Senior plc (SNR) Earnings Call Transcript & Summary

All right. Well, good morning. Welcome to Senior plc's 2022 Interim Results Presentation. And thanks very much for making the effort to get here to the London Stock Exchange and a warm welcome to for those of you joining remotely. In terms of our agenda this morning, I will briefly cover the highlights. Bindi will run through and comment on the results and then I will give an update on markets, strategy and outlook. We're pleased to deliver the strong set of results compared to the same period in 2021, which are in line with our expectations. Profitability has improved, and our healthy balance sheet has been enhanced through strong free cash flow performance. Our core markets are showing good growth as activity levels pick up with order intake increasing and an encouraging book-to-bill ratio of 1.34. You'll all be aware of the much discussed global supply chain constraints and increasing inflationary pressures caused by external events. But as you will see from our results, we continue to manage the impact of those diligently to ensure we satisfy our customers and other stakeholders. Steico was our last acquisition in 2015, and that fluid conveys business is a real asset to the company with its position as a significant supplier to the Tier 1 partners on the F-35 program. So we're very particular when it comes to looking at acquisition targets. You can be sure that we are very positive about the growth prospects for Spencer Aerospace, which is on track to complete in quarter 3. And we're anticipating further good progress in 2022, in line with previous expectations with performance in the second half of the year expected to be similar to the first half. Reflecting confidence in the group's performance, financial position and future prospects, the Board is reinstating dividend payments and has approved an interim dividend of 0.3p per share. So with that, I will now hand over to Bindi to take us through the financial results, after which I'll pick up on market strategy and outlook to finish.

Thank you, David. Good morning. I want to start by shaping the first half performance. We delivered a strong performance with improved profitability, strong cash generation and significantly delever the balance sheet. As revenue grew 16% on a constant currency basis, the group's adjusted operating margin increased by 140 basis points to 3.1%. Adjusted profit before tax was GBP 8.8 million, an improvement of GBP 7.9 million and adjusted earnings per share significantly increased to 1.92p. With increased profitability, we generated strong free cash flow of GBP 19.3 million after considering adverse currency movements of GBP 11 million, net debt, excluding leases, reduced to GBP 72.9 million at the end of June, a GBP 7 million improvement since December. The group's net debt to EBITDA significantly improved to 1.3x, which is now within our target range. With improved profitability and a strengthened balance sheet, return on capital employed increased by 230 basis points, and dividends have been reinstated with an interim dividend of 0.3p per share. I will now summarize the key elements of the group's trading performance in the first half. We are operating in an inflationary environment and have provided bridges to show the inflationary pressure and our mitigating actions around diligently managing costs, increasing prices and surcharge recovery. In the markets in which we operate, it is not typical to be able to apply margin to cost pass-through or to surcharges. So the chart at the top bridges revenue from GBP 333 million in half 1 2021 to GBP 402 million in half 1 2022. With a stronger U.S. dollar compared to prior year, the group recorded favorable exchange translation of GBP 15 million. We had pricing benefits of GBP 8.1 million and volume growth of GBP 46 million, reflecting a ramp-up in civil aircraft production rates, growth in land vehicles, power & energy, semiconductor equipment and space markets. The chart at the bottom bridges the increase in adjusted operating profit from GBP 5.2 million in half 1 2021 to GBP 12.6 million in half 1 2022. The improved profitability reflected underlying volume-related operating leverage across our businesses and our ability to successfully mitigate and manage diligently the supply chain constraints and increasing inflationary pressures. We saw inflationary cost increases of GBP 9.4 million and recovered GBP 8.1 million through price increases. This was achieved through a combination of contractual pass-throughs. Remember, the majority of our aerospace contracts have material pass-through clauses and consistent active dialogue with our customers. Increased volumes delivered underlying profit increase of GBP 9.1 million. Resumption of customer and operational flight visits and impetus on information security and resilience increased central costs by GBP 0.9 million. The group is managing supply chain constraints and increasing inflationary pressures diligently and delivered a strong performance in the first half of '22 when compared to prior year. Looking at divisional performance. Revenue from aerospace increased by GBP 30.8 million and Flexonics grew by GBP 23.3 million. Excluding the prior sales from Connecticut, which was divested in April 2021, Aerospace revenue on an organic basis increased by GBP 39.5 million, up 18%. Civil Aerospace sales increased by GBP 40.4 million, up 33%, reflecting higher aircraft production