondering if you've got an update on the Libra field opportunity, please.
So happy to take both of these. I think the good news here is that as you move forward the polymers and parts strategy, the progress that you may call for more kind of design and engineering kind of resource when you start to make bespoke offerings for some of the customers that are signing up for your products. So we will see an increased spend on trauma based on the traction and the interest that we're seeing there. We will see an increased spend on what we're doing in terms of e-mobility broadly. Structural brackets as well. We'll be getting a bit more extra resource for Aerospace. And then a part of it will go into the activity primarily that we're conducting in Brazil, to your last point.In the recent quarters, the emphasis has mainly been on qualification trials for the product done in conjunction with all the parties that are working with us on this project Magma, TechnipFMC notably. In the coming quarters, I think we'll start to see a shift in emphasis where we will be starting to prepare intensely for our ability to scale up manufacturing in Brazil, mainly as it relates to the execution of the pipe. And then secondly, obviously with the activities that deal with later welding, our UD tape onto that pipe core. So that's all on track, but I think we're starting to see a shift in activity right now based on the progress year-to-date so -- towards actually being able to make the pipe and the risers down in Brazil. And so there is a shift in focus and emphasis there, and that will require some extra resource also. So I think trauma and EVs are probably the main drivers as we relate to the increased emphasis on development expense in the coming year.
[Operator Instructions] And our next question comes from Rikin Patel from Exane BNP Paribas.
Just a couple of ones there from me. Firstly, in terms of sequential performance, could you give us an idea how auto, Energy and Electronics performed from Q2 to Q3?And then on the order book, you mentioned this looks robust for Q4. Can you just give us an idea on visibility in terms of weeks or months and how far you can see ahead there?
Yes, I'll take those. So the sort of headlines for auto, Energy and Electronics are -- or auto has been pretty stable across this period. So it's picked up well in the first and second quarters. And then although we're at a decent level of volume, I think the worldwide chip shortage is having a bit of an impact there. So relatively stable.Energy is sort of steadily and gently improving, not yet back to pre-COVID levels and as you would expect, but showing the sort of trajectory that says at some point during next year, we should be back at pre-COVID levels. And then Electronics is actually doing reasonably well. So strong growth in Asia, again, has been well-publicized, and we've been growing in line with that.And then regarding the order books, bearing in mind that sales into the Value Added Resellers are particularly buoyant. This is the area, as Jakob has alluded to, where visibility is less. And we do tend to hit a summer period where things are slightly more uncertain than usual. So in terms of really reliable visibility, only a small number of weeks at this time of year.
Our next question comes from Navina Rajan from Morgan Stanley.
I just have a few questions left. One small one, just on the special bid. Can we just confirm that the GBP 85 million threshold is ex the China cash? I think you're around GBP 77 million currently. So can you just confirm that it's ex China cash? Also just on the mega programs, just Knee trials. 35 patients doesn't seem like a huge amount. Can you just give us some color on how that really compares to the rest of the trials you've done in other medical applications and as well as Magma in terms of the qualification period? If you can give some granularity, I think it was 2021, 2020. Do you have more visibility on which year that will probably fall into now?
Yes, I'll take the first one. So yes, it would be excluding the China cash. The China cash is on our balance sheet because we consolidate the results, but it's effectively committed. So yes would be the answer to the first question, and then I'll leave the other two to Jakob.
Yes. So I think this is quite comparable in size to what we've done in the past as it relates to the size of the clinical trials. That's quite comparable. So keep in mind as well, there's a lot known about how PEEK performs in the human body, given the fact that there's probably about 13 million people that have received implants based on PEEK for a period of more than 15 years. And then secondly, there's been quite an amount of preclinical trials that have tested the durability and the wearability of PEEK in, in vitro trial. So that all basically adds up to the time that is required in the last successes -- trial is designed.And then on Magma, as I said, we've been very focused in the previous quarters now on qualification trials for the various kinds of pipes. We're moving into a phase right now where we'll start to prepare for scale-up in Brazil. And as we've communicated before, sort of commercial quantities associated with this are assumed to be on our books in late 2023 and having a significant impact in 2024 and expect it to derive from the overall time associated with the deeper opportunity.
There appears to be no further questions. I will turn the conference to speaker for any closing remarks.
All right. So thank you all for joining today. We've seen a strong quarter that gives us definitely some upside potential for FY '21, combined with our overall prospects. Again, Victrex is a provider of sustainable products and solutions, with a very strong pipeline of growth opportunities with polymers and parts. And that strategy keeps us very well positioned for the medium to long term given the macroeconomic trends that we are seeing in our end markets. Again, thank you all for attending this morning. I really hope that we'll be able to see some of you in person at our full year results in December. Until then, enjoy the rest of the summer and get prepared for a busy fall. Thanks, everybody.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.