Senior H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2025

Key Takeaways

  • Positive Sentiment: The sale of the Aerostructures business for an enterprise value of up to £200,000,000 will fund net debt reduction and a £40,000,000 share buyback program.
  • Positive Sentiment: Continuing operations delivered 5% revenue growth and a 14% increase in adjusted operating profit, expanding margins by 60 basis points to 8.4%.
  • Positive Sentiment: Spencer Aerospace saw sales jump 66% year-on-year with double-digit operating profit, underscoring strong integration and market gains.
  • Positive Sentiment: The Board approved a 13% rise in the interim dividend to 0.85p per share, reflecting confidence in cash generation and future prospects.
  • Positive Sentiment: Senior achieved CDP A ratings for both climate disclosure and supplier engagement, reinforcing its sustainability leadership.
AI Generated. May Contain Errors.
Earnings Conference Call
Senior H1 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good morning. Welcome to Senior PLC's twenty twenty five Half Year Results Presentation. Thank you for making the effort to get here, and thanks also go to Deutsche Numis for hosting us here at their auditorium, and a warm welcome to for those of you joining remotely. In terms of our agenda this morning, I will briefly cover the highlights, Alpina will run through and comment on the results, and then I will give an update on Markets' strategy and outlook. Senior has performed strongly in the 2025.

Operator

In July, we announced that we've reached a binding agreement to sell our Aerostructures business to Sullivan Street Partners for an enterprise value of up to £200,000,000 We expect to complete by the end of this year. We will use initial proceeds to reduce net debt and to launch a £40,000,000 share buyback program. With the sale likely to be completed by the end of this year, our Aerostructures business is now classified as discontinued. Our trading performance in our continuing business has been strong, in line with our expectations. And in a few minutes, Alpina will describe the increases in revenue and profit.

Operator

So I won't go through the detail on that just now. However, I did just want to highlight the performance of Spencer Aerospace, which we have now owned for two point five years. Its sales grew very strongly again, 66% year over year, delivering double digit operating profit, and there is still much more to come. We have a robust balance sheet and that will become even stronger when we pay down some debt after completion of Aerostructures this year. And given our financial performance and future prospects, the Board is pleased to have approved an increase to our interim dividend of 13% compared to last year's to 0.85p per share.

Operator

Sustainability is a central theme of our purpose, our strategy and indeed our technology roadmap, and as I have said before, increasingly it is a key decision making criteria which our customers take into account when awarding new business. Importantly, therefore, we are making great progress as an organisation in terms of our own sustainability actions. Earlier this year, we announced that for the third year running, we were delighted to have been awarded the prestigious A rating from CDP for our climate disclosure and actions. Since then, we have also been awarded an A rating from CDP for our supplier engagement. We will continue to focus on remaining best in class in this area.

Operator

For the full year, the Board's expectations for the continuing group and the discontinued business are unchanged at constant currency. I'll say more about the different elements of that when I cover outlook at the end of this presentation and we will also run through a quick reminder of the medium term financial targets which we set at our investor event in March. But before I talk about markets, strategy and outlook, I will hand over to Alpna to take us through the financial results.

Speaker 1

Thanks a lot David. Good morning everyone and thank you for joining us today. I'm Alpna Ramar, I'm delighted and honored to be here as a Chief Financial Officer at Senior at this key inflection point for the company. Before we go through the financial results, I thought I would take a moment to share my initial reflections, having taken up the CFO role at Senior on the May 16. Since joining and visiting our sites, I've been deeply impressed by the Group's strength.

Speaker 1

We have built a strong reputation over our ninety year history, delivering engineered components across a number of sectors including defence, aerospace, land vehicles and energy. The company has an experienced and dedicated team. The half year 2025 results reflect both the resilience and positive momentum in the business. One of the reasons that I joined Senior is because I believe it is well positioned for success. We are financially robust and strategically positioned to capitalize on opportunities in our end markets.

Speaker 1

Our end markets are expected to grow in the medium term and we are seeing increased demand for our products. There is a significant opportunity to realize the benefits of operating leverage as volumes increase over the medium term. In terms of focus areas, as well as driving margin improvement, the priority will be to maintain balance sheet strength, improve cash generation and continue allocating capital to maximize shareholder returns. With that, let's go to the half year financial results. Here we set out the Group results for the 2025.

Speaker 1

Those that have had a chance to look at the release will have noticed the changes in our accounts reflecting the Aerostructures business sale. Aerostructures is shown as being held for sale and our go forward pure play fluid conveyance and thermal management business is our continuing business. So, for our continuing business, the 2025 can be summarized in one in which we delivered strongly across the business, with revenue, profitability and cash conversion growing period over period. Now let's look at the results in more detail. Now this slide and the next one are a bit technical, but I do want to take you through the accounting changes before I come back to the business performance.

