Morgan Advanced Materials plc (MGAM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to today's Morgan Advanced Materials Financial Results 2020 Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Pete Raby to begin. Pete, please go ahead.

Thanks so much. Good morning, everyone. I'm Pete Raby, the Chief Executive of Morgan Advanced Materials. I'm joined on the call by Peter Turner, our CFO. I'm going to say a few words of introduction. Peter will then take you through our preliminary results for 2020, and I'll then take you through the business unit performance, our wider strategic progress and our ESG priorities. The safety of our people is our top priority. Through the first quarter of last year, we made changes throughout our business to ensure we maintained a safe working environment during the pandemic. We've changed the physical layout to maintain social distancing, we've introduced the appropriate hygiene and disinfection processes, we've provided an additional PPE, and we've reviewed our work processes, changing them as necessary to keep people safe. Where possible, we've introduced flexible working. These measures will remain in place for as long as necessary, and they allow us to operate our facilities safely. And, at this point, all of our plants are operational. Trading for the year has been resilient, with a decline of 11.4% in our revenues on an organic constant currency basis. Given the market context, this is a good performance, and it demonstrates the improvements that we've made to the business in recent years, and the benefits of our diverse end markets. We saw growth in health care and security and defense segments, more than offset by declines in aerospace, industrial and metals markets. We took rapid action to manage our costs and delivered an EBITDA margin of 10.1% despite the sharp revenue decline. We've also focused on cash generation and have improved free cash flow to GBP 72 million, give a net debt-to-EBITDA ratio of 0.8x, excluding IFRS 16 impact. In response to the weak demand outlook, we launched a restructuring program, and we're ahead of plan. We are increasing our cost savings target to GBP 23 million a year by 2022 for the same cash cost of GBP 30 million that was announced at our interim results presentation. This will allow us to emerge stronger from this crisis, trading well through the period of lower demand and enable us to expand our margins from historic levels once volumes return to more normal levels. As part of our continued focus on ESG, I'm delighted to announce our commitment to reduce our Scope 1 and Scope 2 CO2 emissions by 50% by 2030 from a 2015 baseline. And this is part of our aspiration to reach net zero by 2050. 2020 was a uniquely challenging year. I'm very proud of the way that all of our employees have responded during this very difficult time, and I would like to thank them for the tremendous effort and support that they showed during the year. I'll now hand you over to Peter, who will take us through the financial results. Peter, over to you.

