Welcome to the Bodycote Trading Update call. Throughout the call, all participants will be on listen-only mode, so there's no need to meet your individual lines, and afterwards there'll be a question-and-answer session. Just to remind you, this conference call is being recorded. I'll now hand the floor to Stephen Harris, Group Chief Executive. Please begin your meeting.
Good morning, everybody. Stephen Harris here. I've got Dominique Yates on the line as well, our CFO. So the trading update you have seen that we released this morning, I'll just pick out a few points and then we'll go straight to the Q&A if we might. So firstly, yeah, obviously, very unusual times. We've been moving very fast in our approach, in these, in this situation. Big thing for us has been to make sure that we actually have our workforces very well protected, and I think we're achieving that very well. The situation is that most of our facilities have kept operating. They've been classified in their various countries as providing essential services.
We've been operating some of the facilities at extremely low levels that one wouldn't normally do that, but in some instances we're doing it because we're actually supplying medical equipment, which is particularly required in this situation. But overall we've taken swift actions to reduce our costs in the face of the downturn. You can see from the trading update the scale of the downturns, which really only started from the end of March. It's difficult for us to give you specific color of what's going on because things are moving quite rapidly, and indeed odd things happening across different customers. I say odd because they aren't all uniform. So where some customers in a particular sector, like aerospace, have started going down quite rapidly, others haven't moved.
I think a lot of this has to do with the various inventories that are being held in supply chains and, in some cases at OEMs, and the rate at which people are destocking. We can't particularly give you a good number on the destocking that's been happening, but it's clearly been happening. I think the only thing we could, we could possibly say is that it looks like in the round that it's around a 10%-15% decline is due to the destocking effect, but that is an out-and-out guess, even if it's somewhat educated guess. In terms of the movements, automotive went down really, really hard because, as I think most of you know, nearly all the OEMs in the world shut their doors for at least two weeks. So that went down really hard.
So while we're seeing those facilities come back online and supplies there coming back online, the slower-moving side of life, which is the aerospace side, is on a downward trajectory, but not at the kind of pace that suggests it's going to be totally disastrous there. Overall, general industrial is holding up nicely. It's still down, but a lot less than everything else, which is what you, of course, would expect, given the nature of that business. And that points to the strength of the both geographic and industrial diversification that we have in Bodycote. In terms of our savings, I mean, clearly we've expanded our restructuring program. I will have to say, it's you know, lucky maybe. We had actually done a lot of planning ahead of time.
We hadn't expected this pandemic, but we were looking at various restructuring options in the company, which we announced at the full year results of what we intended to do. But the fact that we looked at a lot of things enabled us to move very quickly in expanding that program, which is ongoing. Currently we're expecting to save about GBP 45 million in our restructuring program and annualized costs. Obviously, if we see top line going down further from a sustained long-term perspective, we can restructure more. It's not our intention at the moment. Similarly, we have a bunch of temporary cost savings that we've put in place. This is primarily making use of cost containment measures, basically getting rid of all discretionary spending and the like, but also making use of various programs in mainland Europe in short-time working.
We've also laid off temporarily staff in the United States, although they don't have the benefit of the same kind of programs that the Europeans provide. And so in the United States we've actually been topping up people's healthcare in order to make sure that our employees are well looked after, as best we can. So those kind of issues in total are giving us about GBP 7 million per month in savings. Those saving measures, just like the restructuring measures, are something we can control. So as the top line moves, we will move our cost base accordingly. When revenue comes back, as surely it will in time, the issue will be is we'll probably be increasing our cost base initially through the addition of temporary workers, which is always our approach in these times, to keep future flexibility.
So we won't actually be adding back a lot of fixed cost of full-time labor as we go forward. Just moving on to our financial position and liquidity situation, happy to say that we did in fact conclude our debt extension. Our headroom is now at GBP 170 million. That's something that we actually signed yesterday, so it was rather late breaking for us, our new facility. And we've got five years' money at very good rates, so quite pleased with that. Overall, that's about all I can say. Not just one point on May, not a lot of difference that we can see, but it's early days yet. We haven't had the May results in, but nothing gigantically different from April in May. With that, I'll throw it open for questions, please.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask a question or zero two if you need to cancel. There'll be a brief pause now whilst we register your questions. Our first question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead. Your line is open.
