Earnings Call: H2 2022

Apr 28, 2023

Good morning or good afternoon all and welcome to the Morgan Advanced Materials Financial Results 2022 Conference Call. My name is Adam and I'll be your operator for today. I will now hand the floor over to Pete Ravey to begin. So Pete, Good morning, everyone. I'm Pete Rady, the Chief Executive of Morgan Advanced Materials. I'm joined on the call by Richard Armitage, our CFO. I'm going to say a few words of introduction. Richard will then take you through our preliminary results for 2022, and I will then talk through our growth drivers, our business unit performance, Progress against our ESC priorities and our outlook for the full year. Starting with the highlights. We've delivered strong organic revenue growth of 11.2%. Our faster growing markets delivered 11.7 growth and our core 11.1 percent growth a good performance in the core, reflecting further recovery of some markets in the pandemic And our focus on new products driving share wins. We've experienced higher inflation during the year as we expected, And we pass that on to our customers with higher pricing. The impact of pricing and continued improvement activity more than offset the cost inflation that we experienced During the year, with the strong growth in revenues and the benefits of pricing and continuous improvement, Operating margins have expanded 50 basis points to 13.6 percent and ROIC improved to 22.4%, a very healthy return. Earnings per share of 33.8p is up 24% on the prior year, And our dividend per share is up 32%. Our balance sheet is strong With net debt to EBITDA of 0.8 times despite a £67,000,000 contribution to our UK pension scheme in the year, Eliminating the deficit and substantially derisking our U. K. Defined benefit schemes. We've also made further progress in reducing our Scope 1 and Scope 2 emissions, with an 8% reduction compared to the prior year. I'm very pleased with the further progress that we have demonstrated during the year. We've delivered strong revenue growth and expand margins as planned In a challenging supply chain and labor environment, our outlook for the full year is unchanged from the guidance that we provided on the 7th February. On the 8th January, we experienced a significant cyber attack on our business. And in response to that, we shut down many of our systems and compartmentalized the network to protect the business. Customer demand has remained robust throughout our recovery. The recovery is progressing well with our ERP system substantially restored. We've also accelerated our IT modernization program, which includes changes to our network design and the deployment of additional security tooling And an acceleration of our group ERP program. All of our plants remained operational throughout the period, And our employees have been working hard with our customers to deliver the best possible service. We expect exceptional costs in 2020 of around £15,000,000 related to the incident. I'll now hand over to Richard to take us through the financial results. Thank you, Pete, and good morning, everyone. I would like to start with an overview of the financial results to the 31st December 2022. Revenue at £1,112,000,000 Was 11.2% higher than prior year on an organic constant currency basis. Group adjusted operating profit was £151,000,000 with operating margin 50 basis points Higher at 13.6%. Inflation to date has been recovered in full With further margin expansion achieved through efficiency savings and higher volumes. Cash generated from operations was £59,100,000 and free cash flow and outflow of £47,000,000 both lower than last due to the one off pension contribution of £67,000,000 an increase in capital investment and higher working capital. Adjusted EPS was 24.3 percent higher at 33.8p per share, reflecting the higher operating profit and net financing costs That were in line with last year. The proposed final dividend is 6.7p per share, Resulting in a total dividend for the year of 0.12p. This reflects dividend cover of 2.8 times in line with our financial framework, which aims to reduce cover to an average of approximately 2.5 times adjusted earnings over the medium term. As usual, we have included in the appendix the financial information in statutory format. There were no significant adjusting items in the period. Turning now to the year on year movement in our adjusted operating profit. This chart shows the key drivers. We can see firstly the benefit from higher volumes in the year with drops through approximately 30% on volume growth, Giving a benefit of approximately £14,000,000 As expected, pricing and efficiency savings have exceeded inflation, Helping our margin expansion and giving a benefit of around £9,000,000 We are benefiting from the final savings from our restructuring program, Which over delivered slightly, giving savings a little over £3,000,000 for the 2022 full year and £23,000,000 for the program as a whole. There has also been some investments in additional overheads as expected, particularly in R and D and Sales in support of our ongoing growth programs. Finally, we