Full Year 2019 Senior PLC Earnings Presentation Hertfordshire Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Senior PLC earnings conference call or presentation Monday, March 2, 2020 at 11:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bindi Foyle Senior plc - Group Finance Director & Executive Director * David Squires Senior plc - Group Chief Executive & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Andrew Douglas Jefferies LLC, Research Division - Equity Analyst * Christopher Leonard Crédit Suisse AG, Research Division - Research Analyst * Dominic Convey Peel Hunt LLP, Research Division - Analyst * Harry William Freeman Breach MainFirst Bank AG, Research Division - Research Analyst * Malini Chauhan Redburn (Europe) Limited, Research Division - Analyst * Rory Smith Investec Bank plc, Research Division - Research Analyst * Ross Law Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst * Sanjay Jha Panmure Gordon (UK) Limited, Research Division - Capital Goods Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [1] -------------------------------------------------------------------------------- Good morning, everyone. So welcome to Senior plc's 2019 Full Year Results Presentation. And as always, I really appreciate you making the effort to get here. In terms of our agenda this morning, I will briefly cover the highlights, then Bindi Foyle will run through and comment on the results. I will then focus on markets, strategy and outlook. And as ever, we're providing lots of information and data. Hopefully, you'll find that useful and do feel free to ask us any questions at the end of the presentation. Overall, the group delivered robust results given the challenges which were evident in our industry sector and which we will discuss later in the presentation. In particular, we worked very hard to mitigate the impact on our earnings of the 737 MAX rate reduction. But there were some real highlights, too, in 2019. I won't talk about all of them here, but we'll just call out a few that may be meaningful to investors. We have made good progress with our technology and product investments, particularly with additive capability and electric vehicle thermal management solutions. We've had an even greater focus on cost efficiency and cash generation given the market challenges, and we launched a restructuring program, which is already delivering meaningful savings that will continue through 2020. In Senior, we continuously review our portfolio. We made good progress with our Prune To Grow strategy in 2019, with the sale of our Blois automotive business in France, our Brazilian Flexonics business and Absolute, the small aerospace machining business in the Pacific Northwest. And in early December, following press speculation, we confirmed that we are exploring strategic options for our Aerostructures business, including an early stage assessment of a potential divestment. And that process is ongoing. In January, we were pleased to be awarded a leadership rating from CDP, the Carbon Disclosure Project. In fact, we were the only U.K. company in our sector to achieve this recognition of our commitment to environmental matters. It's an important part of our ESG program, which I'll talk more about on our next slide. So ESG is at the very heart of our decision-making and has been since I joined the company almost 5 years ago. In Senior, we put safety and ethics first in our board meetings, executive meetings and business reviews. Our regular all-employee briefs always start with a dialogue on safety and integrity, values, which are at the very core of the company. And you can see the effect that is having immeasurable results. Our lost-time injury and illness rate has improved by 61% in the last 5 years. In Senior, we have a real focus on behavioral safety as we know that most accidents are caused by unsafe actions as opposed to unsafe conditions. We developed a tailored behavioral safety program with a world-renowned [Kiel] center that all employees have been trained in. And we have a strong commitment to the highest standards of ethics across the company. This is enshrined in our code of conduct that every person in the company, from Chairman to shop floor, has practical training in on a regular basis. This is delivered through user-friendly systems and is backed up by a third-party whistleblowing service to allow employees to report easily and anonymously behaviors that they are concerned are not in line with our code of conduct. I already mentioned our commitment to the environment. In Senior, we don't just talk about it. We take real action and have done so for years. We have set science-based targets that support the Paris Agreement. There is a stretch target under that agreement to limit the temperature increase to 1.5 degrees C. And in Senior, our science-based targets support the achievement of that stretch target. In addition to our leadership rating for our action on climate, we also secured the same leadership rating for our work with our supply chain, again, the only company in our sector to do so. Our products directly contribute to a cleaner environment. For years, we have pioneered the development of products for exhaust systems that prevent toxins being released to the atmosphere. Our aerospace products are at the heart of aero engines, that are at least 15% more fuel-efficient than (inaudible) and we are rapidly developing thermal management solutions for electric land vehicles as the world accelerates its move from the internal combustion engine to 0 emissions products. And while on ESG, I'd like to mention our commitment to diversity and inclusion in the workplace. As a global company, we have a very diverse workforce. Senior was an early adopter of the gender diversity targets from the Hampton-Alexander Review, quickly attaining the targets for Board and executive representation. The contribution of talented and capable women in our company is evident. But we're not being complacent. We would like to see equal representation in our senior teams, and there is work for us to do to attract more talented women to the company, in particular, to general management positions. That remains a strong focus for us in our succession planning. So I think you can tell I'm passionate about our ESG program. This is not a tick in the box exercise for Senior. It's something that we believe is fundamentally the right thing to do for all of our stakeholders. With that, I'll hand over to Bindi now, who will take us through the financial results, and then I'll pick up on market strategy and outlook to finish. -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [2] -------------------------------------------------------------------------------- Thank you, David. Good morning, everyone. Senior delivered robust results and strong free cash flow performance in challenging market conditions. And now I'm now going to take you through the facts supporting that statement. Senior achieved revenue of GBP 1.11 billion in 2019, up 3%. On a constant currency basis, and excluding the year-on-year effect of disposals, revenue was up 1.4%, with growth in Aerospace and a decrease in Flexonics. Adjusted operating profit was GBP 89.4 million. The year-on-year decrease is related primarily to the impact on the group of the 737 MAX production rate reduction, partly offset by our focus on mitigating actions, including reducing central costs. The group's adjusted operating margin was 8%, with good improvement in Flexonics and as anticipated lower margins in aerospace. Adjusted profit before tax was GBP 78.5 million. Adjusted earnings per share increased by 1% to 16.17p per share, with a benefit from a reduction in the group's tax rate. The Board is proposing to maintain the final dividend, thereby bringing the total dividend for 2019 to 7.51p per share, an increase of 1.2%. Senior delivered a strong cash performance, with free cash flow of GBP 58.3 million, which is 29% higher than last year. After payment of dividends, purchase of shares