Good morning to those of you who are joining us. I'm just going to pause a moment while the number ticks up because I see there's lots of people in the waiting room. Bear with me. Thank you for joining us. We're here this morning to hear from Restore plc, who announced their half-year results earlier this week. If you haven't seen it already, you can find our research note on our website with updated forecasts. The purpose of today is to hear from the team and take Q&A at the end. For now, I will hand over to Charles Skinner, CEO.
Great. Thanks, Hannah. Morning, everybody. Yeah, these are our half-year results. I would say that the numbers are fine. They're not particularly spectacular. Having said that, I think, as most people will be aware, it's not particularly easy out there. Things like the increase in national insurance, minimum wage, etc., we've had numbers in the market before these came in, and we've managed to achieve those. It's also what you do when you get whacked with GBP 3 million of costs you weren't expecting is you remain very tight on costs. You look at opportunities to drive volumes. You try and push up prices. Funnily enough, on the latter two points, everybody else is looking to cut their costs as well. It hasn't been particularly easy, as you will have seen from many other companies reporting in different sectors. We've also had specific headwinds in our business.
Our office removal business, Harrow Green, has been trading in what's the toughest market conditions I've seen in that sector since we bought the business 15 years ago or 13 years ago. There are very specific headwinds there, which we can touch on. There are also very specific things, particularly around our information division, around our digital activities. That's the scanning side of it. We lost a major contract at the end of, which stopped at the end of 2024. We've replaced it with a much larger contract, but that contract doesn't kick in properly until Q4 of this year. We had a loss of earnings from that contract, which haven't picked up. I think Dan, I, and the senior management team are feeling pretty good about life around at Restore. Our box business, which is part of the information management division and records management, continues to be extremely robust.
The boxes don't really care whether Biden's president, whether Trump's president, whether the economy is booming, whether it's busting, whether there's COVID or not. That continues to drive strong cash flow, strong profits, and really attractive margins. Also, as part of the information management, I've touched on the issues in our digital side. That's really the scanning. We feel that particularly with the large contract beginning to kick off now, which looks like it's going to go well, that's for the DWP. We believe it's the biggest electronic mailroom in Europe. Combine that with what we've achieved on the cost base there, which we've taken out. We said last year we expect to take out GBP 3 million of cost, which would cost us GBP 3 million. We spent those GBP 3 million, and currently, we've saved in excess of GBP 5 million of cost in that business.
This is pretty chunky for a business turning over GBP 40 million, and we feel that there is an awful lot of, we are very well positioned in that business. Now we've got the cost base right. We were very pleased to win, not a huge contract, a couple of million quid, but from the University of Oxford Hospitals. That's an example of the fact that we're back in the game in our scanning activities. We're very excited about that. We see that the opportunity from coming through a very rough year, which is reflected in these first half-year results, as the improvements which we've made come through that division, there's definitely the opportunity for that to have a significant uplift for our group earnings.
We're also very pleased, and Dan did the deal and is working with Nigel on running the business with our acquisition of Synertec, which Dan will describe in more detail, but which has lived up to our high expectations when we acquired it. That is, and Dan will describe what that's basically an outbound mail operation, which Dan will touch on later. We're also really pleased that our shredding business achieved double-digit margins. We are one of the two market leaders in this space. It's a very regular contributor in terms of its service fees, which account for about 75% of its revenues. This is a very sticky business. Customers tend to hang around not quite as long as they do in the box business, where that's sort of 15-plus years, but they tend to be sort of with us for seven or eight years. It's very, very predictable earnings.
Now we've hedged the paper price, which had added volatility to the earnings. We're not exposed to that volatility. In our IT, in our business IT business, IT recycling business, all technology, which is very similar to what we do in our other divisions, it's all about providing security, safety, and assurance to our customers. That lost money in 2023. We broke even the first half of 2024. First half of 2025, we achieved operating margins, seven-figure profits, and operating margins were around 7%. That business is continuing to progress very well. We've also, and I'll touch on this in a couple of minutes, found that the current market, bearing in mind that it's tough for, it's been okay, but not easy for people like us. It's been very, very hard for smaller operators.
