Okay, good afternoon, everyone. Thanks for coming along to James Cropper Capital Markets event. My name is David Stirling. I'm the Group Chief Exec here. Great to see you all. We are videoing the presentation, and it will be available on our web at some point later today or tomorrow, along with the presentation as on the screen. We set out the presentation today in three stages. First, a brief introduction from Mark Cropper, our Chair. Mark, unfortunately, can't be here today, or at least at this time, as he's traveling, but he has recorded an introduction, so we'll start with that. I will give a brief state of how we see the business now, how do we think about it now, and how did we get here.
I think how we get here is important because after a short break, we will be talking about where we go next. I think it is important to understand what needs to change in the business to get to that something different in the future. We will have a chance for Q&A at the end, so if you want to hold your questions till the end, I would appreciate that. If there is something burning about understanding, then please ask, because I do not want to continue through a presentation where something is perhaps unclear. The usual disclaimer, you can get a hold of that in the pack. We will start with the presentation from an introduction from Mark.
Good afternoon and welcome to this Capital Markets event for James Cropper. I am Mark Cropper, the Non-Executive Chair, and whether you're here in person or watching later, thank you very much for joining us. This is an important event for us. It's an opportunity for us to update you on our vision, our progress, and our future plans. As all of you know, James Cropper is a very ancient company with a 180-year history this year. We have a global reach. We are very established, but we're also very forward-looking. We are, no surprise, a very resilient company. We've adapted over the many years to all manner of changes in markets, in technology, all kinds of challenges. Today marks the beginning of a new chapter as we look forward from what has been a challenging period in the business.
On that topic, I am delighted to introduce to you David Stirling, our new CEO. He may be familiar with many of you as the former CEO of Zotefoams. We were very keen as a board to recruit the best talent we could and actually look externally. We wanted to have the perspective of someone from outside. Really, David met almost all the things we were looking for: advanced materials, experience, very strong financial and commercial attributes, and much more. David has been tasked by the board with a full review of the group and to evolve our strategy to drive the greatest possible shareholder value. He will be presenting this strategy today with the full support of myself and the board.
Really, at the heart of what we're sharing, it is built on capability that has been built up over a very, very long time. We have outstanding products. We have outstanding capabilities, technical, manufacturing, and otherwise. Really, at the heart of what we have is we have incredible intellectual capital. We have an amazing innovative workforce. Together, actually, with our underutilized capacity, we have a lot of capacity to actually make more than we are today. We can really make some difference to the way the business goes in the short term. Longer term, there is a lot more we can do actually with our markets and really approaching them more strategically, and then actually adding innovation. Taking what we make today and evolving our technologies, adding more to what we can do at all levels.
Particularly in the high-performance materials area, in our advanced materials side of the business, there is really a huge opportunity. Energy transition is one very good example of that. Finally, I would just like to take a moment to thank all our customers for their continued support, the partnership we enjoy with them, usually over actually years and decades, and their commitment to sustainability, which is actually driving their business with us. I would like to thank all our shareholders, new and old, for supporting us. Finally, actually to thank our people. Thank you for your ongoing dedication, creativity, resilience. You are the foundation of everything we do. Thank you all for joining us. I would now like to hand over to David for the main presentation.
Okay, first part of the presentation, where are we today? Let us just do an at-a-glance.
I know many of you are familiar with James Cropper. I've been following the business for many years, but I think it's just useful to give some placeholders to make sure that everyone is at least on an even basis with the base level of knowledge. What you see is some statistics from last year. We intend to announce our full year results in a couple of weeks' time. We are not giving any new financial information in this presentation. Largely, what you see at the end of last year, a year ago when we published our new report, is not materially changed from today. We have a business which is turning over about GBP 100 million. We are making a small profit. That turnover is split between the U.K., continental Europe, America, and even as far as Asia. We sell a lot of different materials to different countries.
In fact, it's, I think, over 50 countries. So widespread. One of the things that surprised me when I came in was how far away some of the paper business sales went into Korea, Japan, etc. You think, why does that happen? It is because, as Mark said, there is a great product portfolio. There is a technical basis for that. The business has got four locations, although primarily the Burneside, just outside Kendal, the Burneside Mill is the main location for paper. Definitely almost all the paper assets and people are there. It is the main location for advanced materials who also operate out of the other sites on a lesser basis in terms of assets and people. The business side, I think if we look at it from a shareholder perspective, has had its highs and lows.