by the employee benefit trust, our disposal and restructuring activities and favorable currency, net debt on a post-IFRS 16 basis reduced by GBP 19.5 million to GBP 229.6 million at the end of 2019. The implementation of IFRS 16, the lease accounting standard, led to our opening net debt on the 1st of January '19, increasing by GBP 96 million. I'm sure that most of you will not need reminding that Senior's lending covenants are currently based on frozen GAAP and therefore are calculated on a pre-IFRS 16 basis. At the end of 2019, the group's net debt-to-EBITDA ratio was 1.1x. Return on capital employed on a post-IFRS 16 basis was 11.1% in 2019 and remains in excess of the group's cost of capital. Here, I'll summarize the key elements of the group's trading performance in 2019. The chart at the top bridges the increase in revenue from GBP 1.08 billion in '18 to GBP 1.11 billion in 2019. And the chart at the bottom bridges adjusted operating profit from GBP 91.6 million to GBP 89.4 million. With a stronger year-on-year U.S. dollar, the group recorded favorable exchange rate translation of GBP 34.8 million on revenue and GBP 3.8 million in profit. So looking at performance on a constant currency basis, Aerospace revenue grew by GBP 46.6 million, up 6%, pleasingly, with growth from both civil and military sectors. The group was able to mitigate some of the 737 MAX revenue impact through stronger sales on other civil and military programs. The most significant growth came from civil aerospace, which increased by 6%. The group benefited from increased production as a result of the transition from legacy platforms to new, more efficient aircraft. Military and defense sales increased by 15%, primarily due to the ramp-up of the Joint Strike Fighter, the CH-53K and higher demand for other defense products. Revenue from other smaller markets decreased by GBP 5.4 million, and there was a GBP 1.8 million reduction attributed to the sale in October 2019 of Absolute Manufacturing, part of our Aerostructure subdivision. Profit in the Aerospace division decreased by GBP 7 million, and margin decreased by 150 basis points to 9.1%. This was due to a 737 MAX rate reduction, the start-up costs in our Malaysia facility and the mix of mature programs declining and newer programs ramping up. These headwinds were partly offset by the benefits from increases in operational efficiency, learning curve improvement and restructuring savings. We continue to see improving returns in those businesses where new product introduction and industrialization activity is near completion. On 737 MAX in mid-2018 through 2019, Boeing reduced the program build rate from 42 aircraft a month to 42, at a time when we were geared up to increase to 57 per month and were fully resourced for this increase. Against this backdrop, our businesses took action to mitigate the impact. For example, by switching production to alternative product, where we had strong order cover. We also implemented cost reduction plans, which I will talk more about shortly as well as plans to improve cash generation, with particular focus on managing capital expenditure and improving working capital. We have aligned our resources to our customer's reduced 737 MAX production schedules. Flexonics revenue decreased by GBP 53.5 million. GBP 19.7 million the revenue reduction was attributed to the sale of Blois, our French automotive business sold in February 2019, and the disposal of our São Paulo Brazil business in September 2019. So Flexonics' revenue, excluding these disposals, decreased by 11%. Revenue from land vehicle markets decreased 20%. Senior sales to the North America truck and off-highway market were down 25%, primarily due to lower off-highway sales as market demand decreased and truck production reduced in the second half of the year. Sales to the rest of the world, truck and off-highway markets, decreased 12% due to market led sales in Europe and China being lower. And the group's passenger vehicle sales decreased 15%, reflecting lower end market demand in Europe and India. Revenue from power and energy markets decreased GBP 3.1 million, down 2%. We had strong aftermarket sales from our Pathway business to petrochem and power markets, while upstream oil and gas activity decreased. Profit in the Flexonics division decreased by GBP 0.6 million. Flexonics margin increased by 140 basis points to 9.5%, from increased downstream oil and gas repair and overhaul activity, together with the benefits from our focus on cost management, efficiency initiatives and our Prune To Grow activity with the disposals of Blois and São Paulo. Central costs decreased by GBP 2 million due to lower share-based payment charges and other actions taken to mitigate the impact of the 737 MAX rate reduction on the group's overall performance. This slide reconciles adjusted operating profit to the statutory reported profit for the period. It also highlights our interest and tax charges. Net interest payable of GBP 10.9 million increased by GBP 2.3 million. There was an underlying reduction in interest costs, but this was offset by a GBP 3.5 million increase from the adoption of IFRS 16. The group's adjusted tax rate for 2019 was 14.5% compared to 19% in 2018. This reduction in rate is largely attributed to the benefit from our investments in Malaysia, increased R&D credits available for offset against U.S. taxable profits, and for further clarification of the effect on the group of U.S. tax reform. Currently, we are expecting the group's adjusted tax rate for the full year 2020 to be around 20%. In terms of reconciling adjusted profit to statutory reported profit, the following items have been excluded from the adjusted profit measures for 2019: amortization of intangible assets from acquisitions of GBP 13.1 million; restructuring charge of GBP 12.1 million, and I will talk more about this in the next slide; costs associated with U.S. class action lawsuits of GBP 2.6 million. This charge for 2019 relates to the agreed settlement of class action claims alleging property damage, where Senior was named as a co-defendant. This was previously disclosed as a contingent liability, and we're pleased to have reached agreement on this long-running issue that predates Senior's ownership of the site. Loss on disposal of businesses of GBP 22 million. This relates to our prune to grow activities in 2019 with the disposal of 3 more noncore businesses, Blois, São Paulo and Absolute. These transactions enable us to focus on opportunities in our core activities and to deploy our capital in other parts of the group with higher returns. The related tax credit on the above-mentioned items was GBP 8.3 million. We also had an exceptional noncash tax credit of GBP 3.6 million to recognize a deferred tax asset following a recent change in accepted practice in terms of the tax treatment related to restricted interest deductions in the U.S. This change in accepted practice, which is as recent as December 2019, has also led to the comparative figures for 2018 being restated to reflect the recognition of a noncash deferred tax asset of GBP 3.4 million. As we noted in our trading update last November, we're taking actions to mitigate the challenges associated with lower sales anticipated in 2020 and have implemented a restructuring program across the group. The 4 key elements of this include: aligning headcount to match capacity; making sure it's appropriate for the volumes we are anticipating; reducing overhead costs further through process and efficiency improvements; transferring and in some cases accelerating the transfer of fairly major work packages to our facilities in Thailand and Malaysia; and closing our South Carolina facility. The total restructuring charge is expected to be around GBP 23 million, with GBP 12 million recognized in 2019 and the remainder to be incurred in 2020. Cash outflow in respect of these activities is expected to be around GBP 15 million, GBP 3 million of which was incurred in 2019. The main element of the