What this has enabled us to do is reach a point where bolt-on acquisitions are very sensibly priced for our purposes. These bolt-on acquisitions not only increase our market position in our particular markets, it also increases earnings quite significantly when it's done correctly. That's the sort of big overview. I'll just flick through a couple of the key, some of the key points. Hannah, if you'd like to go to the next slide. Revenue, adjusted operating profit, operating margin, profit before tax up. We set out the stall about 18 months ago to say we wanted this group to achieve 20% operating margins. We're now at 17.7% in this first six months.
Bearing in mind that there were some specific headwinds, which we feel are going to go away over the next, which again turn into tailwinds over the next 6 - 18 months, we remain confident in that target of 20%. A big part of trying to drive down our costs in our box business has been around relocating boxes from expensive locations to far cheaper locations. We've got two big sites, one in the Northeast, one in the East Midlands, which are far cheaper than where we have been storing things. Of the 4 million boxes, that's about 20% of our estate, which we've been planning to move. We have so far moved 2 million boxes, and the remainder are on their way. As I say, digital, massive change since we changed the management 15 months ago, swinging cost savings, and we're beginning to win new business as well.
This is a high-quality business. We believe it's eminently, it's clearly headed towards achieving 15% operating margins as part of that section of the information management division. I touched on data sharing technology, how their performance has been most rewarding and most encouraging. We're very keen on our ESG, not only because we want to be a responsible citizen. We think business needs to be a responsible citizen, and business tends to be actually leading in these areas. The approval we got on our net zero targets from SBTi is very valuable. It also helps us, given the fact that we deal primarily with blue chips and with government. It's a key element of our being able to win large tenders because people understand that they're dealing with people who are with us, who have got a significant social conscience, which we care about.
As I say, Synertec, high growth, very exciting business for us. We've added on, apart from Synertec, we've done four other acquisitions in the period or since the beginning of the year. Next slide, please, Hannah. Thanks very much. In terms of the divisions, as we say, information management, the storing of boxes is a terrific business, very stable, decent margins. Digital, that's our scanning activities. We're going under, we really are looking forward to the margins moving up significantly in there. Synertec, the team there is strong. They have some ambitious targets, and we're running in line with those. Data shred, the revenues are up 15%, but we've almost doubled operating profit there. We have definitely, and I've been able to check this as we've looked at potential acquisitions. We've seen that our average collections per vehicle per day are way ahead of our competition.
That is a key element in what is a route density-driven business where scale is everything. We've done these four smaller deals. Harrow Green, the market has been really tough. A lot of people are being indecisive about their moves. We've got certain moves seem to be getting postponed on a regular basis. The order book is stronger. The second half tends to be seasonally better. We feel that that's a reasonably run business. We've cut costs where we can, but there's no point cutting costs further because we'll be cutting into the muscle or having taken away any fat that was there. Technology, as I say, we've now got to an operating margin of 7%. Increasingly, we have a very strong relationship with the value-added resellers.
As more people outsource their IT hardware management to the Computa center, Softcat, CDL, Bechtle, what these resellers need is they need support from businesses which can look after that IT during its lifecycle, which is not the core competence of the value-added resellers. We're finding that they are increasingly looking to us to partner them during the lifecycle. What that is, is that is loading up. Once people have bought the hardware, we load it up. We track where the assets are. When people leave, we track, we get their computers back. People spill coffee on their machine. We repair them or whatever, and then we recycle them at the end of life. Generally, there are one or two headwinds specific to us, but we believe that we've managed those through and are in a strong position looking forward.
Just touching on acquisitions, I'll deal with the second four first, and then I'll hand over to Dan, who can talk about Synertec before he goes into his talking about the finance. I've been keen for over a decade that the shredding market is very fragmented. This shouldn't be a fragmented market because the benefits of scale are very significant because it's all about route density. It's all about pushing as much material through your big machines as you can. It's been curious because probably about 15 years ago, a business who we ultimately acquired spent a lot of time buying businesses at prices which I couldn't see where the returns were.
Given how tough it is out there at the moment and the volatility that people have seen in the paper price, now the Venn diagrams in terms of what we're prepared to pay for businesses and what the vendors are prepared to accept are overlapping quite strongly. You can see here there's one, two, three pure shredding acquisitions, and Topwood was half a box business and half a shredding business. With these acquisitions, we need very little of the overhead sites, etc. Customers are contracted. What tends to happen is we acquire the contracts and we can move them onto our routes, taking very little of the overhead. These are very strong earnings-enhancing business acquisitions. For example, Shred First, for which we paid GBP 300,000 in Kent, we picked up GBP 300,000 worth of revenue, which has all stayed.