It's highs a couple of years ago and its lows pretty recently. The reason you go from high to low is that you fail to live up to expectations. I think we have a business which people got really excited about advanced materials growth, and that didn't deliver to expectations. The paper business has been losing money. There has been discussions or promises of, are we going to turn that around? Again, not lived up to meeting that expectation, resulting, I think, in a lack of trust and a disconnect between what is being said about the business and the reality of the business and where the external perception is. I think my primary objective in holding a Capital Markets event is to make sure that we can start to reset that. We can say, this is how we see the business.
The board have been very clear to me that I can come in and be both forward-looking and also critical about how we are acting today and how we've acted in the past. I look for the good stuff and understand where the bad stuff is and do something about it. That's how you'd expect. I've had clear support for doing that. That's very, very interesting, very helpful to get that support from the board to be doing that. As I said, the picture of where the business is today is roughly these statistics are more or less unchanged. The business operates through two divisions, an advanced materials division and a paper and packaging division. There is a technology continuum that links paper to technical fibres, to coated fibres, to coatings.
We will discuss that later about how did we get there and how, not how we got there, but how we see that going forward. Two-thirds of the business today is paper in markets, which I would describe broadly as challenging. I think generally those are in slow decline. They are not falling off the cliff, but they are not growth markets either. The advanced materials has a really good business in a whole lot of markets that are growing, but we are actually characterizing those slightly differently. We will talk a bit more about that later. I think it is particularly important, however, when we think about paper and we think about advanced materials, that this is in a group context. They are held together at group level with group overhead costs and shared services, etc., as part of a PLC.
Today, paper picks up about 2/3 of those overhead costs, the allocated overhead costs. When we think about profitability in paper, we do have to consider that these are businesses which are joined together by shared services. They would not necessarily just be separate businesses on their own if we decided to do something different. If we look at what our strategic positioning on these are, paper, number one, let's make profit. Let's stop losing money. That is the challenge. Okay? Advanced materials, it is growth. This is a business that has been badged as a growth business and has not grown organically for quite a few years. If you get technical about it, it has probably gone back in real terms. Okay? Group, we need to manage the balance sheet. There has been a lot of investment going into the business.
The debt levels are not super high, but Andy will talk later, Andy our CFO, will talk later about discipline and capital allocation here and how we manage the balance sheet, in particular the debt and liquidity and the pension fund. That is the kind of three priorities that we have for discussion today. Let's start with advanced materials. How are they positioned? We think about the business really in two main market sectors, I guess. They are consolidations of types of businesses, really, but energy transition and composite solutions. Now, composite solutions today is the bigger of the two. It has about 60% of our business. Energy solutions, about 30%, and other is about 10%. I would say there is a really important distinction between those. I would characterize composite solutions as a fairly well-established market.
Most of the applications we have are in things like aviation or construction or whatever, which are, there's growth in there. They're well-established, but they are not super high growth markets in themselves. You can find pockets in there that are higher growth, and you can certainly find niches, but the markets aren't roaring away at very high growth rates. Energy solutions, on the other hand, the growth rates in the markets are high, but the markets are also what I'd describe as nascent. They're not well developed yet. Whether that's hydrogen for green hydrogen for kind of energy transition, new economy, or whether that's battery technology or something else, it doesn't really matter. These are markets where they are very difficult to predict. There's high degrees of uncertainty that goes along with those high growth rates. How do you manage in those? How do you allocate capital?
How do you invest? And in particular, how do you communicate that? If we are to win the confidence of shareholders, potential shareholders, etc., we have to be able to communicate how we see those markets, but also the understanding of the inherent variability and risks in those markets, which are very different from the established markets. If I take commercial aerospace as an example, the other thing that I wanted really to message out very, very clearly is advanced materials typically sits around tier four, somewhere between tier three and five, but around tier four on the supply chains. If you're not familiar with this, what I'm talking about is if you think about someone making a plane like Airbus or Boeing, they're the OEM, original equipment manufacturer. Someone that supplies to them is tier one. Someone that supplies to that supplier is tier two.
We sit about tier four or tier five. The consequences of sitting around tier four or tier five, particularly with a technically demanding product, is it's very difficult to change gear. You can't just turn up and say, "Oh, we'll give you a better price. Let's sell more." The price elasticity isn't there. The development cycles are long. The specification hurdles are high. The testing cycles are long. People don't generally want to change. If we change something, everyone else downstream then has to retest things. Okay? That's great if you've got the business. It tends to engender a very resilient, stable, predictable business inasmuch as aviation is predictable. We all know that we used to think it was very predictable, and then we realized maybe it wasn't quite so predictable.