Thank you, Pete, and good morning, everyone. Let me start with the summary financials for the period. Revenue at GBP 910 million was 11.4% lower on an organic constant currency basis. Group adjusted operating profit was GBP 91 million with margins of 10.1%, with the impact of lower volumes, partially offset by our rapid actions to adjust the cost base of the business to adapt to the lower demand position. Operating cash flow was GBP 146 million and free cash flow at GBP 72 million was a particularly strong performance. I'll cover more detail on cash in a moment. Adjusted EPS was 19p per share, reflecting the lower operating profit. We're recommending a final dividend of 3.5p per share, bringing the total dividend for the year to 5.5p per share. Looking forward, the Board is looking to grow the ordinary dividend as the economic environment and the group's earnings improve, targeting a dividend cover of around 3x adjusted EPS on average over the medium term. On a statutory basis, we made a loss for the year, driven by the restructuring charge and impairment of assets, which we announced at the half year. And as usual, we've included in the appendix the financial information in statutory format. Turning now to the year-on-year movements in our adjusted operating profit. This chart illustrates the key drivers. We've seen a significant impact from the reduced volumes, particularly from the second quarter onwards. We've continued to realize positive pricing, which has offset cost inflation with our ongoing continuous improvement projects, driving further benefits despite the disruptive environment we've seen in the period. These have been supplemented by our actions on discretionary cost savings, including curtailment of discretionary spend, temporary hiring freeze for all of the most the most critical roles, temporary salary reductions for the Board and Executive Committee. And we also see the initial savings from our restructuring program with around GBP 6 million of savings delivered in the period. As we announced at the half year, we've launched a restructuring program to position the business for a period of lower demand. This program is ahead of plan, and we've increased the expected benefits from GBP 20 million to GBP 23 million per annum from 2022. The activities fall into 2 primary areas. Firstly, we've seen a significant reduction in our aerospace end markets and, in particular, in ceramic cores, and believe this downturn is likely to be sustained for an extended period. In response to this, we're closing ceramic cores manufacturing sites in both the U.K. and the USA. While widely across the group, we've seen significant reductions in our industrial end markets, and taking steps to align our cost base to this reduced demand position. This includes the closure of sites, the closure of underutilized production lines in Thermal Ceramics business and a wider restructuring of roles across the group. The anticipated phasing of the costs and benefits of this program are set out in the table at the bottom of the slide. Turning to specific adjusting items. We have the impairment of the assets announced at the half year as well as the charges for the restructuring program covered on the prior slide. On the impairment of assets, within Technical Ceramics, this primarily relates to the ceramic cores business, where we've seen the significant downturn in aerospace demand. The impaired assets comprised intangible assets recognized on the acquisition of the Carpenter business back in 2008 and on property, plant and equipment. Within Thermal Ceramics, the reduced demand in aerospace, automotive and industrial end markets has resulted in the impairments. These include assets that are related to the closure of sites and underutilized production lines as well as the impairment of intangible assets recognized upon the acquisition of Porextherm in 2014. The GBP 24 million charge on restructuring relates to the costs incurred in association with the restructuring program on the previous slide. There are a small number of items to be accrued for in 2021 once we reach the recognition criteria for these elements. Finally, we have a small gain on the disposal of the Diamonex business we announced in the third quarter. Turning now to our cash flow. On trade working capital, we've seen an improved position this year, and particularly on trade debtors and also on inventory. We have constrained capital expenditure given the economic environment, but continue to invest in projects for health, safety and the environment, as well as select other projects to improve efficiency. On the financial items, you'll see the reduced interest paid following the repayment of one of our U.S. private placement notes, and that brings free cash flow before dividends for the year to GBP 72 million, significantly improved on the prior year, reflecting the benefits of the actions we've taken to improve our liquidity in this period. This next slide is a reminder of the strong maturity profile of our debt with no maturities before 2023. The net debt-to-EBITDA ratio on a pre-IFRS 16 basis, which most closely aligns to our banking covenants, has improved to 0.8x, given the strong cash flow in the period. We also have significant liquidity, with net cash of GBP 75 million and an undrawn revolving credit facility of GBP 200 million. Overall, we have a very resilient balance sheet position. On pensions, we've seen a GBP 19 million increase in the deficit in the year with the cash contributions and investment returns more than offset by movements on the liabilities caused by lower discount rates. The impact has been moderated by the work carried out over the last few years to make the pension scheme position more robust and to better match the assets and liabilities of the scheme in terms of both interest rate volatility and movements in inflation. Finally, I've included an update on the financial framework for 2021. As you can see, we expect our adjusted effective tax rate to continue to be around 27% to 28% this year. Based on the current exchange rates, we expect our finance charge to be around GBP 12 million, comprising a cash interest charge of around GBP 7 million on our net debt and noncash pension financing charge of around GBP 2 million, and GBP 3 million of interest on our lease liabilities. We expect our cash contributions to the defined benefit pension schemes across the group to be around GBP 21 million, a majority of which is to our U.K. schemes. As usual, we set out in the appendix, sensitivities for revenue and adjusted operating profit to changes in value of sterling against both the dollar and euro, and based on current exchange rates, we expect this to be a headwind to our reported earnings. Following the divestment of our U.K. electro-ceramics business back in 2017, in June last year, we closed our U.S. electro-ceramics business following the completion of last time buys for our customers. This will be a headwind to operating profit of nearly GBP 3 million in the first half of 2021. We also have a small impact from the divestment of the Diamonex business. And then, lastly, from 2021, we expect CapEx to be back to a more normal level between GBP 40 million and GBP 45 million. That covers the key financial items. So with that, I'll hand you back to Pete.