rates, particularly for single-aisle aircraft. Defense revenue decreased by GBP 8.3 million as orders were delayed due to the late approval of the appropriations bill, which resulted in the continuing resolution coming into force and F-35 sales were impacted by customer inventory levels. A number of our aerospace businesses supply product to broader industrial markets and revenue from these markets increased by GBP 7.4 million from growth in space and semiconductor equipment activity. In Flexonics, revenue grew by 20%. Revenue from land vehicle markets increased by GBP 13.8 million, up 22%. Senior outperformed the market as we benefited from the launch and ramp-up of new programs. Senior sales to the North American truck and off-highway market increased by GBP 7.9 million, up 23%. Sales to other truck and off-highway regions, primarily Europe increased by GBP 5 million, and sales to passenger vehicle markets increased by GBP 0.9 million. Revenue from power & energy markets increased by GBP 9.5 million, up 18% because of increasing demand for upstream oil and gas activity and improved maintenance and overhaul activity from downstream and Power Gen customers. The growth in revenue in both divisions led to growth in profit and margins. In Aerospace, adjusted operating profit increased by 78% to GBP 9.8 million and the adjusted operating margin increased by 130 basis points to 3.7%. In Flexonics, adjusted operating profit increased by 45% to GBP 11.3 million, and the margin increased by 140 basis points to 8.2%. This improvement in profitability in both divisions reflected the underlying volume-related operating leverage across our operating businesses, and price increases to help offset the impact of material and other inflationary cost increases. This slide shows the reconciliation of adjusted operating profit to statutory reported profit for the period. It also highlights our interest and tax charges. Net finance costs decreased by GBP 0.5 million to GBP 3.8 million, mainly due to higher net finance income from the U.K. pension plan. The tax charge of GBP 0.8 million was recognized on the group's adjusted PBT. Looking ahead to the full year, we currently expect the group's effective tax rate on adjusted profit before tax to be around 10%. This is lower than previously anticipated as the impact of some tax incentives, R&D in the U.S. and CapEx in the U.K. as well as the primary adjustments have a positive effect on keeping the effective tax rate low. In terms of reconciling adjusted profit to statutory reported profit, we recognized net P&L restructuring income of GBP 2.8 million, which includes a GBP 3.4 million from an aerospace manufacturing grant. Other items excluded from the adjusted profit measure is GBP 0.5 million of costs for corporate undertakings. And as a reminder, the GBP 21.5 million income in half 1, 2021 related to the divestment of Connecticut disposal and costs of GBP 2.7 million relating to bid defense and other corporate activities. Now on to cash. With our focus on cash generation, we delivered strong free cash inflow of GBP 19.3 million. With demand growing and some supply chain lead times increasing, we had some increase in working capital, particularly inventory. But with a benefit from our relentless and effective focus on working capital management from a cash flow perspective, we saw a minimal working capital outflow of GBP 1.2 million in the period. We will continue to manage this diligently in line with our operational needs. Net capital expenditure of GBP 11.4 million was 0.6x pre-IFRS 16 depreciation. For the full year 2022, CapEx is expected to be slightly below pre-IFRS 16 depreciation. Payments for interest, tax and pension cash contributions totaled GBP 7.4 million. And after GBP 1.8 million net cash outflow from restructuring and corporate undertaking, the group generated net cash inflow of GBP 17.5 million in the first half of 2022. We further delevered the balance sheet in half 1, 2022. The group's net debt to EBITDA improved to 1.3x compared to 1.9 in December. Leverage is now with a normal range of between 0.5 and 1.5x. After considering the $30 million payable for the acquisition of Spencer Aerospace in the second half of the year, we expect net debt to EBITDA to be lower at December '22 compared to December '21. Net debt before lease liabilities was GBP 72.9 million at the end of June, and the group had liquidity headroom of GBP 228 million under its committed borrowing facilities. In June, we refinanced the USD 50 million rolling credit facility and extended its maturity to June 2025. And in October, we will repay the $20 million loan note as planned. The majority of Senior's borrowings are at fixed interest rates. However, we have implemented a global cash pooling structure to further enhance our liquidity and cash management, and it will help us mitigate rising interest costs on floating rate borrowings. Senior has a healthy balance sheet significantly delevered with strong liquidity. In summary, Senior delivered a strong first half performance. The group is managing supply chain constraints and increasing inflationary pressures diligently, and profitability increased in both divisions. We generated strong cash inflow, significantly delevered the balance sheet and reinstated dividends, a reflection of confidence in the group's performance today and our future prospects. Thank you. And I will now hand back to David to cover market, strategy and outlook.

