Carclo plc (CAR.L) Earnings Call Transcript & Summary

Good morning, and welcome to the Carclo plc's preliminary results investor presentation. [Operator Instructions] I'd now like to hand you over to Nick Sanders, CEO, and Phil White, CFO. Good morning to you both.

Good morning.

Thank you. Good morning. Thanks [ Alexandro ]. Good morning to everybody. Thank you for joining us. This is the second time we've done the annual results presentation through investor meets company. We've got some really good feedback last time. And so it's something that we want to keep doing because we think it's really value added and it enlivens all of the doctors that we published about our results. So introducing myself -- myself and Phil, whom you have met before. I've been the Chairman since August 2021. Phil joined in early '20 -- Phil joined in early '21. So we've been at the helm now between us for probably 10 months or so. So let us let move on and get on to the presentation, please, if you could, Alexandro. So what we're going to do today is give you an overview of the business because I think it's helpful to really focus on the 3 key things that move the dial in terms of value in this business. That's the performance of our CTP Plastics division, the performance of our Aero division and also pension deficit. And so in my part of the presentation, I'm going to talk you through those 3 elements. Phil will then do the financial overview, and then we'll do the summary and outlook at the end. And obviously, then move on to the questions as well. So let's move on to the next slide, please. So just giving you an overview of CTP and the group. So what I've tried to do here is just to remind you of the relative sizes of the 2 divisions. So CTP as you see by far the biggest part of the business. But actually, Aerospace is also a very profitable business and a growing business. And so although we talk a lot about CTP in this presentation, I also want to just recap of where we are with the Aero division and the sort of things that we're doing. And you can see for the year that last year's presentation was called Preparing for Growth. This year, we're calling it Growing to Plan because we have grown quite substantially. And you'll see that our revenues grew by nearly 20% in the last year, which we think is a good performance in the current climate. And our EBITDA also increased by about 20% and all of that despite the well-published economic and global headwinds that you have read about inflation, shortages, lead times, headcount, recruitment problems. So we think that's some pretty good results in the circumstances. The CTP revenues were up by 21%. They enjoyed increase or increasing sales again particularly in medical and diagnostics. Aerospace actually came down somewhat in the year in terms of sales because in the prior year, as it enters the pandemic period it got a fair order backlog to burn off. But what happens -- happened in Aerospace this year is that the orders, particularly in the second half, consistently exceeded the sales and we continue to grow into this new year. So our EBITDA up to GBP 13.1 million from the prior year. And our strategy, what we're trying to do with the business is the same as it was before, which is we're trying to grow both divisions through investing in CapEx. 20% growth on the top line needs CapEx to make sure we've got the capacity. Strengthening management in a number of areas, whether it be operations, whether it be finance, whether it be business development and also improving our processes. So we've been taking a long hard look at the processes in the divisions and the businesses and looking at and making sure we strengthen and make them as efficient as possible. The IAS pension deficit reduced very substantially by GBP 11.3 million, to GBP 26 million, and will explain the factors that contributed to that, but that is a very significant reduction. And what we really found there is that it was a year of 2 halves that Phil is going to go talk about this in that coming out of the pandemic in H1, the world seemed to be recovering. There were shortages. But in H2, we've got a lot more effects, labor shortages, inventory, supply issues from our suppliers' cost inflation. So H2 was very different from H1, and we'll talk about that as we go through the presentation. Our balance sheet, this strengthened our net assets from [indiscernible], GBP 24 million as a result of profits and the pension reductions, deficit reductions. And I think when we look at the markets that we operate in, then there'll be more honest in the [ mini ] over to then we can see that the end market demand remained strong, but there will be -- there's continuing operational challenges that almost all manufacturing businesses are currently facing. If we move on to the next slide, please. Just a reminder about our CTP division and its focus. And you can see that nearly 3/4 of the business is in the medical and diagnostic sector. But electronics and optics are actually quite important as well. And what we see in terms of growth profile is that medical and diagnostics has enjoyed continuing growth and lot of investment from our customers in new product developments, which leads through to us. But electronics and optics also particularly we think have good growth opportunities. And on the right-hand side, what I'm trying to do is just give you some recent history on how the division has performed. So you see the dark green bar is the product sales. The light green is the tooling sales. That's where we are developing tooling, customers pay for either replacements for worn out tooling or for new products. And you can see in 2022 that we really resumed the growth path with good product sales, but also with good tooling sales. Tooling sales are good, precursor to future production sales coming up. And then we also pushed on that graph as well the EBITDA. And you can see that what we got was some EBITDA growth in the division, but not in line with what you would expect from that group sales growth. And that's all down to sort of the inflationary pressures that we experienced, particularly in the second half. So we do see that the strong demand is continuing in our main markets, which is good. The tooling sales, as I said encouraging time for the future. Our big customers are putting a lot of their future business intentions with us, so that's good. And we have changed the way in which we operate distribution. Until the last 18 months or so, this business really felt like a series of plastics businesses that operate in different geographies. We've moved this year to really make it work as an integrated whole, and we've changed the way the management structure works. So there's far more of a global approach because our customers, by and large, are global in nature. They want a product from us in various different locations, so to minimize transport and shipping. So our view is that we have to act and structure ourselves in a way which is much more of a global business. And I think that also positions ourselves for better growth in the future. So we've talked a lot about the headwinds. So what were they and this was particularly evident in the second half. We had quite a lot of labor shortages, particularly in the U.S. Some of the COVID bills that was passed by the U.S. government actually discourage quite a lot of people from entering the workforce. But also, well, it did have the impact of inflating salaries across the whole number of sectors. And we found it very challenging to recruit people both in nascent weeks, that's starting now to tail off a little bit as our economic times look to be around the corner. Material and energy, obviously, have inflated. Our materials are mainly come from resins, which are oil based. So we've got the impact of oil prices going through there and energy inflation. And within our contracts, by and large, we're allowed to cash through material cost increases, but there's a little bit of a time lag. But energy inflation, labor and other things were not part of our contractual price increases. So we had to go back and renegotiate contracts with almost all of our customers to try and make sure that we recover in a fair and balanced way, the cost impact of the entire business. So what that inevitably does is a time lag in doing that. So generally, with materials, it takes about 3 months at one of our input pricing increases to passing that through to an end customer. And obviously, as well, we had to go through the process with other cost increases and negotiating those with our customers. But we did that 2 or 3 months ago now and they're embedded into the business now. And so that's a big part of us recovering some of the impacts that we saw in the second half. Logistics delays seem to be somewhat easing at the moment. China has been a particular difficulty with lockdowns in Shanghai getting ships in and out of the ports, but generally, the supply chains have settled down a little bit, but we are still holding more inventory really to give us some security about supply, but what we intend to do is progressively turn that off as we go through the next year. And as I've already mentioned, we've taken quite a lot of efforts and time put into strengthening operational management and the systems and processes we've introduced a number of new processes to the shop floor to help make us more efficient, reduce scrap and make sure they are absolutely maximizing the capital equipment that we've got. So if you able to move to next one, please, Alexandro. So Aerospace, obviously, a smaller division, but our sales here are broken down by new production being about 2/3 of it. And a lot of that new production is linked to Airbus. As you've seen Airbus are increasing their build rates for the single-aisle aircraft progressively over the next couple of years. So during the pandemic, obviously, build rates were cut substantially, but that's now coming back. And the next sector, the quarter of it is the spares. And again, these are spares that mainly go into single-aisle aircraft, but also some of the older Airbus aircraft. And of course, as aircraft started to be used more then demand for spares goes up. And we've got the vintage part of the market, which is relatively stable. So on the right-hand side, you can see the impact that the pandemic had on the Aero business. So it's growing quite nicely then the pandemic came and demand dropped. But what we are seeing is that the order books have been particularly in the second half of last year, really have strengthened somewhat, quite a lot, and that gives us confidence about looking forward. Interestingly, in this business because the contracts are constructed in a different way. Our ability to pass through inflation costs through to customers has been easier for us to do because we tend to quote on a job-by-job basis and that has allowed us to, therefore, maintain our margins at pretty healthy levels there, and we see that continuing in the future. We are now investing in the growth of this business. It's a small business, but it's a profitable business, and it has that capability to grow. So we've recruited more business development resources, which has allowed us to get out to approach new customers, and we're already now starting to get orders in from people we've not worked with before. We've got various new pieces of equipment coming through. Some of it is to replace the older kit, but also some of it is to increase capacity. And as I said, the -- despite the economic pressures, we've been able to maintain the margins pretty well in that business. So small, but a very important part of the group. Next slide, please, Alexandro. So moving on to the pension deficit I mean, you can see here on the right-hand -- on the left-hand side, just how the deficit in the light green, the IAS 19 deficit has decreased and that substantial set down in the last 12 months. I'll ask Phil in a minute just to talk through the various ups and downs, but it's a complex picture and a number of different factors that feed into the deficit moving. So I'll ask Phil just to talk about the bridge in a minute. But as you know, pension deficits are mentioned -- measured in a number of different ways. IAS 19 is the one that goes into the accounts, but we also obviously have the technical provisions related to the actuarial valuation. And you can see at the bottom of the slide that the actuarial valuations are completed on a triennial basis. So the March '18 valuation was 90.4%. That's now reduced with just very shortly the triennial report for March '21, will be issued and that shows that the deficit has reduced to just below GBP 83 million. So that's a draft number at this stage. So you can see that by both measures the pension deficit is starting to move, but it is complex. There's a number of different factors that can move for you or against you. And so Phil, do you just want to talk through just the bridge and the key factors there, please?