Thank you, Peter. I will now take you through the performance of our business units and then an update of our ESG priorities, our wider progress and the business outlook. Slide 14 shows the organic performance in our major market segments. Revenues in our industrial segment declined 15% during the year, with volumes down in all regions, but with bigger declines in Europe and North America, reflecting the pandemic impacts in those geographies. Transportation was down 28%, with aerospace, the primary driver, down 40%. And with aerospace -- sorry, and with automotive and rail also declining. Chemical and petrochemical revenues were flat, reflecting growth from later cycle project activity in our Thermal Ceramics business during the first half and then declined in the second half of the year. Security and defense revenues increased by 24%, driven by higher ceramic armour sales in Seals and Bearings and increases in other defense sales from Technical Ceramics in North America. Health care revenues grew 6%, driven by product sales for a variety of medical applications, including implantable devices and medical scanners. Semiconductors declined 4%, with growth in Asia, more than offset by declines in North America and Europe, and reflecting the end-of-life of some electronic products in the North American piezoceramics business that ceased production in the second half of last year and declines in the Diamonex business divested towards the end of last year. Finally, our revenues for the energy segment declined 11%, with reductions in power generation and reduction in maintenance activities, reflecting lower overall demand levels. Overall, we delivered a resilient revenue performance in a very challenging market. Moving to our global business units. I'll start with Thermal Ceramics. Thermal Ceramics revenues declined organically by 15.5%, driven by industrial and metals markets, which were down in each region. Operating margins declined to 7.8%, reflecting the drop-through on the lower revenues, partially offset by cost reductions. Margins were also depressed by a GBP 2 million credit loss provision taken in the first half. Turning to Molten Metal Systems. Revenues were down organically 13.8% on the prior year, with declines in all regions, reflecting weakness in end market demand for aluminum, primarily in the aerospace and automotive sectors. Margins declined to 7.8% from the prior year, reflecting the drop-through on the reduced revenues, partially offset by cost reductions. In Electrical Carbon, revenues declined 6.3% organically, with lower demand in industrial and rail markets, predominantly in North America and Europe, partially offset by strong growth in the semiconductor segment in Asia. Margins expanded to 15.6%, reflecting the benefits of cost reduction actions and a GBP 2 million one-off insurance credit relating to prior year claims. Moving to Seals and Bearings. Revenues grew 1.5% organically, with growth in ceramic armour, partially offset by declines in industrial and transportation markets. Margins expanded to 18.8%, reflecting the drop-through on the higher volumes and the impact of cost controls within the business. Technical Ceramics revenues declined organically by 14.8%, with declines in aerospace and industrial segments, partially offset by growth in health care and defense. Margins reduced to 6.5%, reflecting the drop-through on the reduced revenues, partially offset by cost reductions. Restructuring actions are underway to improve the margin position. I'll now turn to our position and plans around the environment, social and governance, or ESG. Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life. This purpose guides our decision-making and strategy, and we deliver on it through the way we operate and manufacture our products and through the products themselves and the benefits that they bring to our customers. We're constantly investing in our manufacturing processes and technology to reduce the environmental impact of our business. In parallel, we're investing in new materials and process technologies that improves the performance of our products and deliver bigger environmental and safety benefits to our customers. Starting with our products on Slide 21. We deliver on our purpose through the products that we make. Our products make a positive contribution to our customers and support 3 United Nations Sustainable Development Goals. We improve the quality of life through our medical applications, we enable greener electricity generation with our carbon brushes in wind turbines and our ceramic products in solar panel manufacturing. We enable the digital world and all the benefits that