Senior PLC

LSE:SNR

Earnings Call Transcript 2021-Q4

[David Hamilton Squires]

Good

morning.

Morning,

everybody.

Welcome

to

Senior

Plc's

2021

Full Year

Results

Presentation.

And thanks,

everybody,

for

making

the effort

to

get

here

to

the

London

Stock

Exchange,

and

also

a

warm

welcome,

too,

for

those

of

you

joining

remotely.

In

terms

of

our

agenda

this

morning,

I'll

briefly

cover

the

highlights

and

set

the

scene

for

what

we're

going

to

be

talking

about

today.

Bindi

will

run

through

and

comment

on

the

results.

And

I

will

then

focus

on

markets,

strategy,

and

outlook.

While

we've

been

monitoring

the

situation

in

Ukraine

for

some

time

now,

it's

too

early

to

assess

the

macroeconomic

impact

of

the

human

tragedy

that has

been

unfolding

in

recent

days;

and,

therefore, it'd

be

premature

to

comment

authoritatively

on

how

our

markets

and

customers

may

be

affected

beyond

the

very

limited

direct

exposure

we

have

to

customers

and

suppliers

in

Russia.

Firstly,

just

to confirm

that

Senior

has

no

operations

or

people

based

in

Russia

or

Ukraine.

Last

year,

sales

to

Russian

customers

totaled

only

approximately

£2

million,

or

0.3%

of

group

sales.

And

we

purchased

approximately

£500,000 of

titanium

from

Russian

suppliers

through

customer-enabled

contracts,

and

we've

already

taken

steps

to

secure

our

raw

material

supply

chains

for

2022.

We

will

hope

for

the

best,

but

be

prepared

to

take

whatever

further

actions

and

mitigations

are

necessary

according

to

geopolitical

and

macroeconomic

developments.

In

the

meantime,

it's

essential

to

retain

focus

on

delivery

of

our

core

strategy.

This

presentation

provides

that

focus

and

our

considered

view

of

how

our

key

markets

will

mature.

So

turning

to

2021,

I'll

quickly

run

through some

of the

highlights, which

we

will provide

more

detail

on

later.

We

consider

our

financial

performance

to

be robust

in

the

circumstances, with

improved

profitability and

a

strengthened

balance

sheet despite

reduced

revenue.

And

we're

in great

shape to

take

advantage of

the

recovery now

underway.

Part

of

that

good

result was

as

a

consequence of delivering

our restructuring

savings

ahead

of plan.

We'd

won some

great

new business

in

both Aerospace

and Flexonics,

building

on

our reputation

as

a

reliable

and innovative

supplier. And

in 2021,

we

made more

good

progress

on

our portfolio,

successfully completing

the strategic

divestment

of

Senior

Aerospace

Connecticut;

closing

our

Senior

Aerospace

Netherlands

facility,

having

successfully

transferred

the

product

lines

to

our

French

businesses;

and

also

closing

our

small

Senior

Flexonics

oil

and

gas

business

in

Malaysia.

We're

expecting

to see

good

progress

in

2022

as

we

continue

our

multi-year

recovery.

Inside

the

company,

as

we

start

what

should

be

a

brighter

year,

I've

been

using

NFL

parlance,

bearing

in

mind

that

60%

of

our

operations

are

in

North

America.

So,

I've

been

saying

to

employees

over

the

past

couple

of

years,

we've

played

a

stellar

defense

given

all

of

the

challenges

we've

faced,

but

now

it's

time

to

deploy

our

offense

and

get

on

the

front

foot.

One

thing

we

never

compromise

on

is

our

approach

to

sustainability;

and,

in

2021,

we

extended

our

sector-leading

progress

and

credentials.

Before

we

get

into

our

financial

results,

I'll

provide

you

with

an

update

on

our

ESG

achievements

and

progress.

And

I

must

say

at the

outset

that

many

of

you

in

this

room

and

from

our

shareholder

base

have

acknowledged

our

efforts

and

leadership

in

this

area.

That

feedback

is

always

appreciated

and

spurs

us

on

to

do

even

more.

This

year,

we

produced

a

beefed

up

sustainability

report

within

our

Annual

Report,

which

has

been

published

this

morning

on

our

website,

and

I'd

encourage

you

to

refer

to

that

comprehensive

update.

But

in the

meantime,

I'll

give

you a

quick

snapshot

of

some

highlights.

Starting

with

our

actions

on

climate

change,

you remember

that

we

were

the

first

company

in

our

sector

anywhere

in

the

world

to

have

our

Scope

1, 2,

and

3

greenhouse

gas

emission

reduction

targets

approved

and

verified

through

the

Science

Based

Targets

initiative.

And,

indeed,

we

remain

the

only

aerospace and

defense

company

to

achieve

this.

Although

there

are

now

more

companies

in

the

broader

industrial

space

taking

actions

to

establish

what

SBTi

now

calls

Near

Term

Zero

Targets.

In

2021,

we

achieved

once

more

a

leadership

rating

for

our

climate

change

disclosure;

and,

in

recent

weeks,

we

were

delighted

to

announce

that

we

were

one

of

a

very

small

number

of

companies

to

have achieve

from

CDP

the

highest

leadership

score

for

our

supplier

engagement

rating.

This

is

important,

as

almost

all

businesses

have

many

times

the

amount

of

greenhouse

gas

emissions

in

their

supply

chain

than

their

own

operations.

The

CDP executive

responsible

for

supplier

engagement

describes

Senior

as

a

trailblazer,

driving

the

transition

towards

a

sustainable

net

zero

future.

On

the

social

side,

our

big

new

initiative

in

2021

was

the

launch

of

our

global

employee

engagement

survey.

We

did

an excellent

participation

rate

of

81%

which,

for

a

manufacturing

company

where

many

people

do

not

have

instant

access

to

email,

is

a

high

level. We

have

now

implemented

improvement

plans

across

our

operating

businesses

based

on

the

feedback

and

focusing

on

those

areas

that

matter

most

are

employees. And

we

plan

to

run

the

survey

over

18

months,

when

the

next

one

being

in

September

this

year.

We

had

some

fantastic

community

engagement

projects

around

the

world

in

2022,

and

you

will

see

some

case

studies

in

our

sustainability

report.

We

donated

£200,000

to

UNICEF

to

fund

COVID-19

vaccinations.

The

value

of

our

contribution

was

equivalent

of

vaccinating

all

of

our

employees

and

their

families.

By

the

end

of

2021,

UNICEF

informed

me

that

through

this

initiative,

a

staggering

652

million

doses

had

been

delivered

to

144

countries

around

the

world.

And

UNICEF's

role

in

the

fight

against

COVID-19

goes

further

than

just

delivering

vaccines;

they

are

ensuring

vaccines

can

be

safely

transported

and

training

health

workers

to

help

turn

vaccines

into

vaccinations.

I

was

touched

by

a

note

I

received

from

a

UNICEF

executive

in December

in

which

she

said,

and

I

quote,

"I

will

always

remember

2021

as

a

year

that

the

private

sector

went

above

and

beyond

for

UNICEF.

And

I'm

so

pleased

to

[ph]



quote (00:06:51)

Senior

as

one

of

the

companies

who

stood

with

us

as

we

took

on

this

historic

endeavor.

From a

governance

perspective,

we refreshed

and

updated

our

code

of

conduct

and

delivered

a

personal

copy

to

every

employee

in

the

appropriate

language.

And

to

accompany

the

training,

we

have

ruled

out,

included

amongst

the

other

extensive

governance,

compliance

and

risk-based

training,

which

we

regularly

provide.

We

provide

training

and education

to

all

of

our

employees

about

the

risks

related

to cybersecurity,

which

we

consider

to

be

one

of

the

most

sustained

risks

that

requires

managing

in

any

organization.

And

in

the

Annual

Report,

you'll

be able

to

read

about

the

extensive

work

we're

doing

to

ensure

we're

complying

with

TCFD

requirements

and

recommendations.