Yes. Thanks, Nick. Hello, everyone. Thanks for joining us today. So you see we started on an IAS 19 basis at GBP 37 million and moved to GBP 26 million. And the biggest move is in the change in actuarial assumptions. And this is dominated really by 2 areas. One is the discount rate for the liabilities, which moved from 2% to 2.7%, and that has quite a significant impact on the deficit. So I think for every 0.25% on the discount rate, we are talking around GBP 6.7 million effect. Against that, you do have an inflation offset. So the equivalent 0.25% inflation would be about 1/3 of that GBP 2.3 million. So inflation doesn't always go hand-in-hand with discount rates, but there tends to be some kind of trend where it offsets the discount rate impact. So as the discount rates increase then which they are doing recently, and we'll talk about that in one of the questions shortly, it can have a beneficial effect on the deficit reduction. The other main areas are we make contributions as we'll read in the accounts to the pension scheme and the additional contributions were also scheduled in the last agreement, tripartite agreement between the pension trustees and the bank. And the contributions are a gross GBP 3.9 million for the year. Against that, we offset the pension admin costs that come out of that, including PPF levy, so there's GBP 1.2 million coming against that. So the cash effect for the actual scheme is a GBP 2.7 million benefit and that is a contribution to reducing the deficit. Then asset returns, we're doing quite well for most of the year. But then quarter 4, of course, we had the Russia-Ukraine conflict and the equity market dropped pretty significantly. So that finished negative for the year. And then there's just some smaller elements which are basically, there was a Pension Increase Exchange, which is known as PIE initiative that we introduced, which gave members more options to basically in lieu of rights to indexation of pension, they can take a higher pension earlier and give some more options for what they want to do with the pension. That actually eases the pressure on the pension scheme itself and contributed a GBP 0.85 million gain and then there was 0.1 or rounded to 0.2 restructuring and rationalization costs, sorry, in -- interest on liabilities was GBP 0.7 million, which is a notional interest on the pension and is part of the IAS 19 requirements. So it is 0.9 minus 0.7 and so 0.2 rounded.