Thank you, Bindi. So let's turn our attention to markets. In the first half of 2022, Aerospace represented 66% of the group's revenues and Flexonics was 34%. It's great to see in the proportion of civil aerospace increasing again as an Asian markets recover, and OEMs start to ramp-up production in response. Defense has reduced in proportion and that is partly due to a delay in orders as a consequence of the continuing resolution being in place until the U.S. Appropriations Act was passed in March. The recovery in land vehicle markets, which started last year continued, particularly in our truck and off-highway business. And Power & Energy actually a healthy growth, but reduced as a percentage of total sales as other markets grew more quickly. One thing I did want to bring out is the relative exposure to wide body compared to single aisle in the first half of this year, wide body sales accounted for 21% of total civil aero sales while smaller aircraft represented 79%. This chart shows the percentage of our aerospace sales for H1 2022 by platform and helps to set the scene for our aerospace and defense markets. And remember, this includes all sales to all customers that end up on a particular platform. So for example, sales to Safran on the LEAP 1A engine would show up on the A320 segment. As can be seen, the Airbus single-aisle program represents the largest percentage of sales by platform. The last time I showed you this chart, the 737 MAX was only our fifth largest platform, but we did predict it would go racing up the rankings. And with the increased production rates at Boeing compared to last year, that's exactly what has happened and it should continue to grow. The 787 has temporarily moved down the rankings, while production remains at a low level, but I fully expect that to climb next year once deliveries recommence and production levels increase. The 767 is making appearance here for the first time as a result of the new business which we won this year on that platform, and it will also increase, now we're in full production. Following a very successful onboarding program, the F-35 and C-130 aircraft remain our largest defense platforms. I've shown this chart a few times now, so most of you will be familiar with a high proportion of sales not attributable to any specific platform at 2% or higher and the 42% of our Aerospace division revenue, this is an important part of our business and will include sales on space platforms, aftermarket and also sales which emanate from our aerospace businesses, but for other industrial markets. And the good example would be sales for semiconductor equipment and medical applications. Let's remind the [ sales ] of what drives the long-term structural growth in the aerospace sector as it's easy to forget in the eye catching headlines that currently exist. The growing middle classes in Asia will drive growth over the next 20 years. Around the world, only around of the 20% of the global population has ever flown. And in Asia, it is a fraction of that. This is a large, barely top market for aviation. Anyone who has ventured on to a flight of April recently will know that people like to fly. They don't like to queue, but they do like to fly. And of course, there are still some limiting factors such as China's Zero-COVID policy, but IATA's most recent forecast is for domestic travel to reach 2019 levels by next year and for international travel to reach 2019 levels by 2025. Beyond this, the drivers supporting air traffic growth over the long term of around 3% to 4% per annum remained in place. Production rates for single-aisle aircraft are increasing, and that will be followed by wide body. As demand continues to recover, production of new aircraft will be supported by the replacement cycle driven by the retirement of older, less-efficient aircraft. Given the climate challenge and high fuel costs, the imperative for efficiency has never been greater. And with our diversified product portfolio and especially the attractive positions we hold across the newest generation of single aisle aircraft platforms, we are well positioned to benefit from this market growth. Production rates for single aisle aircraft has continued to increase this year on the A320 family and the recent earnings call, it was stated that they intend to ramp-up to a monthly production rate of 65 in early 2024 and have reiterated their intent to further increase rates to 75 per month sometime in 2025. This is great news for the whole industry. Boeing stated on the recent earnings call that the 737 program has reached 31 per month and they're seeking to stabilize at that level before increasing further, which will depend on supply chain readiness rather than demand given they have a substantial order book. As discussed previously, full recovery in the long-haul international travel sector, which