In terms of what we need to service that GBP 300,000, by the time we put it through our own routes, it's only one truck and one driver. For GBP 300,000 of revenue, our associated cost is GBP 70,000 or GBP 80,000, which means our return on GBP 300,000 investment is about GBP 200,000 a year. We believe there are further opportunities here. That's all from me for the moment. Dan, do you want to talk about Synertec first or when you come on for it later? Over to you.
Thanks, Charles. Good morning, everyone. Thanks for joining. What I want to cover is Synertec now. Synertec is, as Charles alluded to, an outbound communications company. It does a mixture of physical communication, so letters, and electronic communications, so a text message or an email. We acquired the business in mid-March. There's three and a half months' worth of results in this half year. It has all the things that we really like about businesses. When you step back and you think about the themes that string the different Restore businesses together, there are benefits of scale, where there's barriers to entry, predictable demand, strong margins, and what Synertec has is a really strong overlap with services that we do within information management and a strong customer overlap. Let's flip on to the next couple of pages, Hannah. The next one, please. I'll just take you through the numbers.
As Charles said right at the beginning, tough market, but we're pleased to have some decent solid numbers for our first half. Revenues are up 15%. Predominantly, that's thanks to acquisitions, so Synertec and some shown sites. Profits, suggested profits up 8%. Operating margin up 17.7%, up 80 basis points on last year. Just a reminder, we've set ourselves a target, medium-term target of getting to 20%. Not there yet, but on the way. Adjusted profit before tax up 10%, EPS up 11%, and the dividend up 10%, tracking all of that. Again, strong cash conversion. We've always said we target at least 80%. A little bit more, quite a lot better than that this period. Consistent, strong cash generation. That's what you get with Restore. Net debt, we finished the period GBP 120 million.
That's made up with a revolving credit facility that was GBP 100 million drawn down, GBP 25 million drawn on private placements, and we had GBP 5 million cash in the bank. That's how you get to GBP 120 million. That gave us a leverage of 1.9 times. That's EBITDA to net debt. Just a reminder, we've said we have a preferred range of 1.5 - 2 times. We're just under the top of our range, and that's predominantly because of the Synertec acquisition and also Sharon's side. Just onto the next page. This is the second time we've used this graph. We find it quite a helpful way to talk through the businesses given our focus on margin. I'll just start left to right. Information management is the first box there in green. Just a reminder, that business is physical records storage.
Boxes, I'm sure many of you have been to some of our box sites. That's where that sits. Scanning or digital, as it used to be called, that's electronic, us turning physical communications into electronic communications. Synertec is included in there. Within that, we've got pricing, and that's price rises on a stable number of boxes. We've had 22 million boxes at the beginning of the period, same at the end of the period. Stable number of boxes, and that's inflation-linked to pricing. Digital integration, this is where we announced this integration 12 months ago. We said it would cost us GBP 3 million and save GBP 3 million. We've pretty much spent the GBP 3 million cost. Most of that is redundancy. We've now achieved, as Charles said, GBP 5 million annualized savings. Two and a half is the contribution in this period. The acquisition, that's all Synertec, GBP 1.3 million.
It's three and a half months' worth of profits. Just to note, that business is slightly seasonal. One of the big things it does is the COVID vaccination campaign for NHS England. There's a spring campaign that's just happened. There's a larger COVID and flu campaign that's happening in the autumn. It's slightly second half weighted, that business. Property consolidation, to remind her on that, we said of our 22 million boxes, we'd move 4 million of them. That's essentially moving out of smaller properties where we've been in for some time, where the efficiency of packing the boxes isn't as great, and the rent's gone up in that property. That means the cost per box, which is a key metric for us, is much, much higher than we'd like it to be. We try to get that to as close to GBP 1 a box as we possibly can.
That is contribution for us moving out of warehouses in Surrey and Kent up to our facility in Markham Vale, which we announced in March 2024. That's got capacity for about 1.4 million boxes. I was there the other week. It's largely full now. That's contribution from that. We've also got the second warehouse we announced, which is in Durham. That was an 84,000 square foot warehouse. That's about half full as of today. Probably one more to come, one more big property to come. Broadly, we exit five or so smaller properties and put them into one big one. Probably one more to come. Expect to see that continue to feed through into profits over the next 18 months to two years. Cost inflation, Charles alluded to this right at the beginning. Three quarters of that is NICs and National Minimum Wage.
