Okay, welcome back to the second part of the morning, where we will be focusing on the future of Senior plc as the market-leading pure-play fluid conveyance and thermal management business. Over the next hour or so, I will talk about the delivery of our strategy, explain what we mean by fluid conveyance and thermal management. By the way, we love an acronym in the industry, so you'll see that referred to as FCTM throughout this presentation. I'll describe our operating structure, our technology, products, and capabilities. I'll talk about the competitive landscape and how we earn the right to win, as well as how the Senior Operating System is helping us to achieve our goals. We're setting out new and improved financial targets today, and Bindi will describe those, and importantly, how they will be achieved. She will also talk about our updated capital allocation policy.
I will wrap up the session, leaving plenty of time for Q&A. We can trace our roots as a company back to the 19th century, but Senior has been a recognized fluid conveyance and thermal management business since its incorporation in 1933 as Senior Economisers Limited, followed by its listing on the London Stock Exchange in 1947. An economizer is basically a heat exchanger that helps products such as boilers to be more efficient and reduces pollution. With almost a century of relevant experience, we can genuinely claim to be experts in this field. FCTM is very relevant for today's challenges and vital if we are to continue the transition to a lower carbon economy, as we surely must. This presentation will help to explain how we're going to capitalize on that expertise to deliver value for our shareholders. This is not a new strategy we're presenting today.
It's about delivery of the strategy that we've been articulating for some years. I will admit that external factors such as the 737 MAX crisis, the pandemic, and certain customer travails have frustrated our plans, and it has taken longer to get to this point than we would have liked. Thank you to our investors for sticking with us. We are going to do our level best to ensure your loyalty is rewarded. I'll start by repeating where we are with regard to the strategic review process for our aero structures business, as some of you in the auditorium or watching online may not have attended our results presentation earlier this morning. Senior is committed to the sale of our aero structures business, and we are making good progress. There's good buyer interest.
We are now at an advanced stage of a sale process with a small number of parties, and negotiations are progressing positively. We're focused on completing the sale process and maximizing value for shareholders, and we'll update the market in due course. Therefore, we are positioning Senior as the market-leading pure-play fluid conveyance and thermal management business. We have truly differentiated products with rich background and foreground intellectual property, coupled with expert design and manufacturing know-how. We have a good track record of outgrowing the structurally resilient end markets in which we operate, so we are well positioned for top-line growth. Margins have been improving in recent years, but there is so much more to come. That will be driven by better pricing and a relentless focus on improving operational efficiency.
We've always been a cash-generative business, even delivering positive free cash flow during the dark years of COVID when sales plummeted during the global lockdowns. As a pure-play FCTM business, cash generation will be even stronger. We have set new and improved medium-term financial targets, as shown on the right-hand side of this slide, and Bindi is going to describe those in detail later. They are realistic, achievable, and will deliver sustained, profitable growth and returns, which will generate enhanced value for shareholders. Having previously merged JET and Ketema in Southern California and AMT and Damar in the Pacific Northwest, we have five operating businesses across our seven locations in our aero structures portfolio. These are the businesses that we are selling. It's a sizable divestment, at 28% of 2024 group sales.
Last year, it had an operating loss of GBP 6.5 million, and in 2023, the operating loss was GBP 11.1 million. However, these are not bad businesses. On the contrary, Senior has been a good steward of our aero structures business. The factories are well capitalized, with great people in prime locations and with an excellent customer base. As aircraft production volumes increase, they will be profitable, starting from this year, with good top-line growth. However, they are non-core to Senior's fluid conveyance and thermal management strategy, and there is a significant opportunity cost of continuing ownership. We want to put all of our energy, time, and resources into our aerospace and flexonics FCTM businesses. You can see why from this slide. On the left is Senior today, and on the right is Senior's FCTM revenue, profits, and margins.
Immediately, you can see the increased profits and margins, high single-digit in aerospace and the group, with flexonics already at double digit. This illustrates the high quality of our FCTM businesses. Just to comment on the higher margin in 2023 for aerospace, this included the one-off benefit from retrospective inflationary cost recoveries, which resulted in higher aerospace and group margin. As we will go on to explain, the overall trajectory will be steadily upwards from here. As a pure-play FCTM business, we have greater competitive differentiation with strong underlying fundamentals that are borne out of our engineering expertise. We focus on designing bespoke products, subsystems, and systems, providing innovative solutions for our customer-specific and often challenging requirements.
The markets in which we operate, aerospace and defense, the heavy-duty truck and off-highway segments of land vehicles, power and energy, and adjacencies such as medical and semiconductor equipment lend themselves well to our core competencies and are structurally resilient. Geographical presence is important, and I will explain why in a couple of slides' time. Here I am showing the difference in our end market exposure with and without aero structures in our portfolio. On the right-hand side, you will see the split based on 2024 revenue. Aerospace and defense is still the single most important market at 47% of FCTM revenues. Of that, civil is almost two-thirds, military close to a third, and space at 2% represents a good growth opportunity. Land vehicle is 27% of our FCTM revenues.
While we have some excellent profitable niche positions in passenger vehicle, it's the heavy-duty truck and off-highway segments that we really focus on, where our engineering expertise is highly valued. Power and energy sales were 18% of FCTM revenues, and that includes our excellent Pathway business in Texas. When we consider the split of product categories for FCTM, we can see it's a broad range from high and low-pressure ducting systems through to fluid control, emission control, and industrial process control. What you don't see on here now are build-to-print structural assemblies and machine components for airframe and gas turbine engines. Those are part of our aero structures portfolio. In the interest of time, I've included the customer revenue breakdown and aerospace platform sales split in the appendices, excluding aero structures, and you'll find them on slides 45 and 46.