have benefited from a small tailwind from the weakening in Sterling, Which has improved operating profit by just under £7,000,000 Moving on to cash flow And notwithstanding our strong EBITDA and balance sheet performance, there are a few points to highlight. We have seen a substantial increase in working capital with an outflow of £44,700,000 driven by several factors. Business growth has added around £15,000,000 then currency a further £8,000,000 Much of the balance is due to an additional increase in inventory in preparation for growth and as a means of supporting our supply chain resilience. Pension payments totaled £85,900,000 and include the $67,000,000 one off contribution that we made to our U. K. Pension funds in December. As you will see from our balance sheet, This has left our UK funds with a small accounting surplus and a relatively immaterial overall IAS 19 liability. Capital expenditure was in line with expectations at £57,400,000 an increase of £39,300,000 compared with the prior year. This included nearly €30,000,000 of investment in new capacity for our faster growing markets and particularly for semicon. Free cash flow before dividends was therefore an outflow of £47,000,000 for the year. Net cash flows from FX, interest and other items comprised an exchange movement of £14,400,000 And net interest payments of £7,800,000 Net debt was £148,500,000 Excluding lease liabilities with net debt to EBITDA of 0.8 times. We have included our usual summary of our funding profile in the appendix. As announced in December, we did make a one off contribution to our UK pension schemes of £67,000,000 This has had the short term benefits of improving our free cash flow from 2023 onwards by £15,000,000 per annum. The trustees have now hedged inflation and interest rate risk fully and reduced investment risk. Leverage on the scheme's LDI portfolio is currently around 1.3 times, so prudent and well within guidance from the regulator. As a reminder, the principal benefit from this change will be to reduce substantially potential for volatility in the scheme valuation And in turn, reducing the risk of a material new deficit emerging at the March 2025 revaluation. And our objective over time remains the full removal of liability to the UK schemes by securing the scheme benefits with insurers. On this next chart, I have included an update on our technical guidance for 2023. As you can see, we expect our adjusted effective tax rate to continue to be in the range from 26% to 28% this year. Based on current interest rates, we expect our finance charge to be in the region of £13,000,000 to £15,000,000 Comprising a cash interest charge of around £10,000,000 to £12,000,000 on our net debt, a non cash Pensions financing charge of around £500,000 and around £2,000,000 of interest on our lease liabilities. We expect our cash contributions to our non UK defined benefit schemes to be around £3,000,000 to £4,000,000 A reduction of circa £15,000,000 compared with last year with nothing due to our UK schemes. For 2023, we expect capital expenditure to be of the order of £70,000,000 to £80,000,000 as we invest to support the continued growth in the business. By the end of the year, we expect at least £35,000,000 of the semicon capacity investment of £60,000,000 That we communicated in December, 2 have been either spent or committed. And our dividend policy, as communicated in December, It's now to move towards the cover of around 2.5 times over the medium term. Finally, I have included here a reminder of our updated financial framework that we introduced as our December 2022 Capital Markets event. We are continuing to accelerate our investment plans to take advantage of the substantial growth opportunities in our end markets, Allowing us to deliver 3% to 6% organic growth through the cycle. We expect to return to this level of growth in our second half. In December, we stated our intent for operating margin to be sustained in the 12.5% to 15% range. We made good progress in 2022, achieving 13.6% and we'll expect to be back in our target range during our second half. Following our excellent return on invested capital outcome in 2022, we would expect our capital investment to have a slight dilutive effect the short term, but we still expect to sustain it in the target 17% to 20% range, which is well above our cost of capital. We also expect to keep net debt in the 1 to 2 times range. Our ambition therefore remains to drive enhanced Growth in adjusted EPS through accelerated organic revenue growth, a continued focus on margin, accretive M and A, Then enhance returns to shareholders as appropriate. That covers the key financial items. So with that, I'll hand you back to Pete. Thank you, Richard. I will now take you through our growth drivers, the performance of our business units And an update on progress against our ESG goals together with our current positioning and the business outlook. We have leading differentiated positions across our business, which we segment between faster growing markets and our core. In our faster growing