Magellan Aerospace Corporation (MAL) Earnings Call Transcript & Summary

Fellow directors and officers here. At the front table here, we have Phil Underwood, who is the President and CEO and Director of the Board; and Elena Milantoni, who is the CFO, at the front table here. In the front row here, we have the remaining directors, Phil and myself, are what we call non-independent related directors. So we're not good. We get kicked to the Board means the deal decisions was there. At the front we have J.P. Veitch here. J.P. is a former colleague of me from the financial business and has been on the Board now for 4 years, J.P.? Right? Next to Beth Bandler who is a lawyer by trade and met Beth originally in 1995, 1996, Beth, when we acquired [indiscernible] Aerospace. Next year, Beth was the solicitor -- General Counsel at the time, met her over that -- and asked to join the Board now, I think, about 6 years ago, Beth? 10 years ago. Okay. Next is my long-term partner and colleague at University of Saskatchewan here, Larry Moeller right here. And then next to him is Steve Sommerville, who also was somebody that we met back in 1996 when we acquired Magellan. Steve was the banker in the deal, and he told me, Murray, you really want us to buy this business. I don't know if I want to finance it, but he did agree to do it, and it's been okay, Steve, so far. So we appreciate your confidence we'll act there up at the time. Thanks, Steve. Okay. The meeting now come to order. I will ask Elena Milantoni, Corporate Secretary of the corporation to act as Secretary of the meeting; and Josette Koffyberg from Computershare Investor Services to act as scrutineer. In order to ensure that the formal business proceeds efficiently, we have asked certain employee shareholders to make and second motions. This is designed to facilitate the progression of the meeting, it's not intended to discourage comments. Before we begin the meeting, we have to remind everybody that there are remarks today that we will make statements about the information that is not historical factual information. This information may be considered to be forward-looking information. Statements about the forward-looking information are by their very nature and guarantees Magellan's future operational and financial performance are subject to risks and uncertainties. Actual results could differ materially from what is currently expected. While Magellan believes its expectations are reasonable, they are based on risks and assumptions regarding a number of factors. Details regarding these assumptions and factors as well as additional information about the material factors, risks, assumptions that could cause our actual results to differ materially from what is currently expected can be found in Magellan's annual information form, which is available on sedarplus.ca. Magellan does not assume any obligation to update or revise any forward-looking information except in accordance with applicable securities laws. I didn't write that. But to be clear, that's the lawyers. I got to do it. But anyways, okay, the first thing is we have a couple of housekeeping matters. The business matters to be conducted at this meeting are the items set forth in the Notice of Meeting and Management Proxy Circular of the corporation both dated March 21, 2025. That was mailed or e-mailed to shareholders. Only shareholders at the close the business on March 21, 2025, the record date, or their duly appointed proxy holders are entitled to submit questions and vote at this meeting. At the closing of the formal part of the meeting, Mr. Underwood, will make a short presentation at Corporation's 2024 fiscal year and plans for the future. Notice of Meeting. We have received an affidavit from Computershare as to the mailing of the notice and access document and instrument of proxy to shareholders. We direct that this affidavit, together with copies of documents mailed to shareholders be kept by the secretary with the minutes of this meeting. Okay. Next thing is quorum and scrutineers' report. Under the bylaws of the corporation, business may be transacted at this meeting if 2 persons are present at the meeting and hold or represent by proxy not less than 10% of the votes of the shares of the corporation entitled to vote at the meeting. The scrutineer report has confirmed that a quorum is present. The scrutineers' report shows that there are 56 proxies cast before shareholders holding or representing 49,504,477 shares or 86.64% of the shares which are entitled to vote at the meeting. The scrutineer's report will be kept with the minutes of this meeting. As such, there is a quorum of shareholders present, and we now declare the meeting is regularly called and properly constituted for the transaction of business. Voting. All voting done today will be conducted by way of a ballot. Voting on the resolution to appoint the auditors will be conducted by a show of hands unless a shareholder or proxy holder demands a ballot in respect of voting on such resolution. Thank you to those who have already voted prior to the meeting. These votes will be tabulated along with today's votes and the scrutineers will provide us with a detailed break in the vote after the meeting has been closed, which we will post on SEDAR. Okay. Next year, annual report, financial statements and the auditor report. The next item of formal business is the receipt of the 2024 consolidated financial statements of the corporation as included in the 2024 annual report to shareholders for the fiscal year ended December 31, 2024, and the auditor's report thereof. A copy of the annual report and the auditor report contained therein has been made available to every registered shareholder either hard copy or electronically. The financial statements of the corporation for fiscal year ended December 31, 2023, can also be found on the corporation website or SEDAR. We now place before the meeting the consolidated financial statements of the corporation and the auditor's report thereon for the year ended December 31, 2024. I think is there any questions on those? Hearing none, next item is the election of directors. The Board has been fixed the number of directors to be elected meeting at 6. We will now entertain nominations for directors of the corporation. Do I have a nominator, please?