Inasmuch as aviation's build rates are predictable, the supply chain, what they take is very visible, even though there's a lot of complexity. It is very difficult to grow that business. It is very difficult to break in with new products, etc. The time scales for doing those are long. When we talk about growth in those established businesses, you are really talking about how do you do a bit better than the market. Can you move from a position of being a product supplier to something else. We will talk about that. We will talk about that later on. Certainly in the nascent markets, we still sit about tier four, tier five, tier three sometimes, much, much faster moving. Technological innovation, people trying things, supply chain consolidation, collapses, customers going bust. It is just that dynamic that you get from that type of industry.
You have got to have a much larger pipeline going in there, and it is much more difficult, particularly in respect of timing as well. When are things going to happen? The rewards potentially are much, much greater. If we think about what the paper business looks like, we have something which is different. For a start, if I just start with the tier structure, we are usually tier one or tier two. We supply to the people that want product, or we supply to a converter that turns it into a box and supplies it to a luxury brand or something. You have got much closer to the customer. Actually, you have got much more influence in some ways and ability to change gear there. You are perhaps not quite as secure because they can change as well.
If you're doing well, if your service is good, your product's good, your price is right, you can move that business quite quickly. Today, we think about the business really in two segments. We think about luxury packaging, and we think about craft and speciality papers. I will talk later on about a three-peak model in paper. For now, that luxury packaging, that craft paper market, let's call that a peak two market. We'll come back to that. We also have a peak one market. About 15% of our revenue today is in products with high recycled fibre content, typically lower price, but less demanding in terms of performance, quality, etc. That's important for a paper mill because when you make paper, you make scrap. You make trim scrap or cut scrap. The more operations you do to it, the more scrap you make.
If you make a big reel of paper, you make a certain amount of scrap, you cut it into sheets, you make more scrap, you emboss it, you make more scrap, and that scrap can be reused. Now, if you're in a mill that's making a very small number of products, you're doing long runs. Actually, that scrap can probably go back into the run you're doing, not at James Cropper because the runs are generally shorter. That scrap comes out and has to be reused in something else. You can't feed it back in. Is 15% of our revenue from these types of things about the right number? Revenue is not a great way to think about this. This is one of the key lessons that I'm really pushing into the organization. It's about margin. It's not about revenue.
It is not about percentage margin. It is about absolute margin, an absolute margin per week or per time period because that is what we have got a machine for. We talk about that a little bit more. We have definitely got markets which are drift down, and we need to gain market share. These markets, the craft and luxury packaging markets, they are reasonably sized. We are small relative to these markets. We can get market share. We are not bullying away from 85%-87% of market share. That is not how this is. In the high recycled fibre, the peak one markets, we are tiny. We are tiny. Any ability to service that market slightly better, give them the product they want, we can gain market share. No one will even notice. We could fill our mill with that product. No one would even notice in the market.
Let's not worry too much about the market dynamics. Think about what we can do to gain market share, etc. A bit more about how we got here then. Let me just take it from the context of a group and then the two business units. The group, I think, what did we say? The objective was to manage the balance sheet, manage the cash, gearing, liquidity, all that stuff. How did we get to a position where we've got reasonably high debt? It's not super high, but it could be more comfortable. There was an announcement out fairly recently about how we reprofiled the debt repayments over the next 18 months. If you've missed it, please go back and look at that. I think there was a narrative around growth in advanced materials.
There was a narrative around recovering paper that then said, "Okay, how do we take the next step?" There was not really a focus on, "Let's deliver that advanced materials growth. Let's deliver that recovering paper." It was, "All right, those are going to happen. What do we do now?" Let's invest for the next thing. Some of the investments that were made have left us with a bit more capacity than we need. The other side of that is the growth did not come that the investment was made for. Okay? That gives us a great opportunity, particularly in the fibre side where we have capacity. If we can get the business coming through the doors, we do not need to invest. The paper business has been downsized. Again, we have capacity there. We do not need to invest in new capacity to grow.
Those investments were primarily longer-term in nature and led to an increase in leverage without a commensurate increase in earnings. Okay? That is what we did that got us in the group position with that. Advanced materials, why is there no growth? We have broadly, and this is not entirely true, but it is representative enough. We have broadly got technologies where our product goes, almost all the sales of a product go to a customer. We do not typically have a product selling to five customers or ten customers. It is then difficult because of the nature of the tier four to replicate that across to other people. Okay? You have developed something for somebody, but that is not necessarily what the next guy wants. That ability to replicate has not really been pushed. It has always been, "Oh, we are a technically driven organization.
Let's talk to people about what they want and develop something for them and then do that again. Okay? And that's great if they're growing. If they're not growing, then we've got less control of how we're managing. I think particularly in these nascent markets where there's that high inherent uncertainty, some things have happened which I think probably could have gone another way and we'd be in a very different position, but they didn't. What are we going to do about it? I mean, I think we have got that forecasting difficulty. We have got a very sort of dynamic environment where you've got supply chain consolidations, you've got technology shifts, etc., etc. Quite a few of the things that we've started have not got through to the stage where they're showing growth.