segments, semiconductors, healthcare, clean energy and clean transportation, we typically have a smaller share and an emerging position. These markets have good underlying long term growth drivers, and we expect them to grow more quickly than our core markets over the cycle. We've been investing in capabilities and capacity in these segments in the last 5 years, and we're enjoying share wins and faster growth as a result. By increasing our exposure, we increased the underlying growth rate of the group, incrementally expand our margins as newer products contribute to the mix And improve the alignment of our portfolio with our purpose reinforcing our ESG credentials. Our core, representing 80% of the business, is the more mature markets where we typically enjoy the strong market position, leading or among the leaders. We have a strong brand, well established and deep customer relationships and a global position. We're continuing to invest in our core to maintain and win share And introduce the new technologies and products that our customers need to become more sustainable. Slide 14 shows the organic performance in our major market segments, split between our faster growing segments and our core. Within our faster growing segment, semiconductors grew strongly again in 2022, up 37% on the prior year. This reflects both positive market momentum and share wins as a result of our new products and capacity investments. Healthcare was up 2% with growth in implantable devices and analytic equipment offset by declines in vacuum insulation For Vaccine and Medicine Transform and Storage as expected. Clean Energy and Transportation were down 6%, Also as we expected, with the non repeat of 1 off solar projects that were delivered in 2021. Moving to the core. Our industrial sales grew 12% as industrial markets recovered further from the pandemic. Europe and North America were particularly robust, And we also continued to win share. Transportation grew 17%, with aerospace the driver, as air traffic volumes recovered further. Emicloud and petrochemical sales grew 8% with higher thermal project activity and growth in the aftermarket sales for seals and bearings products. The robust performance in our core markets shows the strong positions that we have in those segments And the benefits of the focus and the investments that we've made in recent years. Moving to our global business units, I'll start with Thermal Ceramics. Thermal Ceramics revenues grew organically by 11.4%, With good growth in all the major industrial markets, further recovery in aerospace and automotive markets and increased project activity in petrochemical applications. We also grew volumes in clean energy applications in North America and Asia. Operating margins improved slightly to 11.6%, With our pricing actions offsetting inflation and drop through on incremental volumes supporting margins. Turning to Molchan Matts and Systems. Revenues increased organically by 15.8%, with strong demand and share wins in the aluminium segment Margins expanded to 13.5%, reflecting the drop through on the increased revenues And price and efficiency actions more than offsetting inflation and investment. In Electrical Carbon, revenues increased 9.7% organically, with the main drivers being very strong growth in the Semiconductor segment Growth in Transportation segments. Margins expanded further to 21%, Reflecting pricing and continuous improvement actions that more than offset cost inflation and investment. Moving to Steel and Bearings. Revenues grew organically by 2.8% with a reduction in armor as expected, offset by growth in aerospace and petrochemical. ARMOUR sales for the year were GBP 25,500,000 a GBP 7,000,000 reduction compared to the prior year as those customer programs steadily wind down. Margins declined 12.8%, driven by manufacturing inefficiencies in the second half of the year And a provision for a quality claim with an ARMOUR customer. Turning to Technical Ceramics, Revenues increased organically by 15.8 percent with growth in Semiconductor, Healthcare, Industrial, Defense and Aerospace segments. Margins expanded to 14.1%, reflecting the drop through on the increased revenues and pricing and continuous improvement More than offsetting cost inflation and investment and the remaining benefits from our restructuring program. This is a very pleasing further step up in growth and margins in Technical Ceramics and reflects the multiyear focus the team have put on winning new business. I'll now turn to our goals and progress on the environment, social and governance, or ESG, Shown here on Slide 20. Our purpose is to use advanced materials to make the world more sustainable and to improve the quality of life. This purpose guides our decision making and strategy, and we deliver on it through the way that we operate and manufacture our products And through the products themselves and the benefits they bring to our customers. We're constantly investing in our manufacturing processes to reduce the environmental impact of our business. In parallel, we're investing in new materials and