Equally

important

from

a

sustainability

perspective

to

the

ESG

activities

in

our

internal

operations

is

what

we were

doing

to

position

the

company

and

help

our

customers

transition

to

a

future

low-carbon

world.

Those

of

you

who

were

at

our

Capital

Markets

Day in

October

will

have

heard that

our

thermal

management

and fluid

conveyance

capabilities are

very

well

suited

to

help

tackle

greenhouse

gas

emission

reductions

in

some

of the

hardest

to

decarbonize

sectors

in

which

we

operate;

whether

that'd

be

airspace,

land

vehicles,

or

power

and

energy.

And

we have

a

long

pedigree

in

helping

our

customers

meet

ever

more

stringent

emissions

regulations.

And

I

can

assure

you

that

we're

driving

this

very

hard

inside

Senior

to

ensure

we've

got

the

right

products

available at

the

right

time

for

each

of

our

markets.

There

are

some

good

examples

of

our

expertise

in

action

in

the

slide

here,

which

I

won't

go

through

in

detail

just

now, but

I'll

be

happy

to take

questions

on

later.

So

with

that,

I'll

hand

over

to

Bindi

to

take

us

through

the

financial

results,

after

which

I'll

pick

up

on

markets,

strategy,

and outlook to

finish.

[Bindi Jayantilal Jivraj Foyle]

Thank

you,

David.

Good

morning.

Senior delivered

improved

profitability,

robust

cash

generation,

and

further

strengthened

the

balance

sheet

in

what

was

another

challenging

year

for

the

business.

We

had

a

healthy

book-to-bill

ratio

of

1.16,

which

underpins

our

confidence

in

future

growth,

and

David

will

highlight

some

of

the

new

contract

wins

in

his

presentation.

The

decisive

actions

taken

by

the

group

on

managing

costs

have

delivered

significant

benefits

and

improved

profitability,

even

though

group

revenue

decreased

in

the

year.

Adjusted

loss

before

tax

was

£1.9

million,

an

improvement

of

£4.3

million,

despite

not

having

eight

months

of

contribution

from

our

Connecticut

operating

business

following

its

divestment.

With

the

benefit

from

tax

credits,

we

delivered

a

positive

adjusted

earnings

per

share

of

£0.017.

We

continue

to

manage

working

capital

efficiently

and

generated

robust

free

cash

flow

of

£14

million.

This,

together

with

the

proceeds

from

the

divestment

of

Connecticut,

meant

we

reduced

net

debt,

excluding

leases,

to

£79.9

million

at

the

end

of

2021;

a

£50

million

improvement

from

a

year

ago.

The

group's

net

debt

to

EBITDA

ratio

improved

to

1.9

times,

and

the

group's

headroom

on

committed

borrowing

facilities

increased

to

£208

million.

With

improved

profitability

and

a

strengthened

balance

sheet,

return

on

capital

employed

increased

by

50

basis

points.

I

will

now

summarize

the

key

elements

of

the

group's

trading

performance

in

2021.

This

chart

bridges

revenue

from

£734

million

in

2020 to

£658.7

million

in

2021.

Excluding

unfavorable

currency

impact

of

£36

million,

revenue

from

the

Aerospace

division

decreased

by

£59

million

and

Flexonics

revenue

grew

by

£20

million.

Excluding

sales

from

Connecticut,

which

was

divested

in

April

2021,

Aerospace

revenue

on

an

organic

basis

declined

by

£33

million,

down

7%.

Civil

aerospace

revenue

decreased

by

£44

million,

down

15%,

reflecting

aircraft

production

rates

remaining

lower

in

2021

compared

to

pre-pandemic

levels.

Defense

revenue

increased

by

£1

million

as

the

F-35

Joint

Strike

Fighter

production

rate

increase

was

partly

offset

by

the

timing

gap

between Lots

14

and

15

of the

F-35

and

lower

military

aftermarket

sales

in

2021.

A

number of

our

Aerospace

businesses

supply

product

to

broader industrial

markets,

and

revenue

from

these

markets

increased

by

£10 million

from

growth

in

space

and

semiconductor

equipment

activity.

In

Flexonics,

revenue

grew

by

10%

in

the

year.

Revenue

from land

vehicle

markets

increased

39%

as

the

market

recovery

in on-

and

off-highway

vehicles,

as

well

as

passenger

cars,

continues.

Sales

to

North

American

truck

and

off-highway

market

increased

by

£19.6

million,

up

43%.

Sales

to

other

truck

and

off-highway

regions,

primarily

Europe

and

India,

increased

by

£7.6

million;

and

sales

to

passenger

vehicle

markets

increased

by

£6.3

million.

As

expected,

revenue

from

power

and

energy

markets

decreased

by

12%

in

the

year,

as

customer

demand

continue

to

be

impacted

by

the

pandemic.

Senior

sales

to

oil

and

gas

markets

decreased

by

£11

million

as

a

result

of

lower

upstream

activity

and

the

closure

of

our

small

Malaysia

oil

and

gas

facility.

On

the

downstream

side,

some

maintenance

projects

continue

to

be

deferred

by

customers.

The

chart

on

this

page

bridges

adjusted

operating

profit

from

£3.7

million

in

2020

to

£6.1

million

in

2021.

In

Aerospace,

adjusted

operating

profit

increased

by

£2.4

million.

Savings

delivered from

our

restructuring and

cost

management actions

more than

offset the

drop-through

impact

of

the reduction

in

revenue. And,

excluding

a

£4

million operating

profit

reduction

from the

divestment

of

Connecticut, on

an

organic

basis,

the

adjusted

operating margin

increased

by 140

basis

points

to

1.6%.

In Flexonics,

the

£2.4

million

increase

in

adjusted operating

profit

reflected

the

drop-through

impact

of

growth

in revenue,

coupled with

additional savings

from restructuring

and benefits

from pricing,

which

more

than offset

the inflationary

impact

of

freight

and commodity

costs. While

the impact

of

the pandemic

and

industry-wide

supply

chain

constraints

are

still

with

us,

we

continue

to

manage

these

diligently.

Overall,

we

delivered

improved

profitability

in

both

divisions.

We

are

now

an

even

leaner

and

a

more

efficient

business.

We

delivered

savings

of

£50

million

in

2021,

an

increase

of £14

million

compared

to

2020. A

net

P&L

restructuring

income

of

£4.4

million

was

recognized

in

the

year.

This

included

£4.2

million

income

from

an

Aerospace

manufacturing

grant.

We

also

maximized

opportunities

to

realize

income

from

assets

that

had

no

alternative

use,

which

more

than

offset

other

restructuring

costs.

Since

its

inception

in

2019,

the

cumulative

cost

of

the

program

has

been

£46.7

million,

£6

million

lower

than

initially

forecast.

The

cumulative

cash

outflow

has

been

£19

million,

£10

million

lower

than

initially

forecast.

And

we

delivered

savings

of

£4

million

in

2019,

£36

million

in

2020,

and

£50

million

in

2021

which

was

a

year

earlier

than

initially

expected.

Our

restructuring

program

has

been

effective

and

delivered

more

benefits

for

less

cost.

This

shows

the

reconciliation

of

adjusted

operating

profit

to

the

statutory

reported

profit.

And

it

also

highlights

our

interest

in

tax

charges. Net

finance

costs

decreased

by

£1.9

million

to

£8

million,

mainly

due

to

lower

borrowing

costs,

including

the

repayment

of

a

$20

million

private

placement

note

in

October

2020. A

tax

credit

of

£2.6

million

was

recognized

on

the

group's

adjusted

loss

before

tax

of

£1.9

million.

The

tax

credit

was

higher

as

we

benefited

from

enhanced

R&D

deductions

and

capital

expenditure

in

the

UK,

as

well

as

prior-year

items.

Looking ahead

to

2022,

we

currently

expect

the

group's

effective

tax

rate

on

adjusted

profit

before

tax

to

be

around

22%.