If we remove the aero structures locations, you can see that we still have excellent global coverage. We firmly believe we need to have a strong presence in our primary home markets. With the U.S. being the largest of all, the logic of that seems even more relevant today for obvious reasons. Equally, with world-class facilities in India, South Africa, China, Mexico, and the Czech Republic, we have options for low-cost manufacture if our customers require that. Of course, some of those markets are huge in their own right. I've had interesting discussions with some investors around our operating structure and the number of sites that we have. This has evolved. In fact, it has been transformed over the last 10 years. In 2015, we had 35 businesses. Today, we have a more simplified and streamlined business. These are our FCTM locations.
Of these 19 operating businesses, 11 are design and manufacture, and 8 are manufacturing only. Five sites make FCTM parts that are designed by our engineers at our Crumlin, South Wales Design and Technology Center, including Crumlin itself. Those are the ones in light blue. We have Flexonics' global marketing teams drawn from the operating businesses and aerospace customer relationship managers representing the entire group, which ensures that we are joined up in our sales and business development efforts. We never compete against each other. Our executive team and board very actively manage our portfolio to ensure we are best placed to maximize returns for shareholders. Since 2015, we have sold or closed many businesses which were non-core or underperforming and merged operating businesses to provide stronger leadership and improve operational efficiency.
Clearly, this year, when we sell our aero structures business, that number will be well over 20 over a 10-year period. In the same period, we've made only two acquisitions: Styco Industries and Spencer Aerospace, both strong fluid conveyance companies. I know there was an eyebrow or two raised when we announced the Spencer acquisition. Some of you may have been a little skeptical about the business case. Well, in the first two years, Spencer has grown 135%. Operating profit margin run rates are now in the teens and continuously improving. It has also opened the door to our broader standard part strategy, which I will cover later on. We're not about to abandon our diligent and cautious approach to acquisitions. They must meet our strategic and financial criteria.
While we have other capital allocation priorities, which Bindi will describe later, we do see opportunity for bolt-on value creative M&A to complement the good organic growth we anticipate. The next few slides describe what it is that we actually make in our FCTM businesses. You may be relieved to hear that I'm not going to step through every part describing the application and function. Rather, the key message here is that we have a broad range of capabilities and products. While some of those, like low-pressure ducting, are unique to one business, others are complementary. Take high-pressure ducting, for example. Not only do we make the large and small diameter tubes and ducts that are required to make these systems, we also now make the hydraulic fittings, couplings, flanges, and clamps that are required to connect the system and interface to the aircraft.
Underneath the product categories, you will see where we design and make the products and who some of the key customers are. You will also notice that some of the products look remarkably similar regardless of the end application. A control actuator for aerospace applications looks just like a pin lift actuator for a semiconductor equipment application. That theme extends to our flexonics products, where many of the products look just like their aerospace counterparts. We thrive on providing solutions to our aerospace and broader industrial customers who need high-reliability parts to operate in hostile environments, whether that is at high altitude, coping with extremes of bleed air heat from an aero engine, inside a 15-L heavy-duty truck engine, or in the heart of a nuclear reactor. Products we design and manufacture operate from the deepest parts of the ocean floor to the far reaches of outer space.
I would confidently say that no other fluid conveyance and thermal management company has the breadth of product offering that Senior does, from highly engineered standard parts to complete high and low-pressure ducting systems. On the left of this chart are examples of our standard parts. The Spencer acquisition was a breakthrough event, and we're using that as a springboard to organically develop our standard parts offering. Our Spencer California and Ermeto France colleagues are working together to extend the range of hydraulic fittings which we offer and to reach markets that Spencer would not have penetrated on their own. Below the fittings, you'll see a picture of flanges. This seemingly humble product has a lot of engineering in it.
In recent years, an extreme shortage of parts has been a real supply chain issue for many customers, including Senior, as we use many of these flanges with our own high-pressure duct product. We took a decision to develop our own alternative. We invested in the capital, made and qualified parts with support from customers, and have now secured our first contracts with deliveries starting next year. As we move across the page, you will see examples of our custom-designed bespoke products. The X-59 is the Lockheed and NASA Quiet Supersonic Jet Demonstrator. This squeeze duct was additively designed and printed by our brilliant engineers at SSP in Burbank, California. On the right are examples of increasingly complex designs. As we move on to the second page here, we continue to see increasing complexity and higher-level assemblies, such as the Pathway designed and built expansion joint.
Go back one, please. On the right are examples of our complete system design capability. This system design expertise helps our product design ability greatly. The other thing to note is that many, in fact, most of our products are solving both fluid conveyance and thermal challenges at the same time. I'm often asked what percentage of our sales are related to fluid conveyance and what percentage of sales are thermal management. In fact, it's the confluence of these two capabilities that help differentiate us. For example, even our leading battery cooling technology for high-end land vehicle applications relies on more than just thermal management expertise. It's the way we route the cooling fluid through the structure that is part of our secret sauce. We've demonstrated excellence in creating new products and solutions that face extremes of temperature, pressure, leakage risk with the highest reliability demands.