Mr. Chairman, my name is Karen Yoshiki-Gravelsins, and I'm a shareholder.

I'm a share [indiscernible] inside a report?

I nominate N. Murray Edwards, Phillip C Underwood, Beth M. Budd Bandler, Larry G. Moeller, Steven Somerville, James P. Veitch as Directors of the Corporation to hold office until the next Annual Election of Directors or until their successors are elected or appointed subject to the provisions of the Business Corporations Act, Ontario and the bylaws of the corporation.

So Karen, what do you do at the company?

Vice President, Corporate Stewardship and Operational Excellence. What does that means?

Yes.

So it's quality, environmental, health and safety, continuous improving export compliance in our Magellan operating system.

So do you think you need some more tasks? And how would you report to the shareholders -- those areas in your response? How do you feel about our sustainability and practices around that?

I think that we've taken a very smart approach, and that is to focus on efficiency, operational efficiency. And if we do that well, the gains to be made in electricity reduction energy usage will follow.

Well, so you think in many times, these investments in sustainability actually pay for themselves through efficiencies gained, right? And every one of our plants now is now certified to AS 1401, is that right? All of our plants around the world, is that right? And so you do it metrics to the Board every year or to the Health Safety Committee every year showing how we compare a number of our peers in terms of sustainable metrics? And what is that chart you show Magellan relative to our peers?

Not only our peers, but our customers. [indiscernible] And we're right out there with the customers and we are ahead of...

So when we look at the metrics, which you rate us how performance is the number of categories, we tend to be comparable with a lot of our customers. The customers would be people like Boeing, Airbus, General Electric, and we tend to be ahead most of our peers. I mentioned there, is that fair? Yes, so we're lucky. Thank you, Karen. Do we have a seconder for that motion now?

My name is Brian Oakley, and I'm a shareholder. I second the nomination.

Do you want to share it, Brian? How long have you owned shares for?

Shares for 3 years.

3 years. And when did we first meet, Brian? When did we first meet?

We met in a board room when I presented you with the 3 industries, the first acquisition of Magellan.

My boy time goes by, right, John? That's right. Okay.

You called me every week and say, did you put the...

I did, yes. And I know. Did you? Some days. They're still here, so that's a good sign, right? You didn't sent to miners. Thank you, Brian. Are there any further nominations for directors? As there are no further nominations, we now declare nominations closed. To vote for or withhold for voting for each nominee, you need to mark and sign a ballot provided to representative from Computershare. If any registered shareholder proxy in attendance today has not received a ballot, please identify yourself to the scrutineers now. Seeing none, since all the ballots are now being collected, we will now allow the scrutineers time to tally the ballots in the interim. However, I've been informed by the director -- by the scrutineers that every director has received in excess of 95% for and none against, just some withheld. So I can declare that all directors nominated today are duly appointed directors to hold the office until the next Annual Meeting of Shareholders pursuant to the Business Corporation Act of Ontario. The next item of business is the appointment of auditors. Do we have a motion in that regard?

I move that firm of BDO Canada Charter Professional accountants be appointed auditors of the Corporation until the next annual meeting or until their successors are appointed and that their remuneration as such be fixed by the Board of Directors.

Are you and Karen the only 2 shareholders we have here today? So Brian, what do you do at company, Brian?

I work in business development.

Right. And how is business developing?

Development is exploding. It's a different time for us right now as will be attested by my boss, Mr. Martin. The floodgates are open, and the business is going to grow, and we're positioned well.

And why do you think that is? What's changed? Is it macro? Or is it -- does it have to do with our own performance? What do you think that is to do to, Brian?

What is causing it?

Yes.