it brings to health and the environment. Our fire protection products help to keep people safe. We enable electrification for cleaner public transport through our carbon strips and brushes. Our insulation products help our customers to manage heat and reduce their energy usage. Today, we estimate around 60% of our revenues support these goals directly. Turning to our sustainability strategy. Over the last 12 months, we worked to enhance our strategy and accelerate the improvements we're making in our business. We've appointed a Group Director of Environment and Sustainability to lead our activities in this area. We saw input from employees, reviewed our past performance and progress and the priorities of wider stakeholders, including our investors. Based on these inputs, our executive team and Board of Directors have defined our ESG priorities, defined our aspirations and set targets for improvements across the business. Going forward, we'll update on our progress and plans twice a year with our results, and we will also provide a comprehensive summary of our progress and position in an annual sustainability report. Slide 23 shows the priority areas that we'll be focusing on, together with our aspirations and goals. I'm delighted to announce that we are committing to reduce our Scope 1 and 2 CO2 emissions by 50% by 2030 from our 2015 baseline as part of our aspiration to meet the goals of the Paris Agreement and be net zero by 2050. Our products save considerable energy for our customers, but they are relatively energy-intensive to produce, and making these reductions will be a considerable challenge for our business, but it is one that we enthusiastically embrace. Turning to water usage. We'll use water sustainably across our business. We're committing to reduce our water consumption overall and in high and extremely high water stressed areas by 30% by 2030, also from our 2015 baseline. We're also determined to provide a safe, fair and inclusive workplace for our people. We've made considerable progress on safety in the last 5 years, and we've committed to a lost time accident rate target of 0.1 by 2030 against our aspiration of 0 harm. We want our workforce to reflect the communities in which we operate, and we set a target of 40% of our leadership population being female by 2030. Finally, we want a welcoming and inclusive environment for our employees where they can grow and thrive. We've set a target of achieving a top quartile engagement score by 2030. To give you some further insight into our CO2 reduction plans, Slide 24 shows the planned sources of reduction across our business. We estimate we can improve emissions by 19% by switching to renewable electricity, where it is available. Through optimizing our processes, for example, through maximizing the loading in our kilns or adjusting firing profile, we can improve by 10%. We can deliver a further 6% improvement by converting an initial tranche of our natural gas kilns to use green hydrogen. Finally, we estimate we can deliver a further 15% reduction through process change, for example, by using heat recovery technologies. Taken together, these improvements give us a path to delivering a 50% reduction in Scope 1 and 2 CO2 emissions by 2030. Finally, Slide 25 gives you the context of our performance trajectory, together with our targets. We have reduced our CO2 emissions by 10% from 2015 to 2019. We delivered a further 13% reduction in 2020, but that largely reflected the reduced business volumes. We've reduced our water usage in stressed areas by 20%. Our lost time accident rate has improved from 0.45 to 0.18 in 2020, albeit with a worsened performance in 2020 compared to 2019. We have plans in place to deliver further improvements to our infrastructure and to processes, and to provide further training to our employees to strengthen our safety culture. From a diversity perspective, while we've made good progress improving the diversity of our Board and our executive team, we've got more to do in the next 2 layers of our organization. We are committed to making a material improvement to our ESG performance, building on the good performance and progress that we delivered over the last 5 years. Turning to our strategy. I'll briefly recap the key elements to frame what we're doing across the business. Our strategy is to build distinctive capabilities in 3 areas: in customer focus; in application engineering; and in materials science. We'll apply these capabilities to solve difficult problems for our customers where they value our differentiated products and support, and we'll apply these capabilities ethically and safely in line with our high group