Renold plc (RNO) Earnings Call Transcript & Summary

So good morning, ladies and gentlemen. I see it's now 9 o'clock on my compute clock. So we'll get going. First of all, then, good morning to you, ladies and gentlemen, and welcome to the Renold Plc Interim Results Presentation for the 2020-'21 financial year. I believe you all know Robert Purcell, our CEO; and me, Mark Harper, Company Chairman; but I'd like to introduce our new Group Finance Director, Jim Haughey, who joins us at the start -- who joined us, rather, at the start of October. A very great welcome to you, Jim.

Thank you.

I'd now like to go through some procedural matters before we begin the presentation. The presentation and Q&A session this morning will be recorded and may be used internally and externally. At the end of the presentation, please ask questions by raising your virtual hand on your Teams screen. You'll be invited to speak by me [Technical Difficulty] Please remember to unmute yourself to ask your question and then mute yourself again and take down your hand after you've spoken. Those who've dialed in to listen to the presentation will be invited to ask questions once we've completed the Q&A with those who have participated by full Teams audio visual. You most likely have seen our RNS announcement from earlier this morning. Clearly, it's the most challenging time for most companies, Renold included. However, I'm very pleased that due to rapid and early executive action combined with past strategic initiatives, we have delivered a robust and resilient set of results. I'll now hand over to Robert and Jim to provide more detail. Over to you, Robert.

Good morning, everybody. As Mark said, my name is Robert Purcell, I'm Renold's Chief Executive. As usual, this morning, we'll go through 3 sections. A quick executive summary from myself. Jim will then take you through some detailed numbers, and I'm going to finish off with a review of the last 6 months commercially, operationally and strategically. So Jim, if you just want to go over the first slide, please. The first half of our financial year has been unusually interesting, coinciding as it has with the COVID-19 pandemic. I will let Jim explain the numbers in more detail, but we produced a resilient first half performance, as you can see on this slide. The financial results have been robust, whilst we've held our adjusted operating margins at a good level despite a large pandemic hit to revenues. The star of the show is our cash flow. Net debt has fallen by 28% or GBP 10.2 million to GBP 26.4 million. Order intake is steadily improving. We've executed well in the first half and built on all the hard work we've done over a number of years to create a group with a more flexible cost base that is now well positioned for market recovery. The swift and structured approach we've taken to controlling costs and preserving cash have given us clear headroom on our banking facilities and associated covenants. The major cash restructuring from previous years is complete, and the leverage remaining below recreated financial space and giving ourselves options as to how we move forward. So Jim, if you want to just take us through the numbers, please.