It's just demand for aircraft and demand for companies like ourselves that can do it from start to finish. And our biggest accolade from our customers is, yes, you might show some signs of stress, but we don't have to send a team and fix it. You're capable of doing it on your own. So it's a good time.

So you think the relationship with our customers are better today than you've seen in previous years? Any the opportunities are better, you think?

Yes. And they're recognizing that and it's evidenced by the opportunities we have.

Right. Would you -- your boss agree with that, would you agree to that? You told your boss, I didn't know that.

I think customers see us as a fairly safe pair of hands. And with the global footprint we have, we're able to offer solutions that fit what the goals of the corporations, Airbus, Boeing, Pratt & Whitney, Safran, they're all approaching us to look to expand their work content with this. So I think over the next couple of years, we should see some significant growth.

So give us a generic example, not specific, but how this -- give us an example how this global footprint helps you in what you do?

There's a huge downward pressure on pricing for small simple components. And historically, we would have lost those. But with the development of our low-cost footprint in India and Poland, we're able to still hold our margins and in some cases, improve them and offer pricing that's attractive to the customer.

So we're seeing our customers also go to those markets too then?

Our customers are coming to companies in India directly. But the advantage we have is they see that safety of being with somebody they've been dealing with for 30, 40 years. And that gives them a level of confidence that a new startup in India directly can't.

Would you agree with Brian's word, the word he is exploding? Would you agree that word? Is that a little bit more?

I think there's a lot of uncertainty in the world at the moment. But I think the underlying trends are really strong for us, particularly with the diversity of our business between defense and civil aerospace that it's one of the real strengths of the business. We're able to weather storms by focusing on defense, strong commercial aerospace. So I think the team has done a great job in the last couple of years in positioning ourselves with some of the defense manufacturers where I think over the coming years, we're going to -- with places like Rockwood, we're going to see some real growth opportunities.

Okay. Good. Thank you. Do I have a seconder for that motion? I don't ask a question Karen, don't worry. I'll signify in the usual manner by raising the right hand for the appointment of BDO Canada as the chartered accountants for the corporation for the -- How many are in favor, right hand? Any opposed? Hearing none, I can confirm also that resolution has been passed. We therefore, direct scrutineers in respect of the voting be kept with the minutes of this meeting. Is there any other business for this meeting? As I see there are no questions in respect to the formal business meeting, I will now entertain a motion that the meeting be terminated. So moved. Is there a seconder for the motion?

I will second it.

Thank you, Brian. All in favor, please raise hand. Any opposed? Carried. I now declare that the meeting is terminated. I now pass the meeting over to Mr. Underwood, who will provide a business update on the presentation and results of the corporation. So I'll pass to you, Phil.