There's obviously a quarter's worth of contribution because that came into effect in April, but that's the impact it's had on the half year. The big red bar there, that's the contract that we lost, a public sector scaling contract that we lost, that we've raised previously or discussed previously, finished at the end of December last year. The Department for Work and Pensions mailroom is like for like similar sort of profit contribution, but that's ramping up during this year. In fact, it's ramping up during the second half. During this year, we'll have a headwind there, but it'll turn into a tailwind for next year. That's information management. I'll just quickly talk through the other three. Data shred, a little bit of contribution. That business has been run really well. Matthew did a fantastic job there. Industry-leading KPIs, as Charles said. The paper price is something.
In that business, three quarters of the revenue is contracted. It's service fees where people pay for us to come collect the bins every couple of weeks or every month. A quarter of the revenue is down to the paper. We shred that paper, and then we sell the bales to paper mills who then use it in their process for manufacturing of tissue or collarboards. It's a fully recycled process. Historically, that paper price has been very stable. During COVID, like many things, it's somewhat volatile. It's stabilized again now, but we've got half and half benefit as it's now come to a more normal level. Just an additional point to note, those of you that are more familiar with us, we did hedge half of our paper this year. We produce about 50,000 tons of paper each year.
We entered into a fixed price contract with one paper mill for half our volume for 25,000 tons. As it happens, it hasn't really made much difference because the price has been stable. We wanted to do that because it just shows the quality and predictability of that business. Onto Harrow Green, obviously a tough environment, as Charles said, really slow locations and relocations market. It's very heavily Southeast dominated at the business, particularly London. Operating in a tough environment. We have saved costs where we can, and that's what that green block is. Again, it's a well-run business impacted by the market. There are green shoots, and I have said this before, so I'm not promising anything, but there are green shoots of recovery. We are seeing some fit-out companies doing better, and the pipeline for next year is looking good with some reasonably sizable moves penciled in.
Technology, that's IT recycling. It's end of life when people have laptops that they want wiping and then recycling, which recycling tends to mean selling the secondary market. Good cost savings there. As Charles alluded to, that business is being run much, much better now. We've got good cost savings there. When we get to a slide later on, you'll see that we actually processed half the number of volume of items in this period than we did last period. You might think that's a bad thing, but actually what we're processing is much better. What we said we'd do in that business is come out of the lower, smaller quality customers and focus on big companies, blue chips, and large public sector organizations who have large fleets of laptops and hardware, they replace it more frequently, and they care about security and ESG more.
What that's doing is showing, flowing through into the numbers that we're producing or processing less volume, but everything that we are processing is worth a lot more. Towards the end, we've got some net interest. It's largely interest and leases cost as we go through acquisitions. Thanks, Hannah. I'll just quickly talk through the four divisions. I'm conscious of time. We'll leave some time for questions. Information management, just an additional point to note here. In Synertec, over half of their revenue is postage costs, so the cost, the stamp cost, basically, of sending the letters out. It's a pass-through cost. Pound for pound, we pass that cost onto the customers. Therefore, we see it as it's accounted at gross but we see it as a pass-through cost. When we calculate our adjusted margin, we're taking that revenue out.
That's just something to be clear, and that's what that box in the middle does. As I said earlier, in the boxes business, stable number of boxes, scan volume, that's digital, that's down. That's down to the lost contracts we mentioned. Outbound communications, that's a new KPI for this period. That's Synertec. You can see the other stats. The next one, Hannah, please. Next one is shredding. Again, really pleased with that business. Margin moving in the right direction. If you remember, we said our target was 20%, and the way we'd get there was by getting Data shred technology to 15% and also digital to 15% operating margin. Data shred, we are not yet there, clearly, but well on the way and confident of achieving it within the medium term. Four bolt-on acquisitions in the period.
It's not much contribution, but you'll start to see those through and come through in the second half. Also, the next one, Harrow Green. This is the relocations business. Obviously, it's a worse picture on this slide. Margin down significantly. We've cut costs, as I said, but there's only so low you can go. We still need the bench strength and the muscle to respond when people want us to move or want us to move them. It's a really strong brand, well-respected, does a quality job, and we want to make sure that that is kept. We have cut costs, but there is some drop through on the lost profit, clearly. Technology, we're really pleased with this. We've got two years on here. Had we had half-year 2023 on there, it would show that we're making a loss.