Oh, yes. Good morning. It's Andre from Credit Suisse. Thanks so much for taking my questions. Stephen, I just wanted to pick up on your May comment, that it's not looking drastically different, and I appreciate it's very difficult to judge given the constellation of various holidays and etc. But is it not surprising you a little bit that there isn't kind of more of a comeback in May given that there were some shutdowns easing already?
Yeah. Hi, Andre. Well, not really 'cause, I mean, what I'm referring to is the totality. I mean, clearly you're seeing movements in different segments. So, automotive is coming up. So if, you know, if we were an automotive player, you might say, "Well, you know, we'd say we're recovering." On the other hand, aerospace is declining slightly. I mean, it didn't decline much to start with. Not as much as automotive anyway. So, you know, they're moving in different directions, and general industrial in the background's remaining fairly stable, as is energy. So in totality, it's not much different, although the different parts are moving at different speeds.
Got it. Thank you. And on the destock, thank you for your quantification. I'm sure your guess is infinitely more educated than ours. And I just wanted to get your thoughts on, from your knowledge of customer inventory, how long do you think that can last?
Oh, very good, Andre. Well, if my first one was a guess, this one's gonna be an outright guess. I can't tell you at all. What I can tell you is anecdotally that there are quite a lot of areas of the supply chains around the world that went into this situation with low inventories. I don't think there's any way that it was particularly bulging, but there was a lot of reduced inventories in quite a lot of areas because, in fact, people were starting to see a bit of a downturn coming into this situation. So I don't think that they were flush with inventories before. So how long it will take, don't know.
I mean, there's a whole combination of different factors which I couldn't guess, but it's certainly not gonna be a long, long time because they didn't have much to sell within a number of industries. That's about the best I can do, Andre.
No, I appreciate that. Yeah. I think that's, yeah. No, sorry. Very insightful. I wanted to just finish with a broader question. Is there anything at this stage? I know it's only been kind of two months of this abnormal situation, but is there anything at this stage already that you can say that - excuse me - will be kind of structurally and permanently different, for you in terms of how you operate or how you see some of your customers operate, post-COVID if we think about kind of 12, 18 months and beyond that?
Nothing I could say for sure. I can tell you that there are a lot of moves afoot. So one of the things that is quite clear is that in Europe, companies, large companies that had previously not outsourced their heat treatment, because they had labor problems, and they would have been facing strikes, are for the first time in a very, very long time entering into social plans, and laying off permanently quite a lot of people. And the result of that is that it does provide us with opportunity because, in this situation, they won't have the same pushback from the unions about outsourcing. So we're certainly on that case, that you know, we want to actually get business as we can. And in Europe, it offers a certain amount of opportunity if we can get in faster than that.
The problem we have in this situation is that the senior management who have to make these decisions have got quite a lot of other things on their minds. But if we can get in the door, we could get some progress in that respect. Similarly, in other areas like North America, we are seeing a situation where people are waking up to the fact that their thermal processing facilities are for them a fixed cost, and our approach in North America is one of, "Why keep it as a fixed cost? Give it to us." And so we have some discussions going on that. So an opportunity in this, will it be permanent? If it's outsourced like that, yes.
From an industry standpoint, the only thing I would say is I think that the move eastwards that we saw in Europe before this started for automotive, I think will continue, although, of course, you do have situations like some governments in France included that are trying to encourage people to do their electric cars in-country in France, never mind the cost. But I'm not sure how successful that will be. Right now, the likelihood is that we'll see the newer automotive models going eastward, I think. I don't mean eastward Asia. I mean Eastern Europe. On that note, I mean, China's in its own bubble, frankly. I mean, it's doing quite nicely, and don't have any complaints about China in terms of trade at the moment. It's quite good.