Speaker 1

Let's take Aerostructures first. As David mentioned, we agreed a sale of the Aerostructures business to Sullivan Street on July 18. The accounting reflects our position at the June 30 when it became highly probable that the sale would be complete within twelve months. So for the income statement and the cash flow we have separated our aero structures into discontinued operations. Not only do we have separate continuing and discontinued for the current accounting period, but we also do so for the prior period and hence restate those prior year numbers.

Speaker 1

Discontinued operations are shown as a one liner, post tax, in the income statement. The balance sheet shows aerostructures in two lines: assets held for sale and liabilities held for sale. However, under the accounting standards you do not restate the balance sheet for prior periods. So that's enough about the accounting transitions. With the exception of net debt and leverage, everything I'm going to talk about from Slide eight onwards relates to continuing operations only and I'm pleased we are showing margin expansion and delivering strong results.

Speaker 1

So this slide sets out the continuing group's performance excluding Aerostructures. We delivered revenue of GBP $371,000,000, up 5% and adjusted operating profit up 14% at constant currency. Adjusted operating profit margin increased 60 basis points to 8.4%. After taking account of FX, adjusted profit before tax increased 10% to GBP 25,300,000.0 and adjusted earnings per share increased 8% to 5.07p per share. I'm pleased to say we generated free cash flow of GBP 10,600,000.0, a 43% increase on the prior period and our return on capital employed was 11.9%, reflecting the higher earnings and lower capital base of the continuing business.

Speaker 1

Moving to the financial results slide, this sets out the results for the total group, including aerostructures, so this simulates the old basis if you like, but not numbers that you will see in the primary accounts and I will walk you through these. After the impact of FX, revenue increased 4% to GBP $519,000,000 and adjusted operating profit increased 26% to GBP 32,000,000. Adjusted items amounted to £46,000,000 of which £40,000,000 was an impairment related to Aerostructures held for sale assets. This was non cash. We also had £4,000,000 of disposal costs in the first half of the year.

Speaker 1

I will go through net debt and leverage in more detail later. So this slide sets out the revenue bridge. Group revenue increased by 3% or 10,000,000 from £362,000,000 to £371,000,000 despite an adverse impact of £9,000,000 On a constant currency basis, revenue was up 5%. Looking at divisional performance, again, on a constant currency basis, aerospace revenue increased by 7% to two zero nine million pounds Civil aerospace was up 2%. In the first half, we saw Civil OEM production rates increasing, although there continues to be some rebalancing of inventory across the supply chain.

Speaker 1

We also saw sales in Spencer Aerospace, our acquisition in 2023 grow strongly, up 66% on the prior period. David will talk through this in more detail in the market section. Defence had the strongest growth, up 14%, as we continue to see increased sales for the F-thirty five program and other military programs. Revenue from adjacent markets increased by 17, largely driven by demand from the semiconductor equipment market. In FleXonics, revenue at constant currency was up 2% to £163,000,000 In the first half of the year, there was a softening in the North American and European heavy truck market.

Speaker 1

But despite this, our land vehicle revenues increased 5% with the ramp up of new programs. Again, David will expand on this later. Revenue from power and energy markets decreased by 2%. Higher demand in our downstream oil and gas and nuclear business was offset by lower revenue in upstream oil and gas and other industrial sectors. Moving forward to the adjusted operating profit bridge.

Speaker 1

Starting with half year 2024 on the left hand side of GBP 28,000,000. We had an adverse FX impact of just under GBP 1,000,000. Aerospace increased by GBP 2,500,000.0 and Flexonics by GBP 1,100,000.0. I will go into more detail on the next slide. In addition, our joint venture in China performed strongly in the period with an increase of £1,100,000 Central costs were up by £900,000 in the first half, primarily due to the increase in national insurance contribution costs in The UK.

Speaker 1

And these strong results increased the management incentive plan accrual. We ended the first half with adjusted operating profit of £31,000,000 an increase of 10% compared to the prior period. Turning to divisional performance. In Aerospace, book to build increased from 1.03 to 1.05, driven by increasing build rates. Adjusted operating profit increased 13% at constant currency to £21,000,000 And the adjusted operating margin increased 50 basis points to 10.3%, reflecting increased pricing and higher volumes.