Thank you, Phil. I just want to say one of the important things that is really happening is that the management team at Carclo and the pension trustees are working very well together in a really collaborative way to make sure that we're doing everything we can through the contributions and the initiatives and the investment strategy to make sure that there's real focus on reducing that deficit. And I think it's encouraging progress this year. But as I said, the reduction is the result of all these different factors, some of which are not in our control. So if you can move on to the next one please, Alexandro. So just to really remind you on our strategy, and these are the 3 [ port chunks ] that we focus on. So in CTP, it's about organic growth, and it's about focusing on our existing customers, particularly in the medical and diagnostic sector. We serve almost all of the big players now. And really, what we're trying to do is develop the ability to sell to them globally rather than on a country-by-country basis, and that really is getting some traction. So as customers we know, with products we know, we're producing them in different parts of the world. The continued investment in CapEx and strengthening the management that has to continue as we secure that growth. And we're really focusing operational improvement strategy around improving the capital -- return on capital employed in the business. This is something you'll see later on. Our ROCE number isn't that grand at the moment, but it has improved and it's an area where we want to focus on to make sure that we really are making the best use of all capital that's employed in the business that we're sweating the assets. And then from an operational point of view, part of the global plan is that we have wiggle room to expand in some countries, we've got floor space available in others, and we're trying to make sure that we use that to its full extent to absolutely maximize the floor space that we've got. But we do think that as our customers grow and expand their operations over time, we will be looking to expand our manufacturing base as we use up all the available space that we've currently got in the group. With Aerospace, again, it's about organic growth, but it's focusing on those niche markets that we're already in, which is cables, various cables of various descriptions through rolling and some simple machining, that's where we stay focused on. That's the right business of this size. And it's about acquiring new customers, who want the products in those niches, and that's why we've increased the focus and the resources of business development. And we do foresee actually having cut the business back through the pandemic. We're growing again now, and we're looking at plans to make sure that we can continue to grow the business operationally, having cut back. And that's people and it's about machinery and we've got plans in hand to make sure that can we handle the growth, we can resource up to make sure we can meet customer demand. And then finally, on the pension. We will continue to work closely with trustees to reduce the deficit going forward. And I think that the last 12 months has seen a lot of activity, which will hopefully bear fruit in the years to come anyway. So with that, I'm going to hand over to Phil and Phil is going to take you through some of the more financial detail. And at the end of all together, and we'll do the questions and answers. Over to you, Phil.