Thank you very much, and thank you for the detail and the statements on the call. Really appreciate it.
Thank you. Our next question comes from the line of Andrew Wilson at JP Morgan. Please go ahead. Your line is open.
Hi. Good morning, everyone. I just wanted to start with a couple of longer-term ones actually, please, Stephen. I saw you made an interesting comment in terms of the expansion or extension of the restructuring program. It doesn't sound like there's anything that you've seen in your markets or your customers over the longer term which is driving that, but rather it's kind of an opportunity to make some of the changes which ultimately are gonna be better for the business over the longer term. I guess thinking really specifically around aerospace where clearly, you know, the outlook, if you look at some of the production volumes at least, have looked a little bit different to perhaps where we were six months ago.
Yes. Yeah. Morning, Andre. I think that's a fair statement. One of the things that we shouldn't forget, and this is with our facilities, are pretty flexible. So one day it can be an aerospace facility, and the next day it can be a general industrial facility, 'cause the processes are the same processes you use everybody. It's just the certifications and the working practices. So, and in fact, I'm fairly sure we will see a prolonged lowering of aerospace sales, compared with where we might have thought they were before. That doesn't stop us actually putting work into those same facilities which are very, very high-quality facilities. I mean, that's one of the things about the aerospace facilities.
I don't mean in terms of poor quality or whatever, but they're very modern, clean, and very well equipped, generally speaking, in the aerospace side of the business, because we've reinvested so heavily in that over the years. And so moving them into other areas more strongly, like one of the big ones for us at the moment is medical, is relatively straightforward. So you don't have to take the business out 'cause of the industry segment necessarily. Where we are restructuring is where we're in high-cost areas, where there is too much competition and not enough customers, if I can put it that way. And as the water levels fall a bit, you know, we've expanded our program, for example, in Germany. It's bigger than we thought we were gonna do originally.
Similarly, a little bit more in France, and also in North America. I mean, in the Great Lakes region in North America, we have gone into more restructuring because those areas are anyway highly competitive, but fewer customers and lower sales levels. I mean, we don't quite need as much infrastructure as we had before. We're still keeping the capacity 'cause we're putting into the sister plants. Excuse me. But no, it's not a case of, we've gotta take out aerospace facilities or automotive facilities because that particular business is gonna be lower. It's really equated geography and local hinterland customers that's the issue. And while we're on that, if I could add one thing, CapEx. So in these situations, we try and keep our maintenance CapEx going, what you don't want to do is skimp on maintenance.
So we're at a slightly lower level at the moment, mostly because people have been unavailable to do the maintenance, but now that's ramping up a bit. In terms of expansionary capital, it may surprise people that we are pressing ahead with expansionary capital, particularly in construction of new facilities that we had started. Those new facilities are going in place for numbers of reasons, one of which is expansion of the geography. So, for example, in Hungary, where we're going after the new automotive strains of electric vehicles, for example. But also in areas where we're replacing old and end-of-life plants. So in once again in the Great Lakes area, we're just about to put on a couple of plants that will be going on towards the end of this year. And those are replacing other facilities that we're taking out.
So that will put us in a much more, more efficient, situation. So the newer plants should be a hell of a lot more profitable than the, the older plants that we're replacing. That's a long answer to your question, Andre, but I hope it sort of gave you some color on it.
No, no. Very much so. If I can really just hopefully just interject to check on a couple of the details. I think the initial guidance given on the income statement charge for the initial restructuring. I don't know if you could provide us with an update of what you're expecting that to be on the extended program. I guess on a similar basis, I think in the statement it talks about the business was profitable on a headline operating profit basis. Would it also have been profitable on a reported operating profit?
Now, when you ask detailed questions like that, that actually tells me you're really asking Dominique. So I'll, I'll ask you to take that one.