Speaker 1

Overall, the division continued to make good progress strategically and operationally. In Flexonics, book to build was 0.94, reflecting the end market dynamics in Land Vehicles and more lumpy order flow in the energy market that we talked through earlier. Adjusted operating profit increased 6% at constant currency to £18,000,000 and the adjusted operating margin increased 40 basis points to 11.3%, benefiting from favorable mix and performance, particularly from our downstream oil and gas business. Now this slide shows the reconciliation of adjusted operating profit statutory reporting profit for the period for the continuing business. It also highlights our interest and tax charges.

Speaker 1

Net finance costs increased by £600,000 due to higher interest rates on variable rate debt and higher average net debt in comparison to last year. IFRS 16 interest charge on lease liabilities increased by £300,000 and we had net finance income from our pension plans of £1,000,000 A tax charge of £4,300,000 was recognized in our adjusted profit before tax related to the continuing business. We currently expect an effective tax rate of 23% for the full year 2025. In terms of reconciling adjusted profit to statutory profit, we had just under £1,000,000 of amortization, which was non cash related to acquisitions, site relocation costs of 1,400,000 for the transfer of manufacturing from The U. S.

Speaker 1

To our cost competitive facility in Mexico as well as costs related to the relocation of our UK innovation center in Wales and a new site in India. We had £300,000 related to the fair value change on contingent consideration for the Spencer acquisition and a £2,500,000 tax benefit on adjusting items. Moving to cash flow generation for continued operations. We can really see the key drivers here. Starting from the left, we have our adjusted operating profit of £31,000,000 We add back depreciation and amortization of £14,000,000 and just under £3,000,000 of other items.

Speaker 1

Working capital outflow was £13,000,000 of which 9,000,000 related to inventory build to support customer demand, and the balance being from receivables of £16,000,000 and payables of 12,000,000 Working capital was 16% of sales in the first half. For the full year, we expect it to be slightly higher at 17% to 18% of sales to support the customer demand in aerospace. CapEx of £14,000,000 relates to 1.3 times depreciation, excluding the impact of IFRS 16 depreciation. For the full year, CapEx is expected to be slightly higher at 1.5 times to support growth in both divisions, where we have secured contracts and where we are opening new facilities, notably our higher capacity site in India and the UK Innovation Centre, which I just referenced. Operating cash flow amounted to GBP 21,000,000.

Speaker 1

We paid interest of GBP 6,500,000.0 and tax of £3,600,000 giving us £10,600,000 of free cash flow. So what does that mean in terms of net debt for the group, including Aerostructures? You see the opening net balance of £230,000,000 on the left hand side. The free cash flow I talked about of £10,600,000 We then have £12,000,000 of free cash outflow for discontinued operations. Dividends paid of £7,000,000 share purchases for the Employee Benefit Trust of £1,600,000 joint venture dividends received of £1,000,000 and other items of £3,500,000 predominantly FX, giving us our closing balance of £235,000,000 In terms of balance sheet structure, where are we?

Speaker 1

Net debt of £162,000,000 if we exclude £73,000,000 of IFRS 16 leases. That equates to net debt to EBITDA of 1.9 times at the June 30. In the first half of the year, we issued £40,000,000 of U. S. Dollar private placement notes, carrying interest of 5.46%, maturing in 2029.

Speaker 1

And we extended the maturity of our 50,000,000 U. S. Dollar revolving credit facility out to June 2027. The weighted average maturity of the group's facilities was 2.5 times at the June. In July, we issued a £30,000,000 term loan for six months, carrying a rate of Sonja plus 1.75%.

Speaker 1

This increases the group's headroom until we complete on the disposal of the Aerostructures business. Turning to Slide 15 on capital allocation. Again, as a reminder, this is for the continued operations. We aim to deploy capital to enhance shareholder returns. Well, what does that mean?

Speaker 1

We plan to continue supporting organic growth given increasing volumes. Over the medium term, we expect to invest 2% to 3% of revenue in R and D. In terms of CapEx, this is expected to be 1.1 times depreciation. We continue to follow a progressive dividend policy, maintaining earnings cover of 2.5 times to 3.5 times. We plan to maintain a strong balance sheet by targeting net debt to EBITDA of 0.5 to 1.5 times.

Speaker 1

This leaves us with optionality to return cash to shareholders and to invest in value accretive bolt on acquisitions. In recognition of our balance sheet and the confidence in the group, in July, we announced our intention to return £40,000,000 of net cash proceeds from the sale of Aerostructures to shareholders by way of a share buyback program. The program will commence once the sale is complete. The remainder of the initial cash proceeds will be used to reduce net debt. A decision on the earn out cash will be made when the quantum is known.

Speaker 1

And with that, I will hand back to David.