Thank you, Murray. Good afternoon, everyone. So I will be presenting the business and strategic highlights for 2024 with Elena Milantoni, our Chief Financial Officer, presenting the financial summary. Starting with the business overview. So Magellan is a global business with 19 divisions and over 3,800 employees worldwide in those 3 main regions. In this section, I will update on the commercial and defense market and starting with the commercial market. So commercial air travel continued in 2024. The International Air Transport Association reported that industry-wide travel grew by 8.6% year-over-year in 2024. With domestic travel growing by 5.5% and international travel by 10.6%. China and India experienced the largest domestic travel with growth at 12.3% and 6%, respectively. The Air Transportation Association forecast growth of 8% in 2025 with demand for new commercial aircraft driving strong -- with a strong order backlog. Airbus and Boeing both ended the year with strong order backlogs with over 14,800 aircraft on order. However, supply chain delays, labor shortages and market disruptions continue to affect the industry's ability to capitalize on this pent-up demand. Also the 3-month Boeing strike in the later part of 2024 impacted the industry. But despite these persistent headwinds, the industry is stabilizing and improving. Boeing is working towards their rate above 38 737s per month with a goal to reach 57 per month by 2027. Boeing 787 is increasing to 5 per month and the 777X certification is now planned for early 2026. Airbus is ahead of Boeing with their single-aisle production. They plan to reach 65 A320s per month late this year and 73 per month in '26. A350 rates will hit 7 per month in 2025 and the A380 will increase to 4.3 per month. So in summary, this cautious optimism that the commercial industry is finally stabilizing and growing. And this is, of course, contingent upon potential new hurdles that might appear. So moving to the defense market. Rising geopolitical tensions have been the main driver of recent growth in the defense aerospace market. Additionally, the uncertainty caused by USD globalization and a pullback of international defense support is changing market dynamics. Defense growth remained strong with previous spending targets of 2% of GDP likely to be exceeded in the current climate. Within the defense market, fighter aircraft represents the largest segment with the F-35 making up 40%. In March this year, the U.S. Air Force awarded Boeing an engineering development to order for a sixth-generation fighter, the F-47. The growth in the fighter market naturally drives an increase in demand for pilots, and therefore, trainer aircraft. And as a result, the China is becoming a strong segment and is projected to grow significantly. Engine manufacturers are expected to benefit from this growth as some trainer programs utilize the same engines as larger fighter aircraft. So in summary, the defense market is potentially the strongest in some time, with growing segments in unmanned aircraft and trainer assets. So I'd like to briefly touch upon the recent tariffs. Based on our current business, approximately 75% of Magellan's revenues are unaffected by tariffs. Of the remaining 25%, virtually all is export from Canada into the U.S. which is currently exempt from tariffs under the Canadian, U.S., Mexico and free trade agreement. Primary impact to Magellan is on our U.S. divisions due to 25% U.S. tariff on steel and aluminum, which is less than 1% of our sales. Should the agreement exemption be discontinued, Magellan's customers are mostly responsible to pay for the applicable tariffs as the importer of record. With the Canadian counter tariffs, the majority of our imports into Canada are exempt. So I'll now touch on the key announcements that we made in 2024. So during the year, Magellan announced a number of contract renewals and agreements. We secured the extension of our contract with Airbus for our U.K. divisions to manufacture major structural wing components for the Airbus single-arm family. In support of NASA's sounding rocket program, Magellan will provide Black Brant vehicles and hardware -- excuse me, to parts in Canada from its facility in Winnipeg. As part of our growth strategy in India, we've signed an MOU with Aequs to explore the possibility of establishing a jointly owned engine maintenance, repair and overall facility in Belagavi, India. Magellan also announced long-term agreements with Pratt & Whitney, and these important contracts cover the supply of complex castings used on a number of legacy and new engine programs. Defense Research and Development Canada is adding a new sub satellite to the Redwing space domain awareness project through a partnership with Magellan, the U.K.'s Defense Science and Technology and the University of Manitoba. The design manufacturing and operations for the Redwing is led by Magellan Aerospace. In 2025, we've also announced a few press releases to help address the capacity constraints in the castings market, we signed an MOU with Aequs to explore the possibility of establishing a jointly owned sandcasting facility. And Magellan also amended a long-term revenue sharing agreement with GE Aerospace to include the production of major components for the F414-GE-400K aircraft engine and for the Korean KF-21 aircraft program and we've extended our long-term program with Pratt & Whitney Canada and secured new manufacturing programs -- program awards for our [indiscernible] facility in India. So continuing with the business overview. These charts show revenue by customer and market segments in 2024. On the left, you can see that 36% of our revenue is directly with Airbus and Boeing, which is down from 2019 levels of 40%. Although Airbus is back to previous percentages of revenue, the revenue percentage for Boeing in 2024 continue to lag as production rates expected on certain programs were not achieved. On the top right, 56% of our business is aerostructures, 25% aero engines, including repair and overall, 12% is castings and 7% is specialty products. On the bottom right, you can see 65% of our revenue is derived from commercial business and our defense business is 35%, has decreased from prior year due to the increases in the commercial build rates. So I'm now going to hand over to Elena, who's going to do the financial summary.

Okay. Touching on the highlights for 2024. In terms of revenue, our consolidated revenues for the year ended December 31, 2024, were $942 million, an increase of 7% from the $880 million achieved last year. Our revenues in Canada did decrease by about 1.8% as a result of labor strike last year that we had at one of our divisions. That was more than offset by increases in the United States by 12.1% and in Europe by 14.5%, mainly attributed to build rate recoveries on single-aisle programs. Our gross profit came in at $108 million for the year ended December 31, and that is a comparison to about $89 million in the prior year. The increase in profitability is mainly a result of volume increases, contract rehabilitations on certain programs and our favorable product mix, offset in part by price increases on materials and supplies.