Now, a number of those have dropped off, but there are still a number in the pipeline where they could come out, and we are seeing green shoots in some of these things. We will talk about perhaps the forecasting or forecastability of those later. Paper, I think there's been a view of paper that, "Look, this is a business in declining markets, and therefore it's been losing money. We need to do something quite drastic." There was a restructuring announced a couple of years ago that was all about right-sizing the paper business. There's a slide on the next slide. I will talk about that. Essentially, it has tried to reposition itself in some particular markets, and those markets have not grown.
In particular, the luxury packaging market where the luxury goods until fairly recently were doing very well and then kind of did a U-turn. Also, the quantity of packaging used, there's a focus on reducing packaging. Even if luxury goods was static as a market, the packaging content would be shrinking. Okay? Being in that market was not something which lifted the boat. It was not a tide which lifted the boat. It became a more difficult market share process. Okay? Going on to that in a bit more detail, that paper and packaging strategy is described to right-size the business and focus on more profitable customers with a 15% target reduction in headcount to right-size the business. That sounds on the face of it quite appealing. Right? The outcome was a more fragile business model because there was more concentration in certain markets.
They cut the tail off the long unprofitable businesses. Actually, I would say that's not quite true. Cut the tail off the long lower-priced businesses. Those lower-priced businesses quite often used the scrap. It was about price and not margin. That, to me, is not how you run that business. You need to think about margin. Okay? Those lower-priced products have got two distinct advantages. One is that they use that high percent that you use the waste product, so you can get good margins at lower prices. The other thing is that they absorb fixed costs. Paper business is a high-asset-based business. It's got big machines. It runs 24/7. Reducing the top line, you're going to reduce utilisation, and it's got a negative operational gearing effect. Actually, asset utilisation is of critical importance in running that business.
That led to lower asset utilization, and hence the plan did not, despite saving money and labor and a few other things, really deliver any benefit. Lessons learned? The lessons learned are obvious. The fixed costs need to be absorbed. The balanced mill model needs the right product mix, and margin management is super important. Price management is what is going to deliver margin management, but you do not run a business by looking at the average selling prices. You run a business by looking at your margins. That is what makes profitable customers. With those two distinct peaks in the business, you need to think about two distinct peaks, not about your average selling price for the business moving one way or another. The other thing here is that materials management is absolutely critical.
The cost of raw materials now, people focus on pulp, but Cropper is known for specialty papers, which are coloured and coated and all these things. Pulp is the biggest cost in raw materials, but there is a significant element of non-pulp costs in that materials bill, a significant element. Those together are way bigger than labor and way, way bigger than energy. Even though energy is significant in the business, paper making is an energy-intensive business. That is the ranking order. How do we manage pulp? How do we manage raw materials? How do we reduce scrap in the first place and use it properly if we have to make it? A really big focus for the mill at the moment. That is something that is key to our turnaround plan. Okay, let us get started again. This is all now about looking forward. We have got Nick starts now.
Nick's actually started a few months ago, but now sounds a lot pithier and sniffier. What we have here is a diagram that kind of describes the journey and the timelines that we're talking about. I'll come to the diagram in a second, but in summary, where are we? Advanced materials, it's actually well run, well organized, operationally good. We have got assets that are underutilized, at least in the technical fibres business. In the coatings business, that might be something that limited investment is needed, but that'll be good news because it'll be against a growing backdrop if that happens. How do we move from there? Paper, operationally immature, which is kind of hard for a business, 180- years- old, to hear that, but it's true. Again, it has low asset utilization.
The business deliberately went through a downsizing operation, and those assets are today underutilized. If we want to grow, we do not need major CapEx in that respect. That sets the kind of short-term priorities, particularly in paper, for better quality, better operational performance. We are not going to grow significantly in markets which require good service, good quality, unless we are operationally competent. The first step on any journey is to make sure that you have got stability in your operations, that you can deliver what you say that you will deliver reliably. That is a journey that is underway in paper. The next step is to improve asset utilization because stability will improve your cost base. It will stop your scrap or reduce your scrap, at least. It will improve your costs, your run times, etc. All of that is beneficial.
Without more sales, the journey has only just begun. It is an essential first step. The second step is improved asset utilisation. Actually, that is kind of where advanced materials in 2026 is starting that. Operationally, it is pretty stable and in a good position. Maybe in hydrogen coatings, which is a little bit less mature in terms of industrial processing, we need to do a bit more there. Asset utilisation is their big thing. The next step is to look at improving the product mix, product application, customer, does not matter. What does that look like? Right? Finally, what can we do to change the value proposition? Given that advanced materials is kind of that tier four, things that we are working on today may have a chance of making a difference in three years' time. In the nascent markets, that might be much quicker than that.