Okay. Well, I think, if you look at the restructuring charge, then with the full-year result, we said we were expecting around GBP 30 million, of which roughly half would be cash. So now we're indicating that the cash cost of the restructuring will be closer to GBP 25 million. So I think from that, you can impute that the total P&L charge would be GBP 40 million, plus that we'll expect on the rest of the restructuring. The second part of the question, apologies, it's momentarily slipped my mind. But oh, Andre, sorry, on the exceptionals and the, well, for we will have the restructuring charge going through, and that will depend month by month depending on what exactly has been approved in that.
That's, you're breaking up.
Okay. So those costs are lumpy because that will depend month by month on which projects we are approving in any given month. So I'm not sure that that's particularly helpful in terms of understanding what the underlying profitability is doing.
Okay. Perfect. Thanks very much for the help, guys.
Thank you. Our next question comes from the line of Jonathan Hurn at Barclays. Please go ahead. Your line is open.
Hey, guys. Good morning. Just a few questions for me. First, can you talk a little bit more about what you're seeing in aero, please? Maybe just in terms of the level of decline that has come through in April and also how you're thinking about the rest of the year. Obviously, for some of your major customers such as Rolls, there's been some quite tough news flow from them. So just really how you're thinking about sort of the shape of aerospace. That'd be helpful. That was the first one.
Yeah, certainly. So we're basing our estimates in aerospace on probably what everybody else is basing them on, which is the announced programs from Boeing and Airbus in terms of the build rates on the various models, which in shorthand means about a 50% cut in wide bodies. That translates, obviously, to mostly most of Rolls's situation. And depending on particular plane, 20%-30% on the narrow bodies, which is a GE, Pratt & Whitney, proxy. And so that's where we're looking for in terms of a long, long-run rate on these things. In terms of a short-run rate, it it's quite difficult to say because you've got a whole mishmash of things that are happening in the aerospace situation.
You know, it's made it a little bit more difficult by the fact there's a very large proportion of supply chains, particularly in the United States, that private equity own. And in these situations, you find the private equity guys under more extreme strain than others perhaps, and so their behavior tends to be somewhat counterintuitive sometimes. But so lots of movements down and in some cases up, which is quite strange. I don't think it's, you know, kind of weekly trend data is very useful in this situation.
The only thing I can tell you is that the places that are nearer the final assembly of the plane, they're the ones that have come down the fastest, whereas as we actually thought would happen, the raw material end in the initial casting side has been the slowest to move. And the reason for that is that when we were in the sort of strong upbeat move in this aerospace cycle, you had a shortage of capacity in castings and forges. And in fact, the downturn has come as a blessing in disguise for some of these guys 'cause they started to get penalty. And now their requirements for output has fallen.
So they've kept going the longest, if you like, on the raw material end, unlike the initial castings and forgings, whereas the final components assembly has gone down the most. That's about all I can tell you. I mean, actual numbers, it depends on which territory and which customer. It doesn't give you any good picture, I'm afraid.
Okay. Thank you. That's helpful. The second one was just coming onto specialist technology. So obviously, no mention in the statement. I mean, historically, there's been a sort of a relative outperformance between traditional and specialist. I mean, are you still seeing that, or is it just fair to assume that that's down by the same rate as more traditional heat treatment?
No. I think that, we would expect specialist technologies to outperform the classical heat treatment side. I think that, that in the near term we are seeing that. In the near term, there is a little bit of, a strange issue in the fact that some of the specialist technology is in automotive. We've got some low-pressure carburizing, one of our technologies, which is in automotive transmissions. And as the OEMs completely shut down and we're supplying directly to OEMs, that business went away completely, for a period. Everything went away, in what is the rest OEM supply. That's now coming back. And in fact, we've been told by one of the large, North American OEMs that, production, of the particular transmissions that we're talking about, which, tend to end up on SUVs and like trucks, is actually gonna be quite strong.
So I think, you know, I hate doing this, but in the current situation, it's the only thing I can do. My guess is that will come back quite strongly and overall, specialist technologies do pretty good. It won't be up. It won't be down as much as classical heat treatment.