standards. We'll operate businesses that are at scale and are scalable. By at scale, I mean they're among the leaders in their markets and big enough to be resilient and able to invest and sustain their position. By scalable, I'm talking about our ability to run these on a global basis, getting synergies in technology, operations and sales. Well serve markets that are growing and where we've got room to grow and where customers value our differentiated products and services. This is our strategy for the group. It's how we add value as a group. And through the execution of this strategy, we aim to deliver more resilient financial performance and faster growth. Slide 27 highlights our strategic progress during the year. While the market environment has been very challenging and has required a lot of change in working practices, we've continued to progress with the implementation of our strategy. We have further enhanced our sales effectiveness. We've completed additional deployments of our CRM tool during the year and upgraded the functionality available to our sales teams. We've completed the remaining training for sales and customer service people not trained during 2019. We've continued with the deployment of our pricing tools and approaches, embedding those more deeply with our teams and driving better pricing outcomes for the business. Our progress with technology developments and new product introductions slowed in the year, as customers reduced activity levels, delayed trials and slowed down their own new product introductions. We diverted resources on to other projects, including some earlier-stage development work. As we move into 2021, we're seeing the pace pick up as our customers move back to more normal activity levels. Turning to people development. I'm pleased with the progress during the year. Our teams made an effective switch to remote working, and we've made a similar transition from our -- for our development programs, completing our in-flight programs with very successful virtual events. We also made further progress strengthening the team, completing a number of key appointments during the year. Finally, we made further improvements to our operational performance in the year. While this was more difficult in places with the COVID disruption, we beat our prior year efficiency improvements, and this has supported our profitability in the year. We're seeing some impacts on our delivery performance with plants shut down or running with lower capacity. Overall, though, we've performed well for our customers, in some cases, switching production between plants to mitigate the impact of COVID-enforced plant closures. Turning to the outlook. There is a higher level of uncertainty than usual given the ongoing disruption from the pandemic. Vaccination rates and virus mutations are being closely watched across the world. We've seen a steady improvement in the order momentum since the sharp slowdown in the second quarter of last year. From a trough in Q2 2020 of a 30% decline in order intake, that recovered to a 4% decline for the 3 months from November 2020 to January 2021, compared to the equivalent prior year period. We expect revenues to start to grow from the second quarter onwards, and our expectation is for modest organic constant currency revenue growth for the full year. We expect margins to increase with the benefits of volume leverage and the impact of restructuring actions that are underway. In summary, keeping our people safe is our top priority as a business, and we have measures in place in all our plants to ensure social distancing and appropriate hygiene, disinfection and use of PPE. Our trading has been resilient with an 11.4% organic revenue decline, reflecting the progress we've made in the business and the benefits of our diverse end markets. Our focus on cost and cash management has allowed us to deliver an operating margin of 10.1% and free cash flow of GBP 72 million. We entered 2021 with a strong balance sheet with net debt to EBITDA, excluding lease liabilities of 0.8x. Our restructuring program is ahead of plan, and we're now targeting savings of GBP 23 million per year by 2022 for the same cash cost of GBP 30 million. We've defined our ESG priorities for the group, and I'm delighted that we are committing to reduce our Scope 1 and 2 CO2 emissions by 50% by 2030 as part of our longer-term aspiration to reach net zero by 2050. Looking to 2021, we expect to return to organic growth with margin expansion driven by volume leverage and restructuring savings. Thank you. That ends our formal presentation. We'll now take questions. The operator will explain the process for Q&A.