process technologies that improve the performance of our products and deliver bigger environmental and safety benefits to our customers. We have 5 ESG priorities that we'll be working on, and we set targets for those for 2,030. We will reduce our Scope 1 and 2 CO2 emissions by 50% by 2,030 from our 2015 baseline As part of our goal to be Scope 12 net 0 by 2,050. We're committing to reduce our water consumption overall And in high and extremely high water stress areas by 30% by 2,030. We're also determined to provide a safe, Fair and inclusive workplace for our people. We've committed to a lost time accident rate of 0.1 By 2,030 against our goal of 0 harm. We want our workforce to reflect the communities in which we operate, And we've set a target of 40% of our leadership population being female by 2,030. Finally, We want a welcoming and inclusive environment for our employees where they can grow and thrive. We've set a target of achieving top quartile engagement by 2,030. Slide 21 shows our progress in reducing CO2 emissions since 2015. Our CO2 emissions in 2022 were 8% down on the prior year, a good performance with production volumes growing around 8%. We have a broad based program of improvement underway, covering energy procurement, process improvements and behavioral changes in our plants. In 2022, we improved our energy intensity price adjusted by around 2% and continued the transition to carbon free energy For a number of our sites, around half of our electricity now comes from green or carbon free sources. Turning to Water, Safety and Diversity on Slide 22. Our water usage is up 12% over 2021 levels, Driven by the volume growth in the business, changes in mix and some water leakage, partially offset by water efficiency actions. Our water usage in high and extremely high stress areas reduced 2% during the year, with our efficiency benefits more than offsetting volume growth. Looking at safety, we've seen an increase in our lost time accident rate. That's the number of lost time accidents per 100,000 hours worked. Our rate increased to 0.28%, up from 0.22% at the end of 2021. We've completed the deployment of our Think Safe behavioral training for employees, And we're continuing to work very hard on safety. We're reinforcing our training, increasing safety tools, safety discussions and near miss reporting, And we're conducting detailed record analysis of lost time accidents and significant near misses. In the first half of twenty twenty three, We're deploying an updated Tech V for Safety tool to our sites to reinforce the need for people to think about the risks before undertaking a task. From a diversity and inclusion perspective, our full year position is 29% of our senior leaders being female, in line with the 29% position at the end of the prior year. We have a broad program of work underway to drive improvements here, Making changes to everything from policies to training to recruitment processes. Finally, turning to engagement. We completed our employee survey during December, and we recorded a 3 point improvement in the engagement score to 53. I was pleased to see the progress in the year and we continue to drive a range of global and local changes to improve the experience of our employees. Order intake has been relatively robust across our markets during the Q1, And we're not seeing significant signs of slowdown at this stage. We're expecting revenue growth and margins to align to our financial framework during the second half. Our profit expectation for the full year has not changed from the guidance we provided on the 7th February. We have experienced further cost inflation at the start of 2023, As we expected, and we continue to offset that through price increases and operational improvements. We're continuing to invest in capacity and capability in our faster Slide 24 shows the 6 year financial performance summary for the group to the end of 2022. This clearly demonstrates the impact of our strategy with a compound organic revenue growth of 4%, profit growth of 6% and EPS growth of 7% Across the period, our ROIC has expanded 570 basis points to 22.4% And EBITDA margins have expanded 190 basis points to 13.6%. We're delivering in line with our financial framework. The group is an attractive investment proposition. In summary, I'm delighted with the further progress that we've made with the execution of our strategy in 2022. We did 11.2 percent organic revenue growth with a broad recovery in our markets and through share gains. Operating profit margins increased to 13.6% and ROIC increased to 22.4%. We have a strong balance sheet and have taken a very significant step during the year to derisk our UK pension schemes. 