In terms

of

reconciling

adjusted

profit

to

statutory

reported

profit,

aside

from restructuring

which

I've

already

covered,

the

other

significant

item

excluded

from

the

adjusted

measures

for

2021

is

net

income

from

corporate

undertakings

of

£21.2

million.

This

comprises

a

gain

of

£24.2

million

from

the

divestment

of

Connecticut,

and

costs

of

£3

million

relating

to

bid

defense

and

other

corporate

activities.

Now,

on

to

cash;

with

our

strong

focus

on

cash

generation,

we

delivered

robust

free

cash

flow

of

£14

million

in

2021.

Going

into

the

second

half

of

the

year,

we

were

anticipating

an

increase

in

working

capital

associated

with

inventory

required

to

support

increasing

activity

levels

as

demand

increased.

I

am

pleased to

report

that

with

the

benefit

from

our

relentless

focus

on

working

capital,

from

a

cash

flow

perspective,

an

outflow

of

£2.6

million

was

seen

in

the

year.

With

demand

recovery

underway

and

some

supply

chain

lead

times

increasing,

we

are

planning

some

increase

in

working

capital

over

the

coming

months;

although

we

will

continue

to

manage

this

diligently

in

line

with

our

operational

needs.

Net

capital

expenditure

of

£21

million

was

0.6

times

depreciation,

excluding IFRS

16.

As

previously

advised,

our

operating

businesses

are

already

well-capitalized

and

prepared

for

growth.

CapEx

in

2022

is

expected

to

be

slightly

below

depreciation.

Payments

for

interest,

tax,

and

pension

contributions

in

excess

of

service

costs

totaled

£18.4

million.

After

£3

million

net

cash

outflows

from

restructuring

and

legal

claims

and

£47

million

net

cash

inflow

from

corporate

undertakings,

mostly

the

proceeds

from

the

divestment

of

Connecticut,

the

group

generated

net

cash

inflow

of

£58

million

in

2021.

We

further

strengthened

the

balance

sheet

during

2021

and,

at

December,

the

group

had

liquidity

headroom

of

£208

million

under

its

committed

borrowing

facilities,

an

improvement

of

£51

million

from

a

year

ago.

Net

debt

before

lease

liabilities

was

£79.9

million

at

the

end

of

2021,

and

the

group's

net

debt to

EBITDA

ratio

improved

to

1.9

times,

comfortably

within

normal

covenant

limits.

In

April,

we

refinanced

the

US

revolving

credit

facility

of

$50

million

and

extended

its

maturity

to

June

2023.

So

at

the

end

of

2021,

Senior

had

committed

facilities

of £288 million

with

a

weighted

average

maturity

of

three

years.

Senior

has

strong

liquidity

and

stable

finance

arrangements.

In

summary,

Senior

has

once

again

delivered

a

robust

cash

performance

despite

the

continued

impact

of

the

pandemic

in

some

of

our

end

markets

in

2021.

The

decisive

actions

taken

on

managing

costs

have

delivered

significant

benefits

and

improved

profitability

in

both

divisions.

We

further

strengthened

the

balance

sheet,

and

the

group

has

strong

liquidity

and

stable

finance

arrangements.

This,

together

with

the

group's

intrinsically

strong

cash

generation

and

our

operating

businesses

already

well-equipped

with

fit-for-purpose

available

capacity,

means

that

we

are

prepared

for

growth.

This

gives

us

the

confidence

that

as

volumes

increase,

with

our

operating

leverage,

we

will

see

strong

profitable

growth.

We

are

on

track

to

delivering

minimum

13.5%

ROCE

over

the

medium-term.

Thank

you.

And

I

will

now

hand

back

to

David

to

cover

markets,

strategy,

and

outlook.

[David Hamilton Squires]

Thank

you,

Bindi.

So,

let's

turn

our

attention

to

markets.

Aerospace

in

2021

represented

66%

of

the

group's

revenues,

and

Flexonics

was

34%.

This

is

on

a

pro

forma

basis

excluding

Connecticut

revenue

from

both

years.

Not

surprisingly,

the

proportion

of

civil

aerospace

has

decreased

compared

to

2021,

while

defense

has

remained

the

same.

The

recovery

in

land

vehicle

markets

has

meant

that

revenue

in

that

sector

has

increased

significantly

as

a

proportion

of group

sales,

despite

the

well-publicized

supply

chain

problems

which

our

customers

encountered.

While

power

and

energy

has

decreased

slightly

as

oil

and

gas

markets

remain

subdued

through

much

of

the

year.

One

thing

I

did

want

to

bring

out

is

our

relative

exposure

to

widebody

compared

to

single-aisle.

Last

year,

widebody

sales

accounted

for

24%

of

total

civil

aero

sales,

while

smaller

aircraft

represented

76%.

To

set

the

scene

for

our

aerospace

and

defense

markets,

I

thought it

would

be

useful

to

share

our

sales

breakdown

by

platform.

This

chart

shows

the

percentage

of

our

aerospace

sales

for

2021

adjusted

for

the

disposal

of

our

Connecticut

helicopter

parts

machining

business.

And,

remember,

this

includes

all

sales

to

all

customers

that

end

up

on

a

particular

platform.

So,

for

example,

sales

to

Safran

on

the

LEAP-1A

engine

would

show

up

on

the

A320

segment.

As

can

be

seen,

the

Airbus

single-aisle

program

represents

the

largest

percentage

of

sales

by

platform;

followed

by

two

defense

platforms,

F-35

at

7%

and

C-130

at

6%,

and

so

forth.

Even

at

the

relatively

low

levels

of

production

in

2021,

the

737

MAX

represented

5%

of

Aerospace

sales.

And

so, you

can

imagine,

as rates

increase

there

in the

coming

months

and

years,

that

will

be

raising

up

the

rankings.

The

thing

that

surprises

most

observers,

when

I

show

them

this

chart,

is

the

proportion

of

sales

not

attributable

to

any

specific

platform

at

2%

or

higher.

At

46%

of

our

Aerospace

division

revenue,

this

is

an

important

part

of

our

business

and

will

include

sales

on

space

platforms,

aftermarket,

and

also

sales

which

emanate

from

our

Aerospace

businesses

whether

for

other

industrial

markets.

A

good

example

would

be

sales

for

semiconductor

equipment

and

medical

applications, and

I'll

come

back

to

that

theme

later.

Global

air

traffic

recovery

in

2021

was

evident,

as

travel

restrictions

eased.

While

travel

on

some

long-haul

international

routes

remains

subdued,

short-haul

travel

has

improved

significantly.

IATA's

most

recent

forecast

is

for

domestic

travel

to

reach

2019

levels

by

the

end

of

this

year,

and

international

travel

reaching

2019

levels

by

2025.

Production

rates

for

single-aisle

aircraft

are

already

increasing

and,

as

demand

continues

to

recover,

production

of

new

aircraft

will

be

supported

by

the

replacement

cycle

driven

by

the

retirement

of

older,

less

efficient

aircraft.

Beyond

this,

the

driver

supporting

air

traffic

growth

over

the

long-term

of

around

4%

per

annum

remain

in

place.

With

our

diversified

product

portfolio

and

especially

the

attractive

positions

we

hold

across

the

newest

generation

of

single-aisle

aircraft

platforms,

we

are

well-positioned

to

benefit

from

this

recovery.

Production

rates

for

single

aisle

aircraft

started

to

increase

in

2021,

and

both

Airbus

and

Boeing

have

recently

confirmed

plans

for

further

increases.

On

the

A320

family,

Airbus

reached

a

production

rate

of

45

in

2021, and

have

said

that

their

ramp-up

is

on

a trajectory

to

achieve

a

monthly

rate

of

65

by

summer

2023.

Airbus

is

still

assessing

with suppliers

rates

beyond

65.