Okay. Well, to start off with, the headline number is, obviously, the turnover shows the impact of the pandemic. Turnover is down GBP 16.7 million or 17% and we're supported at the start of the year via order book. Operating profit held up well at GBP 5.8 million, with the operational gain on the volume drop being a respectable 11.4%, which led to a decline in ROS of only 70 basis points to 7.1%. The ability to flex costs in line with turnover is further illustrated by the 50 basis points increase in EBITDA margin to 13.5%. The reduction in net debt, which Robert mentioned earlier at the start of today's presentation, showed marked improvement with net debt reduced GBP 10.2 million to GBP 26.4 million from the year-end number. Gearing, that's the net to EBITDA ratio, stood at 1.2x, a reduction of 0.3x since year-end. Adjusted EPS at 1.1p, fell in line with earnings. But again, we've actually got quite a strong story on the improvement in the quality of those earnings with our basic EPS, which includes discontinued activity on the slide, improving 0.6p to 0.9p as we've completed major restructuring and disposal actions. The bottom numbers illustrate the results of the strategy over the past few years, which has delivered a more flexible business with a lower cost base. Moving into the [Technical Difficulty] division. Turnover fell GBP 40 million, 18%, to GBP 62.5 million. [Technical Difficulty] well with GBP 2.4 million reduction flowing through 17% operational gearing, which remains in a predictable reduction [Technical Difficulty] basis points in the ROS. In the TT division, revenue declined [Technical Difficulty] within the sales fall is a planned reduction of GBP 0.5 million due to project timing [Technical Difficulty] multiyear contract, which will reach [Technical Difficulty] levels in H2. Operating profit overall in the division [Technical Difficulty] million despite the COVID-19 headwinds as the impact of prior year [Technical Difficulty] division especially showed through in the numbers. As a result of our variable pay structures, head office costs were [Technical Difficulty] Overall, the prior year strategic initiatives, improved [Technical Difficulty] [ productivity and operational efficiency ] delivered a resilient margin. Okay, moving on to cash flow. The reduction in net of GBP 10.2 million, which had the effect of reducing gearing to 1.2x from the previous level at year-end of 1.5x. Working capital [Technical Difficulty] million reduction in inventory. Going forward, we may see a targeted increase [Technical Difficulty] to support customer service levels in specific parts of the business. The CapEx [Technical Difficulty] year-on-year by GBP 3.6 million. This reduction down to maintenance levels was enabled by the focused investment program over recent years, investments [Technical Difficulty] but at a slower pace. Corporation tax was a net inflow in the period as payments and accounts were renegotiated with tax authorities. Pension cash flows reduced by GBP 0.8 million year-on-year as the strong alignment that the company has with Pension Trustee allowed Renold to defer approximately GBP 2.8 million of planned pension contributions over the period 2023 to 2028. Restructuring spend was 0 in the period with major restructuring programs now complete. Moving on to the next slide. Now this is the slide you will probably see -- find familiar from year-end. And it describes the cash generation and what we've done with the cash over the period from 2012, we start to the left-hand side of the slide, to last year-end, which is the middle blue bar. And then we move on to the half year position and show what we've done at that point. So over the first 8 years of the slide, we generated GBP 142 million free cash flow. We paid GBP 16 million approximately in financing costs and spent GBP 56 million in net CapEx, and that was there to refresh the equipment within the factories. We've paid GBP 43 million in pension contributions. And as you can see, the box we've highlighted, the GBP 32 million relates to restructuring spend, which has averaged across the 8-year period of GBP 4 million per annum. We went on to spend GBP 6.7 million in acquisitions, and that goes to our year-end net debt position of GBP 36.6 million. So moving on to this half year, we then generated free cash flow of GBP 14.1 million; incurred financing costs of GBP 1.8 million; net CapEx, as I mentioned earlier, of GBP 1 million; and pension cash costs of GBP 1.1 million. What is missing from that current half year is cash restructuring spend. Obviously, we've completed the cash restructuring spend in the previous year-end. And that roughly GBP 4 million we spent can be used in a number of ways. First of all, to pay down the borrowings or to be used on other strategic opportunities as they arise. So in summary, the group is cash-generative and profitable despite the pandemic headwinds. Strong cash generation resulted in a GBP 10.2 million reduction in net debt and a rapid improvement in operating cash conversion. H2 is expected to see net debt reduction, but at a lower rate because you can't reduce the working capital twice. The amended borrowing covenants provide increased flexibility and headroom, but you should remember that the group did comply with the original borrowing covenants on these current reported numbers. And more importantly, the group complied with the original borrowing covenants, if you exclude the impact of government support schemes and the deferral of the pension contribution. The group is well placed to respond to the future impact of the pandemic, and improved cash generation and completion of the restructuring spend provides flexibility to progress with strategic initiatives as they arise. Moving on to pensions. The IAS 19R deficits increased in the period by GBP 16.4 million, as discount rates fell to 1.55%, and CPI inflation increased to 2.2% despite the strong asset returns we've seen since year-end. The vast majority of the deficit increased is seen in the U.K., which increased by GBP 15.7 million, with the impact of discount rates and inflation adding GBP 29.2 million to the liability, while asset returns [indiscernible] GBP 13.5 million. And the last triannual pension evaluation, the technical provisions deficit, or TP deficit, i.e., how the trustees and the regulator view the scheme was only GBP 9.1 million. The difference, which is shaded in green on the first bar chart, relates to the CAR or the central asset reserve, which is a funding arrangement, which the group has in place with the scheme. The CAR represents an annual cash flow of approximately GBP 3 million, which is valued by the scheme on a discounted basis at GBP 58.1 million at the time of the valuation. These cash flows are stable, predictable and sustainable over the long term, but are not included in our IAS 19R scheme valuation. It should be remembered that as the liability increases, which causes the increase in deficits at IAS 19, the same reduction in discount rate does provide a partial offset in terms of TP deficit. So we expect the real underlying TP deficit to be somewhere nearer the GBP 9.1 million level rather than what's reflected by the IAS 19 deficit. There is a strong relationship and alignment in our objectives with the trustees, which allowed an agreement to be reached to defer GBP 2.8 million of payments from this financial year over the period April 22 to April 27. Cash contribution schemes were, again, predictable and stable at approximately GBP 1.3 million per annum. In summary, despite large swings in the IAS 19R pension deficit, pension cash flows are stable, sustainable and predictable over the longer term. Now I'd like to hand back to Robert at that point.