typically uses wide body aircraft will take longer than domestic and other short-haul routes. Airbus have reaffirmed that we expect to increase production of the A350 family from an average production rate of 5 per month to around 6 per month by early 2023. And for the A330 family, production will increase from 2 per month to almost 3 per month at the end of '22. It was good to hear Boeing's confidence that deliveries of the 787 platform will recommence soon once cleared by the FAA. Production remains a very low rate in the meantime and once deliveries resume, they expect a gradual return to 5 per month over time. Production of the 767 will continue to at the rate of 3 per month and Boeing have said that the first delivery of the 777X is still expected in 2025 and the production of the passenger and freight reversions on the 777 continue at current levels. By the way, for those of you who are at the Farnborough Airshow, you may have seen the 777X flying there. I watched it with some of the Senior team from Boeing, and we're all amazed by the agility and responsiveness of such a giant aircraft in the very skillful hand in the test pilot as well as the unique folding wings that last 4 meters of the wings to pull up on landing to allow better access to airports. And in fact, we make the folding wings of assembly in our factory near Seattle. Overall, our focus for defense is very much in the U.S. market, with Fed spending is always as high as the next 10 countries combined, and series production levels reach meaningful volumes versus same period, which in due course, will also generate good aftermarket sales for our fluid conveyance businesses. There's broad bipartisan support in the U.S. Senate for a big increase in spend to GBP 857 billion in fiscal year 2023. And we sincerely hope that the next year's Appropriations Act this past more quickly to buy another extended continued resolution. Long-established programs such as C-130 and P-8 remain important revenue drivers for Senior, but of course, F-35 is the largest defense program that we are on. We have several offering businesses supplying into various customers on this program. So we're encouraged to see Lockheed Martin confirming high levels of production over coming years. And then there are newer growth programs that will become important for us. For example, our high-pressure ducting products are the Boeing Saab T-7A Red Hawk platform, which is a new Air force [indiscernible] jet, which will ramp-up production over the coming years. We expect that platform to be successful internationally in addition to U.S. volumes. Sales of the type of products we make in our airspace operating businesses into end markets outside of the civil aerospace and France markets are classified under other airspace and includes sales into the space, semiconductor equipment and medical markets are 11% of group sales, is an increasingly meaningful part of our business. We're pleased that our business development efforts have matured into volume production and revenues. And a good example of one on this category is our growing sales to Lam Research, a semiconductor equipment manufacturer. The semiconductor end market is currently experiencing high levels of demand from the strong consumer electronics sector, and it's been further strengthened by recovering industrial markets such as automotive. And given the well-publicized chip shortages affected various entries, we're seeing investment in semiconductor manufacturing capacity in the U.S. and Europe. Our highly engineered proprietary products using our high-precision bellows technology has multi-market applicability, including that semiconductor manufacturing equipment as well as medical products and other sales in this category include cryogenic valves for space launch vehicles and structural assemblies for space satellites. Turning now to Flexonics. We'll first look at land vehicles, which covers truck, off-highway and pass-through vehicles. And for this market, we sell a range of proprietary products to major OEMs. In particular, our exhaust gas recirculation coolers or EGR coolers, which are commonly know, which protect the environment by reducing emissions. The strong market year-over-year growth in North America and Europe in the heavy-duty truck and off-highway sectors. Although global passenger vehicle production continued to be affected by the well-publicized supply genesis affecting our customers, especially ongoing semiconductor availability. Senior outperformed on the land vehicle sectors in which we operate, recording strong growth in truck and off-highway and even seeing a 6% increase in sales to passenger vehicle customers. This is a direct result of partnering with market-leading customers and the benefits from new contracts won in recent years but are now ramping up in production. While we're thoughtful about