Elena, this year in 2025, we should exceed $1 billion of sales on an annual basis.

That's our forecast, yes.

That's very correct. Our previous peak sales are back in 2019?

2019 where we just hit over $1 billion.

Just hit over $1 billion. We're finally get back to 2019?

Getting back 6 years later.

The impacts of COVID really took a time to work through both our supplier base and our customers.

That's correct.

And so returning sales back to 2019 levels. However, if you look at gross profit, in 2019, our gross profit was 14% in 2020. In 2019, it was over 15%, is it right?

That's correct.

We're still lagging in the gross profit line.

We will -- we're still lagging on the gross profit line. We do expect to improve it year-over-year. The contract rehabilitations come into play. And we get back to some of our divisional capacities where we were back in 2019.

You're going to Ivy here to say the message for them is their gross profit, although our sales back to 2020, we're still not back to gross profit level.

That's correct.

It's still work to do. So you're going to reinforce the message.

That's part of the strategic initiatives that we're going to be reviewing in the next few days.

Right, Phillip?

Yes. Absolutely right.

Okay. Next chart is there -- our next chart shows our adjusted EBITDA percentages increased to 33% from -- or $24 million. And that was an increase -- increased $24 million to $97 million for the year ended -- from the year ended 2023. We did see improvements as a result of the increase in revenue and the increase in margin improvements. The next slide is in regards to our capital investment. We invested about 3.8% in -- of our revenue in capital, which was about $36 million. Investing in new technology not only improves safety and life span, but also increases productivity and capacity requirements that we will need in the future.

So Phil, as we're getting a rebound in our sales back to where we were in 2019, hopefully see that next few years, Phil, EBIT starts to climb. We also have more demands for capital for new programs plus to retool some of our plants, modernize some of our plants. Right, Phil?

Exactly. I mean previous levels were around between 4% and 5%. [indiscernible].

So the good news is sales at the same time we're going to have hopefully will be done for new projects, new programs and more revenue growth.

[indiscernible]

On the next slide, where I'll touch upon our working capital, our working capital requirements have continued to grow in line with the growth in our business that we saw over the last number of years. There are several factors that have contributed to the growth in inventory across the industry, not just with Magellan. OEM inventory destocking and the restrictions on certain production aircraft rates have built up inventory levels in the industry. Additionally, long lead times have necessitated companies to maintain higher levels of safety stock and furthermore, inflationary pressures have played a role in driving up inventory costs.

Back in 2019, when we had $1 billion sales last time, our inventory was about $190 million.

That's correct.

Correct. And now our inventory is approaching $280 million on the same sales. So we've got roughly an incremental $100 million of working capital inventory today that we didn't have back in 2019?

There are -- some of that, yes. And some of that is the fact that we had enabled material from our suppliers. So we've now had to purchase material. The fact that there's longer lead times. So yes, we are looking at that. That is one of the areas that we are heavily focused on in terms of inventory as well as you saw in the next slide, the contract asset very well.

And Phil, we did fill -- we did some studies, Phil, at our peer group. And this growth in inventory in the last 5 years has been pretty well consistent across the entire industry, Phil, right?

Yes. So our peer group from where we were back in 2019 and the stock turns averaging between 4 and 5. And now the average across our peer group is around 3. So everybody has been feeling the same pressures as OEMs insist on buffer stocks and material and protecting deliveries. So we're sitting about the same as our peer group, but still an opportunity.

So Phil, essentially, what's happened, Phil, is our customers still are demanding more work in progress, more inventory stocks to provide that buffer against disruptions?

Yes, especially what's gone on over the last [indiscernible].

So that's the one consequence. And the second consequence is remember in the past, suppliers would provide material to us to do the work on the projects, and they're now trying to offload their balance sheets. They now say we want you to drive this material purchase directly instead of us supplying it pre board. You don't have to buy and holding your books, right, Phil?

That's correct.

So those are 2 changes. The result is, Phil, we have to hold roughly another -- if you look at the bottom slide between 2019, 2020, roughly another almost $100 million of contract assets and inventory that we held back in 2024, Phil?

Yes, that's right.

But you assured the Board that number down is your first time, right?

Will reduce this year.