At the heart of many of these amazing products is our Bellows Technology. A Bellows is a zero-leakage dynamic seal capable of a great range of motion, rather rudimentarily demonstrated on the slide here. It's not a slinky toy. Without them, some products simply would not function, or at least not reliably, or not for long. They are needed in petrochemical plants, medical devices, hermetically sealed pneumatic actuators for all manner of aerospace and defense applications. Senior is the best company in the world when it comes to designing and making Bellows. No one does Bellows smaller, bigger, or better. The tiny edge welder Bellows on the left is made at Senior Bellows in Massachusetts. The giant expansion joint for the Petrochem industry on the right has two enormous Bellows in it. It's designed and made at Pathway in Texas. Everything's bigger in Texas.
Our Bellows technology expertise is one of the reasons why we win. It's not the only one. I already talked about our unparalleled breadth of offering. We're able to offer customers what they genuinely need, not just what we want to sell. We have various competitors, of which this is only a subset, but none match our complete offering. It isn't just our technology that helps us win. Customers appreciate our operational performance, high levels of quality, on-time delivery, speed to market, our financial stability, and our sector-leading sustainability credentials. Things sometimes go wrong. In that event, customers appreciate our responsiveness and agility to help them out of a spot. If you tour our facilities, you will find world-class factories with fantastic engineering labs and a skillful and committed workforce managed by very strong leadership teams.
It's a combination of these factors that help us stay in front of the competition. One example of this was our award last year from Deutsche Aircraft for the bleed air system and EBU for their exciting D328e co aircraft. In addition to all of the factors I just mentioned, it was a collaboration between our SSP and Bird Bellows businesses to jointly develop the system and manufacture it in the U.K., close to the customer's German facilities that helped secure the contract. Okay, I'm now going to hand over to Bindi on our new financial targets that we're publishing today.
Thank you, David. Good morning. I will take you through our new and improved medium-term financial targets for our fluid conveyance and thermal management business, describing the key elements supporting our confidence in delivering them.
We set out new medium-term financial targets which will deliver consistent value creation for all our stakeholders. Group operating margins are expected to expand from under 5% in 2024 to at least double-digit in the medium term, with aerospace margins increasing to at least mid-teens and flexonics margins in the 10%-12% range. Senior's business model is intrinsically cash-generative, and we expect our operating cash conversion to be greater than 85% through the cycle. Return on capital employed, ROCE, has been the one financial target we have previously set publicly. That was to achieve a minimum of 13.5%. Today, we're increasing that ambition, aiming to realize ROCE of 15%-20% in the medium term. These targets are underpinned by maintaining a strong balance sheet. In light of the current debt environment market and our leverage target, our leverage target remains unchanged.
As many of you know, we aim to keep net debt to EBITDA between 0.5x and 1.5x . These medium-term financial targets are supported by an expectation of mid-single-digit organic revenue growth through the cycle. Implicitly, that means we aim to outgrow our key end markets by 50% through the cycle. Let's consider the growth in the key markets of aerospace and defense, land vehicles, and power and energy. Air traffic is forecast to continue to grow as incomes increase, especially in developing markets in Asia. Demand for new aircraft is forecast to grow 3%-4% CAGR, driven by growth in air traffic and ongoing fleet replacement to introduce more efficient aircraft and engines. Defense remains a priority for the U.S. and has increased in importance for other countries given the constantly evolving geopolitical situation, with defense spending forecast to grow 2%-3% per annum.
Overall, therefore, the aerospace and defense market is expected to grow around 3%-4% CAGR. We are well positioned to benefit from this market with growth in our diversified product portfolio and especially the attractive positions we hold across the newest generation of civil and defense aircraft platforms. Global land vehicle markets covering both commercial, on- and off-highway, and passenger vehicles typically grow at 2%-3% per annum through the cycle. The increase in vehicle production is driven by GDP-led growth in transport volumes. This market continues to face tightening emissions regulations. With our proprietary fluid conveyance and thermal management products, Senior is ideally placed to take advantage of the need for more fuel-efficient internal combustion engines and the opportunities afforded by the transition to low-carbon and clean energy solutions. Power and energy markets grow at around 2% per annum, driven by economic growth and urbanization.
Projected increases in global energy usage will be met by both renewable and conventional power generation. Senior is a market leader of complex fluid systems and products used within industrial, petrochemical, and power generation sectors, and we are well positioned to grow our non-fossil fuel business, building on our existing renewables and nuclear energy customer base. Bringing this all together, we expect mid-single-digit organic revenue growth through the cycle from growing markets and market share gains, as evidenced by our book-to-bill track record. Moving on to our margin targets, let's start with aerospace. The chart on the left shows the historic pre-pandemic OP margins achieved by aerospace and separately the fluid systems businesses. Aerospace margin, including aero structures, was 10.6% in 2018, dropping to 1% during the pandemic and reached 4.6% in 2024. Fluid systems margin was 14.6% in 2019 and 9.4% in 2024.
As David noted earlier, the 10.5% margin in 2023 included the one-off benefit from retrospective inflationary cost recoveries. We expect the trajectory to be steadily upwards from here. Our medium-term target is for aerospace margins without aero structures to climb to the mid-teens. The three key drivers delivering this improvement are pricing, volume, and operational efficiency. I'll explain in the next few slides why the progress on these three elements provides confidence in achieving our targets. As you can see from the chart, half of the expansion in aerospace margin is coming from better pricing. The good news is that the majority of this improved pricing is already contractually agreed. As production increases, we will see a multiplier effect from better pricing with higher volumes.