the macroeconomic impact of deflationary measures being implemented by central banks in these markets, our strong positions and easing supply chain constraints should help the balance of risk associated with that. Our EGR cooler expertise means that we are well positioned for other applications which need innovative thermal management and fluid conveyed solutions, notably battery and electronics cooling for electric vehicles. The level of bid and product development activity in this area is continuously increasing, which augers well for medium and long-term success in these markets. Our other most important Flexonics market is power & energy, where we supplied upstream and downstream oil and gas customers and are keenly involved in the transition to clean energy. Markets have been growing in 2022, including repair, overhaul and replacement work for downstream customers and important market sector for Senior's pathway business. As Bindi mentioned previously, sales of power & energy markets increased 18% year-over-year in the first half of this year. In the medium term, we're well positioned to grow our non-fossil fuel business building on our existing renewables and nuclear energy customer base, including the nascent small modular reactor or SMR sector, where we are now involved in active bids for North American customers. Most of you will familiar with our strategy and technology themes from the presentations at our Capital Markets Day last October and from earlier this year and our 2021 results presentation. As a quite refresher, we highlighted 2 key technology themes, one was fluid conveyance and thermal management, which in the first half of 2022 represented 2/3 of group revenue with the other being structures. In Senior, we use structures as a generic term for precision machine parts and higher-level structural assemblies for both airframe and aero engines as well as highly engineered precision machine components and subassemblies for industrial engine and power & energy applications. Our strategy for structures business is straightforward, and we've been making good progress on it. We have a well-equipped global footprint including truly world-class manufacturing facilities in Southeast Asia as well as North America and the U.K. Our focus is on filling our existing capacity with work that meets our returns criteria. And that's coming from the civil aerospace recovery, growing market share and somewhere diversification into space and defense. In the first half, we made very good progress with sales increasing as aircraft engine and space production programs ramped up, and we got up to full production levels for recent contract wins. As volumes increased in 2023 and beyond, we fully expect more profitable growth for our Structures businesses. In June, we announced the acquisition of Spencer Aerospace, which remains on track to close in quarter 3. Spencer is a leading manufacturer of highly engineered, high pressure hydraulic fluid fittings for use in commercial and military aerospace applications. And while Senior already has some expertise in fluid fittings, our customers have been strongly encouraged to increase our presence in this area. And indeed, at a Farnborough Airshow 2 weeks ago, we had a very positive response when I met with customers in relation to this acquisition. Our combined expertise and market reach will allow us to respond decisively and rapidly grow associated revenues. And the acquisition will further enhance Senior's inversely leading fluid conveyance capabilities and is an important step in our strategy to optimize our portfolio and maximize value for shareholders. On this slide, you can see some of the highly engineered fluid conveyance and thermal management products that we supply into a range of diverse and attractive end markets, including medical, semiconductor equipment, defense, industrial and of course, commercial aerospace. It is these sorts of applications where we concentrate our product development activities. And this one will provide an innovative products using proprietary technology, serving diverse and attractive end markets is a fundamental element of Senior's go-forward strategy. And this core capability continues to be highly relevant as we transition towards a low carbon economy. We continue to invest in new technology and product design and development in the areas of fluid conveyance, thermal management and additive manufacturing in support of our key markets in aerospace, land vehicles and power & energy as they transition towards a low-carbon economy. In the aerospace, our traditional fluid conveyance products are entirely compatible with sustainable aviation fuels currently under evaluation by our customers. Our additive manufacturing capabilities are enabling advances in complex product design for improved performance and rate reduction for the