2023 operating profit will be impacted by the cyber attack, but our recovery is on track. Our operating profit guidance for the full year is unchanged. We remain confident of our ability to accelerate the growth of the business and deliver attractive returns through the cycle. Thank you. That ends our formal presentation. With that, we'll now take questions. The operator will now explain the process for Q and A. Thank And our first question today comes from Scott Kachen from Investec. Scott, your line is open. Please go ahead. Thank you and good morning everyone. Just two questions for me, please. Could you just talk a little bit more about the semiconductor growth and perhaps maybe split out The difference between the market growth and the share wins, if possible? And then the second question is around the cyber incident. Could you just give us a flavor whether it was more of a skew to certain divisions in terms of the impact? And What were the lessons learned? Or are you accelerating what you would have not done this quickly in a way? So has it brought an opportunity for you to Good morning, Scott. Thank you. So just on the semi comp piece, yes, a 37% growth in the year, which we were delighted with, frankly. It's a little bit difficult To fully disentangle the sort of market growth from the share wins, just given it's made up of a number of quite small niches. But I think we've, I would say, sort of broadly outperformed the market in certainly in the sort of CVD Materials part of the business and The components that we make for crystal growth in silicon carbide, where we've had some really attractive Growth opportunities there. And that's certainly holding up nicely as we come into this year. I think we expect that to be a more durable grower notwithstanding some of the other slowdowns in semicon this year. Just on the cyber piece, it's less of a divisional piece actually, Scott. It's more of a geographic piece. So The sort of penetration into our network kind of effectively came in through the U. S. And just because of features of our network topography and The speed with which we caught it, we saw more impact on our businesses in the U. S, less in Europe and very little in Asia, Reflecting the fact that we sort of shut things down as we detected the attack. So it's the businesses in the U. S. That have the biggest impact sort of almost irrespective of division. In terms of then just our sort of our wider plans, yes, we've been modernizing the IT estate over the last 5 or 6 years. We're probably sort of halfway through a plan That was going to run through to sort of 2026, 2027. We'll probably accelerate that by a couple of years overall, deploying some of the new tooling a little Certainly speeding up the deployment of our group ERP program. Excellent. Very helpful. Thank you. The next question comes from Harry Phillips from Peel Hunt. Your line is open. Please go ahead. Good morning, everyone. Just actually three quick questions, please. First, it's just on the armor provision you highlight. I was just wondering, 1, the size. And then 2, is this already resolved? Or is it potentially an ongoing issue? And I suppose subsequent to that is Where should we expect ARMA revenues to be in 2023? The second is in Thermal, where Just looking at the raw maths, I'm sure it might be different underlying. The drop through looks like 12%, which I imagine there's a chunk of raw materials in there, but just that does seem sort of a bit lower than one might have anticipated. And then lastly, on the interest Guidance. Just curious as to the math to get I've just seen in the appendix slide, the average was 2.9 Last year and given where debt is at the moment, sort of the €10,000,000 to €12,000,000 of interest just looks a fraction higher than I thought it might be. Good morning, Harry. So I'll pick up the first one. I'll let Richard comment on the other 2. So in terms of the armor provision, it's just under £3,000,000. It is an ongoing sort of arbitration with the customer. So we expect that to resolve in the coming months. In terms of armor volumes, I think we're probably somewhere in the region of $15,000,000 to $20,000,000 this year. It remains unfortunately quite difficult for us to give Really accurate views on that. We don't tend to get very good visibility and indeed the sort of tail of this has continued to be much more robust than we've anticipated, but That's the sort of order of magnitude that we're looking at for this year. Lovely. Thank you. Hi, Harry. Yes, on the thermal, I think probably the thing to bear in mind is that pricing activity was weighted a little bit towards thermal. So businesses particularly feeling the effect of energy inflation during the year. Therefore, it would look like there was Sort of lower than average drop through, but actually it's mainly that inflationary effect. And then in the case of interest rates, the average Interest charge on our fixed debt is indeed 2.9%. But with debt having crept up a little bit, we are Our revolving credit facility, where the all in costs at the moment would be of the order of 3.5% to 4%. And we are anticipating net debt being a little higher through the year, Particularly as we're thinking about high levels of capital expenditure. Lovely. Thank you very much indeed. The next question comes from David Farrell from Jefferies. David, your line is open. Please go ahead. Yes, good morning. Thanks for taking my questions. I've got Couple of them, please. Just head