Loss-making in 2023, break even in the first half of last year, now a profit. A low base, true, but we are absolutely making good headway there and increasingly confident that we can achieve the margin target. That's probably going to be a little longer than Data shred, but we're confident that the nature of that business is such that it should get that margin target, and it's being much, much better run now. We are increasingly confident there. Not promising and not wanting to have a hostage to fortune, but there are signs that the wave of hardware where people renewed during COVID when everyone started working from home is now starting to kind of come back around again. There are signs that there may be some market tailwinds there as well. Let's see how that plays out. Hannah, I'll probably skip through these.
We can come back for questions, and I'll pass back to Charles. Slide 15, if that's okay, please, Hannah. Thank you.
Great. Am I muted? No, I'm not. Good. Just very quickly, this is really just a summary. In terms of our business outlook, the physical record storage business continues to be very strong. It's a wonderful thing to own, and our focus is very much on driving up the margins further there, partly through the property moves. We've cut a lot of costs within our digital element of information management. We're winning new business. The new contract is kicking in. We are very confident that we will significantly improve profitability in this business, and it has strong growth prospects, and we expect it. Although it's part of the information management division, on looking at its internal numbers, we think that it can get to 15% operating margins next year. We're very pleased with Synertec.
This is a high-growth business with significant prospects and delivering exactly what we were hoping it was going to. Data shred is trading well, and we believe on the benefit of the bolt-on acquisitions, which we're making, we can drive this towards 15% operating margins in the quite near future. Technology is now profitable. There's considerable scope to improve performance further. We hope in due course that this is a mid-teens adjusted operating margin business. As we've noted, Harrow Green, the market is tough. It's been tougher than I've ever seen, but the outlook is improving. Looking at the group outlook on the next slide, we've made good progress. As I said at the top of the show, it's not a remarkable performance.
It's just been robust in quite tough times, and we feel that a lot of things are falling into place now, and we're beginning to pick up some tailwinds. We set out the stall 18 months ago to target 20% adjusted operating margins for the group, and we feel we're heading comfortably in that direction. Cash generation is strong. There's opportunity. We've started to undertake value accretive acquisitions, obviously something like primarily in our core business, but also with Synertec in areas which are very closely related. We expect this to continue over the coming year. We're increasing, and I feel now that I came back to run the business about 20 months ago. Dan joined shortly after that.
I think we're both getting to the point where we feel we're actually getting our businesses to hum, and that they have the opportunity both for growth, both in terms of organic, but also growth through acquisition. Just to reiterate that our numbers which are in the market, we're sticking with them for the rest of the year. So, Hannah, that's Dan and my spiel over. We look forward to some questions.
Excellent. Good to see that you are still guiding to a 20% margin in the medium term. Can you offer any guidance on when that might be and how you will get there? What will the split be between cost savings and growth?
I think that we are very confident that we can get there. We feel that having gone through these numbers, you can see where it's going to come from with the improving margins, slightly in the box business, significantly in the digital business, in the shredding business, and also in the technology business. All of those margins are moving forward, and we expect that to continue. If you look at a quick analysis of what's happened in these first six months, we have been very tight on cost. There's a lot of cost which we have taken out of the business, and that drives margins. I'm not somebody who ever wants to shrink to greatness, but we're getting these businesses to achieve market-leading margins. Cost cutting is something which there is more to be done, particularly in the next six months.
Thereafter, I think we'll be well set up in the right position to drive the business forward. The key thing, particularly last year, was to focus on the operating margins. You don't tend to sell yourself out of a problem. You're better to set up your model correctly, which I feel it is now set up, and then you're in a good position to win new business at attractive margins. That's where we see it's coming from. We do see organic growth, although the focus has really been over the last 18 months of getting the business model right.
Okay. Three questions in a row on Harrow Green. Sort of a focus between what do you do if it remains persistently depressed, and what are you doing to help grow it in the longer term?