Thanks, Nick. Okay. So in terms of the full year ended 31st of March, we'll put some punctuations to the prelims that you'll now see release last week. And you'll seen group revenue up GBP 21 million, a pretty healthy number. You can split that really into two. First CTP, the CTP growth of 10.8% on tooling and 10.6% on manufacturing, 21.4% in total. Fairly even split and 2 quite different reasons for the growth there. On the manufacturing, the growth does include a high level of input costs inflation passing through into revenue, and this has some effects overall that we'll go into that in a bit more detail later. The Aerospace revenue, as Nick has already said, down GBP 0.4 million, but we have orders which have just continually exceeded sales over the year. And it's great to see the upturn has come pretty early against what the market was expecting. We're already seeing a good upturn in orders, and that's very encouraging for the longer-term pipeline. And the orders do tend to get scheduled over quite a long period of time in Aerospace, so they're not all immediate. On the underlying operating profit, GBP 6.1 million of GBP 1.3 million on 2021. And going back to the return on revenue, despite very high cost inflation impact, especially in the second half of the year, we still registered an increased return on revenue of 4.7% against 4.5% in the previous year. That translates into an GBP 8.2 million operating profit that includes the forgiveness of the U.S. COVID loan, which formed a grant income in the income statement. And we separately disclose that because of its materiality, and that makes GBP 8.2 million, so we just take it out of some of the underlying calculations, so that we've got more like-for-like comparability. Further gains were made in the statutory operating profit through GBP 0.7 million exceptional gains. And then we have GBP 0.4 million lower operating profit than last year, which was also high at 9.3%. And we can see two main factors there. We've got the higher underlying profit of GBP 1.3 million that we registered 6.1% against 4.8%. But against that lower nonrecurring gains, but still very substantial nonrecurring gains. So we still made GBP 2.8 million this year and a very high gain of GBP 4.5 million last year and just recapping on what that was. This year, we've got, as mentioned, the GBP 2.1 million U.S. loan income from the forgiveness of the post-COVID loan and we also have GBP 0.9 million pension credits. That's the high pension increase exchange that we mentioned earlier and then set against that GBP 0.1 million rationalization restructuring costs. And then in 2021, we did have that very significant pension credit when we launched another pension initiative for members to give them more flexibility, which is called the BPO, which is a Bridging Pension Option. That was the main reason for the pension credit giving us GBP 6.7 million gain at the time and GBP 0.2 million offset against that on GMP, Guaranteed Minimum Pension costs. But the BPO, the Bridging Pension Option gave again, further options for members for early commutation of the pension rights. And then set against that in the previous year, we have much higher restructuring costs as we came out of quite significant restructuring, and that was GBP 2 million in the previous year. So we can see now restructuring costs are lot lower and the business is a lot more simplified. Moving on to the other key highlights then other KPIs, underlying earnings per share. That's up 29%. So we're seeing good growth there. The bottom line 3.1 pence, and that's on the underlying profit after tax of GBP 2.3 million. So that's sort GBP 1.7 million. And then the basic also diluted statutory EPS that is significantly high, still at 7.9p for the reasons of the nonrecurring gains, and that compares against 10.1p in the previous year. So that was a profit after tax of GBP 5.8 million, again, with the COVID grants, GBP 2.1 million, the exceptional gains. And also, we've got a further gain on the discontinued business from last year. So we had about GBP 1.2 million last year, and we've got final proceeds now recognized in FY '22 for the discontinued business. So that added a further gain to the bottom line. On return on capital employed, Nick mentioned this. We managed to increase that 1.2 percent points to 7.8 percentage points. Pretty low at the moment, as Nick said, and we're now going to focus a lot on this for the future to give the company strength and financial potential. So the definition, this includes discontinued business, but that will be fairly minor in material in the future. And it's an average of net assets. And we've now excluded the pension deficit, which actually makes the return percentage lower than we saw in the 5-year profile in the ARA, but we think it's a more reflective returns measure. It does include over GBP 20 million of goodwill that's registered in the balance sheet, and we intend to improve on that for the future. Moving on to the net debt. We increased net debt by GBP 4.8 million to GBP 32.4 million for the year. And the key points of that lease debt is now being used a lot more to grow our CapEx investments, and that was GBP 3.8 million of the GBP 4.8 million. The lower cash balances of GBP 3.2 million was part of the change in net debt. And then against that, we had a COVID loan in balance sheet, which has now been forgiven, so that gets written out of debt GBP 2.1 million and we also take out of debt a net GBP 0.1 million on repayments of bank debt, which were GBP 1.6 million, but we also grew GBP 1.5 million on our revolving credit facilities. So that's where we finish with the bank facilities. They expire July 2023, and we're currently discussing extending those facilities. Moving on to the divisional performance there. As Nick mentioned, we look at certainly a tale of 2 halves, H2 against H1. And what happened there, we started strongly with the manufacturing revenue up in second half by GBP 3.8 million to against GBP 47.5 million in H1 and that was predominantly a pass-through of inflation costs, which became pretty strong in the second half of the year. Tooling revenue increased very significantly by GBP 7 million to a very high GBP 16.1 million in the second half of the year. And that reflects a new major tooling contract, which is now ramping up nicely and straggles over a few years. So that will continue to go on for at least another year. In terms of the EBITDA, it translated reasonably well, but down GBP 0.5 million to GBP 7.2 million because of the inflationary costs. And that wasn't just in materials. We saw it right across the board, in labor, in energy, consumables, distribution costs, all increasing in the second half of the year, in particular. What we see here is a bit of a timing effect that we have increased the prices some in FY '22, but most of our price increases have come through after the year-end, very shortly after from April this year. And most of those cost increases are largely passed on, some do have to be absorbed depending on contractual positions and what is appropriate. And then the inflation pass-through of course, just creates a slight dilution in return on sales. So you get a slight mismatching comparability of operating margin on sales as a result of that. What that means in terms of the operating margin in H2, that declined from 16.1% to 10.7%. So quite a significant percentage decline and that was really down to a few things. You've got a combination of higher tooling mix and pass through -- the dilution of the pass-through of inflation cost of sales. So that would have been or nearly half of that, just less than half of the impact is due to that. And then the global profit cost inflation would be the rest. And what we see now is a timing effect that coming into H1 for the new year, FY '23, we've -- as Nick has already mentioned, we started to assess the cost increases and the price impact. And in the CTP kind of business, it is different from the Aerospace business. It's not a job by job. You have to weigh this off over a period of time. And once we understood the impact that we were seeing, then we went in with a series of price increases, which are mainly implemented from April, May and June this year. Going on to Aerospace. Aerospace, the EBITDA increased 46% to GBP 0.54 million. So we're starting to see a good recovery in the Aerospace division and revenue rising 25% to GBP 2.6 million in the second half of the year. As said, the order intake is continually trending upwards we're seeing quite a good uptake now in the short haul and narrow-body aircraft sector, usage is increasing significantly there. Probably take a bit longer for the long haul and the wider aircraft. But seeing it start to accelerate the way is very encouraging, and it's really exceeding our expectations. The increasing operating margin returns then we're getting by keeping the overheads very low and tight. Having said that, Nick has already mentioned that we are investing in very focused specific ways, so that we can grow the volume base and the capacity of the business. The price increases have done very well in the business, and as Nick also said. Pricing on job by job basis means that we've been able to maintain margin and actually grow the margin percentage in the year. So moving on to the overall income statement. So we've seen all these figures, but just to look at the whole picture in one. The revenue of 19.5%. That has been passed through pretty well, through to operating profit of 25.9% increase and overall operating profits of 69%. So we're getting quite good pass-through to the bottom line despite the inflation impacts. We've also reduced greatly in now rationalization costs. We'll see a little bit of this from time to time. There's still some things to do there, but nothing as major as we saw in the past. So that will be a good conservation of cash and we are also seeing some good moves in nonrecurring gains in the pension gain from the pension increase exchange of GBP 0.85 million there. And that's, as I mentioned, office members higher earlier pensions in lieu of inflation index. Finance costs have moved, of course, with increased rates and slightly higher debt levels. And in terms of the final profit on disposal the technologies business, that's added GBP 0.7 million to the bottom line. So overall, we end up with a very decent statutory profit and after last year with exceptional gains, reaching GBP 7.4 million we thought that would be quite unprecedented for some time. So to reach GBP 5.8 million there, statutory profit was a pleasing result. Looking at the net debt and what are the key movements are in the net debt, just for the bridge there, and we can see that we started the year on GBP 27.6 million and finished on GBP 32.4 million, so a GBP 4.8 million increase in net debt. Working capital outflows were the main contributor to the change in net debt, it was GBP 3.6 million. And that's really driven by what Nick mentioned earlier that we've increased inventory by GBP 4 million. Very uncertain supply chain, post COVID, causing quite of bit of uncertainty. So we have kept higher raw materials in particular in specific areas, especially in polymers to protect the supply chain and as Nick said, we expect that gradually to go down, won't be that quick, but that should gradually start to move over the forthcoming financial year. The pension contributions were mentioned GBP 3.9 million gross, GBP 2.7 million net and that earlier on the next slide and then other cash from other operating activities with inflows of GBP 9.4 million that's of course mainly our CapEx growth. So what you see is a consistent strategy in the business now where we have surplus cash. We invest as much as possible into CapEx for medium and long-term further future growth. The GBP 10.3 million is not just a straight capital addition that includes payments, both for additions in the year on lease repayments for additions in previous years. So the actual CapEx in terms of cash CapEx was GBP 4.8 million and then other additions from leasing, which is now a growing source of our funds, that was GBP 5 million. So looked, another way, the GBP 4.8 million debt increase in terms of the categories of debt, we've got the lease debt increases of GBP 3.8 million, lower cash of GBP 3.2 million. And then the loan forgiveness GBP 2.1 million and the bank debt, GBP 0.1 million. So moving on to the shape of the financial position, balance sheets. We can see that net assets, PPE, property, plant and equipment, has moved up a net GBP 4.9 million. So the depreciation and amortization, we're still seeing quite a gain there. Some of that is FX translation, but a good volume increase of GBP 2.8 million. So we're investing at a much faster rate now than depreciation, and that's good for the medium to long term of the business. Increases in inventory, as we mentioned, GBP 4.2 million to protect the business at this stage and not much movement in the overall of the working capital. It's a small liability of GBP 0.5 million. It was just over GBP 1 million in the previous year. We've seen the reduction in the retirement benefit obligations, would be GBP [ 11.3 ] million, which bolsters up the balance sheet significantly and has now led to a tripling of the net assets from GBP 7.9 million to GBP 24.4 million. And that's really is a combination of the retained profits of GBP 5.8 million. And then we've got actuarial gains going through there of GBP 8.5 million and FX GBP 3.2 million. If we look at the overall cash flows and the main highlights there, we've got a GBP 4.5 million drop in the cash generated from operations. Again, mainly the working capital swings there. We did have a gain in 2021 on working capital of GBP 3.7 million, and that has effectively reversed by GBP 3.7 million against GBP 3.6 million. We would have expected not to see such a high reversal at the start of the year, but that was because we have to protect inventory this year. We see quite a higher position on interest paid at GBP 2.5 million, that's GBP 0.7 million higher. But that is really again effectively an accrual swing. We had GBP 0.5 million accrual in the previous year, which is now paid off. Tax, slightly higher from higher profit growth, and we have disposal proceeds again this year, but GBP 0.6 million lower than the previous year. And then cash investments on PPE property, plant and equipment is GBP 2.3 million lower, but that's because we are now investing more in lease CapEx. So in terms of the financing flows for 2022, as mentioned, we drew GBP 1.6 million on the bank. We also sold and leased back GBP 1.4 million in property. And we paid back to the bank GBP 2.3 million. That's the GBP 1.6 million mentioned earlier. And when we got the discontinued business disposal proceeds of GBP 0.7 million that was already preagreed that, that should be repaid back to the bank.