Similarly,

Boeing

stated

on

a

recent

earnings

call

that

the

737

MAX program

is

now

producing

at

a

rate

of

approximately

26

per

month,

and

they

reaffirmed

their

expectation

of

an

increase

to

31

per

month

in

early

2022.

And

then,

they're

evaluating

the

timing

of

further

rate

increases.

As

I

mentioned,

recovery

in

the

long-haul

international

travel

sector,

which

typically

uses

widebody

aircraft,

is

expected

to

take

longer

than

domestic

and

other

short-haul

routes.

Airbus

have

stated

that

they

expect

to

increase

production

of

the

A350

family

from

an

average

production

rate

of

five

per

month

to

around

six

per

month

by

early

2023.

For

the

A330

family,

production

will

increase

from

two

per

month

to

almost

three

per

month

at

the

end

of

2022.

Boeing

continues

to

address

the

issues

on

the

787

platform,

and production

remains

at

a

very

low

rate

in

the

meantime.

Once

deliveries

resume,

they

expect

a

gradual

return

to

five

per

month

over

time.

And

production

of

the

767

will

continue

at

the

rate

of

three

per

month,

and

Boeing

have

said

that

the

777 and

the

777X

combined

production

rate

will

increase

from

two

to

three

per

month,

with

the

first

delivery

of the

777X

anticipated

in

late

2023.

Overall,

our

focus

for

defense

is

very

much

on

the

US

market,

where

defense

spending

is

almost

as

high

as

the

next

12

countries

combined,

and

series

production

volumes

reach

meaningful

levels

for

sustained

periods

which,

in

due

course,

will

also

generate

good

aftermarket

sales

for

our

fluid

conveyance

products.

We

see

stable

spending

for

US

Defense

as

there

is

broad

bipartisan

support

in

the

US

Senate

for

around

$770

billion

in

fiscal

year

2022

once

Congress

gets

past

the

broader

federal

budget

continuing

resolution.

Long

established

programs

such

as

C-130

and

P-8

remain

important

revenues

for

Senior,

but

of

course

F-35

is

the

largest

defense

program

that

we

are

on.

You'll

have seen

in

the

pie

chart

I

showed

a

few

moments

ago

that

F-35

is

currently

the

second

highest

revenue

aerospace

and defense

platform

for

us

after

the

A320.

We

have

several

operating

businesses

supplying

to

various

customers

on

this

program,

so

we're

encouraged

to

see

Lockheed

Martin

expected

to

increase

production

over

the

next

two

years.

And

then

there

are

newer

growth

programs

that

will

become

important

for

us.

For

example,

our

high

pressure

ducting

products

around

the

Boeing-Saab

T-7A

Red

Hawk

platform,

which

is

the

new

US

Air

Force

trainer

jet

and

which

will

ramp

up

in

production

over

the

coming

years.

We

would

expect

this

platform

to

be

successful

internationally

in

addition

to

the

US

volumes.

Sales

of

the

types

of

products

we

make

in

our

Aerospace

operating

businesses

into

end

markets

outside

of

civil

aerospace

and defense

markets

are

classified

under

Other

Aerospace

and

include

sales

into

the

space,

semiconductor

equipment,

and

medical

markets.

At

11%

of

group

sales,

this

is

an

increasingly

meaningful

part

of

our

business.

And

a

good

example

of

what's

in

this

category

is

our

growing

sales

to

Lam

Research,

a

semiconductor

equipment

manufacturer.

The

semiconductor

end market

is

currently

experiencing

high

levels

of

demand

from

the

strong

business

in

consumer

electronics sector

as

a

result of pandemic-related

consumer

and

work from home

trends.

And

it's further

strengthened by

recovering industrial

markets such

as

automotive.

Given

the

well-publicized

chip

shortages

affecting

various

industries,

we

would

expect

investment

in

semiconductor

manufacturing

capacity

to

increase

in

coming

years.

Our

highly

engineered

proprietary

products

use

our

world-class

bellows

technology

to

provide

excellent

solutions

for

semiconductor

manufacturing

equipment.

Other

sales

in

this

category

include

custom-designed

medical

products

and

structural

assemblies

for

space

satellites,

which

are

built

in

Senior

Aerospace

AMT

in

the

Seattle

area.

Turning now

to

Flexonics;

we

will

firstly

look

at

land

vehicles,

which

covers

truck,

off-highway,

and

passenger

vehicles.

For

this

market,

we

sell

a

range

of

proprietary

products

to

major

OEMs,

in particular,

our

exhaust

gas

recirculation

coolers,

or

EGR

coolers

as

they're

commonly

known,

which

protect

the

environment

by

reducing

emissions.

We

saw

strong

growth

in

2021

in

North

America

and

Europe

in

the

heavy-duty

truck

and

off-highway

sectors

despite

the

supply

chain

issues

affecting

our

customers.

We

should

see

further

growth

this

year.

Our

passenger

vehicle

customers

were

heavily

affected

by

the

global

semiconductor

shortage.

Customer

demand

remains

high.

And

so,

as

these

shortages

gradually

ease,

we

should

see

the

market

growing

this

year.

Our

EGR

cooler

expertise

means

that

we

are

well-positioned

for

other

applications

which

need

innovative

thermal

management

and

fluid

conveyance

solutions,

notably

battery

cooling

for

electric

vehicles and

I'll

talk

about

that

later

when

we

come

to

the

strategy

section.

Our

other

most

important

Flexonics

market

is

power

and

energy.

We

previously

said

that

given

improving

economies

and

the

sustained

recovery

in

crude

oil

prices,

we

were

confident

that

the

inflection

point

for

upstream

oil

and

gas

would

be

the

end

of

2021

with

a

return

to

growth

in

2022. And, indeed,

that

is

what

we have

been

experiencing.

However,

it

is

too

early

to

assess

what

impact

the

situation

in Ukraine

may

have

at

this

stage,

so

we

will

need

to

monitor

that

carefully.

In

the

medium

term,

we

are

well

positioned

to

grow

our

non-fossil

fuel

businesses

building

on

our

existing

renewables

and

nuclear

energy

customer

base;

and,

again,

I'll

come

back

to

that

in

the

strategy

slides.

Many

of

you

would

have been

in our

Capital

Markets

Day

last

October

where

we

spoke

in

depth

about

our

strategy

and

technology,

so

this

is

a

quick

refresher.

We

highlighted

two

key

technology

themes,

one

was

fluid

conveyance

and

thermal

management,

which

in

2021

represented

two-thirds

of

group

revenue,

and which

we'll

come

back

to;

with

the

other

being

structures.

Our

strategy

for

our

structures

business

is

straightforward

and we've

been

making

good

progress

on

it.

We have

a

well-equipped

global

footprint,

including

excellent

manufacturing

facilities

in

Southeast

Asia,

as

well as

North

America,

and

the

UK.

Our

focus

is

on

filling

our

existing

capacity

with

work

that

meets

our

returns

criteria.

That

will

come

from

the

civil

aerospace

recovery,

growing

market

share,

and

some

more

diversification

into

space

and

defense.

Our

momentum

is

building.

In

addition

to

production

rates

starting

to

ramp up

again

in

single-aisle

programs,

our

businesses

in

the

Seattle

area

have

secured

new

contracts

from

Boeing

increasing

our

share

on

767, 737,

and

777.

I

was

there

in

January

and

it was

good

to

see

activity

levels

picking

up

again

after

two

lean

years.

We're

also

winning

new

work

for

low

orbit

satellites.

Those

of

you

familiar

with

these

projects

will

be

aware

that

we're

talking

about

many

thousands

of

satellites,

so

although

early

days,

production

volumes

could

be

significant.

And

we've

secured

new

defense

for

our

US

aerostructures

business

with

other

opportunities

for

additional

business

beyond

these

initial

contracts.

Our

customers

are

placing

business

with

Senior

because

of

our

operational

reliability,

responsiveness,

and

financial

stability.