Operator

Thank you, Opnum. So let's turn our attention to markets. In H1 twenty twenty five, Aerospace represented 57% of the group's continuing operations revenues and Flexonics was 43%. As Alpner has mentioned, Aerospace division sales grew 7% on a constant currency basis and Flexonics grew 2%. Aerospace and Defence is now 48% of the group with Civil Aerospace being around 66% of that and Defence 34%.

Operator

Both these represent good growth opportunities. Sales to adjacent markets from our Aerospace businesses was 9% in the first half of the year, with revenues from semiconductor equipment customers increasing. Our businesses facing into Land Vehicle at 27% of continuing operations revenues and Power and Energy 16% continued to perform well against a mixed market backdrop. Civil Aerospace was 32% of the Group's continuing operations revenue in H1 twenty twenty five, so this includes large commercial, regional and business jet sectors. Growth in the end market measured in revenue passenger kilometres or RPKs was healthy at just over 5%.

Operator

We expect long term growth of 3% to 4% in this end market driven by the growing middle classes in Asia as well as fleet modernisation and aircraft replacement. We have very good positions on all single aisle and wide body platforms as well as most regional and large business jet programs. We expect this market will continue to grow strongly as long haul travel and short haul travel demand levels continue to increase. In the 2025, our Civil Aerospace sales grew 2%, a bit lower than market which was expected given the rebalancing of inventory across the supply chain we previously discussed. And for those of you who followed the Airbus and Boeing results calls, you would have heard them describing remaining supply chain hotspots.

Operator

As inventory normalises and rates increase, senior will benefit from higher sales levels. You will be aware that many countries are committing to higher defence spending. Senior has good content on key US and European military aircraft platforms. In H1, our defence sales grew strongly 14% year on year. That was driven by higher sales to C-one 130, F-thirty five, Typhoon and military aftermarket.

Operator

Turning now to Flextonics. We've had a strong performance in H1 relative to end markets. In Land Vehicles, the new contracts we have won over the last couple of years are now reaching peak production, which is why our passenger vehicle sales growth is 42% year over year compared to market growth of 5%. We knew coming into the year that truck markets would be slower and that has proven to be the case. Nonetheless, our European truck sales still grew 1% in H1 twenty twenty five compared to a market decline of 15% and our North American heavy duty truck sales declined 13% compared to a market reduction of 19%.

Operator

ACT Research are expecting truck markets to continue to be weak in the second half of this year before stabilising and then starting to grow next year. In Power and Energy, a strong performance at our Pathway business in Texas led to strong downstream oil and gas and nuclear sales, while upstream oil and gas sales continued to be subdued. Moving on to strategy. So on eighteenth July, Senior announced it has reached a binding agreement to sell its Aerostructures business to Sullivan Street Partners, a UK based mid market private equity investor, for a total enterprise value of up to £200,000,000 This represents 13.1 times EBITDA. Initial net cash proceeds are expected to be approximately £100,000,000 before transaction costs of approximately £12,000,000 An additional consideration of up to a maximum of £50,000,000 will be payable in H1 twenty twenty six, contingent on the 2025 EBITDA performance of Aerostructures, and completion is expected by the 2025.

Operator

With almost a century of relevant experience, we can genuinely claim to be experts in Fluid Conveyance and Thermal Management FCTM. FCTM is very relevant for our customers as our components and systems contribute to fuel efficiency and emissions reductions in aircraft and vehicles as the world continues to transition to a low carbon economy. We intend to capitalize on that expertise to deliver value for our shareholders. We have truly differentiated products with rich background and foreground intellectual property coupled with expert design and manufacturing know how. We have a good track record of outgrowing the structurally resilient end markets in which we operate, so we are well positioned for sustained profitable growth over the medium term.

Operator

Margins have been improving in recent years and indeed they have again in the first half of this year, but as I've said previously there is so much more to come. That will be driven by better pricing and a relentless focus on improving operational efficiency. We've always been a cash generative business. As a pure play FCTM business, cash conversion is expected to be even stronger, which in turn supports investment in growth and shareholder returns. I previously described the markets in which we operate.

Operator

Our aim is to outgrow these end markets by 50% through the cycle by taking market share and with new product introductions and innovation. Based on that, our expectation for mid single digit organic revenue growth through the cycle. That revenue growth supports these medium term financial targets, which we set out at the investor event in March. Group operating margins are expected to expand from under 5% in 2024 to at least double digit in the medium term, with Aerospace margins increasing to at least mid teens and Flextonics margins in the 10 to 12% range. Seniors business model is intrinsically cash generative and we expect our operating cash conversion to be greater than 85% through the cycle.