Thanks, Phil. So let me just sort of pull it together in the final slide. So I think the business has made good progress during the last year's despite, the economic headwinds and the operational challenges that relate to any business that's growing at the rate that we are and we definitely did see inflationary impacts pushing down our margins in the second half. As far as we can see, we expect those margin pressures to continue in the first half. And what we're seeing is a varying picture. You can all see what's happening to oil prices, which will continue to probably rise for a while. But things like labor look like we've already probably priced in and stabilized. There are some other costs that now seemed to be stabilizing. And supply chains are generally becoming more predictable, not back to the short lead times and deliveries we saw prepandemic, but at least not getting worse. And I think what we can also see is we've alluded to is that the action we've taken on pricing, we think is negative to start feeding through to offset some of those inflationary impact, but the underlying position of demands for both of our divisions looks pretty healthy from where we stand today. Phil mentioned our current financing expires in 13 months. So we're in the process of discussing with the bank what comes after that. And those discussions are pretty well advanced. And this is about organic growth for us. It's about investing in CapEx, people and processes, and making sure that as our customers grow that we can get a bigger share of wallet that we can grow within globally in the case of CTP and we can bring on those new customers in Aerospace. So the way I think for the line look at this business is we're sort of 18 months into this project of stabilizing the business and then growing it. We're certainly narrowing the growth phase. And we think there's some more good opportunities to come. So with that, that's our formal part of the presentation. What we're going to do now is we have a number of pre-submitted questions, which we will take first, and then we'll answer the questions that you've submitted or are submitting now. And we'll do our best to answer as many of those as we can. So Alexandro, do you want to start with the pre-submitted questions please.