We've developed a systemic value-based pricing methodology and trained our business leaders and front-end of the business staff in how to approach cooperative pricing discussions, seeking to achieve a win-win outcome for all parties. As I mentioned, much of our LTA pricing has already been negotiated. Others need to be completed, and bear in mind that a good chunk of our business that is spot priced where we can keep prices current on an ongoing basis. We will maintain our pricing and return on capital discipline. This may mean at times taking difficult decisions to exit or not renew certain products or contracts which do not meet our returns requirement. We would fill that freed-up capacity with better margin work. Improved pricing is a significant contributor to aerospace margin expansion. With the progress made so far on this, we will see margins increasing as volumes increase.
We will also reap the benefits from increased capacity utilization as aircraft build rates increase over the medium term. For example, the A320 increasing from 57% to 75% per month in 2027. Margins will also benefit from broadening our standard parts product portfolio organically. As David described earlier, establishing Senior as a significant supplier of fluid conveyance standard parts, including fittings, flanges, couplings, and clamps across our Spencer, Ermeto, CALSTAT, and Bird Bellows businesses. Growth opportunities also arise from increased diversification into space, defense, and adjacent markets, and from capitalizing on our metallic and non-metallic additive manufacturing design expertise and manufacturing capacity, which affords an opportunity to develop novel product designs that are optimized for different characteristics such as weight, performance parameters, and physical envelope. David is now going to cover margin expansion through operational efficiency and Senior's high-performance operating system.
The third leg of our aerospace drive for improved margins is operational efficiency. Whether it's our best business or the business with the biggest performance opportunity, every operating business is deploying continuous improvement techniques. Our Senior Operating System provides the tools and processes to our teams across Senior to implement proven, best-practice techniques to lean out processes and help improve margin and cash generation. I'll talk more about this in the next slide. Earlier, I showed how we have simplified our operational footprint. Clearly, when we divest aero structures, this will streamline the organization further. As Bindi already said, we always align headcount to revenue. Where appropriate, we will continue to transfer labor-intensive work from high-cost country to lower-cost country. This has worked well for us in the past and will continue to do so.
It's not always the right decision, though, and it may be that the greater use of automation is a better option in some situations. Often we call this cobotics, where we have robots and people working together on the same product line. Anyone who's been to our aerospace Bird Bellows or Flexonics Olomouc facilities in the Czech Republic will have seen some good examples of that. The journey back to mid-teens margins from our sub-10% 2024 result has commenced in earnest. In fact, five of the seven aerospace FCTM businesses are already at double digit, and another one will be double digit this year. The seventh business has further to go, but it has a granular plan, and we are confident it will make up ground quickly over the next few years, benefiting from what Bindi has already highlighted, especially price and operational efficiency.
Coming back to the Senior Operating System, or SOS as we abbreviate it. By the way, a number of people have said to me, "Oh, do you want to call it that? Does not infer there's an emergency." I happen to like the sense of urgency it instills, so we're sticking with it. SOS has a number of elements embedded within it, but foremost amongst these is lean manufacturing. Like Danaher, GE, Ford, Nike, Caterpillar, our lean manufacturing system is directly descended from Toyota, who pioneered lean with the Toyota production system. Our operational excellence lean toolkit has seven primary tools to expose and eliminate waste, with four secondary tools used depending on the nature of the process. Tools are taught and used in team-based Kaizen events, and standardization of the tools allows for acceleration of training and regular use increases effectiveness. So much for the theory.
We have many instances of Kaizen events yielding fantastic results across our business. One recent success story is at Senior Aerospace BWT in the U.K. BWT were successful last year in winning AS1591 flexible ducting, which is another standard product, from a major OEM after their existing supplier let them down. Demand surged tenfold within six months because of the great job we were doing. In response, a dedicated Kaizen team comprising lean experts, production operators, and manufacturing engineers established a specialized manufacturing cell. By systematically addressing the most time-intensive production steps, the team successfully reduced cycle times by nearly 50%, ensuring the company met increased demand without compromising efficiency or quality. This is a great example of how our commitment to lean manufacturing enables us to remain agile, scale operations efficiently, and drive sustainable cost reductions.
Not all businesses are as advanced in the deployment of lean as BWT are, so this represents a great opportunity for improvement actions across aerospace and flexonics divisions. Bindi, back to you.
Now on to flexonics. As you can see from the chart, historic margins have been sub-10% for five of the last seven years. Specific actions taken by us have led to delivering double-digit margins in 2023 and maintaining this when land vehicle markets were softer, as demonstrated by our performance in 2024. Actions taken by us include divesting the underperforming French automotive Bleu R and Brazil flexonics businesses in 2019, and diversifying our heavy-duty truck geographic exposure by winning market share in Europe. You will also recall we took GBP 50 million of cost out across the group during COVID, and a portion of this was in flexonics.
As markets have recovered, we have not added all of the indirect costs back. With our leading technology, operational excellence, and our global marketing setup, whereby products are developed in our design centers and manufactured in our cost-competitive locations, we have outgrown end markets. Looking ahead, we expect to sustain 10% margin even in the down cycle, with opportunity to deliver up to 12% margins in the medium term. This will be through outgrowing our end markets, allowing for appropriate investment to realize this growth, as well as maintaining price and cost discipline. Group-adjusted operating margin was 8.5% in 2018, dropped to 0.5% in 2020, and has gradually increased back to 4.8%.
