Hello and welcome everyone to the Senior plc conference call on the Sale of Aerostructures business and announcement of the EUR 40 million share buyback program. My name is Becky, and I'll be your operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. I will now hand over to your host, David Squires, CEO, to begin. Please go ahead.
Good morning, everybody. I'm here in our Business Watts head office with our CFO, Alpna Amar, our Director of IR , Gulshen Patel, and our analyst, Adrian Murray. Hopefully you've all seen the RNS we've issued this morning, which is regarding the sale of our Aerostructures business. As part of that, we're announcing a EUR 40 million share buyback program as well. I'll come into the details of that. Last night we reached a binding agreement to sell our Aerostructures business to Sullivan Street Partners. Sullivan Street are a UK-based mid-market private equity investor. The enterprise value is up to EUR 200 million, and I'll talk a little bit more about that in a moment as well. Importantly for us, this is us delivering on our strategy. We've been telling the market for some time now that our intention is to become a high-quality pure play fluid conveyance and thermal management business.
For the rest of this call, I'll refer to that as FCTM because it's quite a mouthful. You know why are we so excited about that? In those businesses, we have very differentiated products combined with design-rich intellectual property and expert know-how. Those businesses are really well positioned for growth. We believe we'll outperform. They're attractive and structurally resilient in markets, much of rotating. You can get structurally higher operating margins in those businesses than we have had in the group in the past. We expect sustained profitable growth, lower capital intensity, and that will drive improved returns. We believe in house value for shareholders. Of course, we're a strongly cash-generated business, so our operational capital conversion will be even better through the cycle. That will support the investment growth that we intend to make and, of course, shareholder returns as well. A bit more about the transaction detail.
As I've said, the enterprise value is EUR 200 million, and that represents 13.1x the reported 2024 EBITDA. The initial consideration of that is EUR 150 million, and then there's EUR 59 million that will become payable based on earnout. That earnout is related to our performance only in this year, 2025. We've become payable in cash, depending on our performance in the first half of next year. When we think about value, that EUR 150 million would generate approximately EUR 100 million in cash proceeds. There are some transaction costs of about EUR 12 million. The EUR 150 million, after we deduct debt-like items, and some of you will recall, that includes all our IFRS 16 leases, which is the largest portion of those debt-like items. That's how we arrive at the equity value of EUR 100 million. The transaction will be immediately accretive to our operating profit margin and our return on capital employed.
With those initial net cash proceeds, we will reduce debt in the first instance. Our debt is at a pretty good level anyway, but we'll reduce debt and we'll be inside our target leverage, which is between 0.5 and 1.5. We'll also have sufficient funds to launch a EUR 40 million share buyback program. We'll do that on completion and once we have the funds. In terms of tied into this, we do have some regulatory processes to go through. For example, SFEO, the Foundry Coal Instruments Committee in the U.S., that's a process some of you will be familiar with. It's one we're very familiar with and have gone through many times. We don't expect that to be a significant part though, but it does take time. That's why we're saying we'll complete by the end of the year. For us, this makes a lot of sense strategically for us.
It's something we've been working on for some time. I just want to say we're not selling some kind of toxic assets here. I've made clear for a long time these are very good assets, these Aerostructures businesses. Our strategy is focused on fluid-based thermal management. We're wishing all of our colleagues in the Aerostructures business well. We have a good buyer. They have the best interests of our employees and customers at heart. We intend to invest and grow that business. Importantly, keeping all of our really good leadership teams intact. Just to be clear on the scope of that, the businesses that are covered that we're selling include our Senior Aerospace UPECA in Malaysia, Senior Aerospace Thailand, Senior Aerospace Western in the UK, and then in the States, our Pacific Northwest Aerostructures businesses. That is AMT and Damar.
In Southern California, our two structured businesses there are called JET and Ketema. Five operating businesses on those seven sites. That's what's in the scope. Overall, we believe as the board unites, we believe that this is very much the right thing to do for the company and will lead to good growth delivering on our strategy. We're excited about the next chapter to come. We'll keep you informed of progress as we go through the completion process here. I'll just pause at that point and invite any questions.
Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. We have our first question from Andrew Douglas from Jefferies. Your line is now open. Please go ahead.
Good morning, guys. I've got three questions, please. Can you just give us a walk through the difference between the enterprise value and the equity value? You've got it from EUR 150 million- EUR100 million. My understanding is that it's predominantly leases and debt. Can you just confirm that you won't be paying a huge amount of tax on this transaction? Secondly, you talked about the approvals needed. You also need approvals from your customers. I'm assuming that's not going to be a cause for concern in your view. The third one would be on the additional EUR 50 million. Appreciate it's possibly a little bit tentative, but can you just give us an indication on what basis you could get that full earnout as we think about the additional EUR 50 million on top of the EUR 150 million? Thank you.