Thank you very much, Jim. Jim, I think we had -- I had a bit of problem hearing you on the first couple of slides. But if people had the problem like I did, we could go back to those or answer any questions when we get to the end of the presentation. Okay. Over to Slide 11 then, please. I think that's what's up. Excellent. We're going to start by considering the response to the pandemic. Renold was first affected by COVID-19 in our Chinese business, and we were impacted by the lockdown in China at the end of our last financial year. This means that as the pandemic spread around the world, we were well prepared to deal with what was sent to test us. Our primary concern has obviously been looking after our international teams and seeing that we do the right things to keep people safe and healthy. There's been a great deal of work to ensure that we comply with local guidelines and that we go above and beyond this to make the working environment as safe as possible. Whilst we've had a series of enforced shutdowns around the world, most have been relatively short, many of our facilities have been deemed essential suppliers and, therefore, have been encouraged to stay open. Throughout the last 6 months, our employees have played their role in full, helping each other stay safe, helping the company reduce its cost base through reduced hours and pay, but pitching in and making sure that we don't let customers down across the vast number of sectors and industries we supply. We are, of course, deemed an essential supplier for good reason as we provide product to nearly every industry you can name, crucially at this difficult time, that includes food and beverage manufacturers, power suppliers, distribution companies, PPE manufacturers and many companies that are critical to the functioning of the global economy. We've worked hard to conserve our cash and to apply sensible and proportionate controls on our costs and capital expenditure. Because we've been running the business in a long-term sustainable fashion for a considerable time now, we've been able to deal with this period of hiatus. It should be noticed that we set out a number of years ago to create a far more flexible cost base. And through these H1 results, it can be seen that this is exactly what we've done. We are, however, aware, the future direction of the pandemic is very hard to determine, in particular, the length of time that constraints will be in place around the world. We cannot just sit and wait for the pandemic to come to an end. And therefore, in a cautious and controlled fashion, we are starting to ramp up our activities and to find new ways of doing things so that we can progress despite the limitations that exist. We will balance out all the requirements we have and will not make or take undue risks, but we are now preparing for a world where COVID-19 is present and we have to work around it. We will not be sitting and stagnating. So we flip over to the next page, please, Jim. Market dynamics. It's very hard to draw one easy set of conclusions about what we've seen from our businesses. Things are changing over time and the forces at work go well beyond just the pandemic. Factors such as the U.S. tariffs on Chinese product and a general reawakening of companies to the risks within their supply chains are starting to create movement which, with it, brings opportunity for us. This slide shows our revenue and orders by geographic region. These are shown for the combined Chain and TT business. As you can see, we saw a considerable revenue here in H1, as already been mentioned. The one exception to this was China, which obviously had its COVID shutdown before the financial year started when we're still ramping up production in the comparative period. We've seen a steady improvement in the productivity, efficiency and profitability of our new Jintan Chain factory. Whilst the facility is already operating at the levels we are anticipating, there is still considerably more benefit to come. Australasia has also experienced a more limited impact from COVID on H1 revenue. Australia itself putting a robust performance with customers looking for [Audio Gap] from this, in the bottom right-hand corner, you can more clearly see the direction of travel. It's been and continues to be a bumpy, slow but steadily improving trend. There's a line about 1/3 of the way down the page, which shows the October order level as a percentage of the month in the prior year. This demonstrates the progress against the half year averages. All territories are seeing improvements in October against the first half average with India showing the strongest trend, having gone from completely closed at the beginning of the period where order intake was effectively 0 through to a very positive position now. Having said that, Australasia and Europe are also markedly better, with the Americas showing good improvement and China making slow progress in this particular month. If we turn over to the page, Jim, for some more market information, Renold benefits from having a very diverse business. We have low and declining customer concentration, a large geographic spread, particularly for a company of our size, when we supply almost every industrial sector you can think of and probably some you can't. This slide shows some information on market sectors and customer type. Our diversity means that it's hard to draw out simple trends and we can see just a few here. At the start of the pandemic, everything was badly affected. We saw all customer types in most sectors cutting back. We had destocking from distributors and OEMs