So just to highlight on contract assets, contract asset is really just a subset of our inventory really just recording our WIP on certain long-term contracts in the year. So we did have an increase over the prior year. We do expect that to come down by this year -- at the end of this year and really is just -- represents the timing of activity as well as receipts from our customers. That concludes the finance section. I'll hand it back to Phil for...

Okay. So I want to discuss the challenges and opportunities and an update on our current strategy. So Magellan's business has mainly recovered from the industry challenges over the last few years, as you've just seen. But today, in front of us, there are a number of growth opportunities. Customers are ramping up their build rates. They're asking us to take on additional new business and delivering these will lead to better utilization of our facilities and improve business performance. The majority of our existing contracts have now been renegotiated and agreed addressing the inflationary pressures of the last few years. This allows us to focus on profitable growth. One specific area of growth is our sand casting business and with the lack of capacity globally, our customers are asking us to invest and grow with them to meet the demand. In parallel to seizing the growth opportunities highlighted earlier, Magellan is taking actions to improve our margins. We continue to grow our footprint in India to meet the price expectations of our customers, as announced. And we have signed MOUs with Aequs, our long-term joint venture partner in India to explore and launch additional business in MRO and sand castings. SAP is now live in 4 of our divisions with a road map to complete the rollout across all the sites. And we're further investing in automation such as machining, welding and painting robotics. And to improve the utilization of our facilities, we continuously seek opportunities across our factories such as launching automated processing sales and more efficiently perform post cast activities in our labor-intensive areas, such as sand casting facilities. So Magellan will continue to position itself as a global and key supplier to our customers. In order to achieve this, the corporation will continue to develop its people, its technical expertise and add value to our products to enable growth in selected markets. We will maintain a solid balance sheet through inventory and working capital management to support our business goals. And we'll leverage our technology and engineering capabilities and continue to assess our facilities and products to further exploit our low-cost footprint, thereby improving our financial performance and competitiveness. Continued improvement in our quality through our 0 defects program has been deployed across all our sites, and we continue to drive 100% delivery performance, utilizing our Magellan operating system. We want to continue to inspire, develop and invest in our people to drive success. We continue to direct resources towards our employee engagement and developing our leaders of the future. We want to meet our ESG expectations. So Magellan will continue to provide information critical to our sustainment efforts and monitor evolving climate-related risks and the expectations of all our stakeholders. So Magellan continues to uphold environmental, social and governance principles in our conductor business. Our environmental reduction and conservation programs are well established and we've achieved significant reductions in greenhouse gas emissions, water usage and waste generation. We recently launched a program to showcase the climate change initiatives in place across our divisions, not only to recognize our employees, but to also spread ESG awareness to wider audience through social media. Our focus on operational excellence continues to be aligned with our ESG principles. Under environmental, we're decreasing our demand on energy and water, generating less waste and lowering our carbon footprint through operational efficiency improvements. Under social, we take measures to engage and train our employees and create a safe work place to lower employee turnover and improve our ability to deliver quality products on time. And finally, under governance, our policies ensure we operate with integrity, accountability and transparency. So in summary, revenue has continued its recovery path, increasing by $63 million year-over-year, a 7% growth, contributing to a $26 million improvement in profit, which is more than double the amount from the prior year. Our strong balance sheet has allowed us to weather the inflationary pressure and supply chain disruptions in the industry. We're fostering a principle of right first time and have made progress on our 0 defects program across all our divisions. And we've renewed significant contracts with major customers and secured new work packages. We continue to develop our employee engagement program with initiatives and action plans at all levels in the business. And we've established an ESG framework and aligned all our sites to ISO 45001. So looking forward, a key priority is driving the business to improving profitability to new business opportunities and improved efficiencies through better utilization of our divisions. We continue to improve our working capital -- we will continue to improve our working capital through inventory optimization initiatives. And we're now in a better position to focus and meet our customers' needs with our robust plans and continued focus on operational excellence, utilizing the Magellan operating system. And we'll continue to enhance our engagement program with all our employees. And we'll continue to monitor evolving ESG standards and reporting requirements to strengthen our path to sustainability. So this concludes the presentation. I would like to take this opportunity to thank all our stakeholders, our customers and our employees for their continued support and commitment to Magellan. So we're now going to open up the floor to any questions. Who wants to start?

Strong balance sheet is amazing. It seems like you have a lot of firepower to do M&A. Are you actively looking for M&A? And what are the prospects for doing acquisitions?