On

this

slide,

you

can

see

some

of

the

highly

engineered

fluid

conveyance

and

thermal

management

products

that

we

supply

into

a

range

of

diverse

and

attractive

end

markets,

including

medical,

semiconductor

equipment,

defense,

industrial,

and

of

course

commercial

aerospace.

It's

these

sorts

of

applications

where

we

concentrate

our

product

development

activities.

This

model

of

providing

innovative

products

using

proprietary

technology,

servicing

diverse

and

attractive

end

markets,

is

a

fundamental

element

of

Senior's

go-forward

strategy.

And

this

core

capability

continues

to be

highly

relevant

as

we

transition

towards

a

low-carbon

economy.

We

continue

to

invest

in

new

technology

and

product

design

and

development

in

the

areas

of

fluid

conveyance,

thermal

management,

and

additive

manufacturing

in

support

of

our

key

markets

in

aerospace,

land

vehicles,

and

power

and

energy

as

they

transition

towards

a

low-carbon

economy.

In

aerospace,

our

traditional

fluid

conveyance

products

are

entirely

compatible

with

sustainable

aviation

fuels

currently

under

evaluation

by

our

customers.

Our

additive

manufacturing

capabilities

are

enabling

advances

in

complex

product

design

for

improved

performance

and

weight

reduction

for

the

benefit

of

our

customers.

And

our

world-class

capability

in

thermal

management

and

fluid

conveyance

opens

up

opportunities

to support

electric

and

hybrid

air

vehicle

applications.

And

we're

leveraging

and

building

upon

our

long

experience

of

providing

hydrogen

fluid

handling

and

distribution

products

for

industrial

markets

to

support

development

of

both

on-aircraft

and

off-aircraft

hydrogen

technologies,

as

this

alternative

propulsion

system

evolves.

In

land

vehicles,

our

current

exhaust

gas

recirculation

and

waste

heat

recovery

products

continue

to

support

evolving

land

vehicle powertrain

systems

as

they

become

more

efficient

and

lower

their

impact

on

environment.

To

focus

on

product

offerings

for

the

transition

to

low-carbon

economy,

we're

engaged

with

our

customers'

new

product

development

programs

by

providing

design

and

engineering

support

for

cooling

and

fluid

handling

solutions

for

batteries

and

electronics

on

the

growing

number

of

electric

and

hybrid

vehicles.

We're

supporting

the

development

of

commercial

vehicle

hydrogen

fuel

cell

cooling

and

conveyance,

but

capitalizing

on

years

of

experience

of

producing

hydrogen

fuel

cell

products

in

the

energy

sector.

In

power

and

energy,

we

continue

to

develop

an

established

wide

range

of

fluid

conveyance

and

thermal

management

products,

many

of

which,

such

as

our

expansion

joints,

use

our

world-leading

bellows

technology.

Our

products

are

ideally

suited

for

harsh

environments

such

as

–

and

green

energy

generation,

including

solar

farms,

wind

power,

hydroelectric,

geothermal

fuel

cell,

and

nuclear

power

applications.

Our

many

years'

experience

of

providing

fluid

conveyance

products

for

harsh

environments,

and

specifically

hydrogen

fuel

cell

cooling

and

conveyance,

opens

up

opportunities

in

hydrogen

production

and

infrastructure

applications.

So,

hopefully,

as

you

can

see,

our

capabilities

and

technology

will

remain

highly

relevant

as

we

transition

over

coming

years

and

decades

to

a

net

zero

environment.

In

addition

to

our

technology

and

product

development

activities,

our

central

plank

of

our

strategy

is

portfolio

optimization.

The

group

continuously

reviews

its

overall

portfolio

of

operating

businesses

and

evaluates

them

in

terms

of

their

strategic

fit

within

the

group.

We've

continued

our

prune

to

grow

strategy

by

divesting,

closing,

or

combining

noncore

or

performance-challenged

assets.

In

2021,

we

closed

our

small

Flexonics

oil

and

gas

business

in Malaysia,

and

we

also

completed

the

closure

of

our

Aerospace

business

in

the Netherlands

having

successfully

transferred

the

product

lines

to

our

very

capable

French

Aerospace

businesses.

In

April,

we

completed

the

divestment

of

our

Senior

Aerospace

Connecticut

business.

You'll

recall

that

Connecticut

was

the

only

operating

business

in

Senior

whose

primary

focus

was

build-to-print

parts

for

the

rotary

sector.

The

divestiture

was

very

much

in

line

with

our

strategy,

and

the

net

proceeds

further

strengthened

Senior's

balance

sheet.

I've

already

shown

some

of

the

great

contract

wins

we've

secured

for

our

aerostructures

business

and,

as

their

core

market

recovers,

as

we've

said

before,

that

provides

the

group

with

strategic

optionality.

We're

keen

to

expand

our

fluid

conveyance

and

thermal

management

businesses.

As

I've

shown,

there's

much what

we're

doing

organically

and,

as

our

balance

sheet

strengthens,

we

will

be

able

to

consider

value-enhancing

M&A

activity.

Our

acquisition

heatmap, which

many

of

you

will

be

familiar

with,

highlights

the

focus

of

our

attention.

And

as

you

know,

we

will

only

pursue

targets

that

meet

our

minimum

return

on

capital

criteria.

Before

I

finish

with

some

comments

on

outlook,

I

thought

it'd

be

worthwhile

setting

out

our

priorities

for

this

year.

We're

confident

that

we've

turned

the

corner,

and

we

will

see

growth

this

year.

We're

taking

all

the

necessary

steps

to

ensure

that

we

meet

our

customers'

increased

production

rates.

In

turn,

that

will

require

diligent

management

of

the

global

supply

chain

constraints

and

inflationary

pressures.

Through

good

preparedness

and

operational

execution,

we've

managed

this

well

so

far,

and

we

intend

to

keep

it

that

way.

Actively

managing

the

portfolio

will

continue

to

get

our

focus

and

attention

as

we

expand

our

fluid

conveyance

and

thermal

management

capabilities

in

line

with

our

stated

purpose

and

strategy.

While

the

board

felt

the

right

decision

was

not

to

pay

a

final

dividend

for

2021,

we

are

keen

to

reinstate

dividend

payments

and

currently

expect

to

do

that

in

2022.

And

finally,

there

will

be

no

letting

up

in

our

sustainability

actions

where

we

have

clear

goals

that

are

independently

verified,

and

we

aim

to

maintain

our

sector-leading

performance.

So

let

me

finish

by

talking

about

the

outlook

for

Senior.

Over

the

past

two

years,

we have

demonstrated

our

resilience

through

the

pandemic

and have

taken

action

to

ensure

our

business

is

lean

and

fit.

That

resilience

is

standing

us

in

good

stead

and

leaves

us

well

positioned,

know

that

recovery

is

underway

in

our

core

markets.

The

board

anticipates

good

progress

in

2022,

in

line

with

previous

expectations,

as

we

continue

the

multi-year

recovery

back

to

pre-COVID

levels

of

performance.

We

remain

committed

to

delivering

a

strong

recovery

across

our

two

divisions,

driving

group

return

on

capital

employed

to

a

minimum of

13.5%.

With

sector-leading

sustainability

credentials,

a

clear

strategy,

and

strong

capabilities

with

a

global

footprint,

we

are

well-positioned

to

capture

growth

opportunities

and

deliver

enhanced

value

for

our

stakeholders.

So

with

that,

we'll

open

the

floor

for

any

questions

which

Bindi

and

I

will

be

delighted

to

answer.

[Andrew Douglas, Analyst, Jefferies International Ltd.]

Good

morning,

guys.

It's

Andrew

Douglas

from

Jefferies.

Three

questions,

please,

the

usual

three.

Can

you

talk

about

the

ability

for

you

guys

to

add

head

count

to

the

business

going

forward?

Clearly, you've

got

lots of

spare

capacity.

So,

volume

growth

will

come

through

nicely.

Just

in

terms

of your

ability

to

kind

of

rehire

some of

the

people

that

you

let

go

over

the

last

couple

of

years

and

how

confident

you

are

on

that

front?