GBP 12 million restructuring charge in 2019 related to reducing group headcount by 5% in the second half of the year, with 8% reduction in Flexonics and 4% reduction in Aerospace. In Aerospace, we have a further 2% reduction to come in the first half of 2020. These actions delivered savings of GBP 4 million in 2019, mainly related to headcount, and we expect cumulative savings of around GBP 20 million in 2020. Now on to cash. We've continued to focus on generating strong cash flow, and the group converted 83% of its adjusted operating profit into operating cash flow of GBP 74.6 million. The depreciation figure on this chart includes GBP 10.2 million additional depreciation related to the introduction of IFRS 16. We saw a GBP 3.4 million inflow from working capital and provision changes. Working capital decreased year-on-year, mainly due to a reduction in inventory, and as a percentage of sales reduced from 14.4% at the end of 2018 to 13.3% of sales at the end of 2019. I expect the group's working capital as a percentage of sales to increase at the end of 2020, as we expect sales in the final quarter of the year, leading into 2021, to be higher than the first quarter. Working capital efficiency remains a key focus for us. Capital expenditure of GBP 65 million was 1.5x depreciation, excluding IFRS 16. And the call out box on the slide highlights some of the key capital investments made in the year, supporting growth programs in the Aerospace division, including our second facility in Malaysia, the expansion of our metal bellows facility in Massachusetts and our technology investment in our Advanced Additive Manufacturing Center in California. Following several years of high capital investment to support growth, we're now past the peak investment phase and can expect future capital investment to be at more normal levels. In 2020, we expect CapEx to reduce to around GBP 50 million to GBP 55 million. Pension cash contributions in excess of service costs were GBP 8.7 million. And after allowing for interest and tax payments, the group generated strong free cash flow of GBP 58.3 million in 2019. Dividends paid were GBP 31.2 million, restructuring cash outflow was GBP 2.9 million, and other net outflows of GBP 14.5 million include GBP 8.2 million net cash outflow from our prune to grow activities, including the cash left with the divested businesses and GBP 6.3 million for the purchase of shares by the employee benefit trust. Net cash inflow in 2019 was therefore GBP 9.7 million. After taking account of GBP 7.3 million favorable currency translation and a net GBP 2.5 million reduction in lease liabilities, principally due to the disposals, net debt reduced by GBP 19.5 million to GBP 229.6 million at the end of 2019 on a post-IFRS 16 basis. Senior's balance sheet remains healthy. As a reminder, the group's balance sheet is consolidated at the spot exchange rates on the respective reporting date, and the box in the top right shows the main currency movements since December 2018. As you can see from the box in the middle right, the net retirement benefit surplus increased from GBP 18.5 million at the end of GBP 2018 to GBP 41 million at the end of 2019. The increase in the surplus was primarily as a result of net actuarial gains and the group's cash contributions to the plans. This GBP 41 million net surplus is comprised of a GBP 48.9 million surplus in respect of the group's U.K. plan, which is an asset on the balance sheet and a GBP 7.8 million net deficit for the group's U.S. and rest of the world plans, which are a liability on the balance sheet. Although the U.K. plan has an accounting surplus, in actuarial terms, it has a deficit. And during 2019, we completed the latest triennial actuarial valuation. This showed a reduction in the deficit from GBP 37 million in 2016 to GBP 10.2 million as of April 2019. As a result of this, the group's cash contributions to the plan have reduced from GBP 8.1 million per annum to GBP 5.5 million per annum, payable over the 3-year period to March 2022, and it will be reviewed again at the 2022 valuation. Other notable movements in the balance sheet relate to the adoption of IFRS 16, the new lease accounting standard from the start of the year. Taking these into account, at 31st December 2019, property, plant and equipment includes GBP 82 million right-of-use assets and net debt includes GBP 83.7 million of lease liabilities. At last year's results presentation, I went through the detail of how IFRS 16 affects the group's financial results, so I will not repeat it here. However, further details can be found in Page 29 of the presentation and in Note 16 of the results announcement. In terms of financing arrangements, in February 2019, we refinanced the group's main U.K. rolling credit facility, which was GBP 80 million at the time, and we increased it to GBP 120 million and extended the maturity to February 2024. At the end of 2019, Senior had committed facilities of GBP 305 million, with a weighted average maturity of over 4 years. Let me remind you that our lending covenants are currently based on frozen GAAP and therefore calculated on a pre-IFRS 16 basis. Net debt before lease liabilities was GBP 145.9 million at the end of 2019, giving headroom of GBP 159 million under the group's committed borrowing facilities. And the net debt-to-EBITDA ratio was 1.1x. Senior has strong liquidity and healthy financing arrangements. Here, I summarize the group's 2019 performance according to the 5 financial metrics we use to measure the group's strategic progress and value add. These incorporate P&L, cash flow and balance sheet measures. Senior delivered robust results for 2019 in a period where the business has faced market challenges. Revenue on a constant currency basis and excluding disposals grew by 1.4%. Group's adjusted operating margin was 8%, with good improvement in Flexonics, and as anticipated lower margins in aerospace. Adjusted profit before tax was GBP 78.5 million, and with efficient tax planning, resulted in a 1% growth in adjusted earnings per share. Senior delivered strong cash performance with free cash flow of GBP 58.3 million, 29% higher than last year. And return on capital employed of 11% was in excess of the group's cost of capital. Finally, the Board is proposing to maintain a final dividend of 5.23p share. Therefore, the dividend in respect of the full year 2019 is proposed to increase by 1.2%. The overall financial position of the group remains robust. Thank you, and I'll now hand back to David to cover markets, strategy and outlook. -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Bindi. So let's turn our attention to markets. I'll run through an overview of our markets and comment in more detail on the key sectors that Senior operates in. So in 2019, Aerospace represented 75% of the group's revenues and Flexonics was 25%. Our exposure to civil aircraft has increased to 56% from 52% of group revenue in 2018, while military aerospace has increased to 13% from 11% of group revenue. We previously reported that we had divested our Blois operation, which was our French automotive business, and the Brazil operating business, which served the local automotive and oil and gas markets. That's one of the principal reasons why land vehicles reduced to 11% of sales from 16%. The markets were also a little soft in the second half of 2019. And as Bindi already mentioned, power and energy was stable at 14% of group sales. We'll now go through each of our key market segments in more detail, starting with our aerospace markets. Before I talk about the civil aerospace sector more generally, I thought it'd be helpful to give a factual recap on the 737 MAX situation, given it has been and remains the most pressing issue for the majority of businesses active in the aerospace industry, including Senior. So on the 13th of March 2019, the FAA suspended operations of the 737 MAX, following the Lion Air and Ethiopian Air tragic air accidents. Since then, all 737 MAX aircraft around the world