I mean, that's a good question. When we've set out our stall 18-20 months ago, we said our first job was to make sure that all our businesses were being run as well as possible. At that point, we'd review what was core to the business, et cetera. That process will be undertaken over the next year. With Harrow Green, we originally bought it in 2012, primarily for its box business. Since then, it has had some very good years. It's achieved double-digit margins, which is pretty difficult in this space. It's done a lot for us, and it's been very helpful in things like when we moved the BBC with our heritage work, things like that. Being able to do that in-house has been very helpful, particularly when we do a lot of clearances. That generates a lot of IT equipment for our IT asset disposition.
Harrow Green has been a very useful part of our group. Specifically, the two areas where we are niche operators are life sciences and heritage. Particularly in life sciences, we moved the biggest laboratories in the UK to Cambridge a couple of years, 18 months ago. We've just moved the Cavendish, which is where all the Nobel Prize winners were in Cambridge. That's now part of the Ray Dolby Centre. We have areas which are particularly attractive for us to expand into. Historically, we've always been strongest in complex, large office moves. There aren't a lot of those around at the moment. Those that are there, we're moving a very big operator out of Canary Wharf next year. A very big legal firm is moving. We're doing that. Those large, complex moves are what we're about.
What we've seen over the last year is not only the delay, people not making decisions quickly, but also such moves as there have been, have been more commoditized moves. There's an element that in some office structures these days, I mean, I think people are familiar with people working from home or hot desking, that actually the building layouts are much simpler than they have been. That doesn't necessarily play to our strengths. They become more commoditized on price. In that environment, we can have slight difficulties. Apart from the fact we've got a decent pipeline of large jobs, the other thing is that the sort of key lead indicators for us are building completions and then more importantly, the fit-out market. I don't know whether anybody listening is invested in Morgan Sindall, but from their results earlier this week, their fit-out business is clearly booming.
That's a very good sign for us because once an office is fitted out, that's the point at which people move in. It's the point they move out of their old sites. We believe strongly that Harrow Green is a well-run business. It's delivered decent operating margins in the past. It's a very tough market at the moment, but there are straws in the wind that there will be organic growth in that business. It's pretty nasty when your revenues are 20% below budget. That's probably the unlike, which is where Harrow Green is slightly different from our other businesses where Dan and I can probably tell you what the other business is, what their turnover is going to be next year, whereas Harrow Green starts the year without knowing that it's got quite a lot of business to win.
Okay. Thank you. You spoke about M&A and your Venn diagram was improving. What competition are you seeing for assets?
Very little. In our two largest areas, we are competing against subsidiaries of U.S. multinationals. We understand the U.K. market really well. We understand pricing. We understand the mentality of the vendors, the local tax implications for them at various stages, etc. There aren't people in our main areas of operation who are acquisitive. I started focusing on the acquisition trail about a year ago because I felt that valuations were going to come down and opportunities were going to go up.
I feel there are a lot of good small businesses who it's just getting too tough for, but they're too small to attract private equity interest and also the synergies that we can generate, which is what drove this business's share price from GBP 0.15 to GBP 6.00 in the previous decade, was about taking advantage of the benefits of scale, buying businesses at what was a half-decent price for the vendors, but which made perfect sense to us and the synergies that we could generate out of it. I feel we're back in that market at the moment. We need to, you know, this is a good time. Now we've got our own businesses in shape. It's an excellent time for a business like us, which is borrowing money at 6% and can generate 15% plus returns on these acquisitions. There is very little competition to buy businesses.
There are plenty of vendors who feel that the market has been a bit static, certainly, in shredding for the last 10 or 15 years. People are 10 or 15 years older. It's a grind. We view this as, and I've done it in several businesses, this is easy earnings accretion. The key thing is in businesses like shredding and boxes, always the biggest risk when you're acquiring a business is that you lose revenue. In both of those sectors, it's contractual revenue. It's not relationship-driven. You know that when you acquire a business, almost all the revenue is going to be there. Then you can apply your model to it and generate far higher margins.
Okay. Thanks. Your decision to hedge the paper contracts at Data shred looks the right one. Will you look to repeat this, and is 50% the right level?
I'll answer this one. Yes, we will look to repeat it. It's a calendar year contract, so it expires this December. We've got good relations with the mill in question, and there are other mills that are interested as well. Yeah, we'll look to repeat that. Discussions are starting for next year, for 2026. Is 50% the right level? Charles and I had a good debate about this. I'm not sure what the right answer is. 50% gives us some variability. The risk is if we hedge all of it and the paper price goes up, then we might be less competitive in the market because other shredding companies have come in and basically collect for free. We don't want to do that. We feel 50% is about right, and we'll look to do the same again next year.