in particular, and customers who close down clearly don't need or require product. As time has progressed, distributors have largely finished their destocking and due to the MRO side of their business, started to build their volumes back up. OEMs are lagging behind. And whilst there are some small signs of OEMs recovering, it seems that their path back to previous volumes will be slower and longer. OEM customers are more affected by reductions in capital investment than distributors as they don't have the maintenance element that distributors have to their business. Our end users category has characteristics of both the distributors and the OEMs, being a mixture of both capital goods and larger scale maintenance work, and so the percentage downturn sitting between the other 2 customer groups is not unexpected. Revenue by sector does not move quickly because we have such a large and diverse customer and sector base. However, in H1, we saw an increase in percentage terms of sales within agriculture, energy, environmental, food and beverage, general manufacturing and transportation. Even in this difficult period, we saw absolute revenue growth in our energy and environmental businesses. The areas which we found most difficult were construction machinery, material handling and mining and quarrying. The first two of these sectors contain most of our OEM customers. The data clearly shows how the company benefits from significant geographic customer and sector diversification. If you flip over the page again, please, Jim. As the first half of the year has seen a substantial change in our revenue but a surprisingly strong operating profit performance, I thought we would put together a simple bridge to show how the profits are being generated. The first thing to say before we look at the detail is to reiterate what I said earlier. We've been very careful how we've generated savings, we have not done that in a way that imperils the potential within the business that we've slowed some projects down. As the world seemed stuck in April, the pain from the falling revenue was very considerable as the bridge shows GBP 16.7 million. Of course, an element of this was offset by a reduction in direct materials and other direct costs. We saw these costs reduced by GBP 5.3 million. We reduced all labor costs by a total of GBP 8 million, of which GBP 2.3 million was due to government assistance across the world. The balancing GBP 5.7 million reflects a number of actions, but in particular, a more flexible cost base that has been built since the last major downturn. The cost base has a much greater element of variable pay and more temporary employees than previously. On top of this, we've reduced hours, reduced pay and also made a [ limited ] number of redundancies and furloughs. And here, I'm not talking about U.K. furloughs, which were included in the government support numbers, but U.S. furloughs. Being a manufacturing business, as we've driven down our inventory through restricting production, we lost hours and we lost labor and overhead recovery. And this hit profits to the tune of further GBP 1.5 million. As you'd expect in these market conditions, we tightly controlled all discretionary expenditure, particularly in overheads and such areas of travel, which are, in all honesty, wasn't that hard when you can't go anywhere, but also marketing, professional fees and other similar areas. In total, we managed to reduce other overheads by GBP 3 million in the period. So if we'd like to turn over to the next page, please, Jim. We're going to look at the detail of the Chain divisional performance. Of our 2 business areas, Chain has been the most badly affected in the first half of the year. Revenue declined almost 18% or GBP 14 million, even with a strong performance in Southeast Asia. Despite this sales fall, using the types of cost control measures I've already outlined, we managed to restrict the operating profit for -- to just GBP 2.4 million, which is a drop-through rate of just 17%, giving an ROS of 9.1%, down from last year's 10.6%. Our new Chinese factory continues to develop its capabilities and performance in line with our original expectations, and this assisted our Chain's performance. In the first half, whilst our capital spend was constrained, we did continue to invest in some places and in particular, in our U.S. heat treatment facility. The first phase of that investment should be complete at the back end of this financial year. The bottom right-hand graph shows the daily order intake by month. Here, you can see clearly the steady and gradual improvement as we have gone through the year from the horrible position in April. Whilst the first half order intake was down 23% year-on-year, October was slightly positive. Chain is, therefore, recovering. And whilst we don't know the speed of any future recovery, we're confident our business is well placed to take advantage of opportunities to the market as they become available. We turn over to the next page, the TT divisional performance. TT revenue was less affected than Chain in the period, being down only 11.6%. Its better performance was partly due to the longer and lagging business cycle that TT has, the strength of the order book going into the period, and the relatively mild 12% order intake reduction, which in turn was helped by some substantial Chinese growth. You can see from the bottom right-hand graph, which again shows monthly average order intake, that TT performance has been much more steady and has shown a little recent weakness. TT has a greater percentage of its business that is