have been grounded. In early April, Boeing advised that they would be reducing the production rate to 42 aircraft per month, at a point in which the whole supply chain was poised to move to rate 57. That rate was maintained for most of last year, with Boeing anticipating a return to service of the aircraft during quarter 4 2018. However, on the 16th of December, Boeing announced that it was suspending production. Spirit AeroSystems, another Senior aerospace customer, followed suit. And the Boeing provided further guidance at the end of January that their new assumption would now be a return to service of the 737 MAX midyear 2020. And without being specific, production starting at a low level ahead of that date, with a slower ramp-up than previously assumed. The next day, Spirit advised the impact to them of this new information and added that they were not expecting to be back to rate 52 until late 2022. By implication therefore, we can surmise that rate 57 will not be attained until 2023, 4 years later than was planned prior to the grounding of the fleet. We immediately issued a market update following those announcements, explaining the expected impact to our 2020 revenue. Senior has 13 operating units that have content on the 737 MAX platform, our LEAP-1B engine. We have multiple customers, including Boeing, Spirit, GE and Safran. The guidance we have provided and which we reiterate today is based on the best information we have from each of those customers. The precise dates for resumption of production and then rate increases may vary by customer and business unit, depending on, for example, inventory levels. So we've taken all that into account in providing our guidance, and we'll continue to monitor the situation very closely, and if there are significant movements, we will, of course, keep you informed. Moving on to talk about the civil aerospace sector more generally, it's the most important market for the group. So I've showed this chart over the last couple of results presentations and also at our Capital Markets Day last May. It gives a great visual representation of the momentous changes that have been taking place in the aerospace industry over recent years as new, more fuel-efficient aircraft and aero engines have been introduced. The bars on this chart represent annual production estimates, with green being legacy aircraft and blue being the newer models. Modern single-aisle and wide-body jets are way more efficient than the previous generations. They have lower cost per seat, generate more revenue per passenger kilometer and perhaps, most importantly, have less of an environmental impact than their predecessors. To be competitive therefore, airlines need to invest in these more efficient aircraft and the engines. And as I've said previously, just look at the pace of change. 2018 was the first year that more of the new models were built and delivered than mature models. As we anticipated, 2019 was the peak of that change, with a massive ramp in new model production and a very large decrease in mature aircraft and engine production. And you can see from the chart, the good medium-term growth evident in aircraft deliveries and production. However, with the latest forecast on return to service and production ramp-up for the 737 MAX, the growth curve has profoundly changed, with volume actually decreasing in 2020 compared to 2019, before picking up strongly again at 2021 and 2022. Aerospace is a long-cycle business. No doubt, events such as the grounding of the 737 MAX or concerns around pandemics such as SARS or COVID-19 will have a temporary impact on air travel. And environmental concerns bring new challenges and the need for new solutions. However, the need and desire to fly is not going to abate anytime soon. Air traffic growth is a constant and has been for 40-plus years. So to satisfy that demand, the fleet is going to grow significantly over the next 15 years. These aircraft will be in production and service for decades. And the installed base is now so large, the replacement of aging aircraft is a very important element of future growth. Senior is well-positioned on all the growth platforms, therefore, we can expect to benefit as production rates of these newer aircraft increase. A key aim for senior aerospace has been to ensure that we have good content on the new platforms. When I first joined Senior, 65% of our large commercial aircraft sales ended up on Boeing platforms and 35% on Airbus platforms. Our desire is to be platform agnostic so that we benefit from whichever aircraft choices airlines make. So we set about trying to bring better customer balance. In 2019, our sales were pretty evenly split between Airbus and Boeing platforms, a balance we would like to retain. Having said we want to grow our content on these new platforms, I've also said previously we are not chasing volume at all costs. On the contrary, new bids need to meet our return on capital expectations, and we keep our pricing discipline when it comes to renewing contracts. In fact, we would rather forgo sales than take business at low or no margin. Last year, in our November trading update, we described that we had decided not to renew certain contracts with the pricing on offer simply didn't make economic sense when set against our returns expectations, and that's why you see the reductions in shipset values on the 737 MAX and the 787 lines. Some of the decreases in this page are because we sold our Absolute business towards the end of last year. They had content on the 787, the 777, the 737 MAX, the A330neo and the A350. So naturally, we have removed that content from the shipset values reported here. We also had some decent increases on the C919 and MC-21 single-aisle programs and Embraer's E2 and Mitsubishi's SpaceJet programs. Generally speaking, the decreases were more in our build-to-print structures division and the increases were in our Fluid Systems division. Switching now to military aerospace markets. It's been a successful period for our businesses serving this sector. The platform shown on this slide are, of course, not the only military aircraft, but they are the most important ones to Senior. Senior sales increased by 15% as a consequence of the continuing ramp-up in F-35 production and strong demand for our defense products. The F-35 continues to be the single most important platform when looking at future growth, and we'll continue to try and secure more content on this most important of U.S. military programs. CH-53K is a new U.S. transport helicopter being made by Sikorsky and will be an important platform for us in the future. So it was good to see the customers securing LRIP or low-rate initial production orders in 2019. When this enters series production in 2022, it will generate significant sales for Senior aerospace. And this time last year, we included T-X as a placeholder on this chart. This new trainer aircraft, which has been jointly developed by Boeing and Saab for the U.S. Air Force is now called T-7 Red Hawk, and we're pleased to have secured our first Fluid Systems content on this growth platform, which has multiple follow-on opportunities, both in the U.S. and internationally. Overall, our focus for military aerospace is very much on the U.S. market where defense spending is as high as the next 7 countries combined, and series production volumes reached meaningful levels for sustained periods, which in due course will also generate good aftermarket sales for our fluid conveyance products. We're actively pursuing further work in this sector therefore. Turning now to Flexonics. We'll firstly look at land vehicles, which covers truck, off-highway and passenger vehicles. On the passenger vehicle side, we completed the sale of Blois in France, whose focus has historically been on diesel pass-through vehicles and also our Brazil operation, which served the local land vehicle market. Excluding the effect of these disposals, sales to passenger vehicle markets reduced by 15% year-over-year, reflecting