With the aerospace and flexonics margin targets I've already described, and aligning central costs to the broader SG&A across the group to revenue, group margins are expected to expand to at least double digit in the medium term. We always scrutinize overhead to ensure it is proportionate to our activity level, and this remains a key focus area with the aim of maintaining central costs between 2%-2.5% of revenue. Overall, from a group perspective, the key drivers delivering margin expansion are pricing, volume, and operational efficiency. Senior's business model is intrinsically cash generative. Even in challenging times, we have generated good cash. We have renewed our focus on improving working capital efficiency, capitalizing on the benefits lean manufacturing yields, as well as better aligning our sales, inventory, and operations planning, known as SIOP. This will increase inventory turn, which in turn frees up cash.
We will continue to take a disciplined approach to investment in capital expenditure. Our fluid systems and flexonics businesses have a lower capital intensity compared to structures, and targeted investment in growth projects backed by secured customer contracts in support of our revenue ambitions will deliver profitable growth. Over the medium term, capital investment is expected to be 1.1x depreciation, reflecting our expectations of top-line growth. We're confident the business will deliver greater than 85% operating cash conversion through the cycle. We're increasing our ROCE target from the previously stated 13.5% to achieving 15%-20% in the medium term. This will be driven predominantly by growth in absolute profits, outweighing some increase in capital employed from the organic investment I just spoke about.
With an IP-rich fluid conveyance and thermal management portfolio driving margin expansion and profitable growth with lower capital intensity, we're confident in delivering significantly increased returns on capital. Our capital allocation policy aims to position the group's portfolio to maximize returns, with optionality for investment in growth and shareholder returns. From an organic perspective, we will continue to invest 2%-3% of revenue into R&D, and capital investment is expected to be 1.1x depreciation over the medium term in support of outgrowing our end markets and improving cost efficiency. We will continue to follow a progressive dividend policy reflecting earnings per share, free cash flow generation, market conditions, and dividend cover, maintaining earnings cover of 2.5x-3.5 x. We will maintain a strong balance sheet by targeting net debt to EBITDA of between 0.5x-1.5x .
This leaves us with optionality to return excess cash to shareholders and to invest in value-accretive bolt-on M&A, maintaining a disciplined approach to additions to our portfolio. Thank you, and I will now hand back to David for his closing remarks.
Thanks, Bindi. I'm excited about our future prospects as the market-leading pure-play fluid conveyance and thermal management business. In Senior, we have great people, outstanding and differentiated technical capabilities, exciting products, and a wonderful customer base who trust us to deliver. We operate globally in our prime home markets and with world-class cost-competitive options. Bindi has described our new medium-term financial targets, which we are confident of achieving. In turn, that should provide sustainable, profitable growth and returns and generate enhanced value for our shareholders. That concludes the presentation. We've rattled through it. We thought we'd leave plenty of time for Q&A.
With that, we'll open to the floor.
Thank you for the presentation, guys. It's Andy from Jefferies. I've got four questions, but two are small, two are slightly bigger picture. On the contracts that you guys have on your FCTM business, it looks like you've done a cracking job on pricing. Can you just remind us how long are the average contracts for the aerospace business going forward, and how often do you negotiate price? Because it feels to me like once you've got your price set, then we're good to go, yet you're still talking about potentially walking away from business if you get a change in pricing. Just kind of make sure that I fully understand that one. The second one is on prune to grow.
I'm assuming that once we've got these aero structures business done, the prune to grow strategy is largely there, or is there one or two more things that you can be doing? Just two points of clarification. The targets that you set out, I'm assuming they're all organic, so anything from an M&A perspective could move them higher. Are you able to quantify medium term? I'm assuming four to five years, but I don't want to make a false assumption.
Yeah. Okay, deal with the first one on pricing. We've got a mixture of contracts. Some of our fluid systems, many of our really big systems contracts, are life of program. Once you're in, you're in. We had to reset pricing because of the huge inflationary pressures that came on over the past couple of years.
Even though we had long-term pricing in place, we approached our customers, and we had very sensible discussions with them because we needed to, and those are now in place. After that, we go back to variation in price clauses. We get index-linked increases. That is a portion of them. Others, typically U.S. defense contracts, C- 130, I think the next contract is five years. Five years long, we just renewed that. That comes in April. That is based off proper U.S. DOD-approved pricing techniques. Naturally, again, with all the inflation that has been there, that was a significant price increase. That is another portion of the contracts. Then there is a whole swathe where we price annually or spot price based on market conditions, if you like. That is what we call value-based pricing.
We make sure that we're giving a fantastic offer to our customers in terms of what the product does, but equally, given the design expertise that goes into it, we expect to be appropriately rewarded for that. There is aftermarket. We do not have a huge amount of aftermarket in our business, but the aftermarket we do have is all in fluid conveyance and thermal management. It will be a slightly higher proportion now. Typically, that is priced on an ongoing basis, maybe off a price peak where you're regularly increasing pricing. It is a bit of a mixed bag, but what we do not have is very large. Typically, we do not have nearly as many large three- to five-year fixed price contracts that we have had in structures in the past. I will say all the structure stuff, by the way, we have also been repricing.
As long as it's part of our company, it's going to do a lot better. Prune to grow, I nicked that term from Sandy Cutler when I used to work at Eaton. He liked to say that good companies do continue to look at their portfolio and where necessary sell off. You've seen we've done a lot of that over the past 10 years. There might be one or two bits left to go, but the majority of it's done. It's an ongoing process. We need to make sure that our operating businesses are really performing well and they continue to remain core. I mean, Brazil is a good example. One time, Brazil was a fantastic business. When the markets collapsed in Brazil nine, ten years ago, it made no sense to remain there because it was a bleed on cash and profit.