In established markets, that journey is something that's not going to be quick. In paper, actually, we can move through the gears here much quicker, partly because we've got a lot of established relationships with the right customers, partly because we sit at that tier one or tier two position in a market that is quite dynamic and not technically driven as advanced materials. That is how we're thinking about it. This model works for both because both have effectively high asset base machines that you want to fill and then improve the product mix within those. The other thing I want to talk about is where we go technically.
There is a little bit of a teach-in here about why the businesses are together because the business started as a paper business using natural fibers to make paper, then moved into advanced materials and adapted sort of paper machines to make non-woven paper-like structures. If you have had a chance to look at the table just in front of the sound desk there, there are some examples. You can see like this where you have got the various different types of materials. Towards the bottom, actually, what you see is you see these are coated fibers. These are metal-coated fibers. That coating technology is used for electromagnetic protections, etc. It gives advanced properties to the vales. That coatings technology is something which continues into hydrogen electrolysis or coating bipolar plates, etc., with platinum catalysts or platinum coatings to not catalyze, but improve resilience, etc., of the materials.
There is a continuum here between coatings, non-wovens, and the core paper. Within core paper, color is obviously very important for most of the business, not for absolutely everything, but certainly most of the business has got a color component as well as what the paper looks and feels like and behaves like. What am I trying to get to here? What does this matter? The really interesting thing about James Cropper is those paper machines cannot compete with guys doing 100 ton, 200 ton runs. They are older machines. They are actually slower. You are not going to win in that business. You have to operate in the more niche end, 10 ton runs, 8 ton runs, 5 ton runs, etc., and finishing cutting papers or embossing, etc. That is where we have got a lot of capability.
The non-woven machines were developed by James Cropper staff many years ago, and they are different than other people's non-woven machines out in the market. So we've got technology actually that's much more flexible. The advantage of the older paper machines is they're very flexible. We can do things on those machines with paper blends, etc., that other people can't do. Take that disadvantage of old machines, slow machines, and say, actually, what are you going to do with them? We're thinking about this place on technical papers. We're thinking about what we can do with the non-woven technology that other people can't do because of where our technology is placed. I truly believe there's a great opportunity set there. That's something that we're exploring right now. You may have seen these types of slides in the annual reports or infographics on the web, etc.
This kind of shows you what advanced materials does or can do. The overwhelming thing I get from this is, "Oh my God, look at all these things." Right? How are we going to explain this to people? If you count up the bullet points, composite sporting goods, boom, boom, surface finish, abrasion, right, you can see all the things that we claim to do. Sometimes these overlap, right? There is another thing. There are 45 bullet points, right, for GBP 35 million revenue. Right? You can do the maths. Actually, the top five customers are decent size, and then there is a huge tail. There is that huge tail. Is that a huge tail of potential, or is that a huge tail of complexity that is not giving us anything? I think actually there is a bit of both, but since we are operating at low capacity, all the customers give us something.
How do we leverage that? How do we think about what in there we actually want to focus on and drive, and how do we decide what we want to react to, be reactive to, and that agility, build an agile organization to be able to supply or get that right? We have chosen certain markets. We have got a journey going on. I will talk about the paper and packaging first. Again, you see lots of different things we do. Actually, these are things our customers do, to be honest. The paper business is a lot we are selling to people that convert papers into things, whether that is art framing or packaging or bags or boxes or whatever. That is a lot easier to manage. This is actually just a whole load of opportunity to do more, capture market share in some of these markets.
It shows the breadth of some of the markets that we actually operate in, and we actually operate globally in some of these markets. There is, I think, quite a difference here, given the closeness that we have to some of the people operating in these markets, to shift gear on the paper business if we have the right quality and service, etc. We are not there yet. Right? That is something which is coming. I talked earlier about this nascent markets versus the established markets. Broadly, what you can see here is in the yellow top right, those are the markets where, particularly energy transition, we see the high opportunity, but higher risks, higher increased complexity of the markets. They have significant long-term growth, these.
What we do not know is, are the customers we are serving part of that significant long-term growth, or are they subject to being out-innovated or supply chain consolidation, or quite a lot of these customers do not make it past the pilot stage, etc.? You have to manage it as a portfolio, right? It is like investing in any high-risk portfolio. Make sure you have got enough things going. I think we can talk about focus in the market. We cannot talk about focus in the customer, right? That exposes you a bit more. This one customer, one application type of approach is something which needs to be, as far as possible, challenged, particularly in those markets. There are also opportunities to explore what I call adjacent markets.