back to Slide 13, where you show your Positioning in various end markets and the level of differentiation, is it safe to assume that We should correlate the level of differentiation with the relative margin of each of those end markets? That's my first question. Yes. Yes. That is a very short answer. The slightly longer answer, if you these things are imperfect, but if you Sort of, Sarah, a dot plot of gross margin on one axis and differentiation on the other, then you see a correlation between Level of differentiation in gross margin, we make higher gross margins on the products that are more differentiated. Okay. And then a couple of other questions. Market share gains kind of has cropped up quite a bit in your release today and you obviously mentioned it through the kind of presentation. What's driving that? Is this kind of the benefit of R and D? Is it the benefit of a kind of a healthier, stronger sales force? And how kind of sustained do you see those market share gains? I think there's a number of factors that are in there. So The first thing I'd point to is a lot of work on sort of sales and sort of service operational performance levels over the last 5 years. So as we've got better at Meeting customer needs, they've been more comfortable giving us, if you like, a bigger share of their wallet or in some cases moving us to a sole source position. And I think as long as we continue to perform, there's no reason why we can't retain that. In general, if they're willing to do that with us, then Is it an indication that we've got a sort of product performance that is sort of distinctive and valuable to them and they're therefore willing if you like to take on a bit of So, supply risk in exchange for a better performing product. So that certainly helped. We have done a lot of work on new technology, new product introduction. So where we've got some of those newer products with more differentiated features, we've been able to win some shares. So for example, if we've come up with, We have in our thermal business, a new fire protection solution that has a better performance. It has a longer sort of protection lifetime in a fire protection application. The customers in that market, broadly speaking, will pick the best product for the application. And Provided we maintain that technical lead, we will hold on to those share wins. So that's a excuse me, that's another piece of it. And I would just say, I think finally, just the work we've done building our R and D activity, investing in sales Has led to some deeper customer relationships, in particular with bigger customers in some of those faster growing market segments. And as they have Understood more about our capabilities and trusted us more, they've been more willing to give us sort of access to more opportunities within their business. So there's a sort of overarching piece around So the markets and trust. Okay. And then just a final question on thermal ceramics. You talked about a kind of petrochemical project work. What's your visibility in terms of kind of when that project work finishes? Because it kind of suggests there's Perhaps some lumpiness coming in terms of the overall revenue there. Sure. Yes. So projects are typically between kind of 15% 30% of thermal revenues. We would normally expect project activity to lag the industrial cycle by sort of 12 to 18 months just because there's quite a long gestation period in getting these things Sort of up and running. So we for example, this year, we've seen a little bit of softness in that project activity in Europe in the 1st part of the year, Which we expect to some degree reflecting just to a higher level to prior year. I don't think we're expecting a significant change in activity levels during this year. The next question comes from Edward Marabanyika from Liberum. Edward, your line is open. Please go ahead. Good morning. Thank you. Good morning, Pete. Good morning, Richard. My question relates More towards capital return. Just thinking in terms of the growth In the dividend declared, which I think was higher than what consensus was expecting, is that a signal towards priorities If we look at that in the context of M and A, would you care to comment in terms of what your thoughts are on that? Where you see valuations, what the opportunity set looks like? And if indeed, if there is an opportunity set, which specific So The increase in dividend does not signal any loss of appetite for M and A. So we signaled in In the financial framework that we published at the Capital Markets event that we would move over time towards dividend cover of around 2.5 times. And after a good year last year, we felt it was appropriate to start on that journey and improve returns to shareholders. We are continuing to look at M and A opportunities. We have a healthy pipeline of things we are investigating. And should we come across something worth pursuing, then we will take that seriously. Okay, very clear. Thank you. The next question comes from Richard Page from Numis. Richard, your line is open. Please go ahead. Thank you. Good