Secondly,

on

the

Senior

operating

system,

clearly

you

did

a

good

job

on

the

supply

chains.

Can

you just

talk about

kind of

where

you

are there,

kind

of

progress

that

you've

made,

and

maybe

elements

that

we

can

kind

of

kick

on in

here?

And

then

last,

but

not

least,

on

the

M&A

pipeline,

can

you

give

us

a

feel

for

how

that's

shaping

up,

and

whether

the

areas

of

interest

that

you

guys

are

focusing

on

over

the

last –

pick

a

period

–

six

to nine

months,

whether

that's changed

at all

and

how

you're

thinking

about

M&A

in

the

future?

Thank

you.

[David Hamilton Squires]

Okay.

So,

firstly –

thank

you,

Andy.

Firstly,

on

head

count,

yeah,

we're

hiring

again,

which

is

the

good

news

after

the

last

couple of

years.

And

I

wouldn't

say

it's

easy,

but

actually

Senior

has

done

pretty

well.

One

example

when

I

was

at

our

AMT

business

in

Seattle,

there's

a

lot

of

big

structures

work

for

Boeing.

They've

rehired

84

people

this

year.

Rehired.

So,

these

are

people who've

come

back

to

Senior.

They've

gone

out

to

smaller

machine

shops,

and

they were

delighted to

come

back

and

join

Senior

team,

[ph]



where Senior (00:42:17) is

a

good

employer.

So

across

the

world,

really,

we

are

now

hiring

people.

There

are

some

pinch

points,

but

we've been

managing

that

pretty

well.

With

a

bit

of

absenteeism

as

well

with

the

Omicron

variant

at

the

start

of the

year,

we're

through

that

now.

So,

actually

been

there.

We're

quite

encouraged

when

we

delivered

[indiscernible]



(00:42:33)

business

reviews

a

few

weeks

ago

to

hear

that

the

numbers

talked about

– in

terms

of

hiring

are

manageable.

Chicago

was

one

of

the

areas that

was

difficult.

That's

now

improved.

Once

you get

beyond

North

America

and

the

UK,

we're

fine

in

Thailand,

Malaysia,

India,

China,

South

Africa,

Czech

Republic,

Germany,

France,

these

are

all

okay.

And

so,

I

think

we're

probably

doing

as

well

as

[ph]



MD (00:43:00)

in

terms

of

hiring.

We

don't

see

a

fundamental

issue

in

hiring

people

to

meet

the

rates

increase.

Senior

operating system,

thank

you

for

that

question.

It's

easy

to

forget,

but

we

launched

that

back

in

2015-2016

just

after

I

joined. And

this

is really

about

lean

manufacturing.

And

one of

the

reasons

we've

been

able

to

deliver

the

benefits

in our

sort

of restructuring

plan

and

continue

generating

cash

even

though

sales

have gone

backward

is

because

of

the

Senior

operating

system

has

got

fantastic

disciplines

on

inventory

management,

removing

waste.

But

it's

more

than

just

a

manufacturing

system. We've

added

an

APQP

module

now

which

is

the

automotive

standard

for

new

product

introduction,

which

we

now

apply

to

Aerospace

businesses

as

well

as

automotive.

It's

the

best-in-class.

And

we

keep

on

finding

other

modules that

we

think

are

going to

be

very

relevant

and

helpful

to

our

business

operations.

So,

it's

a

big

part

of

what

we've

done

and

going

to be

really important

as

we

move

forward

and

the

rates

increase

to

make

sure

that

we

can

deliver

that

drop-through

margin that

Bindi

has

been

talking

about.

And

maybe I

think

your

third

was

on

M&A

pipeline.

Yeah,

we've

never

stopped

looking

at

this

in

our

strategy.

Obviously,

we

wanted

to

have the

balance

sheet

in

a

much

better

place

before

we

can

then

start

making

acquisitions.

But

we've

done

quite

a

lot

of the

work

in

the

background.

We

monitor

our

targets.

They're

very

much

around

the

fluid

conveyance, thermal

management

space.

And

we'd

look

at

things

that are

relevant

now

and

also

relevant

as

technology

changes.

And

there's some

good

opportunities.

Some

of

those

may

be

more

executable

than

others.

And

we

really

do

run

it

through

a

pretty

stringent

set of

criteria

before

we

consider

our

marking

point.

But

we

do

see

value-enhancing

bolt-on

M&A

as

a

supplementary

to

organic

growth

and

helping

our

overall

returns

for

our

stakeholders.

[Christopher Leonard, Analyst, Credit Suisse Securities (Europe) Ltd.]

Hi

there.

Chris

Leonard

from

Credit

Suisse.

Thanks

for

taking

two

questions,

if

I

could.

Looking

first

at

aerostructures

and

the

good

orders

you

received

there

in

2021,

when

do

you

think

you'll

start

to

consider

the

potential

for

a strategic

disposal

here,

and

is

there

any

sort

of timeline

of

when

we

can

see first

that?

And

equally

given

that

it's

33%

of

group

revenue

currently,

should

we

expect

that

to

stay

stable

or

would

Aerospace

build

rates

increasing

for

narrow-bodies

to pull

that

that

mix

slightly

higher

for

the

structures

element

in

the

business?

And

then

second

question,

if

you

could

maybe

give

us

a

view

on

the

capacity

utilization

for

Aerospace

at

the

moment

in

the

group,

if

there's

any

broad

figure

you

could

give.

And

going

forward,

is

there

anything

that

you

can

see

as

a

key

bottleneck

for

the

Aerospace

build

rates

that

could

come

and

hurt

you

guys

or

the

sector

more

generally?

Thanks.

[David Hamilton Squires]

Okay.

So,

I'll

address first

and

maybe Bindi

you

could

talk

about

capacity. Just

give

me

a

break.

So,

I

think

in

the

aerostructures,

look,

structure,

we

laid

out

for

a

couple

years

now

has

been

about

filling

our

existing

capacity.

These

are

tremendous

businesses

that

have

been

badly

affected

by

the

downturn

in

civil

aerospace,

which

is

its

biggest

end

market.

So,

it's

been

good

to

have

a

bit

of

diversification

in

there.

The

momentum

in the

aerospace,

the

big

flash

machines

at

the

bottom, the

new

[indiscernible]



(00:46:20)

that

we

bought

before

the

pandemic,

they're

producing

very

large

parts

for

satellites.

So,

that's

been

good.

So,

I

think

that

gives

us

some

optionality

moving

forward.

If

you

just

look

at

the

recovery

rates

in

the

Aerospace,

there's

some

recovery

this

year. And

of

course,

Airbus

said

it

can

be

at

rate

65

by

next

year.

So,

we'd

really

want

to

see

sales

and

profits

picking

up,

but

we'll

–

and

the

board

considers

that

on

an

ongoing

basis.

I

think

on

the

rates

increase,

yes,

it's

true,

the

aerostructures

should

increase

sales

fairly

rapidly

over

the

next

two

years,

particularly

as

single-aisle

rates

go

back.

You

saw

on

the

pie

chart

there

the

biggest

platforms

where

they've

got

lot

on

the

MAX, they've

got

a

lot

on the

A320.

But,

we've

a got

lot

in

the

fluid

systems

side

as

well

in

those

aircrafts.

So, it

doesn't

just

apply to

structures,

our

commercial

aerospace

business on

the

fluid

side

will

also

increase.

We've

got

some

great

products

on

single-aisle

and

business

jets

and

regional

and

widebody.

And

so,

it's

good

for

both,

those

increase

in

rates.

Do

you

want to

comment

on

capacity?

[Bindi Jayantilal Jivraj Foyle]

On

the

capacity,

we're

already

capacitized

for

the

high-60s

single-aisle

growth

rate.

So,

pre-pandemic,

we

were

almost

at

rate

63

in

some

cases.