[Operator Instructions] Our first question comes from Richard Paige of Numis.

A couple of questions from me, please. There's obviously a lot of moving parts here. Could you just help us a bit more in terms of the '21 profit bridge of known elements? I think -- and sort of expanding on that, just where we are with body armour in terms of that contract at the moment, please?

Yes, sure. Peter, do you want to pick that up?

Yes. So in terms of body armour, Richard, that sort of picked up in our overall guidance for modest growth for the year, but we're expecting that to be a headwind. So as Pete said, we've sort of got GBP 49 million of revenue in 2020. We think that's going to drop to somewhere in the sort of GBP 20 million to GBP 30 million range this year, but there's still some uncertainty around that. But so something like a sort of GBP 20 million to GBP 30 million headwind from ceramic armour. But again, that's covered in our overall guidance. We have, clearly, foreign exchange headwinds. We've got the benefit from the drop-through of the organic growth, and then we've got the benefit from restructuring savings. We've obviously got the portfolio impacts we talked about. But overall, we're expecting to see reasonable progress in our margin trajectory in 2021.

Okay. Excellent. And a couple of other small ones. Technical Ceramics, obviously, the second half performance was quite low. And again, we've got business closures and obviously, the impact of aerospace. Just wondering how we should be looking at that business specifically into '21? And to what extent the sort of aerospace impact is going to continue to dampen that?

Yes, sure. You're absolutely right, it's a tough second half in that business. I think there's a couple of points I'd make. First of all, there is a big aerospace exposure in there. Our ceramic cores business provides a lot of content into civil aerospace engines. That was down some 40% in the year. I think as we look at the, certainly, the first half of this year, we're not seeing much in the way of improvement. That remains pretty subdued. I think there is a reasonable case to expect that volumes will start to improve from probably the sort of back end of the second quarter onwards, perhaps, as things start to unlock around the world and air travel resumes. But our working assumption is for certainly subdued activity in the first half of the year. The other point I'd note in Technical Ceramics, we have got quite a lot of R&D activity underway there in developing some new products. And we've obviously maintained that investment and maintained those overheads despite the sort of pressure on the revenues, which has obviously put a little bit of extra pressure on the margins.

Our next question comes from Anthony Plom of Berenberg.

Yes, I actually had a couple of follow-ons to Richard's questions. Just on body armour sales then. So is that GBP 20 million to GBP 30 million the sort of normalized rate post 2021? Or do you think there's another sort of step down maybe in that business? And then also, can you just remind us maybe what the sort of margins are in that business? The second question, you sort of touched on development just then. Can you talk maybe a little bit more about that, what the R&D spend was in 2020? Because I think you mentioned a few sort of product delays -- or product launch delays. So is that a bit of a tailwind in 2021? And then final question. Could you just talk a little bit about sort of cost inflation? Obviously raw materials and freight costs are up quite a bit and just how you're dealing with that as well.

Sure. So armour, yes, GBP 20 million to GBP 30 million this year. I don't -- I think our sort of normal run rate when we're sort of in between these sort of supernormal bubbles is probably in the sort of GBP 3 million to GBP 5 million a year type region. So we're expecting it to drop back to those levels in the coming years, albeit, I think the timing of that remains a little bit uncertain. But certainly could be as early as 2022. In terms of margins, obviously, we don't kind of comment specifically on that just given the commercial sensitivity. In general, that business is accretive to net margins in Seals and Bearings. In terms of R&D spend, so the absolute spend levels were lower in 2020, reflecting sort of lower discretionary costs as much as everything else. So less travel, obviously, lower bonuses, or no bonuses, depending on the situation. We did also see sort of external test activity and sort of trials and tests with customers slipping to the right, in some cases, delayed out of the year altogether for obvious reasons where customers are sort of unable to support trials or production tests in their factories because of kind of COVID disruption. I guess, in terms of sort of headcount, if you like, in our CREs, we actually had more people in the CREs at the end of the year than we did at the beginning. So we're continuing to work on the various new developments that we've got available. I was expecting probably GBP 5 million to GBP 10 million of sort of revenue tailwind last year from R&D. I think that didn't come through, given the COVID situation. That really just slides into this year. So we should see sort of GBP 5 million to GBP 10 million of revenue from new products as a consequence of the R&D work coming through in this year, and that's reflecting the guidance that Peter has provided. And then finally, on cost inflation. I don't think we're seeing anything dramatic at this stage sort of -- it's probably in the 1.5 to -- in the 1.5% to sort of 2.5% range, depending on the commodity. We have seen 1 or 2 things that there's a little bit of a spike in freight rates at the moment relating to port difficulties around the world, a little bit of Brexit congestion we've seen. We have got some specific raw materials that might be up a little bit more than that, but similarly, we've got others that are coming down.

Okay. Perfect. And maybe just one follow-up. Just on, I guess, medium-term margin aspirations, you've done a great job but kind of holding margins this year with more costs to come out. I mean, I don't want to sort of draw you on specific numbers, but in terms of that medium-term margin, I guess, where do you think it can get to?