benefit of our customers. And our world-class capability in thermal management and fluid conveyance opens up opportunities to support electric and hybrid air vehicle applications. And we're leveraging and building upon our long experience of providing hydrogen, fluid, handling and distribution products for industrial markets to support development of both on aircraft and off aircraft hydrogen technologies as this alternative propulsion system evolves. In land vehicles, our current exhaust gas recirculation on waste heat recovery products continue to support evolving line vehicle powertrain systems as they become more efficient and lower their impact on the environment. To focus on product offerings for the transition to low carbon economy, we're engaged with our customers' new product development programs by providing design and engineering support for cooling and fluid handling solutions for batteries and electronics on the growing number of electric and hybrid vehicles. We're supporting the development of commercial vehicle, hydrogen fuel cell cooling and conveyance by capitalizing on years of experience of producing hydrogen fuel cell products in the energy sector. And in power & energy, we continue to develop an established wide range of fluid conveyance and thermal management products, many of which such as our expansion joints, use our world-leading bellows technology. Our products are ideally suited for harsh environments, in greener energy generation, including solar farms, wind powerplants, hydroelectric, geothermal, fuel cell and nuclear power applications. Our many years' experience of providing fluid conveyance products for harsh environments and specifically hydrogen fuel cell cooling conveyance owns opportunities in hydrogen production and infrastructure applications. So hopefully, as you can see, our capabilities and technology will remain highly relevant as we transition over coming years and decades to a net-zero environment. At the time of our full year results, we gave a full update on our sector-leading ESG achievements and progress. So I won't repeat it all here. But for anyone who missed that, please do review our comprehensive sustainability report within our 2021 annual report. With regard to our actions on climate change, you will remember that we were the first company in our sector anywhere in the world to have our near-term scope 1, 2 and 3 greenhouse gas emission reduction targets approved and verified through the Science Based Targets initiative. We have very recently submitted our long-term 2050 net-zero targets to SBTI for verification approval. That will keep us in the vanguard of companies taking real and decisive action to reduce greenhouse gas emissions within our own operations and through our supply chain. We'll give a full update on progress with all of our sustainability activities with our 2022 full year results. So let me finish by talking about the outlook for Senior. As you've seen, training performance has been strong in the first half of 2022 compared to the same period in 2021, in line with our expectations. And the Board anticipates further good progress in 2022, also in line with previous expectations. And performance in the second half of the year, we'd expect it to be similar to the first half. Along with the strong cash performance and a healthy balance sheet, this gives the Board confidence to announce the reinstatement of a dividend for 2022. Our core markets are showing good growth as activity levels pick up and we're continuing to diligently manage the global supply chain constraints and increasing inflationary pressures caused by external events, always ensuring that our focus is on satisfying our customers and other stakeholders. We remain committed to delivering a strong recovery across both divisions, driving group ROCE to a minimum of 13.5%. With sector-leading sustainability credentials a clear strategy and strong capabilities with the global footprint, we are well positioned to capture growth opportunities and deliver enhanced value for our stakeholders. With that, we'll open the floor for any questions, which Bindi and I will be delighted to answer.

Three questions, please. And then one small point of clarification for me. Can we talk firstly about supply chains. You guys were quite early, I felt in talking about potential supply chains in aerospace and now 1 or 2 others are now talking about it. So I was just wondering if we think about as we progressed into the second half of the year and in '23, do you actually see additional challenges or actually think it goes slightly better for you guys. And then I guess, take this fourth question. The opportunity for market share, given how important supply chains are to Airbus and Boeing, do you still see that as an opportunity from either dual sourcing or actually winning share from others?