Great. Thanks. And then just last one for me. Just in terms of sort of the competitive landscape, obviously, we look out there. Some of your sort of competitors are quite small and, obviously, they don't have a huge amount of scale. Have you seen competitors go out of business during the downturn? Do you think the competitive position for you right now is maybe getting marginally better?
So competitors, it's an interesting question in the fact that the small companies that do the same kind of activity don't tend to compete with us head to head. They don't, you know, they're not in at the same level in a lot of the customers. They do compete at the fringes, for sure. But they're not that much of direct competitors in, in, in any more instances. Well, some of them. The smaller ones definitely are the ones that are the most stressed. We are seeing people close their doors completely, going bankrupt. But one of the things you've gotta remember about these businesses is the assets are very long-lived. And as one of my colleagues years ago said to me, these things are like golf courses. You know, they always stay there. It's just the ownership changes.
That's what you know, we don't expect these things to disappear completely forever. Somebody will come in and pick up the assets out of bankruptcy and start again. But they're not really a big impact on us. It does give us the opportunity for if one of the, the larger ones, is under too much stress for us to make an acquisition, then we are, in fact, talking to people, although it's quite difficult in the current environment because there's a lot of emotion around. So we have to be fairly careful how we do it. But we are talking to people, asking them, and finally, we've decided that it's time to retire. But I don't think we'll be going for the really weak businesses 'cause they're going bust for exactly the reasons why we wouldn't buy them.
Great. That's very helpful. Thanks for that. Thank you.
Thank you. Our next question comes from the line of Harry Philips at Peel Hunt. Please go ahead. Your line is open.
Good morning, everyone. I hope you're all well. Just a few from me, please. Stephen, I got on the call just as you were talking about 15% destock, and I was just wondering if you could just run through that comment again, please. And then in terms of drop.
I'll send you the transcript. I'll send you the transcript, Harry. Don't worry.
That's very kind. In terms of drop-through, with the sort of mitigating action of the GBP 7 million a month, how does that change your drop-through profile and, you know, I've got in mind what the drop-through ought to be, but, I'd be interested to hear your thoughts.
Well, I'll tell you about destocking. The first thing I said was it's an outright guess, okay? So please, you know, put that into perspective. I would expect it, the destocking, to be about 10%-15% in our numbers, but I can't prove that, okay?
Thank you.
That's the first thing. On the drop-through, once again, I mean, things are moving really, really fast. The rate at which the cost savings are coming in, some territories is more delayed than others. You know, not everything's moving at the same speed. So to come up and tell you what an actual number of drop-through is for us at the moment, it's quite difficult. But I would be disappointed if it wasn't in the, you know, the low 40s.
Okay. And then the next two questions. One is just in terms of your emerging market sort of businesses, how are they holding up? And then finally, in terms of HIPing, clearly quite a big aerospace content there. How easy is it to switch HIPing to other industries? If I remember rightly, aerospace is about 65% of sales there.
Okay. So emerging markets situation, obviously helped by China, which is going quite nicely. Eastern Europe, it's quite interesting in Eastern Europe because, I mean, I'm actually calling you today. I'm in Prague, and, you know, everything's open. The sun is shining. You wouldn't have thought anything was happening in the world, and a lot of production has remained open in Eastern Europe. It's really a question of their customer base. So, you know, we've seen negative impact in Eastern Europe as well, but I think Eastern Europe is recovering at a faster rate than the other places around the place. So overall, I would imagine emerging markets are gonna do fairly well, but there's a lot of guessing going on on my part here. Don't know for sure, but life seems much more normal this way. Quite a set of things concern you. Absolutely right, Harry.
The HIPing comes in three flavors these days. One is making castings stronger, getting rid of the porosity in castings. And that's really the aerospace piece, which is densifying castings. Undoubtedly, that is gonna be lower, for sure. Then you've got two other areas. One, which doesn't really count at the moment, which is additive manufacturing at the HIP. It doesn't really count because the volumes are tiny, even though they keep going up at a rapid rate. That's why it's nothing, nothing. And the third part is the larger part, which is what we call our Powdermet business, which sometimes makes use of 3D printing in terms of manufacturing, but is in itself an additive manufacturing technique. That has been primarily focused on subsea work, and indeed, the subsea work is still continuing.