We'll keep looking at these things on a longer basis, but yeah, a lot of it's done. Do you want to talk about the targets?
Just on prune to grow, I mean, we continually look at our businesses from an operating margin and a return on asset perspective, as well as its strategic fit within Senior. That's always an ongoing exercise. Targets, yes, they are all organic on an organic basis. Medium term, I mean, you said it yourself, you're kind of most analysts, I think, think four to five years.
Thank you. I'll come back to this. Hi again. It's Richard Paige from Deutsche Numis. Three again, please. That historical context in terms of margins on the FCTM business in aerospace, I thought it was interesting. 14.6% in 2019.
Could you give a bit more clarity or a bit more detail around the variety or range of margins within the businesses themselves, please, around that time? Because hearing ones, the context where we are today is just how that has transitioned over time, please. In terms of the complete offering across a set of your products, could you maybe give a bit more the potential size of that opportunity around there, please, and how you've done that? I assume Spencer's been quite a big play in that field. On flexonics, the sustenance of a 10% margin in a downturn, is that relating to your cost base, that you've got a much more flexible cost base relative to history? Just give a bit of context around that, please.
Yeah. Okay, this is where I get into trouble.
Bindi, just about far enough away so you can't kick me. The range of margins, if you go back historically, quite wide. I think I'm on record as saying that our very best businesses in the group are right up there. We're the very best industrial businesses like Halma, Spirax Sarco in terms of the margins they generate. You know where they are. That's our very best businesses. Other businesses back in 2019 in fluid systems, yeah, they weren't all at that level. Somebody visited our Ermeto and CALSTAT sites early last year, in June last year. Xavi, who runs those businesses with Dar on and Ermeto, just done an outstanding job in getting those from much lower margins into regularly performing in double digits. One example where we've made progress since 2019, despite all the headwinds that were there. Now the range is closing.
I said we've got one business that is not yet in double digits this year. All the others will be. Give us a few years and that will be, and we'll see it steadily improving. That is one of the reasons why we're so confident about those margins that we're predicting, getting back up to those mid-teens levels. I think do you want to comment on the downturn one, Bindi?
In flexonics, from a margin perspective, I mean, we said this a few years ago. We're really looking at the cost base in our flexonics businesses, and our aim was to make sure that even in the down cycle, we can maintain double digit margins, which you can see we've done in 2024. In fact, we increased margins to 11%.
Ways we've done this is making sure we're taking advantage of the global market teams where design is in the likes of Crumlin, Bartlett, Castle, but then manufacturing is in our cost competitive locations, which allows for more flexibility in making sure costs are aligned to revenue as well. We are actively diversifying geographically, particularly in heavy trucks. We have more of a presence in European heavy truck and not whereas previously we were very much North America reliant. Some of those are active actions taken by us, but selling our loss-making French automotive business in 2019 is another reason. All these actions give us that confidence that we can maintain minimum 10% in the down cycle with upside in other years.
Additional things, if you take our Bartlett business, which is our biggest flexonics business by revenue, a lot more of the product now gets built in Silao than in Illinois. You can ask me about tariffs after that. Terms are FOB, so the customer has to pay any import duty if that does come to bear. That gives us a bit more flexibility in the cost base. We got stung, and if you think back to just after I joined the company, 2016 was it? It was that industrial recession, and we really got stung. You could not get the cost out quickly enough, and we said, "Never again." We have taken quite a lot of steps in the intervening years to make sure that we have much more flexibility in the cost base.
If you think about those emissions control regulations, when they come in, truck grows probably a couple of percent, perhaps 2%-3%, and through the cycle, at times it can go down 40%-50% if there's an emissions regulation change. You need to have that flexibility to enable to cope with that. It will bounce straight back up again once you get through the emissions change. All that's all going into our thought processes and trying to design the organization structure to give it that stability and make it future-proof, really, for events like that. Yeah, in terms of the scope, it's a big market for fluid conveyance and thermal management. Look, there's lots of different parts to it. That's the other thing. Obviously, who's your main competitors?
You can see from the chart I put up on the right to win chart, we're really competing across a whole range of areas, which I believe is one of our strengths. You really have to segment it quite carefully to understand what the TAM and the SAM is. We do that. We've got our very good analyst here today, Adrian up in the corner, who helps us really study all that. If you take standard parts as an example, one of the reasons we wanted to go into this market, partly companies I worked for before did a lot of these standard parts and I used to run the fuel systems division. It was all fancy and really good stuff. My colleague ran the fluid conveyance division. We disparagedly called them the plumbers, but they made all the money.
I've been very keen to get into fluid conveyance standard parts for some time. The Spencer acquisition is one of the few remaining companies that allowed us to make that breakthrough investment. Now we're adding in our own organic capabilities. What we're finding is customers have been disappointed by the existing supply sources. They really like us because we perform with quality and on-time delivery. It's quite hard to get a number, but the total available market is probably a few hundred million dollars for that, and we're starting from a very low level. I'm not saying we're going to get 90% or anything, but we can capture a good chunk of that.
It gives you an impression of sort of the organic growth you might have through that sort of business where we want to focus our efforts when we sell structures, which takes a lot of our time or attention, our cash. It's a good business, but fluid conveyance, standard parts, better business. By the way, these are sold to OEMs. They're sold to distributors. They're sold to T1 indicators. They're sold through aftermarket. There's an ongoing sort of demand for them through the cycle. Hopefully, that answers your question.