Yes. Nick, very much for your presentation. [Operator Instructions] It is good to see the reduction in retirement benefit liability. It is now 3 months since the year-end. Can you give any indication of the current level of liability?

Unfortunately, we can't because we don't get updated stats on a regular basis. And I also think it's one of those things that you have to look at it over a slightly longer period rather than a month by month basis. So there's nothing we can add, unfortunately on that end.

The next question here asked, to reduce CapEx in the near future, why don't you propose your customers to cash out the amount for equipment and then pay on the fee on products that you will sell in the future to repay your share of CapEx.

That is a possibility, and it is something that as we grow, we will consider with certain customers. Some customers already do it with other people. So it's something that we could do to make, if you like, our CapEx spend goes further, so I wouldn't rule it out us doing that in the future.

And the next question here is a slightly long question. However, I'll read out in full for context. It reads as follows. The Carclo board state updated scheduled pension payments for the next 3 years will be confirmed before the end of July based on data relating to March 2021. Since March 2021, there has been a highly material increase in the discount rate with the AA corporate bond yields moving from low 2% to over 4% now. And we know from the sensitivities of the IAS pension calculation such a move could reduce the pension liability by over 30%. Will this highly material change in the market reality will be reflected in the new payment schedule? Also, management will form the latest report to a change of investment management completed by the trustees over the year. All this change in investment management be aiming to lock in the benefits of the higher discount rate environment such that we can protect against returning to size what IAS and actuarial deficits seen in recent years?