That's, you know, it's a little bit of a shining light there, although we don't expect it to go up fast given the economics in that industry. But the subsea big projects are still moving ahead. But what we are seeing is the time and the opportunity to diversify into other areas. And we have an ongoing program on that. It'll take time. It's been taking quite a amount of time already. But, in due course, we'll see HIPing capacity being utilized for more for product fabrication, which in time will make up for the aerospace reduction. Probably just about the same time as aerospace starts going back up, and then we'll need more HIPing.
Fantastic. Thank you very much indeed.
Thank you. Our next question comes from the line of Andrew Douglas at Jefferies. Please go ahead. Your line is open.
Good morning, guys. Just three quick questions for me, please. If I can, can you just talk through the restructuring maybe in a bit more detail, and it's probably the one for Dominique, just with regards to the phasing of the benefits that come through? Clearly, you just started now, and it'll be ramping up through to the second quarter. So if you can just give us a little bit of guidance, as to what we should expect kind of this year and next year and maybe in 2022. Second thing, again, I think for Dominique as well, cash is clearly a very good number in the statement. GBP 38 million of free cash flow is good.
Can you just talk us through how kind of clean that number is with regards to whether, there's one or two deferrals or, you haven't kind of spent any money on restructuring costs yet? So just to help us understand a bit more about that cash number. And then third, just quickly on Ellison. Appreciate it's a reasonably tough market, and you've just got kind of your hands on the keys. But any initial comments, kind of what you found there? Easier, tougher to put through kind of restructuring that you might need to, etc.? So any help on Ellison would be good. Thank you.
[crosstalk] I'll do. Okay. I'll. You first. Yeah. I'll, I'll take it. Oh, go on. Dominique, excuse me. I've got to go. I'm going now. What are you doing?
Okay. So the phasing of the restructuring benefits, we've said in the release that we're anticipating GBP 45 million of annual benefits by Q2 next year. Clearly, that will build through this year. Two plants had already shut by or in April. So within the April result, there really isn't a significant benefit at all from restructuring, but that will build over the months to come, and back end of this year as those plants shut. We don't have the exact timing on all of those facilities. In some cases, there's some consultation, etc., that needs to take place. But it will have built fully to the, you know, close to GBP 4 million a month benefit, by Q2 next year. The second question was around cash and how clean it is. Well, there's nothing funny in there.
At the same time, I think, one in some ways, one would have expected our free cash in the first four months to, given the situation, to have been quite good because up until end of April, we've largely been collecting receivables that we'd invoiced, pre the fourth week of March. So, sort of normal levels of receivables. And in the meantime, we took a load of cost out. So, that does benefit. There is also an element to your point of deferral, Social Security costs, that type of deferral, taking advantage of government schemes around the world where people have been given extra time to pay those. Quantification, that's a few million, probably GBP 3 million or so. There's also an element where we are making lower tax payments, based on a projected lower level of profitability, for the year.
So that's a real benefit. That's not gonna come back later. But other than that, there is nothing funny or unusual in the free cash numbers.
Okay. Perfect. That's a good question. Thank you.
Ellison. We're here with Ellison. The situation is we're not restructuring Ellison. So what we've done in Ellison is, we've got some temporary layoffs in Ellison. The business level for Ellison has tracked pretty much GE. That is their major customer anyway. And so it's as expected in this particular situation where it would be expected to be. So we've made temporary layoffs. But as the business starts to reposition itself, we'll bring those people back, I would say.
But nothing you haven't found anything kind of interesting or alarming since you've gotten to the bonnet?
Interesting, yes. I've got a lot more, a lot more IP than we thought they had. Alarming, no. No. It's, it's a very good business, frankly.
Perfect. Thank you very much.
Thank you once again. If there are any further questions, please dial zero one on your telephone keypads now. We've had one further question come through. That's from the line of Sue Ingramar of UBS. Please go ahead. Your line is open.