Okay. Thanks, Andy. Alpna will go over the first one and I'll take the next two.
Yeah. Andy, just in terms of bridging, from the EUR 150 million to the EUR 100 million. At the end of 2024, we had about EUR 40 million of leases under IFRS 16. It'll be EUR 40 million of leases, and then we'll have another EUR 10 million of debt and debt-like items. There's a bunch of things within that, but that gets you to EUR 50 million. We get to an EV of EUR 100 million. You'll take off the transaction cost of EUR 12 million, and that gets us to EUR 88 million of proceeds, which we've said we'll use the EUR 40 million for the buyback and the remainder to pay down debt.
is no tax to be paid there.
We're not expecting tax to be paid on that transaction, though.
Okay, perfect. Thank you.
In terms of the customer approvals, yes, there are some customers that, as is very typical in the aerospace industry, where there are change of control requirements. Of course, that's not something we treat lightly. We've already been talking to our major customers. I've been doing that personally this morning, as has Launie Fleming, our President of the Aerospace division. Those discussions so far have been very good and understanding. The customers, like our shareholders, have been aware that we are likely to be selling this business. It's been an ongoing dialogue. I'll never say that there's just going to be a rubber stamp on these customer approvals. We wouldn't do disservice to our customers like that. We'll treat it very professionally, but I fully expect that will go through within the periods of the regulatory approvals as well. Those discussions are already started.
I think on the earnout, we won't disclose commercially sensitive information about the exact details of the earnout, but I think it's a fair balance between recognizing good performance for the business this year. From the buyer's perspective, the maximum earnout would be at a level that would really stretch us to optimize our performance this year. That'd be helpful for us, given that we are going to own them for the bulk of this year and also helpful for the buyer as a launchpad into their ownership. I think a sensible earnout mechanism with a good range between the threshold and the maximum level.
Superb. Thank you very much, guys.
Thanks, Andy.
Thank you. We also have a question from David Perry from JP Morgan. Your line is now open. Please go ahead.
Yeah. Good morning, David and Alpna.
Morning, David.
A couple of questions. Morning. Just following up on the earnout. Do you want us to put that in the model? You're pretty confident you'll get the EUR 50 million? Is it black and white, you get it or you don't, or is there a phasing in there? Second question is, I don't know if it's a bit too early, but any chance you can give us a first look at the sort of 2026 for aerospace? What kind of margin business do you think you'll have? Just to check, the buyback, is that all in one year, 2026? Thank you.
Okay. I'll answer the third one. Let me just talk a bit more about the earnouts and the second one. On the earnout, no, there is a range in there, David. Typically, the way these things work is this one is about our EBITDA performance. Sometimes it's different. Sometimes it's sales. This is all about our EBITDA performance. There's a threshold level at which we need to get over to start earning some of that EUR 50 million. There's a maximum level at which we get the whole EUR 50 million. It's kind of a linear progression between those two points. They've been set at a sensible level. The top end is not unachievable, but it's appropriately stretching. For the performance we've laid out, we expect this year, then there would be a decent chunk of that earnout. That's how we've kind of structured it.
We're not yet giving guidance for next year, but of course, we do have our half-year results coming up on the 4th of August. We'll be talking a lot more there about our performance this year and what we're expecting next year. What I can say generally in aerospace, of course, is that we're excited by the growth in commercial aerospace. We're excited by the potential growth in defense as well. Actually, the rest of the business that we're talking about today, we continue to expect healthy performance in our light vehicle and power and energy businesses. We're nearly looking forward to talk about that at our results on Monday, the 4th of August.
David, just on the buyback. On the basis that we'll hold structures for the duration of the year, we'd expect those proceeds to come in at the back end of the year. We would commence the buyback immediately when those proceeds come in. It would be for the duration of 2026, but obviously, that will depend on where the share price goes and when that buyback stops becoming earnings accretive. We would be looking to do that over the 12 months commencing around December.
Great. Thank you.
Thank you.
Thank you. We currently have no further questions, so I'll hand back over to the management team.
We'll find somebody for dialing in. Of course, I'm sure somebody will want some follow-up meetings with us on a one-to-one basis. Feel free to reach out to Gulshen and we can set those up. If we don't speak to you, we look forward to seeing you again on the 4th of August and during our investor roadshow that follows thereafter. Thanks very much, indeed, for dialing in this morning.
Thank you for joining. This concludes today's call. You may now disconnect your line.