Yes. I mean, I guess, the restructuring program, Anthony, sets out, if you like, the structural cost savings that we're sort of making to improve the profitability of the business in the longer term. So as revenues return to 2019 levels, those restructuring savings should largely flow through to the bottom line and be accretive to margin. So that's the sort of journey we're on.

Our next question comes from Harry Philips of Peel Hunt.

Just a couple of quick questions, please. If you could, Pete, elaborate a little more on the, sorry, I have take my glasses off, the ceramic cores business and what you're doing there. Because clearly, big reduction in 2020. If I remember right, Pete, there were sort of issues there 3 or 4 years ago, which have now been rectified. Is this going to be -- when the industry picks up in such a sort of technical area, how are you balancing sort of taking costs out in the short-term and retaining capacity into the medium and long-term when hopefully commercial aerospace recovers? And then I'm afraid a perennial question, particularly now with leverage at 0.8x, where are we potentially on M&A because clearly, the structure of the business has held up extremely well, as Anthony said, in terms of your margin performance and things like that. So clearly, the business is well set. Is '21 the year when you sort of press the green light?

Thanks, Harry. Yes. I'm sorry to call that the market has been very tough, as I think everybody knows. We are closing -- or we have closed a plant in the U.K., consolidating basically 2 plants into one. And then, in North America, we're closing a couple of plants also. In effect, what we're doing is closing less productive plants and moving that volume into our more productive facilities where we've been investing more recently. The consequence of that is we will have sufficient capacity to deliver as the market recovers but from that smaller footprint, simply by using our sort of more productive assets to accomplish that. In terms of M&A, yes, we're very focused on what we can do in the M&A space. I would say the intensity is up. We did -- we were sort of looking during last year, but we did slow that down some given the obvious COVID circumstances. We're looking very hard this year. And while there's a degree of opportunism around these things, I'm cautiously optimistic that we'll make some progress in the coming years.

[Operator Instructions] Our next question comes from Edward Maravanyika of Citi.

Just had a question on the kind of cash -- the cost-saving initiatives that you initiated in the wake of the crisis. Are there any of those costs that won't come back, like maybe you won't go back to the level of travel that you were doing before the crisis? Just maybe if you could talk to that, please.

Yes. So, I guess, if I sort of take the sort of question in 2 parts. The structural cost savings that we've been talking about, those are sort of permanent and lasting, if I can put it that way. As I said in my sort of profit bridge, there were some actions we took in 2020, which were sort of short-term in nature, sort of focusing on discretionary costs. Obviously, bonuses were lower. Travel was lower, as you say, Board and exec salary was lower. So some of those reverse, obviously, as we go into 2021. But if I take travel as an example, I don't see it going back to 2019 levels. We've all learned to use technology much more efficiently over the last year than we had previously. So some of those stay, but obviously, part of those reverse as we go forward as well.

Okay. All right. And then maybe if you could just comment on use of the balance sheet in the context of that sort of balance between M&A opportunities and maybe pension obligations?

Yes. So we've obviously got a funding plan already agreed with the pension trustees. So, in essence, we're putting in, as I say, sort of GBP 21 million a year into the pension schemes. We continue to see opportunities to sort of outgrow the dividend over time. So that will obviously be another use of cash. And then beyond that, we want to continue to invest in the business through a combination of organic investment. And as Pete said, as opportunities arise, M&A opportunities as well. So those would be our sort of priorities in terms of use of cash across the group.

And for CapEx, we can keep it at about GBP 40 million to GBP 45 million a year for the next few years or...

Yes. I think so. It will depend a little bit, obviously, on the sort of rate of growth. We see specific growth opportunities, et cetera. So I don't want to constrain us from good opportunities as we go forward, whether there are efficiency or growth. But I think something in that kind of range. GBP 45 million on average probably is a reasonable estimate for the medium term. There will be years when we're above that, and I'm sure years below it as well.

We have no further questions on the phone line, so I'll hand back.

Very good. Well, thanks so much, indeed, everybody. I think that closes our call. I hope you all stay safe. Thanks very much indeed. Thank you.