exposed capital investment. And so as current projects have come to a conclusion, new work has been slightly slower coming in. Adjusted operating profits actually grew slightly in the first half as costs were controlled and we saw the benefits of last year's restructuring of the gears business. Turning the page once again. We will be talking to the market about the next phase of our strategic plan around the time of our full year results, when I hope that the future of the pandemic will be a little clearer and people will be more receptive to forward-looking conversations. However, as we're partway through the COVID pandemic, which has perhaps caused the worst economic crisis of the generation, I thought rather than look at the individual points on this slide, [Technical Difficulty] Renold on a strategic journey. Whereas the 2008, 2009 economic crisis forced Renold to have emergency rights issue with profits and cash generation collapsing, in the current conditions, we've continued to progress, deleveraging considerably as we generate cash and using our flexible cost structures to hold margins as revenue has been hit. Unlike the financial crisis, we will emerge stronger and ready to take on the opportunities the pandemic may throw up. As we've carefully invested in our factories and businesses in prior years, we've generated for ourselves the opportunity to sensibly and responsibly reflect our short-term tactics without causing issue or problems or indeed reducing the future potential in the business. Whilst our U.K. pension deficit is undoubtedly large and it varies up and down, the annual cash payments are well-defined and continue to be flat year-on-year. The U.K. Pension Trustee, rather than fighting us at a critical time like this, is actually aligned and supportive. Whilst the cash cost of the pension schemes are far from ideal for us, they are manageable and sustainable and built into our plans. The difficult economic conditions are showing the strength of the Renold business and what we're building. A more profitable service-oriented business with a conservative balance sheet that can cope with surprises and remain on track. Our cash flows that we've chosen to use for restructuring and investment in the past few years can, when needed, be switched to other purposes. So I hope one positive that might come out of the COVID-19 pandemic is finally to later rest the idea that Renold is an inherently weak business that cannot cope with periods of economic turmoil. Far from it. We're showing ourselves to be a resilient, tough and flexible business that can cope with difficult markets, whilst continuing to build and reshape our own future. So if we flip over to the last page, a quick summary from me. Our entire team has worked very hard in the first half to support our customers and keep themselves and their colleagues safe. We've taken -- we put in place some very detailed and difficult safeguards, which we continue to operate. Keeping everyone safe is a top priority. Our facilities internationally remain open, though we have to flex around shifting local regulations and recommended best practice. We are an essential supplier to many important industries, and we take that responsibility very seriously. Our standardization program is working well, though we have much left to do. This, combined with our excellent geographic footprint, provides us and our customers geographic supplier options and makes us an excellent partner for companies that are trying to derisk their supply chains. OEMs, in particular, are starting to think far more seriously about this. In the first half of the year, we've demonstrated the robust nature of the Renold business with resilient profitability and margins. We've reduced the net debt very considerably by GBP 10.2 million, as we generate cash through careful management of the business, working capital reductions and the fact that the cash trade of large restructuring projects of recent years have come to an end. The last 6 months have demonstrated the alignment of Renold with the U.K. pension scheme. At this difficult time, the business and trustee have agreed on the need for Renold to have a conservative balance sheet and to see that the business continues to perform well and, therefore, suspended our U.K. pension contributions for 12 months. Whilst this helps us today, it also shows that our objectives are aligned, creating a strong company that can flourish, making sure it has the ability to support the pension scheme long term helps both parties. Through our actions, we've reduced leverage to 1.2x EBITDA. And we have clear headroom in our banking facilities and covenants. We have managed the business carefully for a number of years and delivered a lower and more flexible cost base, which is proving itself resilient and which is increasingly well placed to take advantage of opportunities as demand recovers. This also creates its own opportunities from improved operational performance. We've created the required flexibility and options to continue to pursue our strategy even in these difficult times. The immediate outlook varies by both geography and sector, and it's difficult to forecast. However, Renold benefits from its geographic customer and sector diversity. The tight focus on cost and cash management in the first half has created a resilient platform from which we can manage through short-term disruption, whilst retaining the ability to invest in and support our strategy. Our markets should recover well. Thank you very much. And I think it's back to Mark to share us through some virtual questions.