Okay. I'll take that one, Nick, shall I. Yes. Unfortunately, I can't be quite as concise as Nick with such a chunky technical question, but thanks for a good question. I mean there's a few points to make here. Firstly, the discount rates that are referred to here, they're applied to liability valuations, not asset returns. So you don't really translate into cash for contribution requirements in the eyes of the trustees. And secondly, the trustees would do guise their contribution proposal on a much longer-term basis, which is really based on the actuarial triennial-- triennial valuations rather than movements in the markets just within months or within the year. So their eyes are on a much more long-term scenario. So that really affects the way they look at the contribution schedules. I mean they're looking at anything up to 20 years. Thirdly, they hedge liabilities against interest rates heavily. I mean we actually have around 96% of the schemes funded liabilities currently hedged against interest rates using liability-driven instruments. And the whole reason for that, of course, is that it's to guard against market volatility. It's members funds and market volatility is something to be guarded against. So that is already hedged in. So we're less prone to be able to either take opportunity from or be buffeted by significant changes in discount rates. And thirdly, within those hedge rates then sort of fourthly, the IAS 19 rates are based on bonds, not gilts. It's more of a technical matter, but you can have some mismatch there because the IAS 19 bonds don't always follow the same rates as gilts. Generally, the trends will be fairly same. It is not always correlated that strongly. So you can get some mismatch there. And finally, the point about the investment management. While they're taking over, and we're very encouraged by a lot of fresh thinking there and some good strategic thinking and very encouraged by their passion and technical skills and energy for improvement, they're pretty much locked into a long-term strategy that is already inherent there. And so because a lot of the portfolio is hedged. They can't break away from that nor the trustees and the scheme wants it to. So hopefully, that explains some of those questions.

And just turning to next question perhaps on for Nick. In the outlook statement, management stated they expect the headwinds that prevailed in the second half will continue during the first half. Can we infer from this that as of the second half of this financial year, starting in October, the business will be largely through the headwinds?

I can't give any sort of forward-looking statements at this stage about what will actually happen. But I think in the question that I've already alluded to about what we see happening in the first half, we do think that whereas every cost we had was increasing in the second half of last year. It has started to abate in some areas. And that's why we think that given the position appears to be stabilizing other than what's happening on resins. But we do think that the work that we've done on pricing means that we can offset some of that. And so hopefully yes, we do see that the second half will be better, but it's a bit of a crystal ball at this stage.

And just turning to the final presubmitted question, which asks, does the company's current classification and chemicals reflect what it does. If not, is it time to reclassify?

That's a really good question. And I think it's something that we are thinking about because I'm not sure Chemicals does, to be honest with you. So it's something that we are looking at. And one of the things that I think we as a Board are keen to do is to look at all aspects of the way in which we interface with the market. And so with the classifications that how we communicate, when we communicate, I think are things that we're looking at the moment as we sort of move into this next phase of development business.

That actually concludes the pre-submitted questions, but we've received a number of questions throughout today's presentation. And I would just like to thank all the investors for submitting those. Nick, Phil, could I just ask you to read out those questions and get responses where it's appropriate to do so. And then I pick up from you both at the end.

Yes. Okay. So the first question from today is, do you have any plans to provide quarterly trading updates as has been provided in the past, would be greatly received by the shareholders. Thank you. I think -- what I'm not going to do it say, you say, yes, we'll do quarterly, but I do think we will be doing more in terms of updating the market on things that the business is doing. In this period, we've been through the pandemic and then the inflation period, it has been about really focusing on making sure the core businesses are good health. And I think now as we move to more proactively into this growth phase, I think there will be more things for us to talk about and more to communicate. So I'm not saying yes, we'll do quarterly, is what I'm saying is we'll do more communications as we go forward. Then the next one, again, there's quite a few now relating to pensions. Had you answered the point raised by some that the company is just a slave to its large actuarial not IAS pension deficit and to it's borrowings? And how might this problem be solved? For example, would you consider selling in the Aerospace division? Well, I don't see it as a slave to it. I see it as something that we have to deal with both in term of pension deficit. And looking at innovative ways of funding CapEx going forward, like we talked about the one in the earlier answers to the questions. With regard to the divisions, I think I said last time when asked this question was, would we sell Aerospace. Both divisions are, I think, got really good prospects. They're both valuable. But I think there's more value to get out of each of them certainly for the short and medium term. So whilst I wouldn't rule out selling Aerospace or CTP, it's not something that I do now because I think we can generate more value by improving the performance of profitability of each one of the divisions. So yes, it's something that we do look at. Again, as I said before, there is no reason why Aerospace and CTP have to be under same ownership. They do different things for different customers. So there's no corporate reason why they're there, it's all about maximizing share, the stakeholder value. Next question, again on the pension. The reduced IAS deficit is largely meaningless for recovery payments. So with the draft triennial deficit of GBP 83 million, the recovery claims paid are due to be added on for 20 years. Now the company is more profitable, is the pension trust not going to demand more a more rapid deficit recovery and hence higher cash payments. So the way this works is in August 2020 when the tripartite agreement was started, there was a vision of a number of years to recover the deficit in its entirety. And we tend to -- at that point, there was a commitment made to what payments would be over that very long-term period. We actually fix on the 3-year period that's ahead of us. And so that's a process that we're currently going in terms of fixing the -- the pension payments for -- apologies about the background noise there. So it's an issue that we negotiate with the trustees about what the contribution will be. We do that in 3 year chunks. Another one on pension, if pension deficit recovery is not accelerated through higher cash payments and essentially going to support on dividends being paid for the current 20-year period. Well, it certainly won't be 20 years. I mean in the short term, we're not in a position where we can pay dividends. But I think our objective, obviously, is to reduce the deficit to a point where it doesn't block dividends being repaid, but I don't think that's 20 years. So clearly, we would love to get that to a point where we can pay dividends. We can't see that being in the next 2 or 3 years, probably, but I don't think it's 20 years either. Next one, net debt, excluding lease liabilities, is increasing and interest rates are increasing. Are interest payment is going to be an increasing drag on profit the upcoming refinance? Phil, do you want to pick up on that one?