There are plenty of things that we do which are similar to other things, and we've got advantages, and we might be able to jump across an adjacent market more quickly than starting from scratch. I'm not standing here advocating more markets. I've just said we've got lots of spread. I'm not advocating that. What I'm advocating is the ability to put yourself out there so the world can find you. Because in today's world, particularly with AI, they find you. If you've properly positioned your market, AI is doing away with search engine optimization. It is passing straight through that. You will find, if you Google, "I want to make a lasagna," you get a recipe that'll tell you how to make a lasagna.
You will not get 20 paid-for things that tell you to buy a cookbook, subscribe to this, that you will get a recipe for lasagna. That is changing the way people find information on the web. Actually, the attributes that we have are very interesting to people that we do not know, or they do not know us today. How do you do that? How do you manage that? You have to build a reactive organization. When people find you, is this real? Do you triage it? Can we leverage what we already know to move in there very, very quickly? The established markets continue to be a very solid source of revenue and very important to us. Of course, when any business thinks about how they are going to grow, number one thing is take care of your existing customers. Okay?
Now, in a nascent market, that might be hang onto the coattails because off they go. In an established market, it's just making sure you don't drop the ball often enough. We are looking to retain and grow existing business. We're looking to replicate existing applications. In terms of how we spend our money, there are a few strategic projects in the business, and we might talk about those as they reach a bit more stage of maturity. Those growth markets, we are focusing on a small number of growth markets, particularly in energy transition and aviation and advanced air mobility markets for the composite side. That's where we're going to be spending our money. What we see, and these are I would say this is a reasonable representation, but don't worry too much about the scale here.
Where do we expect the biggest outcome to come from? It's in these growth markets. That should provide more growth than or approximately half the growth that we see in the business. It does come with the caveat of timing, risk, etc. I think when we are doing really, really well in some of these things, we might be coming back to say, "We're doing really well, but don't get too carried away because we've just had a big order and it's timing," or, "Our customer's just had a big order and they're stocking up or something." If we're doing really badly, we might be coming and saying, "Well, actually, that's just timing as well." We've got to get that trust back.
We've got to get that understanding back that we're on a journey and the path is going to be as much about a qualitative assessment of what's going on as that quantitative assessment you might get in a six-month period or something like that. That is roughly what we think about advanced materials and the growth markets in particular. As we become just more communicative about some of these growth markets, I think we talk really about the markets, about our positioning, about why James Cropper matters in these markets. The other thing we really need to do is become part of the conversation. There's no point in us going, "We're here. What problem do you want us to solve?" We need to be, "Okay, let us help you solve that problem, be on the front foot." That's the first step.
The second step is, "Let us help you define the problem." The third step is, "We're partners here. What are we trying to do to create value together?" That alignment along the supply chain does give you a much better view of what's happening in the market, and it gives you a much more robust business. Okay? At the moment, we are primarily selling that product because it solves that problem for me, or it gives me that. Okay? We need to be much more not a handshake business with the partners. We need to be much more involved along the supply chains. In paper, the three peaks business, this core peak two business, today it's about 85%. The more commoditised, high-recycled fibre, etc., good margin, as I said before.
That's something that we need to figure out exactly how much of that we want and how we're going to use it to balance our assets over the medium term. Our future vision is technical papers. We kind of made the journey from paper making to advanced materials, and we kind of went from this side of the room all the way across here and landed here with technical fibres. Actually, there's a space here that we kind of just walked right past in the middle. Using paper-making machines, using these older machines with much more flexibility to look at either advanced natural fibres or natural fibres combined with other things. Okay? How do we get more value from that?
That's definitely something that we can do, and it's something that before I joined, the team had been exploring, but probably on timelines that were not aggressive enough. Again, it's about being on the front foot. How do we create attributes? What do we do? We are not solving the problem for company X, Y, or Z and then going, "Oh, that's great. We'll sell them that." We are thinking about how do we create a certain value proposition. Okay? That's something I would expect to see by the time we report, obviously not next month because that's the last financial year, but by the time we report in a year's time, this will largely have been done, and the stabilization will largely have been done. We will be talking about product mix and going on to talk about perhaps what's happening in the technical fibres.
That's the sort of timescale we should be looking at for the paper business, shorter than the advanced materials business because of the tier structure. Okay? What does it look like? One of the things that it does, and this is obviously some completely made-up graph here, but one of the things it does is when you've got a peak two business, that core business that fluctuates with markets, you can fill in the gaps. Right? That's one of the major things. We can expand and contract that peak one business because we are a tiny, tiny percentage of the market, and it is price elastic. If we believe we want a bit more volume through there, talk to your customers, get 4% of their total business, not 3.5% or not 2%. Right? That's the kind of numbers we're talking about to balance that out.