So,

we're

well

capacitized

without

needing

much

further

investment

to

get

to

those

rates.

Beyond

that,

it's

more

about

adding

additional

machine

capacity,

but

not

from

a

facility

point

of

view.

We

have

all

of

the

facility

capacity

already.

So,

over

the

next

two

years,

we

will

still

expect

to

see

CapEx

at

a

sort

of

a

– I mean,

in 2022,

CapEx

is

going

to

be

lower

than

depreciation.

Thereafter,

it

will

come

back

towards

depreciation,

but

still

seeing

good

cash

flow

generation

through

those

years

as

the

growth

comes.

[David Hamilton Squires]

Any

more

questions?

There's

a

mic

right

there.

[Harry Philips, Analyst, Peel Hunt LLP]

It's

Harry

Philips

at

Peel

Hunt.

[David Hamilton Squires]

Hi,

Harry.

[Harry Philips, Analyst, Peel Hunt LLP]

Just

a

couple of

questions,

please.

Just

curious

as

to

how

you're

finding –

on

the

truck

side,

how

you're

finding

your

customer

inventories.

Are

you

sort

of

having

to

run

excess –

well,

not

excess

– additional

inventory

to

sort

of

keep

you

operating

as

a

buffer,

if

you

like;

or

are

they

taking

inventory

off of

you

and,

therefore,

any

pull-forward

in

production

rates sort

of

has

a

lag

coming

back

onto

yourselves?

And

then,

secondly,

and

I

should

know

the

answer

to

this,

but

your

sort

of

aftermarket

content

within

Aerospace

just,

obviously,

is

a

part

of

that

46%

as

you

suggested,

but

would

it

justify

a

little

sort

of

segment

in

its

own

right?

[David Hamilton Squires]

Unfortunately

not

yet. On

the

aftermarket one,

it's

a

very

small

percentage

of

our sales.

But

it's

good,

of

course,

from

margin

perspective

and

we've

got

reasonable

aftermarket in

the

defense

side

for

example,

as

well

as

some of

the

commercial

aerospace

and

it's

pretty

much

all

in

our

fluid

systems.

We

don't

really

have

aftermarket

in

structures.

That's,

kind

of,

fit

and

forget.

But,

no,

it's

very

small

to

do.

On

the

heavy-duty

truck

side,

well,

I

mean,

we're

delivering

constantly

to

the

likes

of

Cummins

and

Daimler, sometimes

several

trucks

a

week.

So,

it

is

very

much

straight

into

the

production

side.

So, there's

not

a

lot of

buffering

going

on

there,

taking

everything that

they

can

get,

frankly.

But

they're

more

constrained

by

other

supply

chain

factors

and

semiconductor

shortages.

Less

so

than

the

pasture

vehicle

guys

on

the

truck

side,

but

nonetheless,

it

has

affected

them.

So,

yeah,

we're

looking

forward to

another

year

of

growth

this

year. I

think

we have

put

the

growth

levels

in

there

that

ACT

have

published.

And

we

did

of

– there

were

some

issues

around

stainless

steel

supply

last

year.

We've

largely

got

through

that

now.

And

so,

we're

in

good

shape

to

support

those,

sort

of,

growing

sales

this

year

from

our

key

customers

in

that

area.

[Harry Philips, Analyst, Peel Hunt LLP]

And

just

one

final

supplementary,

just

in

the

context

of

the

trucks,

and

obviously you

had

the

Cummins/Meritor

deal

last

week.

I

mean, does

that, sort

of,

consolidation

cause

you

any

issues,

or not

so

much

issues

now

but

in

the

medium-term,

as

they

clearly

look

to

take, sort

of,

cost

out

of

their

broader

supply

chains

and

what

have

you?

[David Hamilton Squires]

Yeah,

I

think

we're

there

to

help

them.

So,

obviously,

these

things

are

an

opportunity

rather

than

a

risk.

And

they've

been

a

tremendous

customer

for

many

years

and in

many

parts

of

the

world.

We

supply

to

them

all

over

the

world.

And

they're

spending

a

lot

of money

on

electrification

as

well.

So,

they're

very

helpful

in

terms

of

not

just our

existing sales, but

as

we

look to

the future

and

that transition

into

low-carbon.

They're

doing

some

really

impressive

stuff

and

we

are

working

with

them

on

that.

So,

we

are

very

happy

with

that.

Hi, Dom.

[Dominic Convey, Analyst, Numis Securities Ltd.]

Hi,

there.

Dom

Convey

from

Numis.

Just

two

questions

if

I

may.

How

should

we

think

about

your

revenue

trajectory

in

the

narrow-body

arena?

Do

you

think

that

additional

content

wins

you

should

therefore

outpace

the

expected

ramp

in

production,

or

will

we

perhaps

see

a

little

bit

given

back

on

price?

And

secondly,

just

in

terms

of

this

medium-term

aspiration

for

the

13.5%

ROCE,

do

you

effectively

get

there

with

a

recovery

back

to

2019

volume

levels?

I

just

want

to understand

really

to

what

extent

this

is

just

purely

good

drop-through

on increased

volumes

now

rather

than

more

corporate

activity.

[David Hamilton Squires]

Yeah.

Do

you

want

to

take the

second

one

first,

but

we've

put

the

building

blocks

in

the

appendix

this

time

round, so.

[Bindi Jayantilal Jivraj Foyle]

Yeah.

So,

in

terms

of

ROCE,

essentially

it

is

about

making

sure

that

one

building

block

is

the

end

market

recovery

demand

coming

through

with

the

drop-through

levels

that

we've

talked

about

previously.

So,

the

benefits

of

the

restructuring

helping.

So,

we

should

see

improved

profitability

not

just

from

– not

just

the

demand

aspect

of

it.

Then

we'll

get,

from

a

cash

flow

perspective,

I said we're capacitized

for

the

growth

and

continue

to

be

very

efficient

on

working

capital

as

well.

So,

that

means

that

your

capital

employed

doesn't

increase

as

much

to

get

to

ROCE

as

well.

The

strategic

focus

on

thermal

management

and

fluid

conveyance,

again,

making

sure

that

we're

at

that

sort of

premium

level

in

terms

of

profitability

for

the

group,

but

also

portfolio

optimization

on

that.

So,

continuing

to

prune

to

grow

making

sure

that

we're

getting

best

out

of

all

the

assets

we

have

within

the

group.

So,

it's

a

combination.

Clearly,

the

biggest

element

of

that

is

the

demand

recovery,

together

with

improved

profitability

from

being

a

leaner,

more

efficient

business.

[Dominic Convey, Analyst, Numis Securities Ltd.]

Is

the

2019 revenue

run

rate

a

simple

way

to

think

about

that,

or

would

that

be

wildly

off?

[David Hamilton Squires]

I

think

if

you

think about

wide-body,

widebody

is

some

way

out.

I

think

A350

was

at,

what, 10

a

month;

and

Boeing

just

moved

the

787

to

14

a

month.

And neither

of

them

were

talking

about getting

back

to

those

levels

for

a

long

time.

So,

I

think

we

need

to

think

about

that.

So,

that's

why

everything

else

we're

doing

is

really

important

as

well.

The

costs

that

were

taken

out

of

the

business,

too.

So

most

of that

growth

is

really

going to

come

from

single-aisle.

Some

of

it

will

come

from

widebody.

And

to

your

point, some

of

it

will

come

from

the

new

wins

that

we've

had.

So

that

undoubtedly

helps.

The

contract we

announced

back

in,

I

think, it

was

January

[indiscernible]

(00:54:16),

wasn't

it –

had

737

work

on

the

court

assemblies

and

then

had –

which

we're

doing

[indiscernible]



(00:54:23)

the

Seattle

area

had 777

work

and

then

767

work.

Strangely,

we

were

probably

most

excited

by

the

767

because

you

might

think,

well,

that's

no

platform. But

if

you

think

about

it,

freighters

and

also

the

tanker

program,

it's

going to

go

on

for

a

very

long

time.