lower automotive market demand in Europe and India. The more strategically significant part of our land vehicle business is truck and off-highway. We sell a range of proprietary products to the major OEMs and, in particular, our exhaust gas recirculation coolers or EGR coolers, as they're commonly known, which protect the environment by reducing emissions. As expected, we saw lower sales as production slowed in line with market demand and relatively high dealer inventory levels. We've been maintaining a cautious view for truck and off-highway markets in 2020 that we outlined throughout last year, and we have taken the appropriate operational measures to align capacity to demand. Present forecast would see a return to growth in 2021. Looking further forward, we are positioning ourselves to capture new business by developing solutions for new higher efficiency internal combustion engines as well as electric vehicle applications, and this year, have made good progress in this field with specific applications for a number of customers. Our other most important Flexonics market is power and energy. Overall, our sales in this sector were a little down in 2019 compared to '18, as we were predicting, due to lower upstream oil and gas North American fracking markets. In 2020, we expect further contraction in this sector, but more activity in the international offshore sector. We did see relatively strong aftermarket activity in 2019. With our petrochem and power generation customers, and we expect that to be stable in 2020. Taking everything into consideration, our Flexonics top line in 2019 was very much as we expected. And we continue with our emphasis of growing margins faster than sales. We will be vigilant for any effects from the coronavirus situation on our markets and customers and given that markets continue to be less certain in 2020, we will continue to focus on cost and efficiency in this division. At the same time, the investments we're making in technology and products for vehicle electrification will be beneficial in the medium and long term. So turning now to progress on strategy. Most of you will recall that we laid out these 6 strategic priorities in 2016 and have made strong progress with each one. Now we give a further update in our annual report, which, as of this morning is available on our website. I'd like to focus on 2 of the priorities today, namely focus on growth and capital deployment. And from a growth perspective, I'd like to explain some of the technology developments, which we've been working on then on capital deployment, I'll talk about portfolio management. So we gave a comprehensive update on some of our more important technology and product developments at our Capital Markets Day last year. So this is a reminder of what these are and how we're progressing. Additive Manufacturing has been around for a long time, but advances in manufacturing methods and design techniques mean this is becoming a cost-effective approach in certain applications. We've established an Advanced Additive Manufacturing Center at our facility in Burbank, California. Our very smart engineering and development team there, collaborate with colleagues across the group on opportunities, which would benefit from an additive approach. We have a launch customer and are in the process of verifying and qualifying the design and manufacturing processes, which is essential to ensure products can be certified for flight. We'll be delivering our first flight-worthy hardware this year and are discussing specific new opportunities with various customers. Still in Aerospace, our BWT business in Macclesfield are leaders in designing and producing lightweight ducts. The team there are exclusively using the patented RT2i technology to design and manufacture composite thermoplastic products. We'll be completing product qualification in 2020 and starting series production deliveries to the launch customer for their newest aircraft program. Electrification of aircraft has seen much press of late. We're still many years away from having electric propulsion for large commercial aircraft, though there are numerous smaller aircraft that are aimed to be launched to the market in the near term. With our decades of expertise in thermal management, we are well placed to address this market. Our electrically propelled large commercial aircraft are in our long-term horizon. Electric land vehicles are here now. The market size is still small but will grow quickly as legislation, environmental pressures and technology improvements bring better and lower-cost products. Thermal management is a key consideration for vehicles with battery packs. And this is an area of focus for our product development teams in our Flexonics business. We have already developed an innovative cooling system for a 70-kilowatt battery pack for a commercial vehicle, and are close to our inverter chill plate technology being selected for our passenger vehicle application. We are working on thermal management opportunities with multiple line vehicle customers as well as companies focused on stationary power applications and see this as a real growth area for the medium and long term. It is Senior's policy to review its portfolio on an ongoing basis and evaluate all of its operating businesses in terms of their strategic fit within the group. All investment or indeed divestment decisions Senior makes follow our disciplined capital deployment approach, which focuses on creating value for our stakeholders. As Bindi already described, the group's prune to grow activities in 2019 included the disposal of 3 more non-core businesses, our Flexonics, Blois and Sao Paulo operations and Absolute, a small precision machining Aerospace business. These transactions enable us to focus on opportunities in our core activities and to deploy capital in other parts of the group with higher returns. We will continue our prune to grow activity where appropriate, while making a disciplined approach to additions into our portfolio. In December 2019, senior confirmed that it has been reviewing all strategic options for its Aerostructures business, which includes an early stage assessment of a potential divestment of the division. That review continues, and there can be no certainty that will lead to a transaction. Clearly, any decision we reach will be based on the value that will be created for our shareholders and other stakeholders. So let me finish by talking about the outlook for Senior. We entered the year in a robust financial position. As we updated in January, the challenges presented by the 737 MAX situation contribute heavily to our expectation of Aerospace sales being around 20% lower in 2020 than in 2019. And our performance will be weighted more to the second half of the year than normal because of the revenue profile. In Flexonics, as we've been saying since the start of last year, revenue will be lower in 2020 than 2019 due to cyclical end markets. The impact of lower sales in the group will be partially mitigated by the savings from the restructuring actions we are taking, though margins are likely to be lower in both divisions in 2020 compared to 2019. We're closely monitoring the fast-evolving coronavirus situation. To date, we have no reported cases of our employees having contracted the virus and the direct impact to our trading activities has been minimal. We've established an oversight committee to ensure we're taking all the right actions to safeguard our employees and other stakeholders, and we're closely monitoring any potential macroeconomic disruption to our end markets, our supply chain and our customer supply chains. As we enter 2020, we have a robust balance sheet, a continued focus on cost efficiency and cash generation, and we are taking firm actions to restructure the business. With our strong positions in attractive end markets, we have every confidence of returning to growth in 2021. So with that, we'll open the floor to any questions, which Bindi and I will be delighted to answer. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Ross Law, Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst [1] -------------------------------------------------------------------------------- It's Ross from Berenberg. Firstly, on MAX. Obviously, you alluded to lower shipset content on that program. Was all of that reduction taken when you elected not to renew those contracts in H2 last year? Or has there been further a reduction in content since the announcement? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [2] -------------------------------------------------------------------------------- There was a little bit from the sale of Absolute because we had some content in the MAX, but the rest of it, yes, it was all due to with those -- as deciding not to review those contracts. That's correct. -------------------------------------------------------------------------------- Ross Law, Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst [3] -------------------------------------------------------------------------------- And the second one on MAX. Any idea of a shipset number or production number for this year? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [4] -------------------------------------------------------------------------------- It depends which customer you're talking about. So I think we just run through where we are because it's a bit complex, depending where you are in the supply chain. If you listen to what Boeing said at their earnings call, they said nothing specific about rates. What they did say is they expect to return to service in the middle of the year. They said they would start their production line a little ahead of that. And then will start the supply chain a little bit ahead of that, albeit at a lower level than what they were doing last year, which was 42 and then a slower ramp-up to eventually get all the way back to 57. So we'll be getting going with Boeing in the second quarter here. And with Spirit, Spirit came out a bit more publicly, they said they were doing 216 shipsets last year. And I think Tom Gentile, gave a bit more grounds on Friday about what that profile might look like and the rate ramp. I think he said they'd be at rate 28 by the end of this year. And he's already said they'd be at rate 52 by the end of 2022. So by implication, it gets to rate 57 by 2023 given that we've got few items in the stock, we won't be doing very much at all from in the first half of the year. So we will be starting a low level in the second half. And then for the engine guys, we supplied to both GE and Safran on the LEAP-1B engine. So Safran have now said, I think last week, they're going to run at a 10 engines a week until Boeing ramp up, and then it'll be aligned to customer by the start of next year. They've actually got quite a lot of inventory of ours in stock. So we probably won't be doing much till about the fourth quarter with the engine guys. So it's a little bit different depending on customer. And then we've got 13 businesses that actually supply into the MAX program, 4 or 5 of those are quite heavily affected. The rest could mitigate it quite well. So that's why we've sort of letting all that customer, we've given our clear guidance, what that means for sales in Aerospace. So that 20% reduction takes all of that into account. -------------------------------------------------------------------------------- Ross Law, Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- And the last one just on contracts. Can you maybe kind of profile the average length or the average size of your contracts? Or maybe what proportion of annual revenues come up for renegotiation this year, just to kind of profile the visibility you have in the business? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [6] -------------------------------------------------------------------------------- Contracts are -- can be tiny and they can be very large indeed. So there's -- I wouldn't say there's any typical size. What I can say there's a kind of a rolling program of LTE renewals, and those are continuing fine. So if you're asking me is there -- are there other LTEs that we're not about to renew, no. We've been successfully doing some this year already, and there's more in the pipeline to do. If that was your real question, Ross. -------------------------------------------------------------------------------- Christopher Leonard, Crédit Suisse AG, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- Chris Leonard from Credit Suisse. Two, if I can, please. On the NPI cost, it sounds to be abating it currently. And when we look forward into 2021, with the outlook for growth to return in Aerospace, can you just give us maybe a small view of what you believe that can do to margins in 2021, if you can? And then second question, looking at COVID-19, if there's any further comments you could give on the supply chain, your positioning, what your stocks may look like currently and equally any footprint you might have in China? And what the sort of outlook looks like there? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [8] -------------------------------------------------------------------------------- Thanks, Chris. So on the first one, I guess, this is a slight frustration given what's happening more broadly with the MAXes because it's disguising a lot of good work we've been doing in the Aerospace business. So I think we said last year that was going to be the peak of our NPI costs. You can see that on the chart. There's still a bit of NPI going on, and it will be as we win new contracts, but really the peak, we're well past the peak now. And if you look at the industrialization costs, those are also past their peak. That was last year. I think I've said before, Bindi and I review the cost analytics program on a quarterly basis, they're all on track. So the underlying performance there is improving. I think as Bindi mentioned in our presentation, for those businesses, that are really all the way through their NPI activity, their operating margins support our ROCE targets that Bindi said, so that's a good progress there. So '21 as volume comes back, we certainly hope that margins would start to improve as well. Just on the COVID-19, let me give you a little bit more color around Senior. So we have 2 small operations in China, firstly. And it represents less than 1% of group sales, not a big impact. First thing, nobody has been affected, which is good news and either our employees or their families, which is our highest priority. Our business in Tianjin is actually back to work now. They went back last week. The local authorities relayed that, and our other businesses will be back in the 14th of March, which is good. We've looked all through the supply chain at where the risks might be. And the biggest risk is actually to our Chicago business, Bartlett, where we do the land products. We buy castings from China. But we've got a 5-week supply, and the supplier is now back at work, and they'll be able to supply so on an uninterrupted basis. So that's why I'm seeing the trading impacts being minimal. And then if you look at the nature of the work we do, and unlike some of our peers, we don't really have a lot of aftermarket. So if air travel falls and flights aren't flying, with no flight hours based contracts, with no heavy aftermarket spares and repairs type business in the commercial market, we've got some inventory built up, not really much in the civil side. So that doesn't really affect us. So for us, it's all about new aircraft deliveries. So as long as aircraft are being made and delivered, then we're going to benefit. On the Flexonics side, they'll be much more tied to the macroeconomic environment, GDP, probably from GDP. So that's what we're cautious of. I think it's a bit early to see what might happen there, and that's really what these Oversight Committee is doing, this looking out on a week-by-week basis to see if there's anything else that's changed. But so