We will see, hopefully, some growth at peak two and peak one together. The technical papers will come and talk at some point in the future. Those should be, or are designed to be, much more valuable in terms of margin. Okay? The other thing, we talk about the markets. That operational effectiveness, that stability to deliver operational effectiveness, is going on now. We are going through a program of that that is fairly fast-paced to deliver that. Knowledge management, we have a 180-year-old business, and there are guys that seem to have been there from the start. You run into them in the canteen. Great guys. We went through a restructuring about two years ago and lost 15% of the operational staff, many of whom were long-serving and knew how the business worked, how the machines worked, the products.
We lost a lot of knowledge there. There's still sufficient knowledge in the business, but one of the things we've got to do is codify that and use that properly to drive improvements. Not the old way, "This is what we used to do. It was always okay," but actually, these are the things, tips and tricks and things, standard procedures moving forward. We're using AI quite extensively to drive that. It's a bit like having zero telephony going to 5G. We're trying to make that leap rather than go through the gears. Peak one market positioning, we've talked about that. Just the operational management, restructuring to deliver what we need to deliver with clarity and speed.
It's been something which I have coming in from the outside and the pace at which the business operates, very consultative, very kind of a process that involves everyone with no one having that clear responsibility for the final decision. Actually, no, no, no, that's not how I need to work. That's something which is being pushed through the organization right now in the paper business. I think overall, it is something where this is not rocket scientists. I've not said anything, I think, today that would people go, "That's just such a fantastic insight. This guy's a genius." No, it's actually, "I've got a lot of experience running a high-asset-based business, and these are the things you need to do to do it, and let's just do them well." In some cases, we are doing them well, particularly in advanced materials.
In some cases, we've got quite a gap between the minimum standard and where we are now, and we're trying to push that. I have good reason to believe that we are on that journey. I will leave you with one final thought from me before I hand over to Andy Goody, our CFO. I have not really talked about pulp prices or energy prices or market dynamics significantly, certainly not in the paper business, because most of this improvement is in our hands. It is inside the walls of the mills at Burneside. Right? If we are going to build a resilient business, we are in the same boat as everyone else when it comes to pulp prices and that sort of thing. Maybe not quite with energy because we have competitors in other areas, but these are things that we have to be able to ride.
Really important that we've got a business that's focused on margins, and we deliver margins regardless of what's happening outside the world. There may be a time lag. There may be a, "Let's minimize that." There may be an impact. I'm not saying there will be no impact, but largely, this is an opportunity to do things better with the people that we have in the business that we have got. Right? I'm not looking for a rising tide here. So thank you for me. I'll pass over to Andy, and I'll go and sit down and shut up. Thank you.
Great. Thanks, David. Good afternoon, everybody.
What I'm going to do briefly is give you an overview of where we are financially to go with the overview of where we are as a business, talk a little bit about performance, a little bit about the financial health of the business, and then I'll set out the priorities moving forward in terms of balance sheet management to make sure we've got a robust financial underpin so we can get on and do the kind of stuff that David's been talking about. This chart here, we've got six bars here, and they show you the revenue and the adjusted profit before tax over the last 6.5 years. I think they tell an interesting story. The first thing that you can see is that our adjusted profit, and the same would be true for any of our profit metrics, are very variable.
They're going up and down quite a lot, and they're driven very heavily by revenue. It's what you'd expect. We're a highly operationally geared business. Movements in revenue have a big drop through to profit, and you can see that, and many of you have lived through that in terms of our results over the last few years. That's the first thing to say that you can see on the graph. The second thing to say is that if you look at the last couple of halves, it's a little bit lost by breaking it out by half like this, but actually, the last year, FY 2025, broadly in line with FY 2024. We've already announced that in our trading update early in May.
Interesting, if you look at the red adjusted profit line here, you can see that we are coming out of the year with the trend going up, even though the revenue dial has not really moved year on year. There are some things that we have started to get right. We have started to manage a little bit more efficiently as we have gone through the second half of the financial year. This slide brings a couple of things together that are a hugely important backdrop to where we are financially. The first thing is, and you can see it is particularly in FY 2024, we have seen a period of revenue dropping and therefore adjusted profit before tax, Adjusted EBITDA, whichever profit metric you want to look at, have dropped off as well. David has talked about the issues that we have experienced in both parts of the business.