And

we

got

a

lot

of

parts

doing

on

the

floor

beams

on

that

platform.

So,

that's

really

good

value

for

us

and

very

steady

revenue.

So,

that's

all

brand

new.

So

by

definition,

it

helps

us

achieve

higher

sales

than

we'd

have

had

on

that

platform

previously.

So,

yeah, a bit of

help

from

market

share.

The

biggest

increase

is

going to

be

from

recovery in

markets,

though.

[Andrew Douglas, Analyst, Jefferies International Ltd.]

Just

two

follow-up

questions.

Can

you

give

us

a

feel

for

the

marketplace

in

which

you're operating

from

a, kind of,

market

share

contract

win

perspective?

We've

had

a

number

this

year,

Honda,

737, 767,777,

all the

sevens.

Is

there

still

a

lot

long

opportunity

or

a

long

tail

of

potential

contract

wins?

You

talked

previously about

space

and

defense

as

well

as

civil,

or are

we

kind

of

– has

that

kind

run

its course

now?

And

then

secondly,

just

on

energy

costs.

I

don't

believe

that

you're kind

of

hugely

a energy

cost-intensive

business,

but

kind

of

just double

check

in

terms

of

what

you

do

in

terms

of

hedging

for

energy

costs

and

all

that

kind

of

good stuff,

given

what's

going

on

in

Russia?

Thank

you.

[David Hamilton Squires]

Yeah.

I

know

that Launie

and

Mike,

the

two guys

that

run

the

divisions

that

were

out at

the

Capital

Markets

Day,

they

really

got

their

business

development

teams

been

driven

very

hard

get

out

and

speak

to

customers now that we can

get in

front

on

again

because that's

not

been

easy.

And that's

both

on

current

products

but

also on

the

newer

technologies.

Sometimes

different

customers

that

you have

to talk

to

within

the

same

companies

or

[ph]



good that we didn't get

the

BT (00:56:07)

activity

going

face

to

face.

We're

still

bidding

lots

of

stuff.

Some

of

that

Boeing

were

picked

up

because

suppliers

were

in

difficulty.

There

perhaps

less

of

suppliers

and

difficulty

than

I

thought

there

might

have been

at

one

point. There's

been

lot

support

for

them

to

the

crisis,

but

nonetheless

there

are

still

number of

suppliers

in

the

ecosystem

that

are

under

difficulty.

So

that

represents

more

opportunities

for

us

with

our

stability.

And

then

I

think

on

the

on

the

fluid

systems

side,

because

we've

got some

pretty

innovative

technologies,

that's

still

attracting

attention,

maybe

slightly

slower

but

some

very

good

prospects

there.

And

I'm

equally

upbeat

actually

about

the

industrial

side,

whether

that's our Aerospace

business

or

our

Flexonics

businesses.

Things

like

semiconductor equipment

market

is

great.

We

keep

winning

more

business

there,

and

the

space

work

I

already

mentioned.

So,

I

think

these

smaller

and

newer

markets

for

us

represents

some very

good

growth

opportunities

using

just

the

same

technology

we've

been

using

in

the

Aerospace

for

a

long

time.

So,

yeah, I'm upbeat

about

the

development.

If you

look at that report, I go

to

the

board

every

month

that

we

summarize

all

the

[indiscernible]



(00:57:17) activity, there's

a

lot

of stuff

going

on

as

in

– I'll

tell

you.

[Bindi Jayantilal Jivraj Foyle]

And

at

energy

costs,

so

we've

managed

that

diligently,

and

a

lot

of

our

energy

contracts

have

been

fixed

already.

So,

there's

a

few

that

need

renewing

towards

the

end

of

the

year.

But

most

of

our

costs

and

pricing

has

already

been

fixed.

And

equally,

we

make

sure

that

where

there

are

higher

costs,

as

we've

done

in

2021,

we

have

active

dialogue

with

our

customers.

Some

are

contractual

automatic

pass-through,

some

we

have

dialogue

and

sort

of

you

look

at

the

strategic

sort

of win-win

for

both

us

and

our

customers.

And

there

will

be

areas

where

contractually

maybe

there

were

price-downs,

but

we've

actually

kept

prices

stable.

But

when

you

look

at

our

outlook

and

guidance

for

2022,

we've

left

that

unchanged.

We

don't

expect

consensus

to

change.

That

takes

into

account

[ph]



all

of

you (00:58:11)

and

diligence

on

managing

those

costs

over

the

coming

year.

[Christopher Leonard, Analyst, Credit Suisse Securities (Europe) Ltd.]

Thanks,

guys.

So,

ask

one

more

follow-up

following

on

for

the

energy

costs,

I

suppose,

but

for

Flexonics,

should

we

be

seeing

that

higher

oil

prices

be

a

catalyst

for

further

orders

coming

through

hopefully in

the

future?

And

we

know

there's

that

gestation period

for

Pathway,

but

maybe

on

the

downstream

side,

are

we

going

to

see

a

bit

more

momentum

following

the

Capital

Markets

Day?

We

spoke

to

the

good

work

there

alongside

maybe

a

comment

on nuclear as

well

for

the

small

modular

stuff

that's

going

on

there

as

well,

that

would be

really

helpful.

Thank

you.

[David Hamilton Squires]

Yeah.

Good

question,

Chris. And

I'll

say

that

events

currently

underway

may

affect

this

to

some

extent,

but

we

were

confident

seeing

the

inflection

point

in

upstream

at

the

end

of

last

year, and

that

happened.

So

we

are

seeing

higher

input

now

from

customers

like

Schlumberger.

So

as

oil

prices

increase,

you

tend to

think it

would

be

more

exploration

drilling,

more

production

drilling,

which

is

generally

a

good

thing

for

upstream

oil

and

gas.

We

will see.

Downstream,

there's

a

bit

of

a

lag

there

usually.

So,

the

refining

side usually

takes

a

while

to

catch

up.

And

that

certainly

was

affected

during

the

pandemic.

The

demand

for

fossil

fuels

peak

around

2030.

You

might recall

from

our

Capital

Markets

Day.

So

we've

got this

big

drive

to

less

impactful

technologies

now

on

the

environment.

But

we

do

see

global

demand for

fossil

fuels

increasing

up

to

around

2030,

and

then

it

starts

to

tail

off.

So,

this

is

still

important.

So

we

are

putting

a

lot

of

work

into

renewable

energy

as

well.

The

small

modular

reactors

is

a

good

example.

I

think

we've

shown

some

of

the things that

we're

doing

with

regard

to

that.

We're

talking

to

two

North

American

suppliers

on

small

modular

reactors,

looking

at

the

big

piping

systems

that

we

do

in

pathway

in

Texas

and

bringing

our

bellows

and

design

expertise

to

bear

on

that.

So,

yes,

that

could

be

one

of

the

growth

opportunities

for

us.

And

we'd

love

to

do more

of

our

solar

products

as

well.

We've

got some

very innovative

products

we

supply

to

solar

companies

using,

again,

our

bellows

technology.

So

we

think

both

traditional

fossil

fuel

for

a

few

years

will

be

fine,

but

very

quickly,

because

we

all

want

to

transition

to

lower

CO2

emission

technologies,

we're

well

placed

for

that.

I

mean,

today,

if

you

look

at

Pathway, which

is

one

of the

big

businesses

that

supply

some

downstream,

actually

much

more

of

the

business

is

not

petrochem;

it's

much

more

other

things.

[David Hamilton Squires]

Any

more

questions?

Okay.

Listen,

thanks,

everybody,

for

coming

along

this

morning.

I

just

really

appreciate

that

we can

see

you all

back

and

I

see

you

face-to-face.

If

you've

got

any

follow-up

questions,

please

don't hesitate

to

contact

Gulshen,

Bindi,

myself.

We'll

be

very

pleased

to

help.

Thank

you.

[Bindi Jayantilal Jivraj Foyle]

Thank you.