Yes. Good morning, gentlemen. Thank you for taking my question. I would just have a follow-up comment regarding, you know, how you see the, I would say, offsetting of the structural maybe slowdown in aerospace from Powdermet businesses and other activities. But, you know, shorter-term, you have a lot of growth plans for your aerospace business. So you don't seem, I would say, more relaxed than, you know, some voices out there on the structural challenges faced by aerospace over the next two to three years. Is it because you think there is a lot of this outsourcing opportunity, particularly in the end market? Is that where you see some potentially more or less marginal decline for you? Thank you.
Yes. That is exactly the, I wouldn't say that I'm ecstatic and over the moon about it, but it certainly, it means that, we've got a number of opportunities there, actually. One of the things is that there's a lot more work insourced in aerospace than most industries. The customers in that particular arena have chosen to keep a lot of the thermal processing technology in-house. Not HIPing, actually, but it's the heat-treating side of life. And even the thermal spray, which is the business that we bought with Ellison. So, there's been a lot of in-house work done there. And in the current scenario, as you probably know, there are a number of these players that are somewhat stressed, on the cash front indeed, and certainly on the cost front. And so it's, you know, in North America, we've actually got some nice opportunities.
You know, we're hoping to do the same thing at that scale in Europe as well. So that's an offset for us if we can pull it off. But, as with all this year, you know, you don't go and talk about the order you want it to be, run it. So, but it does make me feel somewhat more relaxed than I might otherwise be. That's a good observation.
Thank you.
Thank you. And we've had one further question come through. That's from the line of Michael Tyndall at HSBC. Please go ahead. Your line is open.
Hi there, gents. Thanks for taking my question. It's in relation to pricing. Just trying to think as we come out of this recession or this dip, how you resist pressure on the rate card, thinking about, for example, Rolls-Royce asking suppliers to take a cut. What's the trick? How do you make sure that you continue to operate at the same rates as you were prior to the crisis?
Yeah. I'd like to quote my favorite vice, sorry, First Lady, Nancy Reagan, and just say no. That's the, that's the way to do it. But, I mean, to be honest, it, it is we always get price pressure, and it always. It's an ongoing fact of life, and, you, you know, there are various ways you have to deal with it. But the idea that these larger companies that actually are getting more government support than anybody, pushing down on the supply chains to give them price reductions is a little bit strange, frankly, you know, because in, in, in some of these supply chains, they're very, very small companies, and it, it, it's a low. As far as we're concerned, you know, our biggest issue is that our inputs. I mean, what are they? They're people and energy primarily.
We don't get any reductions there. So we can't pass on any pressures. So, you know, you're caught in a vice. So you have to resist it, sir. You have to resist. So look, we just can't do it. There's nowhere for us to go. So yeah, I know there's a lot of people out there squealing a lot. It happened, you know, in the financial crisis as well, but we just have to keep going.
Got it. Is there any risk that your competitors, I realize that some of those are small, are a bit more flexible on pricing? Or is it I mean, as you said, the inputs are, are pretty fixed, so.
Well, most of the pressure's coming in in aerospace, frankly. And the competitor set that we've got in aerospace is very, very small. I mean, the major competition is the OEMs themselves. There aren't many people that play in the aerospace market other than us. And the reason for that is, you know, you have to carry GBP 750 million of insurance, and not many small players can afford it. So, yeah, if there are some out there that want to give up, price increases, it's not going to help their customers because they're so small in the first place, and it's not going to help them because they're probably stressed. Not really an issue, I would say.
Got it. Thank you very much.
Thank you once again. If there are any further questions, please dial zero one on your telephone keypads now. Is there any further questions at this time? I'll hand back to our speakers for the closing comments.
Yes. Thanks very much, everybody. The sun is shining, where we are. I hope it's where you are, and you get the opportunity to go and enjoy it. Take care, and, hopefully, we'll see you in person soon. Bye.
Thank you. Bye.
Thanks, Matt, and that concludes the conference. Thank you all very much for attending. You may now disconnect your lines.