Yeah, brilliant. Thank you.
Any more questions? Investors are allowed to ask questions, although you may prefer to do that in our one-to-one sessions later on this week.
Hi, it's Andrew , Peel Hunt again. Just a couple of conceptual ones, if I may. Maybe first on flexonics.
You've talked about kind of supporting both markets, ICE and electric vehicles in that. There was clearly a period of time kind of running up to 2019 where you had CapEx below depreciation. There's a degree of which the capital base was running quite lean on that. You've also talked about putting investment into the business. I wonder if you could talk about, say, the next five years in terms of the shape of the capital base. Are we needing to catch up on any investments in any part of the business? How does that investment split out between those two parts? I'll come back on one on aerospace.
Yeah. No, good question. There's no looming massive capital injection required for what's in the plan that Bindi's presented here. That's the good news. We've been quite thoughtful.
Similarly, on the R&D side, we invest about 2%-3% of sales per annum, and we'll continue at that level. As a mechanical engineering company, that's about right. My background was electronics companies, and if you were not investing at least 6% and probably 8%-10%, then you were going to fall behind. That's not the case with mechanical engineering. I think specifically on EV, look, if we were chasing mass volume passenger vehicle, continuous flow ovens, that's a big investment. That's not what we're doing. Yes, we've got some wonderful niche applications. We announced the contract with the Italian Mark Sports Car, not allowed to name them. I should do that in Crumlin, on sort of a small industrial setup.
We just invested slightly more in Crumlin for larger ovens, but not continuous flow, because we're looking at battery cooling for all-electric heavy-duty vehicle, which is space on that one. We're focused on the lower volume, higher value end of the market, which means we'll have to build vast factories to make all the cooling plates and everything. That's where we are in the process. It's a lot of the same kit, to be honest, that we already have. In flexonics, if we win a big production program, we'll often need to invest in the specific tooling and maybe the specific equipment for that. A big investment would be $4 million-$5 million, just to put it in perspective. That would be a big investment. It's one of the things we love about our fluid conveyance thermal management businesses. They're not particularly capital intensive.
There will be times when we have to invest a bit more. It'll go up and down, but by and large, these are capital-efficient businesses. If you want to add to that, Bindi.
Adding to that, I mean, I say through the cycle, CapEx will be 1.1x depreciation. It may mean in a particular year, it could be 1.2x, 1.3x . In another year, it could be 0.7x or 0.8x depreciation, but it balances out. In flexonics in particular, you have to PPAP the product, so go through qualification testing on the equipment about a year before it comes into production.
If you look at lead times of machines and everything, there is a bit of a cycle in when you start your investment, but we make sure that we're agreeing appropriate payment terms to make sure the cash profile of that investment kind of matches up with the revenues coming in. As David said, this is proven out equipment. It's not sort of very specific stuff that can only work on one contract. It is more generic, but it's always backed up by contract wins.
This year, actually, we are making investment in our Crumlin Design Technology Centre, which is in South Wales. They're designing lots of brilliant products. I love going there. We're actually moving site at the moment to a newer, slightly larger site. The old one was, we need to get the old one for space reasons.
We will have a beautiful new design technology center. Designing products that will be made around the world, both conventional ICE and also new EV. We should organize an investor and analyst visit to that site when it is opened, perhaps later on this year. I think you will be very impressed by it.
Maybe following up on one on aerospace then, if I look at the margin bridge that you presented between FY24 and medium term, there is clearly a big chunk there that is pricing. You have obviously talked a lot in the short term about the renegotiations that have happened and kind of have phased in, are continuing to phase in this year. Personally, I was surprised by the proportion of that margin uplift that pricing represents as opposed to, say, operating leverage when volumes normalize at key OEMs, Airbus continues to increase production levels.
What does that bake in, I think, is the question. We know this is an industry that has historically operated quite keenly on pricing. Is this a not to sort of second guess what customers are saying, but this appears to be kind of quite a collaborative phase that we're going into in terms of customers recognizing they need to get the supply chain back up and running, maybe operate in a slightly more collaborative way than has been the case previously?
Yeah, I would say there's very good collaboration across the aerospace industry. There's been a lot of soul searching at certain companies for understandable reasons. The emphasis on having financial stability and continuity of supply is of paramount importance now. That's one thing. For the stuff we're making in fluid systems, this is our design.
We own the intellectual property in the main, most of it. That allows us to have proper value-based discussions with our customers on an ongoing basis. If you build to print, there is a lot more competition there. It is a slightly different discussion, but even that has moved on from where it used to be. There is now a premium on continued supply quality, on-time delivery. That is why our structures businesses are winning more and more from Boeing, from Airbus, from Spirit, from GKN, and others, because they appreciate that. They are providing value. Think about where our operations are. Look, you have to provide value always, but when you own the design, it is a lot easier, fundamentally. I think you should also look at the split. If you look in the back of the packet, the split, it is a slightly different profile for the business now.
Look at the top customers. It was Boeing, Rolls-Royce, Spirit. I think they do not even appear in the top profile. You have it there somewhere, I think. Page 46. Yeah. I personally thought that was quite an intriguing picture. You can see the key customers across the group there. Airbus, single biggest now. Then you have a bit of defense work. Actually, Raytheon includes Collins, so that includes commercial aerospace. Boeing at 3%. Look at that other column. We like that long tail. It is good to have that diversification in the customer base. Similar in flexonics, we are not beholden to any single customer in this moving forward. Oh, David was first, Andy. Oops. We do not see him very often, so I got to ask a question. Hi, David. How are you?