So we're quite picky when it comes to what we look at because we know the segments where we're good and we want to build on those segments. And when you look at our portfolio as well, there's areas that we can see opportunities for growth and we're being pushed heavily on that. If you look at what we've done with the 2 MOUs, we're also looking at growing generically with some JV Partners. There's 2 or 3 businesses that have come across our -- that fit strategically with what we're looking at, at the moment. Will they come to fruition? I don't know. But we have 2 or 3 areas that we're looking at, at the moment. So yes, but we need to make sure the synergies are there. I mean it's not just adding something and not making any better than it is. So we need to make sure that it fits with our strategy.

Capital allocation otherwise, like the dividend and buyback and the dividend a number of years ago. It sounds like the outlook is much more positive now. I mean, is there any thought to revisiting that?

Yes.

I'm Bob. I'm a former institutional shareholder and currently an individual shareholder. I'm encouraged to see the big improvement in net income, although to be frank, a large part of that comes from a lower tax rate. But even with the higher net income this year or the year just finished, return on equity is still only about 4%. And so I'm a little concerned that with all of this explosive growth that you'll bring in lots of revenues with typical margins. And the ROE has to get higher than that if the stock is ever to get above book value per share and the poor guy that's held the stock for 30 years, if he's ever to make any money, you need to have a much higher return on equity. And I'm not sure it must be margins. I think your Chairman in his ad hoc comments [indiscernible] on it, there seems to be a lot of redundancy in the balance sheet. I retired my time in my hands. I Google map every single location. And you can't tell a lot of Google Maps, but a lot of love to be small and dumpy and unadjacent places where you could actually handle additional revenue. So my question, I guess, is, first of all, can you be confident that you will have better profit margins on the new business you bring in? And secondly, don't you have an awful lot of redundant assets on the balance sheet that would improve the asset turnover without actually having to increase revenues?

So answer to your first question. I mean, we only take on business that's going to give us the right profit margins, okay? So obviously, through the bad year, should we say, with inflation at record levels, what you put in a bid and the contracts that you've won, then you can see most businesses that went out the window. So we've addressed those. And when you talk about the new business, so we've renegotiated existing contracts, which is good. We lost very little work in that, and those margins will be what we expect them to be going forward. And when we bid new business, we're very careful to ensure that we are covering what we need to cover because material exposure has been a problem historically in a lot of people's contracts with certain materials and certain alloys have caught people out in the past. So there are some areas that we've had to focus on to make sure we get the right business going forward. So everything that we did, we're expecting to achieve the margins that we want. And then when we talk about our assets, yes, I mean we've got 19 facilities, and we -- some of those are not fully utilized, yes. I mean we know which ones those are, and our business development team are actively looking in those areas to ensure because if we got $1 million machines out there now, it's ready to grow. And if it's the build rates are not going to fill it for one reason or another, then the BD team are looking actively to make sure that we control those machines. And therefore, some of the bids have no cash flow in them. I'm not sure if that answers your complete question.

Yes. I mean, Bob, I think, Bob, that we do have some redundant assets in our books where we're sitting here today, we own this entire site at one time. We sold the site for $45 million. They built, I don't know, Amazon distribution warehouse. So we now lease this plant long term, which is on our books now as what you call asset liability lease on here. We do have a number of pieces of property around the world that are surplus. I think we have a big chunk of property down at -- down the old plant down there that's -- we've had appraisals that show us with tens of millions of dollars. So we are moving those things. The one thing I've learned in this business, it is that things don't move quickly in this business. And we have contracts that they go back 10, 15, 20 years that we're just getting resolved with clients today in terms of the final closeout of the contracts. And if you rush to a decision in the business, it costs you money. You've got to be a long-term view. And so I think the opportunity we have is we have a lot in inventory and contract assets. I think we can take some liquidity out there. And I think that we do have now growth opportunities where in some of our operations, we are looking -- either we have excess capacity plant, plants aren't full. We have lots of capacity to grow internally without a lot of incremental cost. And when you talk about our plans, I mean, we've had -- we've got the Board today. We just had Airbus into one of our operations in the U.K. they're looking at new work, and they were very impressed by the nature of the operation internally of the plan. Is that right, Jeff? So I think our operations are across the board pretty well structured and pretty well set up from a customer point of view. That was, Jeff, right? What did the Airbus guys say?