Yes. Thank you very much indeed, Robert. And thank you, Jim. Once again, ladies and gentlemen, I apologize for the disruption that we had to the audio feed in the earlier part of Jim's presentation. And as Robert said, please do make sure you ask any questions if any of that was unclear to you. [Operator Instructions] So first of all, I can see that we have a question from Andy Edmond. So please go ahead, Andy. Do remember to unmute yourself.

Okay. Hopefully unmuted. Thank you for that very, very transparent and helpful presentation. And focusing a lot on what you've done not just recently, but as we know over a number of years in changing the group and making it more resilient. Robert, can you just give us a little bit perspective on both of the key divisions on where you think you stand against the competition given that you have that very useful chart on gradually increasing rolling order confidence? Are you finding that other groups do not have the financial resilience that you have -- have not made the appropriate investments and do you see yourself with a distinct advantage as hopefully the growing confidence returns to the macro economies?

It's a slightly hard question to answer, Andy, because I clearly can't see other people's order intake. So I'm not quite sure if they're seeing the same things as we're seeing. And of course, as I think I've shown you, it's quite different in different places. I am pretty sure there are a group of particularly smaller businesses in Chain that are finding life quite difficult. I think if you're not differentiated, if you've not got something to offer the market in a way that we have with our high-specification products, that people will find that much, much harder. In places like India where we're seeing really quite a substantial upturn in business, I can't believe that everybody is seeing that because it is not possible. So I think we must be, in some places, outperforming the market in general. In TT, it's a bit different, in that we've got a group of very niche businesses there. They're not as unified in terms of the markets and customers that we have in Chain. And I think that's more difficult to tell what's happening amongst our competitor groups. Again, though, we do have a differentiated offering in those businesses, and we believe that we are at least holding our own against the market if not outperforming. Do I think that opportunities will be thrown up by pandemic going forward? I do. I think it will be. Opportunities will arise from a change in people's concerns, in things like supply chain. So as an example of that, if you're a large OEM and you've been buying your product out of one factory in China, you are now starting to think about what happens if that factory gets closed down. It's probably something you wouldn't even have contemplated 12 or 18 months ago, but now it's something where people have to say, "What do we do if that happens?" And so they're looking for flexibility in supply chain. And there aren't actually that many people who have the sort of geographic footprint we have and can supply equivalent product from a number of different factories. So I think that's going to be a change for people. I think people got to look at the performance of their suppliers and decide whether they're financially secure going forwards as well. So I think there's going to be a number of reasons why we should see an impact on the marketplace going forward. And we believe we're well placed in nearly all the categories we can conceive of to benefit from those changes.

I very much agree. This is such a significant event that everybody's business processes and order processes are going to change. And as you said, addressing those concerns must give you a very strong competitive advantage going forward.

It's not just the pandemic, Andy. It's other factors like tariffs as well. The effect of President Trump's tariffs are yet to be fully seen, I think, in terms of supply chains. I think that -- it takes longer than people think to move things about. So I think that's still to happen.

Thank you very much for that question, Andy. If you could put yourself back on mute, please. And I see -- our next question is from Sanjay Jha. I apologize, Sanjay, if my pronunciation is incorrect. But would you please actually unmute yourself to ask your question?

Can you hear me?

We can, Sanjay.