Yeah, hi. Nice to see you, David. Just two from me.
One is you talk about mid-cycle growth, but to be honest, we're probably in the very early stages of a big upturn. I'm just wondering, why not just give a sales guidance through to 2029, 2028, 2029? Because mid-single digit to me doesn't seem the right number to use. Secondly, any color you can give us on the timing of the disposal, when you might be able to announce it, when you might be able to close it? Thank you.
Let me deal with the second one first. While Bindi thinks about the first one. I mean, obviously, we wouldn't be talking about today unless we were relatively close. That's the first thing. We wouldn't be as bold as that. Look, we are in the final stages of negotiation. I don't want to set the wrong expectations.
I'm not going to pick the week that we're going to get it done. It is pretty close now, and we're very keen to get that done. I will say once we've exchanged SPA and signed a deal, there will be a regulatory process to go through. If the buyer is not a U.S. buyer, if the buyer is a U.S. buyer, then that does not apply. If it is not a U.S. buyer, CFIUS could take 12 weeks after that is foreign control and influence in the U.S. That could take three months once we exchange the deal. It is going to be part of our business for some months yet. We are making sure we are going to drive that very hard over the next few months. That is as much as I'm able to say. Bindi, on the.
On the growth, I mean, if you look at flexonics with land vehicle markets growing about 3% per annum and power and energy in that 2% bracket, you can see why we're saying mid-single digit through the site in the medium term. For aerospace, when you split out and you look at the fluid system side of aerospace, and you'll see that in the platform page, there is a better breakout, better mix of civil aerospace, regional, business, and defense, whereas structures was more heavily biased towards the large commercial aerospace sector. That is the one that's growing fastest.
That is what when you look at aerospace in total with a fluid conveyance hat on and the mix of the breakout between defense and aerospace in total, yes, in the near term, the growth will be in the high single digits or even reaching double digit, but eventually, it will come back towards that 3%-4%. We continue to expect to outgrow the end market.
Thanks for the challenge on margins, though. I like it. Andy.
Andy.
Thanks, Andy from Jefferies. I am just going back to Richard's question on flexonics, but maybe looking at it slightly differently. If we were to create a scenario, which I think is probably fair, that Pathway business now looks like it has got a couple of good years ahead, we get a truck recovery in 2026, which is what everyone's assuming. I was hoping it was going to go on there.
There we go, 2026. Is 12% the right upside for flexonics? It feels to me like you're assuming that something always kind of does not go to plan in flexonics from an end market perspective to get to that 12%. Because if Pathway is a higher margin, truck has a good recovery, good operational gearing, 12% feels a little bit low to me. Or am I missing something?
I think 10%-12% is a sensible and achievable target to set expectations for. If everything goes brilliantly, could it be a bit better than that? Of course it could. I think it is a sensible range to be guiding to. We will always try and do better. You are right. When Pathway has a good year, it makes a huge difference for flexonics.
We've not been able to announce it right up until today, but in the detail in the results announcement, we've shown the contract we did win, which was from GAIL in India for a new CATOFIN plant. Over 100 of those giant expansion joints we've been providing last year and into this year. That really helps the business. We're going to try and win some more of those. That's what would take us to the top of that level. If everything went to plan, could we get above it? Maybe. I think it's a sensible range to guide to.
Okay, cool. Looking at your acquisition framework, it looks like you're going to be buying a North American owner-managed fluid conveyance product business for GBP 50 million- GBP 100 million.
If I can ask you to go to slide 22, it looks like you guys have everything covered off. If we were to cut this from a different way, maybe from your competitors and where they sit, do you guys have holes in your portfolio that you would like to fill from a product perspective? Or is it a question of adding to what you currently have to make it stronger, broader, whatever?
I think with the Spencer acquisition, we've filled the Steiner-Parks hole that I've been itching about for some time. I'm so glad that's working out well for us. Nigel's here, who's our EVP of Strategy, looks after technology and strategy. The things we're focused on are think of our best businesses. It's like Metabellos up in Massachusetts. We're making custom-design products on the fluid conveyance field. They've got multiple applications.
At the heart of that is a tiny little bellow, but they're performing the bespoke items for specific applications. Those are the sorts of businesses that I think you'd be most likely to see us interested in. These are annuity contracts, annuity programs that last for a long time. They've got deep engineering, but once you're in there, they're there for a very long time, generating very good margins indeed. I think that would be the ideal, I think, if we were looking at bolt-on M&A. There are other capital allocation priorities as well, as I know you're aware.
Just quickly on the disposal comment, are there likely to be stranded costs kept within the business once you've got rid of structures that you then need to kind of get rid of over the next kind of couple of years?
Is it a reasonably clean break in that respect?
It is a reasonably clean break because we try and keep sort of specific costs within the businesses themselves. Naturally, from a group perspective, for example, on information security, we take those costs at the center. Some of those will be lower when you've got fewer businesses to look at and insurance, although most of the insurance is passed back to the businesses as well. As I said, we will always align central costs in line with the revenue profile of the group.
Thank you very much.
Any more questions? All right. I really appreciate everybody coming along. We'll let you away half an hour. I know we've got lots of meetings lined up with our shareholders and very much looking forward to those through the course of this week.
Some of you have come a long way. Really appreciate you making the effort to get to you. Thanks a lot.