So we had a delegation from Airbus at one of our facilities in Europe. Recently, they bought 12 in total and they want to take a look at operation and the opportunity to grow and expand from there with some of the positive comments I hear from customers, which is great because it gives a sense that our strategy is clear, but also presentation of opportunities is excellent.

So clearly, the COVID, Bob really was the hit to sector. I mean it knocked the entire sector in terms of travel going down. So our customers weren't flying as much. They all downsized their bid and the sector, we had -- it's taken us 3 or 4 years to get through the restructuring that was required in the new world. And I think now we're seeing a light at the end of tunnel. Hopefully, it's a good light, not train coming at us. But I think that to go to our balance sheet comment, I think the last I learned is you want to have a strong balance sheet in the sector to get through the ups and downs, right? And so and we went through dividend a number of years ago because I thought it was important to pay to shareholders. I was not a shareholder. I wasn't 100% happy that the dividend down, but I think it was a prudent thing to do at the time.

Any more questions?

Yes. It sounds like 2025 is shaping up well. You talked about revenue getting above 2019 and still some work to go on the margin side. If you look out a couple of years beyond 2025, like what's the sort of blue sky in terms of revenue? And could margins go even above where they were in 2019?

Our forecast is showing that we're going to continue to grow topline and continue to grow the bottom line. I'm not going to give you exact numbers. But yes, both of those are growing.

What are the main opportunities and concerns that you have from both the topline and bottom line perspective looking out?

Well, I would say on the top line, it would be Airbus is a bit slow at the moment, a lot of stock around them. And Boeing getting above rate 38 and getting the approval on the FAA to go above rate 38. Boeing have been really slow. And therefore, when you look at where we're were performing and where we've got capacity, it will be in those facilities that we're working predominantly on the Boeing aircraft at rates around 50, and now they're doing with the strike and if it's gone on, it's been very slow. So our numbers have the benefit of Boeing getting back to where they want to get to and their growth. So -- and if you look at Airbus talking about growing from the current rate of around 50 to 60 going up to 75 in the next few years, those contractors alone -- those contracts that we have alone will show significant growth. We have other areas of opportunities, and then we talk about our Rockwood plant and our Winnipeg facility and our defense business, we are following up on a lot of opportunities there as well at the moment. So we want to grow both sides and take advantage of customers needing capacity and suppliers like ourselves.

And castings?

Yes. In casting, we mentioned casting is a great growth opportunity. There is a lack of capacity out there. Hence, the reason we looked at potentially a low-cost source for those as well, plus we're looking at growing both of our U.S. and Canadian divisions. So we're looking at additional facilities and additional equipment to meet that demand, it's significant.

But we have built-in growth essentially -- I mean not the world. I mean, I've talked to some airlines recently and their bookings are down between 10% and 15% year-over-year right now. So you've heard some discussions Delta, United, they've withdrawn their consensus forecast. They just -- the market is so uncertain now. So there may be some pullback. But assuming that, that stabilizes on the air travel, right now, Airbus at 50, they're going to 70, Boeing to 377 going back to 50 or 60. We're on both those platforms in a material way. So that's built in organic growth rate there or inherent call it organic growth inherent growth. Then on top of that, we do have probably -- I don't know if I use the word bursting, but bursting -- we do have a number of exploding organic growth opportunities that are for that we haven't seen in some companies. I think that because of the growth, and I think it's evident that governments around the world have all stated they're going to increase their defense spending materially. Some it's going to have to flow back to the supplier base. And Canada is probably one of the real laggers in that. So in some ways, we should be better positioned in Canada than elsewhere. So there are some positives on the horizon, it looks like, but I'm always cautious because there's always done intensive tariffs. What's going to -- we don't know right now what's going to happen there in terms of...

Online recovery, is that mostly just the ramp that we're talking about in commercial aircraft production? Or is there a lot of contract renegotiation still to go...

Most of our contracts have been renegotiated. Now we haven't seen all the benefits of those renegotiations yet, but a lot of it is better utilization of our facilities as you put more volume from an existing machine, it costs you $3 million. And as the rate goes up, you get the benefits with additional cost. Any more questions? Okay. In that case, I'd like to say thank you for everybody for attending. And if there's no more questions, have a safe journey home. Thank you very much. Thank you.