Dan, on Synertec, how is the business delivering? Are you ahead of where you expected? What synergies are you seeing in both cost and revenues? You also mentioned, just to finish off, and also mentioned the NHS and the cross-selling. Is that materializing?
Oh, okay. I'll try and remember all those questions.
All right, I'll remind you.
Yes, it's delivering as we hoped it would do. Really pleased with that business. If you look at their history, they did tremendously well during COVID because of the vaccination campaigns that they've run. If you exclude COVID, they've still been growing at a CAGR of 15%. That's revenue growth over, I think, the last five years. There is lots of opportunity for them to continue to do that. Are we seeing it materializing? The NHS is quite a difficult nut to crack. We're having lots of good discussions, but it tends to be sort of step change. You win work and then you sort of step up. It'll tend to be bigger things that come through over time. The opportunity is definitely there. It's one of those things where the NHS and the government are looking to save money.
The default for our hospital and departments is that they do all of the communications themselves. When you see the Synertec operation, which only has about 25% of the market, the other 75 hospitals are doing it themselves. When you see Synertec operating and how efficient and slick it is, how much money it can save for the departments, to me, and look, I'm a CFO, so I look at things differently, but to me, it's a no-brainer that they should outsource that. We're sure and confident it will come, but it just takes time to deliver. In terms of other revenue synergies, if you think about what other organizations like to send letters and communications in general, it's the public sector. There are other relations that we have outside the NHS within the broader public sector that we think could be good opportunities to Synertec.
We're working on it and sort of watch this space. In terms of cost synergies, there's some things that they get from just being part of a wider group. For instance, insurances, property, things like that. By and large, we want that. We don't want to break their, you know, they've got a really good business, so we're going to keep them intact and encourage them to really grow their business.
A couple of follow-up questions on Harrow Green. Charles, you referenced Morgan Sindall's fit-out business as being buoyant. This commentator says it's been buoyant for some time now, probably a year or so. What's the typical lag time before you will see a pickup? Is it a more commoditized market now? Share pricing is the main issue.
It's normally about a year behind the fit-out. We should start seeing decent growth coming through. I think we've acknowledged that some of these more commoditized moves, we need to price ourselves into them more. Having said that, of course, when you have such a steep market downturn, our three or four competitors who are smaller than us, people are cutting their throats on these bog standard, easy moves. That works against us. I think that we've undertaken, without cutting into the core of our excellent operatives, we've made ourselves more cost-competitive. We've moved our operations in Glasgow, Manchester, and Leeds into our records management sites. We have a very big site in East London in Silvertown, which was a very clever site for a long time. It was very close to the city and cheap. That has now become very expensive. It's now surrounded by residential, et cetera.
We were hoping to get out of that site. That would save more. There do remain the big complicated moves, the life sciences moves, the heritage, moving museums around, things like that, where we have a decent market. We've just had to lower our overhead base to make sure that if the more commoditized stuff is going to be at cheaper rates, we're not a Rolls-Royce trying to do a Ford Fiesta's job. We need to keep the Rolls-Royce element, but we also need to be able to compete at the Ford Fiesta level. No disrespect to my children drive Ford Fiesta, so I'm not dissing them.
Is there merit in consolidating the moving market? How fragmented is the market in your specialized area?
The market is fairly fragmented. There's probably half a dozen people who can do a decent move. This is not an area that I like to consolidate. It's relationship-driven. We've been doing work for major banks, major accountants for many, many years, and they stick with us. They will be dealing with people. It is not contractual. Whereas with the box business, whereas with the shredding business, these are contracts. People don't say, "Oh, well, Sue's looked after me forever." They just go, "I've got a continuation of supply." Those are businesses where you know the revenue is secure, and therefore you know it's going to continue. Harrow Green's business is much more about relationships. Buying relationships is a dangerous game. It's not an area which we would seek to consolidate.
We've been preeminent in it through being the largest, the most skillful, the best prepared, and actually picking up lower quality, more commoditized businesses. There's a good chance that a key foreman or whatever could go and join somebody else, and the customer will go, "Sid's gone over there. I'm going to follow him because he's always looked after me." I don't view this as a market for consolidation.