morning, all. A couple from me, please. Just on coming back to the cyber incident. Have you lost much business from that? Or is this more a matter of deferral of existing customers sort of waiting for you to be able to fulfill orders? That's the first question, please. Yes. Good morning, Richard. Yes, we've definitely lost a little bit in the first half. I suspect it's some of the region of sort of £10,000,000 to £15,000,000 And that reflects effectively sort of short term business where in the early part of Q1, we weren't able to give lead times. So for customers, I don't know, they've got an urgent repair job in a chemical plant or something. They want to short turnaround time for some material. And because of the We have been scheduling the plants. We've probably missed on those opportunities. So there's a sort of an amount of loss there. We don't see it as a permanent loss, if you see what I mean. It's just that Okay. Yes. Thank you. Understood. And then just more broadly on the order book. Obviously, we're seeing from loads of people record order books, extended visibility, but that's starting to move supply chains, it's starting to come down. Are you How are you feeling about visibility yourselves and supply chains more generally, please? So I think it's 2 pieces to that. So in terms of Sort of order momentum, I suppose, I mean, that remains robust for us, as I've sort of indicated. We're not really seeing any signs of slowing. I commented on just a little bit of softness in Thermal project activity in Europe, I mean, really that's the only piece across the whole of our sort of set of industrial markets, wider core markets and faster growing markets where we've got Meaningful signs of anything different. Typically, we don't have a lot of forward visibility. So we are Sort of Tier 4, if you like, in the supply chain or in our customer supply chains. So it can be quite late in the day before we actually see Signs of slowing, we are assuming, if you like, on a macro level that we see some slowing of industrial markets in the second half of the year, just reflecting the fiscal tightening that's happening around the patch. I think we're probably more optimistic about things like semiconductors and healthcare and sort of aerospace continue to grow through that. In terms of supply chains, I think we would say, in general, our own supply chains, The situation is definitely much improved over sort of the worst points of the last sort of 24 months or so. We have built inventory in A number of our plants or sort of intermediate warehouses to protect against supply chain issues, And we're intending to retain those inventory holdings at least for the next sort of 12 or 18 months, just given, I think, continuing sort of geopolitical uncertainty. So while we're probably feeling better about supply chains, we continue to be cautious. Okay. Thank you. And my last one, just you obviously mentioned inflation being more again a headwind into 2023. Just wondering, Pricing wise, are you seeing any pushback from customers in regard to that? And ultimately, what sort of pricing elements should we be putting in our models for this year, please. Sure. So I think I mean, there's a big piece of it depends, right? So the energy surcharges and those kinds of things influence pricing numbers we end up with, but we're sort of assuming that inflation is probably in the region of 6% to 8% this year. And pricing, therefore, is probably going to be sitting in the sort of 5%, 6%, 7% region, something like that, but it will depend on what We see because in many cases, we're just passing through what we get. Understood. Thank you very much. Thanks. We have a question from Mark Fielding from RBC. Mark, your line is open. Please go ahead. Yes, morning. Just a quick follow-up actually to what Rich was just asking in terms of if we think about the comments you made about sales being Flat in the first half and returning to growth in the second half. Is that a volume comment or is that a sort of all in comment? I suppose I'm thinking with That pricing element being so significant, does that mean that in volume terms you're down in the first half of the year and then Sort of recovering to a more stable situation in the second or just trying to piece those bits together? Thank you. Sure. Good morning, Mark. Yes. So that's a revenue comment, not a volume comment. In effect, flat in the first half reflects sort of some of the impact of the cyber incident and just holding us In terms of shipments, and then second half, let's say, 4% to 6% volume growth, something 4% to 6% revenue growth, something like that, which On volume terms, if pricing is 5% or 6% is probably flat and that reflects our assumptions that we'll see some slowdown in some of those sort of industrial markets in the second half of the year. Great. Thank you. As we have no further questions, I'll hand back to the management team for any concluding remarks. Just thanks very much, everyone. Appreciate your questions, and we'll draw it to a close there. This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.