Yes. I mean. Firstly, on the overall environment, it is challenging, but I think there are times it's starting to improve. And we saw this in our Flexonics business last year. First of all, particularly on the availability of raw materials like steel, steel and nickel were in high demand, that has started to improve. And you're quite right. If you've seen this in our business views, [indiscernible] until our aerospace operating businesses about the need to extend lead times on our ERP systems, perhaps revision a little bit more inventory, while still keep an eye on cash and just be ready for what we saw coming and the [indiscernible] happen. So perhaps that's why we feel a bit better than most. I would expect the whole supply chain to continue to ramp-up to meet what Airbus and Boeing and others like Embraer and Bombardier are saying the expectations are with regard to volume. So I think what I've said before, I think we'll see a lot of hiccups. But with that conversion, that I'm quite sure we will get to those levels that the prime minister are talking about, I also will manage them diligently. If Launie was here from California that he sees that means we're managing the hell -- so we've got our operations guys, both in procurement and manufacturing, do a really good job day to day. So I will be lying to say it was easy, but I think we're handling it very well and working with our suppliers and our customers to make sure we can keep delivering on time. But overall, we expect to gradually ease once production levels become a bit more stable. And then I think in terms of the opportunities, I think I said before that perhaps fewer suppliers went out of business during COVID than we might have thought because there was a lot of government support with the furlough scheme here with direct export in the states and then and in Europe as well. But nonetheless, there are some that have not managed to make it all the way through and we've been able to help our customers out by picking up some of the work in transferring and those discussions continue. So there are still other opportunities associated with the primes really want to continue and supply and they want to work with financially reliable and operationally reliable suppliers. So we're still very busy when it comes to the new bid front, and I would fully expect us to keep winning more work.

On Flexonics, can you give us an update on the pathway outlook for the second half for the year that improving outlook in the first half. Just wondering how that looks. Second half historically has been quite important for you. And then just picking up something you talked about on the heavy truck side. You talked about electronics cooling, where historically, you've focused predominantly on battery cooling. Is that [indiscernible] and missed that? Or is that something that's kind of new for you guys. It sounds like it's a new technological development?

Yes. I think first on pathway. Probably every of those pathways or business in Texas, it really focuses on downstream oil and gas, nuclear and renewables to make the massive expansion joints on the size of a house I would say. So it's a good business, and it has a lot of aftermarket business. So with oil prices where they are and with refining capacity struggling to keep up with demand, particularly in North America because of anything else that's going on geopolitically. That's a very good for pathway. So we saw that kind of turn by the second quarter. We certainly expected it to. So lots of overhaul maintenance repair and measures to collect activity, and we think that will continue into 2 here, so about same level as we've seen in Q3. I think on the heavy truck, perhaps we've talked more about the battery cooling aspects, which is obviously all these batteries consume huge amounts of heat. But so under the electronics part has got lots of electronic motors in there as well and do a lot of power devices and they also induce huge amounts of heat. So that's like I'll call it, secondary or joint first kind of application for cooling technology. It's not just a battery. It is the electronics and all these heavy duty trucks and commercial vehicles will require that. So yes, we won our first order for all electric truck for European manufacturer. And we hope there's more to come certainly, again, what's a bid activity going on in development activity going on to support growth.

Last one, and I'll let someone else a go. GBP 8.1 million price increase in the second -- in the first half was about [indiscernible] 3%. We're seeing clearly a lot more inflation than 3%. Do we see more price come through in the second half? Or am I missing something.

We are -- so we had inflationary impacts of GBP 9.4 million in the first half of the year, of which we covered GBP 8.1 million through price increases. Some of that is contractual pass-through, particularly in aerospace but equally, we have very persistent conversations with our customers to pass on price increases. So we expect to be able to do similar performance in the second half of the year, inflationary impacts are increasing still but continuing to manage very diligently and therefore, recover as much of that as we can and do. So effectively, we've maintained our full year outlook for group performance and H2 to be similar to H1. So that takes all of that into account.