Okay. I just wanted to -- I had a question on the chart right at the end of the appendix, where you have shown the revenue per employee. Now obviously, there's a dip in the half just gone, which I assume is because of COVID-19. But assuming you had -- you didn't have COVID-19, where would you have expected that graph to be? And is there -- is there plan to go further on that? I mean can you get more productivity out of the business? And how has COVID changed your plans, if that's a right question?

The simple answer we would expect -- and obviously, there's some lumps and bumps in it, but we'd expect our productivity, and this is quite a crude measure of productivity, but we'd expect our productivity to continue to improve. There's a lot we are doing and is currently underway to push productivity higher, both in the factories and outside the factories. When you look at our costs, one of the things that strikes you is the sort of overhead labor cost. And a big part of that is due to the myriad number of IT systems that we've had over the years, and we're on the journey to go to one, as I think you know, Sanjay, that will take heads out and improved productivity over time. And in our factories, we're becoming increasingly more productive as we renew our machinery base and as we restructure things. So there's a considerable distance to go. I've said for a long time, in fact, ever since I've been in the group, that for this sort of turnover we've got, I would have expected something like 1,600 people to be the right sort of number for the sort of turnover we've traditionally had. Clearly, if turnover goes higher, that number flexes. But I haven't or I can't give you a simple answer to the sales, the revenue per employee that I'm targeting. But I'm targeting much higher than it is today because we've still got lots of opportunity.

Okay. If -- and then if I look at the -- sorry, I'm jumping around a bit here. Just one more question. On Chart 13, you have given sort of an end user TAM. If I were to -- because of COVID-19, what have -- have you seen any kind of major change in sort of the mix of products your people ordering? Is there something -- can you read anything from it? Or do you think it's too early to say that we're seeing a shift in the sector?

Yes. I've got data in that format going back a number of years. And what we don't get is sudden shifts, because you've got so many customers and so many products and so many sectors. Actually, you get the drift over time. And then you've got other impacts such as downturns like this on it as well. What you can see, I suppose, which isn't really anything to do with general economic trends, it's more to do with us, is you can see us steadily diversifying, which we set out to do away from some of the traditional markets where we're strongest. We continue to be strong in those markets. But we're looking to spread ourselves into some of the other areas where we have been underrepresented in the past. So things like agriculture, forestry and fishing, I'm very interested in that sector and there's lots of Chain used there, and I think we're underrepresented. I'd like to see us stronger in energy and environmental, both of which grew in absolute terms in the first half, never mind just as a percentage of our sales. And I'd like to see us much stronger in food and drink. So they're all generally trends that are driven by us, I think, rather than the market. But as you would expect, in the first 6 months, we did see a hit in material handling. We saw a hit in construction equipment. And as I said, both of those, based on the customers we supply in those sectors, that's about people not buying capital goods because we're supplying people there who are making forklift trucks and construction equipment largely. And they're just not selling as much product because people aren't investing in the same way as they were. So I guess that's the only trend I can clearly see in our half year numbers that's external.

You've highlighted environment in that sort of pie chart as being 2%. So clearly, you're trying to say that's something you want to be much higher than 2%. But is it easy to just do it organically or do you have to make acquisitions?

I don't think you have to do acquisitions. I think acquisitions speed that process up. Chain is a very sticky product, as I describe it. People don't easily move supplier unless there's a very good reason. It's not just a case of wandering along and saying, I'll give you that 5% cheaper. You've got to show benefits. Chain is -- in particular, Chain is obviously 3/4 our turnover. Chain is a critical component in people's end products. And therefore, people don't easily move. So you can do it through introduction of better products, new products, better service and those sorts of things, but that's a relatively slow process. So I think you'll get relatively slow GDP plus a bit organic growth. And then I think acquisitions are sort of the cherry on top of the cake to speed that up a bit.

So can I invite Harry Philips? Harry, can I ask you to unmute your PC before you ask your question.

Hopefully, this will work. Can you hear me?

We can.

So 2 questions, please. One is the government support you receive and how that comes back into the business in the second half and through into March '22. At what sort of pace and what magnitude do you envisage? And then secondly, totally different type of question. In terms of M&A, obviously, leverage down to 1.2x, but you've got a 1-year suspension of the U.K. pension scheme. Would the trustees let you do M&A given that holiday or would they rather you repay that money first before doing M&A?