Operator

And our target return for capital employed ROCE is now 15 to 20% in the medium term. These targets are underpinned by maintaining a strong balance sheet. Our leverage target remains unchanged, aiming to keep net debt to EBITDA between zero point five and one point five times. Achievement of these financial targets will deliver consistent value creation for all our stakeholders. Let me finish by talking about the outlook for senior.

Operator

For our continuing business, our Aerospace division sales and profitability have grown with good performance in the first half of the year. Our outlook for the full year is unchanged. Flexonics delivered a strong set of results in H1 outperforming end markets and for the full year we continue to expect performance to be broadly similar to 2024. Overall, on a constant currency basis, the Board's expectations for the continuing group for the full year are unchanged. Aerostructures delivered an improved performance in the 2025 compared to H1 twenty twenty four.

Operator

We continue to expect Aerostructures operating profit in the range of £9,000,000 to £11,000,000 for the full year at constant currency. Looking ahead, we're delivering on our strategy, which gives us confidence in our ability to achieve these medium term financial targets. So with that, we'll open the floor for any questions, which Alp and I will be delighted to answer.

Speaker 2

Good morning,

Operator

morning.

Speaker 2

You for presentation. It's Andy from Jefferies. I've got three questions, and I'll come back for a second. We start please with Spencer? 66% growth in the period is fantastic.

Speaker 2

Can we just make sure that we are seeing a nice improvement in profitability? And can you just talk about the opportunities in Europe and where we are with that because that's still something that we've cracked hopefully over the next kind of few years because there's big upside there? The second question is on pricing. Just want to make sure that you're happy with how the pricing improvements have come through in the period. And we're set for 2026 and 2027 to see improvements as well.

Speaker 2

Can you just remind us where you are on the negotiations for that for those two increases? And then one for Altner. You talked about working capital to sales nudging up a little bit to fund the growth, which we all understood. Could you just talk about kind of maybe the medium term opportunity for getting that working capital to sales ratio down a little bit? And just let us know kind of what your thoughts there please.

Operator

Okay. Thanks, Andy. So I'll start with the Spencer. Yes, 66% growth, so we bought this business November 2022 and we've grown very strongly each time and what's the reasons for that? I think I've described to some of you that it's almost like a conveyor belt of products that we have coming off there.

Operator

It takes two and a half to three years to qualify every one of these highly engineered hydraulic fittings, but as they're qualified, they're added on to our Boeing LTA and as they're added on to Boeing LTA, everybody through the Boeing ecosystem can buy those products. So we knew this when we bought the business and it's fantastic to see that being borne out. We're also winning new customers. Yes, profitability is continuously improving, it's comfortably in double digit now and will continue to go up as volumes come through. We're confident of that as well.

Operator

So pleased with the profit performance, not just the sales performance. And yes, you ask a great question, you remember quite rightly that part of the business case was to open European markets to Spencer both directly, but also by Spencer helping our metal business in France to expand their range of fittings and sell both sell those into Europe as well. Both of those are working out very well. We have a big European OEM working with us to qualify the Spencer product for their ecosystem. So we didn't anticipate any sales synergies till the end of this year and we're on track for that.

Operator

So that will open up a whole new market for Spencer. So very pleased with the performance of that company. And the reason I should say the team there are doing a brilliant job in terms of on time delivery, quality, responsiveness and that sets them out from the competition and why we're taking market share. So all good in that front. On the pricing side, yes, please report we're exactly in line with the progress we anticipated making.

Operator

You may remember at the investor event in March, I think Bindi set out in aerospace in particular, how we move from the margins we're at, at that time to the at least mid teens and half of that was coming from pricing. And I think at the time we said for the long term agreement element of that 80% of that pricing was done, that's still the case. We've got two additional large contracts that we're in the middle of completing and that's going fine, amicable discussions. So by the end of this year, we'll be in very good shape for that. Now the price increases don't all cut in immediately.

Operator

Some of those were at the start of this year, some now, second half of this year, some at the start of 2026 and some of the start of 2027. So we'll see that gradually improving. And then we do have a chunk where we it's order to order, so those are spot priced and we're taking the appropriate actions there as well in terms of market based pricing. So yes, very happy with the contribution that pricing is making, but we're also making good progress on the operational efficiencies, which is an important element too.

Speaker 1

And then Andy, just on your question regarding working capital. So if I look at working capital, it was about 16% for the half year. We are guiding to 17% to 18% for the full year. And we do have a bit of inventory build in certain parts of our business, particularly in North America. So it's not across the entire company, it's just a certain number of plants.

Speaker 1

We're very much focused on it. We have a plan in place to bring that inventory down and that should bring that working capital percentage down over the medium term.