Yes. I think -- well, clearly, we're now living in a both a high inflation environment and higher interest rate environments and I think all we can say there is that about not just the whole nation, but the whole world and developed world is in the same situation. So I'd say it will obviously affect cost of investments, but then in the competitive terms is relative. So we're not unusually particularly more highly geared than the next competitor. So I'd say that marginally from a competitive point of view, we shouldn't be materially disadvantaged.

Thank you, Phil. Next one, I don't think we can answer which is will forward interest rates be spread, fixed or spreads. I don't think we can comment on that one at this stage. Next one is the company able to buy back shares instead of potentially paying a dividend? Or is this also a restricted while the pension deficit exists? We are -- anything that we do with cash that's generated in the business has to be agreed between the pension fund and the trustees and obviously, our banks as well. So I think at the moment, I can't see us buying back shares as an alternative to paying a dividend. Next one, how much could the business grow from here with existing customers alone without adding significant new product capabilities? That's a really good question. I think what we -- first split that into talking about CTP first. The product range we've got tends to be the variance on a number of core components. And so in terms of the work that we're winning, actually, none of them are particularly -- they're generally getting more complex. There are sometimes quite 2 shop machines rather than one shop machines, but they're not outside of our existing technical capabilities. So I do think, actually, the opportunity to grow with our existing product range and capabilities or just more often is actually why our strategy is we're not taking on particularly anything that's new technologically or we are doing the same more complex moldings, but not something that's outside of our comfort zone. One thing we are doing, by the way, is we are actively developing our technology so that we can in the future potentially move into some more higher value-added areas, but we're not really putting that in our plan at this stage. With regard to Aerospace, we'll continue to operate within the niches that we've currently got. We're very good at those with the sort of go-to people for certain products and therefore, I think we want to keep that nice focus. Next one, I don't think we can answer is, what a 5-year operating margin aspiration. I think that's too forward-looking. In Aerospace, what is in the vintage business? The vintage business is actually quite a lot of our classic aircraft which were generally operated and activated on cable systems. So it doesn't sound like it should be a big market, but it is actually -- there's a lot of older aircraft flying around and a lot of cable aircraft around still. So yes, there is a sort of a legacy part of the market that it will carry on for a long time.

Nick, it's probably worth saying as well because we're very long-term established, we have a very wide range that goes deep to supply vintage business, which is a bit of a barrier to entry.

Yes. Thank you. The next question is, how do you see the encouraging performance in the future outlook translating into share price movements at the market seems to not yet to be recognized and potential you have outlined. Yes, I think certainly sitting in the position that Phil and I do is we can see what's happening with the business. We can see that incrementally, we're moving forward. We're making big steps forward in terms of our operational performance and our financial performance. We've seen a lot of fluctuations in the share price. And I can't see how a lot of it actually directly relates to us. A lot of it is about market sentiment. So I'm learning not to be too upset by the share price. I'd like to see it higher, of course. But when you look at what analysts say about us and we do, which is we've been in. Phil and I have both bought shares, quite a lot of shares in the last year or so. I would hope the share price could be considerably higher than it is, but we're influenced by market factors at the moment, which for relatively small cap business like us, we can't bug the market really. So yes, the market does what the market does. But I think what we have to do is focus on the underlying quality of the business. And I think we are making real progress on that. So I think -- is that the final question we've got today.

Nick, I think it is and I think you actually addressed all those questions from investors. And of course, the company will review all questions submitted today and will publish the responses on the Investor [indiscernible] company platform. But just before redirecting investors provide you with their feedback, which is particularly important to the company. Nick, can I just ask you for a few closing comments?

Yes. Thank you. Yes. First of all, we really appreciate you taking the time to join us today. I think this is a really effective way of us being able to talk to many of you. This has been, again, a year of progress for us, where we've been building the blocks or putting the blocks in place for the future growth of the business. And we do see a lot of good signs happening. But we've got some challenges as every business has at the moment. So I think it's about working through those challenges offsetting the inflationary pressures as we are doing, but then really focusing on organic growth. So we look forward to talking to you in the future and hopefully giving you good updates on further progress that we made. So thank you on behalf of both of us and the Board for joining the call today.

And thank you too from me. Great questions too.

Nick, Phil, thank you very much for updating investors today. Could I please ask investors not to close this session, as you now will be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. Just let me take a few moments to complete, I'm sure it'll be greatly valued by the company. On behalf of the management team of Carclo plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thank you all.

Thanks.