far, minimal impact, but of course, we're very vigilant. -------------------------------------------------------------------------------- Andrew Douglas, Jefferies LLC, Research Division - Equity Analyst [9] -------------------------------------------------------------------------------- This is Andrew Douglas from Jefferies. Just 4 quick questions, please. On the prune to growth strategy, clearly 3 disposals this year. Do we have many more potential to go if we look into kind of this year and beyond? Or is it now kind of small things around the edges? Historically, I can't remember when you started. But 2 years ago, I think you said you had a 2-year window of opportunity on potential contracts. We talked about military today. Can you just kind of give us an update really on kind of what you're bidding for and what's out there in terms of potential kind of market share gains? And then one for Bindi, first half, second half split in Aerospace, you kind of highlighted it might be a bit second half weighted. Can you just help us out just on what that may be? And then last but never is least, it may will be small now, but there's a lot of comment in the press release, you're clearly excited about the EV, could you just give us a feel for what that potentially might be worth and how big it could be for you guys over a -- I'll let you put a time frame, but maybe 3 to 5 years? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [10] -------------------------------------------------------------------------------- Okay. Do you want to do the witty one first? -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [11] -------------------------------------------------------------------------------- I can. So in terms of Aerospace, we expect first half, second half split to be around 40%, 60%, so 40% half 1, 60% half 2. -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [12] -------------------------------------------------------------------------------- So prune to grow. I mean that's a rolling program. We, the executive team and the Board look at the portfolio on an ongoing basis, and that will never stop. We need to make the right decisions for our shareholders and other stakeholders. That's what it's all about. So we can expect to see that program continuing and keeping our disciplined approach on any divestments or indeed for anything on the M&A side. On the 2 year window, which just ended up being a little bit longer than 2 years. I mean there's always going to be new opportunities, and we are bidding for a lot of work still, actually, in fluid systems as well as in structures, I would say we are past the absolute peak, but there's still some good opportunities that we're bidding for. And interestingly, with some of the business over there looked a little bit tiring just with everything else that's happened in the civil side, and we've done a lot of business development work. So if you look at AMT in the U.S., for example, which is traditionally a big Boeing commercial end supplier that they picked up good bit business from SpaceX for their satellite work, for example. SpaceX loved the quality and reliability and on-time delivery they get from AMT and that's going to increase further. And we're also building military work for the first time. So this is a situation where through cross selling, we leveraged our position from STEICO with a large U.S. military prime, who were looking for again, high-quality, machining and assembly companies who could perhaps offer a better reliability, on-time delivery and quality in some of our existing suppliers, choosing my words carefully. So we're -- there's very exciting bids on that side as well. And so a lot's going into Airbus too, which is another area that we've been looking at. So across the patch, still doing a lot of work. EV, there's more a qualitative answer than the quantitative answer at the moment. Just as a reminder, we're still talking 1% to 2% of the total market for passive vehicle internal combustion engines still rules. But of course, the growth last year was 34%. So it's changing very rapidly and with legislation that's coming in, you've all read about the U.K. trying to get rid of, not just internal combustion engine for petrol and diesel engines but hybrids by 2035. And for us, that change is quite exciting. And remember what we do, we provide cooling systems. So anytime you've got these huge battery packs, there's huge amounts of heat, they need liquid cooling. So our combined experience in fluid conveyance and thermal management are what leaves us extremely well positioned to be a supplier in there. And we're able to do some very clever things with lower-cost materials, for example, than certain other suppliers where they might need to use copper, we might be able to use aluminum, for example, but through our expertise in fluid conveyance thermal management, we can achieve the same output at a much lower cost. So those are the sorts of areas that we've been describing. We actually showed some of the products at the Capital Markets Day. And every time I ask our BD guy in the state, Shaz Malik, have we got anything and he gives an even longer list of discussions with several customers. So I do try to keep the board's feet on the ground with us because it's not been a journey -- maybe it wins us profit in the next year or so, but I think we'll see that increasing quite rapidly. And from the middle of this decade, I think we'll see significant sales and profits starting to accrue. That's my qualitative answer. -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [13] -------------------------------------------------------------------------------- Malini. -------------------------------------------------------------------------------- Malini Chauhan, Redburn (Europe) Limited, Research Division - Analyst [14] -------------------------------------------------------------------------------- Bindi, David. A couple of questions from me. Firstly, just on cash. What do you think about the dynamics of cash into 2020? And also, how can we think about cash conversion in the medium term? What's kind of the base level of cash conversion that we can expect from Senior? And then two, just on the dividend. Is there a medium-term dividend cover target that you're kind of working towards? -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [15] -------------------------------------------------------------------------------- Okay. In terms of cash, I said in my presentation that I would expect to see working capital increase at the end of 2020 compared to 2019 because we'll see quarter 4 grow and then into 2020, where we're currently seeing growth as well. And from a CapEx point of view, we said we're past the peak phase. So we expect GBP 50 million to GBP 55 million of CapEx in 2020. So we should be able to generate in past '20 to 2021, we should improve that cash conversion as sales and profits also start to improve. So in terms of dividend, I mean, the Board does have a progressive dividend policy, but we take into account earnings per share, free cash flow generation and dividend cover over the medium term. -------------------------------------------------------------------------------- Sanjay Jha, Panmure Gordon (UK) Limited, Research Division - Capital Goods Analyst [16] -------------------------------------------------------------------------------- This is Sanjay from Panmure Gordon. Last year, you talked about working or not renewing some contracts because the margins were quite low. You haven't said anything since? I'm assuming, has the market now stabilized? Or you're not seeing the same pressure? And within the aerospace markets, how many -- do you think there's been contraction of capacity. I mean has there been a lot of distress down the supply chain? And what does that mean for Senior in terms of consolidation? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [17] -------------------------------------------------------------------------------- Yes. So on those LTEs from last year, I think we made the right decision. And I'm absolutely comfortable with the decisions that we took. We've not seen -- the pricing pressure is always there. I've said that for years. So it's always going to be competitive. But we're able to take advantage of that as much as the next guy, especially with our low-cost competitive country facilities in Malaysia and Thailand and in Mexico. So we don't -- it might be we're sitting here at some point saying we've lost one and might be saying we've won them all. But I'm confident we can win more than we lose. So that's what I've said for a number of years, but there's nothing specific just now, Sanjay, that we're concerned about. We've got very constructive discussions on our LTE renewals with all of our customers. A good question on distressed suppliers. Absolutely, there are distressed suppliers as a result of the 737 MAX situation, I think, like Boeing and Spirit, are doing their best to support those but -- and I've reached out to senior levels in both companies and said that we're here to help. We're a financially robust and strong company. We've got excellent operations. We are divesting our customer base, perhaps more so than some others, and we're here to help if you need us. So we're having those discussions at a senior level. -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [18] -------------------------------------------------------------------------------- Dom Convey, you have a question? -------------------------------------------------------------------------------- Dominic Convey, Peel Hunt LLP, Research Division - Analyst [19] -------------------------------------------------------------------------------- Dom Convey from Peel Hunt. I think following really on from Sanjay's questions there. But can we get a little bit more color around the 737 MAX content that you lost, specifically whether it was more fuselage or engine related? And I guess, the question really was whether that ongoing issue, is it just going to put more pressure on the pricing/renewals going because of the excess capacity in the system? And then, I guess, same point really around the balance sheet, you talked about maybe providing assistance of being there to help Boeing and Spirit, et cetera. But do you think there'll be any M&A opportunities that come to light as a result? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [20] -------------------------------------------------------------------------------- So I think I'm back on the LTE one. I don't think the dynamics changed very much at all. Those were structures-based contracts on the airframe side, I think we clarified that when we talked about it. So not fluid systems or build-to-print structures stuff. And I'd say we've got some healthy ongoing discussions on our LTE renewals. I don't think pricing is more of an issue or less of an issue than was this time last year, it's about the same at the moment. So we'll try to benefit from that. M&A, specifically around distressed suppliers, haven't seen that coming through yet though, so. -------------------------------------------------------------------------------- Rory Smith, Investec Bank plc, Research Division - Research Analyst [21] -------------------------------------------------------------------------------- This is Rory from Investec. Receivables inflow, very strong, Bindi. Is that attributable to maybe one large customer? Or is it sort of a general improvement across all customers? -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [22] -------------------------------------------------------------------------------- We work very hard on all our receivables. So it is across the board, yes. -------------------------------------------------------------------------------- Rory Smith, Investec Bank plc, Research Division - Research Analyst [23] -------------------------------------------------------------------------------- So we can't necessarily attribute that to Boeing, supporting the supply chain through the end of last year post MAX disruption? -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [24] -------------------------------------------------------------------------------- No. I think Harry had a question up here. -------------------------------------------------------------------------------- Harry William Freeman Breach, MainFirst Bank AG, Research Division - Research Analyst [25] -------------------------------------------------------------------------------- It's Harry Breach, MainFirst. Just a couple. Does NPI cost -- is there any way you can help us to understand the sort of year-on-year benefit from NPI cost reduction this year and next? Just anything to help us have a better handle on it for our thinking about that? And secondly, just in terms of low-cost country facilities in Malaysia, in particular, can you give us a feeling for sort of how you're filling up those factories? Where are we in sort of capacity utilization and getting better fixed cost absorption? -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [26] -------------------------------------------------------------------------------- Yes. So I'll start with the second one, Harry. So we are where we thought we'd be in Malaysia, I think we did see last year that one of the big contracts wasn't going to be at full rate until 2021 because the customer got quite a lot of stock from their existing supplier. But that's an Airbus contract -- it's an Airbus platform, it's not an Airbus contract, and that's coming through nicely. So we're there, the Board were there. Last September, we were about 1/3 full. So we'll probably be half full soon. And then we've got other things in the pipeline to fill that facility, but some capacity for growth as well, which is what we intended. So very much where we thought it would be. And Thailand, we still got more space as well for growing. So we're moving some of our work from the Pacific Northwest to Thailand. That's part of our restructuring activity, 40% of the wing grips for the 737 MAX, we'll move there. We've already moved some work on the 787 program. Those transitions are going very nicely. So yes, in good shape for those. Right. NPI? -------------------------------------------------------------------------------- Bindi Foyle, Senior plc - Group Finance Director & Executive Director [27] -------------------------------------------------------------------------------- On NPI, I mean, as I said in my presentation, and David also said in an earlier question, we monitor those costs on every quarter in our quarterly business reviews and the plans to take cost. I mean we took you through those curves at the Capital Markets Day, but those are coming in line with our expectations. So for the businesses that are generally through that NPI and industrialization journey. We are absolutely seeing those margins improve in line with the expectations. -------------------------------------------------------------------------------- David Squires, Senior plc - Group Chief Executive & Executive Director [28] -------------------------------------------------------------------------------- I think that I've said before, Harry, we're trying to avoid just doing the math that we want to spend in the NPI, and then as that all come out. But what we were really aiming to do was spend more in our research and development side. So all the stuff I'm talking about in terms of the technology and development with electric vehicle, with additive and our other, what I would call spiral product developments in Aerospace. That's where we want to be investing our research money, if you like, because that's going to generate future growth. Any more questions? Okay. Well, thank you very much, everybody, for coming this morning. If you do have any more, please follow-up with ourselves or Jennifer Ramsey at the front, who is providing maternity cover for Gulshen who's on maternity leave. Yes, she -- for those who are interested Gulshen delivered a baby boy 2 weeks ago. Yes.