Speaker 3

It's Richard Page from Deutsche Numis. And the mandatory three questions from me as well, please. On the aerospace, obviously, you mentioned supply chain disruption continuing in there. Have you got a sort of timeline as to when you think that will start easing and helping out, given particularly the OEM build rates ambitions for this year? Back at the CMD, you mentioned there were two businesses at sub double digit margins.

Speaker 3

You've obviously achieved double digit margins in the first half in aerospace. Are we still on the timeline for the turnaround of those two businesses, please? And then obviously, a standout is the land vehicle performance. Could you just give a bit more detail behind that? And also, what sort of additional maybe new contracts might be kicking in the second half that keep that dynamic going for the rest of the year, please?

Operator

Yes. Okay. So firstly, on the supply chain situation, I mean, firstly, it's a lot better than it was a couple of years ago and if you've cast your mind back, it was a nightmare and it's been improving. So raw material supply is improving, the issues we had getting things like flanges and so forth improved dramatically, partly because we're making our own. But there are still some hotspots.

Operator

Take it right back up to the top of the supply chain, you heard William Forry, the CEO of Airbus saying we need engines, engines, engines, they've got 60 gliders. CFM International Pratt and Whitney working very hard to deliver enough engines into the program and there's some confidence that will happen in the second half of the year. And what I meant was that other parts have got slightly ahead of where the engines were. We talked about this last October, we talked about it again at a full year result. So notably, we supply a lot of stuff into the wings and the wings were ahead of the engine.

Operator

So I think the OEMs just taking the opportunity just to rebalance that inventory and then that flows through the supply chain. I think by the end of this year, that will be pretty much normalized. So it will be a bit better in the second half of the year, I think. So we expect to see our civil aerospace growth rates probably a bit higher in the second half of the year than the first half of the year and then once we get into next year, I would you're always going hear about the odd hotspot, but I think it will be much more normal. So but this is unexpected, think it's where we thought we'd be.

Operator

The second point, the two businesses are both improving. I think one of the larger ones, we didn't say it was or the trajectory, but one of the reasons that we're we've always said it will take the medium term to get to this target margins was because of that. So look, all the great actions here in terms of pricing, operational efficiency, volume are starting to bear fruit and it's starting to improve, but more work to do. And then land vehicle, yes, so our humble land vehicle business has performed really well in the first half of the year. Firstly, the truck side, we've done better than market and you'll all be aware of, well, you may or may not be aware of what's happening with the potential emissions regulation change in North America.

Operator

So if you go back a year, there was anticipated to be an emissions regulation change in '27, which would mean a big pre buy because engines are cheaper at the end of this year and into next year, that's probably not going to happen. So that's why we're not seeing that pre buy this year. We kind of thought that was the case coming into the year, we guided North American heavy duty truck to be down and it is. But what it does mean is it will probably stabilize, we won't have the big coming off a cliff and then growing again. So ACT Research, who we tend to listen to are saying big fall in demand in North America this year, sort of flat next year and then picking up.

Operator

So by the second half of next year, we should see it start to pick up. Now we've outperformed because we've got good market share and because we've won new contracts, but the standout was actually passenger vehicle. And remember, we don't go chasing the highest volume, low profit passenger vehicle business, we go after specific niches that are profitable. We won new contracts for our businesses in The Czech Republic, our businesses in India and supported by our business in Cape Town and as well as the joint venture, which Alton mentioned, which is its best performance ever and that's really past your vehicle business as well. So we are demonstrating operational performance, quality levels, responsiveness that perhaps our competitors have not been able to do.

Operator

And because we're able to offer both parts for internal combustion engines as well as hybrid vehicles and electrical vehicles, our customers really seem to like that. So that's why we've taken market share, that's why passenger vehicle business grew 42% in the first half of this year compared to market of 5%, it's those new programs. And it's also where our CapEx is a bit higher. We had to naturally invest to meet that demand. So those are the principal reasons.

Operator

Thank

Speaker 4

you. You. Thomas Rands from Berenberg. Three questions again, if I may. Two first two are slightly linked.

Speaker 4

Just on the profitability of Aerostructures, you mentioned 9,000,000 to £11,000,000 for this year as the kind of the guide. Is that enough to get the for the full payout on the earn out £50,000,000 just as a modeling point of view? Second question, given how well Spencer has done, what's the M and A pipeline like? We'd like some more the more kind of Spencer's out there that you would love to acquire even if the timing is slightly unpredictable? And then the third one is slightly different, but land vehicles, opportunities within EVs for the kind of the cooling element and how you can kind of move along with the transition for light passenger vehicles or even heavy as well and if there are applications on the kind of cooling of batteries, please?