Some real challenges going through FY 2023 and FY 2024 due to what is going on in our markets, due to our operational execution. Alongside that, if you look at this graph here, and again, David touched on some of this, over the last three years, FY 2022 through to FY 2024, those three financial years, the business spent GBP 15 million on capital expenditure, and that was funded by debt. Our debt went up by GBP 15 million across those three years to fund the CapEx. David has touched on this already. There was a narrative around growth in the business internally and externally, and that narrative around growth and growth opportunities ran ahead of our commercial and operational execution, and it ran ahead of our capital discipline as a business. We put in CapEx, we put in debt, the EBITDA dial did not really move.
The result, not rocket science, a stretched balance sheet. When I joined the business 18 months ago, the balance sheet was looking pretty stretched in terms of debt levels, and the first repayment on our main U.K. bank facility was this month. We had this sort of overhang of debt repayments coming up that we needed to start thinking about. Two things have happened over the last 12-18 months that have helped the position. Number one, we've introduced stronger cash management disciplines. Our working capital has come down over that period. Our capital expenditure has been very significantly reduced. We've put in place much stronger disciplines around capital investment, capital allocation decisions. We've begun to claw some of that back.
The second thing that's happened, which was announced last week, is we've reprofiled the near-term repayments on that U.K. banking facility to ensure that as we go through the plan that David's articulated in terms of particularly driving profitability in the paper business at the same time as delivering growth in the advanced materials business, we know that we've got plenty of headroom, plenty of liquidity within our funding structure, within our balance sheet. When we get to the when we report our numbers, you can see this from the trading update that we issued in May, that our net debt to EBITDA ratio has come down. It's just about within our range, my target range of being less than 2 at the end of FY 2025 financial year. Our gearing has come down as well, a little bit more to go.
Our scheduled debt repayments through next year to the year to March 2026 are a little bit over GBP 3 million. They are GBP 1.4 million lower than they otherwise were. We have pulled them back to a very manageable level. In terms of how we are going to build on this going forward, the key priority for me is to maintain that cash and capital discipline that we have put into the business over the last 12 months around cash management, around working capital, around capital expenditure, being much smarter how we think about those things. Embedding those in the business will help us embed our leverage comfortably under two times. We have just squeezed under two times at the end of the last financial year, which is a good thing. I want to firmly embed that within the business and operate in a normal cycle well under 2x EBITDA.
That's the key priority, really. Beyond that, and we touched on this in the announcement at the beginning of last week around our debt reprofiling, but in terms of dividends, we would not be expecting as a board intending at this point to pay dividends in the period that runs out to September 2026 whilst we go through the plans that David's talked about. That's the period which our bank facility repayments have been slightly reduced. We can pay dividends in that period, but the intent at this point is not to do so. Thereafter, we would expect to reinstate dividends at a sensible level, subject obviously, of course, to trading, cash generation, leverage levels, other opportunities in the business. In terms of capital expenditure, our maintenance capital expenditure, what we need to spend every year to just maintain our EBITDA generating capabilities is around GBP 2-3 million.
Depends a little bit where we are in terms of machine replacement cycles and site infrastructure spend cycles, but around GBP 2 million-GBP 3 million per year. We do not at this stage need very much growth CapEx above that. David's touched on the reasons for that. We have got capacity in the advanced materials business and in the paper business as well. The level of growth CapEx on top of that maintenance CapEx, certainly over the next 18-24 months, is likely to be pretty modest because of where we are as a business in terms of our capacity. Our priority once we start investing growth CapEx is likely to be in the advanced materials business because of the opportunities that David was talking about, particularly in the nascent areas. In terms of the pension fund, this I am afraid is going to be a slow burn.
We're going through the April 2025 actuarial evaluation right now. I'm not expecting the position that comes out of that to be significantly different to the balance sheet deficit that we were showing at the end of last year. There's been some modest improvement, I think, during the year, but it's not going to move the dial significantly. That is a slow burn, this one. We're working with the trustee to make sure the investment strategy is focused where it should be. What we're looking at probably is that the deficit that we've got across our two pension schemes of around GBP 16 million-GBP 17 million. The window to eliminate that that we have in place at the moment with the trustee is around 10 years. We're paying one and a bit million pounds in terms of annual deficit reduction payments.
The reality is we're going to continue at those levels for the foreseeable future. This is manageable in the context of where we are. Clearly, it's not ideal, but it is manageable, and it should carry on at those kind of levels going forward. That is where we are in terms of how we're managing the capital, the cash in the balance sheet to ensure that we've got financial resilience so that it does not start to undermine all the good stuff that David has talked about that we're working on across the two businesses. This is a summary really of everything that we've talked about. If there's anything you want to add to this, David, I'll leave it up for you guys to have a quick look at before we move into Q&A.
This summarizes the priorities within the group and across the paper and packaging advanced materials businesses.
Right. Thanks, Andy, and thank you everyone for your patience and participation.