Operator

No, I know you're not expecting a direct answer to your first question. Look, we hit the GBP 9 to 11,000,000 constant currency. Yes, of course, that puts us in the earn out range, but it's a bit commercially sensitive to see exactly where that would put us and what the bottom and the top end are. I think I've said before, look, the threshold level sensible and the top end, as you would imagine from a solvency perspective is appropriately stretching. So but that would have us in the range, but I'm not going say how much.

Operator

Yeah, you know, think the M and A pipeline and Antler's got a lot of M and A experience as well working with Nigel, who's over here, our EVP of Strategy and look, I think it's an important part of our go forward strategy as our returning capital to shareholders. Spencer was quite a unique well, it was a unique deal, either unique or quite unique not unique. It was a unique deal in the way that we structured it with the $30,000,000 day one, dollars 30,000,000 after twelve months and up to $40,000,000 of based on the growth. Now I've just described the growth that's been there and we knew that was coming. So that's why so don't necessarily expect us to see the same structure of the deal, but we have got a strong M and A pipeline with some nice targets right in our sweet spot, not saying we're about to rush out and do an acquisition.

Operator

We're very measured in our assessment of these opportunities. We've done two in the time I've been here, probably shows you how measured that we are. But if we can find the right business at the right price with the right returns, then yes, I think that can help us with our strategy moving forward. I if you want to comment on that as well.

Speaker 1

No, I mean, completely support what you've said there, David.

Operator

Yes. And then yes, land vehicles, so gosh, so much noise about land vehicles and I think if you go if you reran all our presentations for the past few years, we always said we don't know the pace of the transition. We have a rough idea depending on which sector it's going to be, whether it was passive vehicle or heavy duty truck or commercial vehicles. And we said we had to be ready. The winners would be the people that can be flexible in that transition And we set out to be able to continue to be able to supply products to our internal combustion engine customers knowing that these reduce nitrous oxide, the most harmful greenhouse gas, more harmful than CO2.

Operator

So we're very happy to keep selling those at the same time as winning new business on the electrification front. So hopefully, when we can take you to our new innovation center in Wales, which we can't call Seniorflex on its Crumlin anymore because it's moving to Oakdale, the next village, but actually the Innovation Centre is a much better name for it and you'll see some of the great work we're doing in electrification for truck, for commercial vehicles and you'll actually see them manufacturing battery cooling for the Italian Mark sports car that we described the win for last year. So they're actually building that in Crumlin. So these are the sort of niche applications that are important to us. We're not chasing millions and millions of passenger vehicles because that's not us.

Operator

And they just although the penetration of EVs is not quite as high as some people thought it would be because of all the regulatory changes, every period it goes up. So the penetration of hybrid plus electric is still going up, the path is an extra bit clear in my view and we'll be able to respond to whatever that curve looks like. Don't I if that answers your question, Tom, but yes.

Speaker 4

Thank you very much. Thank you.

Speaker 5

Hi, it's Andrew Humphrey at Peel Hunt, also three I'm afraid. First one, just kind of coming back to Rich's question on civil build rates. Can I clarify the indication you gave there for the full year? Are we then expecting sort of senior civil growth for full year 2025 below industry build rates? And does that therefore then kind of improve from 2026?

Speaker 5

Or we kind of is that longer process than that in your view? I appreciate difficult to say given everything that's going on with engines. Secondly, in the aerospace adjacent markets, you called out particular strength in semiconductor. That's an end market that I think has been very mixed across results season. It clearly seemed like very variable performances.

Speaker 5

Just interested in a bit more in what you're seeing there and what's driving that and how sustainable it might be? And finally, free cash flow, I think it was CHF 12,000,000 outflow on structures for the first half. Is there an incentive to try and get some of that back before the deal closes? Or kind of are we basically kind of funding a bit of working capital there to kind of get that through to completion?

Operator

Okay, I'm sure I'll answer the third one, just on first one. So first half year, really strong defense and not bad civil. I think second half year, we'll see strong civil and we had some good defense aftermarket in the first half that might not repeat. So you might see a bit of a swing in growth in aerospace to civil from defense. I think we'll have a good second half of the year in civil.

Operator

So just again, it right back up to that top level, what did Airbus say? Airbus say they're on track to 75 single aisle aircraft by '27 and it's kind of doubling the number of A350s. The surprise, the pleasant surprise for us was going from four to five on A330. So that's great, we've got some good content on A330 and two twenty is also going to be increasing. So and then but they did draw attention to some of these hotspots in the supply chain as that stabilizes, we'll be back at the normal rate.

Operator

So we've got parts of our business that are already delivering at the rates that Airbus are at the moment, others are just winding a little bit of inventory out of our immediate customers, it's not necessarily Airbus, it could be an intermediary or it could be an engine guy. And then on Boeing, what did Boeing say? So Boeing said they're at rate 38, which is fantastic. So hopefully, they'll be having a discussion with the FAA relatively soon to help bring that cap up to higher level. They didn't say when, but I think I think it's in the transcript hopefully by the end the year, I think they said.

Operator

And then they also said they're now at rate seven on the seven eighty seven, up from five, and they're aiming to increase both those platforms considerably. Boeing had built up a lot of stock, they said that in their earnings call as well, so that just needs to come out. So for some of our businesses, notably the structures ones actually, we said we'd agreed steady state run rate for some of the big programs. It's not the case with all our businesses. So we just need to they just need to get through some of the inventory, which I think will be in the second half of this year.

Operator

So a bit of a mixed bag, but overall, the direction travel will be higher civil in the second half of the year, decent defense, perhaps not quite as stellar as the first half, but overall still making good progress. Semiconductor markets, yes, I think it has been a little bit different depending on who the key customers are. Our customer happens to be Lam Research and we've had very good orders for them into our Metobellas business in The U. S. Up there in Boston.

Operator

So says kind of a leading indicator in the semiconductor equipment side. So hopefully, we'll see that continuing. I know that some other larger customers have perhaps not been as strong, but for us that was a really good half of the year. I mean long term, the semiconductor markets grow through the cycle. I know it's a bit more cyclical, but you see the huge investment going into The States.

Operator

Ultimately, we benefit from that if they buy more equipment. So it's a good adjacent market to be in, in our core market.

Speaker 5

Do you want

Operator

to comment on the free cash flow?

Speaker 1

And then just on free cash flow. I mean, one of the reasons why we are selling the structures business is not just because of the earnings impact, but also the working capital and the CapEx that it takes up. So yes, you saw that GBP 12,000,000 outflow in the first half. I mean, we will look to do a working capital true up at the point that we complete on the transaction. And so there is a mechanism to do that as part of the agreement for the sale process.

Operator

Thank you.

Speaker 6

Good morning, Thank you for the presentation. Alex O'Hanlon from Panmulibram. Just a couple, if I may. Starting with Flextronics. Obviously, the margins remain quite strong and you've had a strong first half performance.

Speaker 6

I was wondering if you could give us a bit more color as to why the medium term target of 10 to 12% is the right number and whether there could be scope for that to go up in the future? And the second point is just on tariffs. Obviously, there's been a lot of noise with tariffs moving around all the time this year. Can you just give us some more color as to how you're kind of managing that situation at senior? Thank you.

Operator

Yes. So on the Flixonics margin, I think these are sensible targets, 10% to 12%. And some people have been saying the 10% in the down cycle is perhaps even more ambitious than the 12% in up cycle. If you look historically when there's been a downturn in North American heavy duty truck, flexionist margins have fallen to mid single digits. So this is quite bold for us, SYNG 10, but it's with reason.

Operator

We've learned a lot in recent years, we've got a much more flexible cost base now, we have diversified away from North America to Europe and other markets and we've got some really good niche positions and particular vehicle classes that help us to ride that out. So I think 10% of the downturn is a good target and the 12% at the top is sensible. We'd like that to be higher, of course, but you know let's get there first and then we can you know once we get there then we can look at recent years. Believe me, Alpna coming in with a fresh pair of eyes putting a lot of pressure on us and Mike Sheppard who runs the division to do even better, but I think at the moment these are sensible targets Alpna aren't they? Tariffs, yes, I think we the statement we used back on the April 29, our trading update around the AGM was the effect is limited and manageable and the limited part of that is because of our global footprint.

Operator

So what we build in The U. S. Tends to stay in The U. S. What we build in Europe tends to stay in Europe and what we build in Asia, whether it's India, China or even South Africa tends to come back to Europe or including The UK.

Operator

So that's why it's limited. We really don't have a lot of sale export sales into The US from other countries. And the manageable bit is in the small number of cases where we might import a part that attracts some level of tariff, there's a mechanism to pass on through tariff surcharges, but just to emphasize that's pretty low. So for us, it's not a big impact. The bigger impact would be what happens to end markets and we're all watching that of course.

Speaker 6

Perfect. Thank you.

Operator

Any more questions? Okay, well thank you very much everybody. We appreciate you making the time to get to you and of course if you've any follow-up questions, don't hesitate to ask. Thank you very much.

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