Okay, thanks. Back to M&A. The volume and scale of the opportunities means you should probably take on more debt, but you're already close to your stated level of two times. With your levels of cash generation, would you be happy to go higher?
Dan will address where we are on the gearing. To me, this is pretty simple stuff that we've got. In the first six months of this year, let me tot it all up. We probably spent GBP 45 million on acquisitions. Those will typically return us, get us a 20% return on our money. So it'll make us GBP 9 million. The interest we pay on GBP 45 million is less than GBP 3 million. You're getting an uptick in earnings of GBP 6 million. That to me is deals which I will do until the day I die, apart from when people say your gearing is too high. In our business, given the strengths of the records management business, I would, in a world where people weren't obsessed with gearing, I would definitely be buying these businesses on debt.
I'll defer to my friend who deals with the banks for his view of our capital allocation and preferred gearing ratios.
Thanks, Charles. As Charles alluded to, the banks really like us. They'd love us to go up, and our facility allows us to go up to three times. Personally, if it was my business, I'd be very happy about going to three times because the cash, as I think was in the question, the cash generation is so strong. Those boxes throw off, I do not worry. I do not lose sleep at night worrying about those boxes. They are there throwing money off. That's a really strong benefit for us. However, we are operating in a, we're a publicly listed company on AIM. We're operating in that environment, and therefore, we are somewhat within those constraints. Would Charles or I say no to a deal if it made sense, was earnings accretive, met our earnings criteria just because it took us above two? No.
Okay, thank you.
I think also, Dan, the point is that, you know, we saw, say, last year where we actually had quite a lot of CapEx, the gearing came down from 1.9 - 1.6. Following these deals, it's back up at 1.9. We can degear very rapidly. If we were to move above 2, we would be very confident that we could get down below 2 at will.
Okay, thanks. Within digital, what does the pipeline of new business look like, and how is this expected to develop?
If you look at the digital business, there are basically three income streams. One is online hosting, which is high margin, very regular. That's the sort of jewel in the crown. Everybody loves online hosting. It's difficult to win new business in that space. Historically, you generate online hosting from undertaking scanning for people. It's not so common that people say, "Scan my documents, and can you host them for you as well?" Although it does happen. That's a bit of a sort of box business, cash cash, chucking off money. The second area where we're active is digital mailrooms. This is where we do it for several large government agencies like the DWP coming on, which, as I think I touched on before, is I think the biggest digital mailroom in the U.K. There are contracts out there.
They take a long time to, they're very fiddly. They take a long time to be secured. We see that we are so preeminent in this market that we're the only people who've got any kind of scale. When those mailrooms come up, there is an opportunity for us to take them on. The third area is bulk scanning. The issue around bulk scanning has been, so a typical example would be the exam season sessions that we do. I think it's the majority of GCSEs and A-levels. We process those over a six-week period, two-month period. In that space, we have been weak because we were carrying such huge and unnecessary overhead. We were not competitive enough to win bulk scanning contracts. We are now in a position where we can win those because how people were costing. They were saying, "What's our cost?
We need a margin." We were finding we were out of place in the market. We are confident now that our offering is correctly priced. There is a lot of work out there, particularly from the NHS. We feel we're correctly priced. We can do stuff which other people can't do. We're the largest operator. I'll give you an example. We cut down from 140 operatives to 80 operatives in one of our sites, and there was no loss in productivity. Having got those right, we are now in a position to win those bulk scanning contracts in a way that over the past two or three years, we just haven't been at the races. That's really the key area where we see organic growth rather than the other two spaces.
Okay. A final question. Has the big site consolidation had any impact on destruction rates? I.e., rather than taking boxes and driving them 100 miles up the motorway, can you just bin them?
Try and answer that one, Charles.
Yeah.
I mean, I think it's worth reflecting on that question. It's a question we get asked a lot. What's in the boxes? What data is it? What do you do with that data? The vast majority of that data, people want to keep for a long time. Be it a will, a house deed, NHS records, mortgage agreements, there are things in there which people do not want to destroy and will be there for decades. Pharmaceutical trial results. One case that's been quiet, we haven't got their boxes, but one case that's been in the news is the GSK Zantac cases. Of when do those clinical trials relate to? Trials done 20, 30 years ago. Those are the sorts of documents which people are not going to destroy. You've then got a question, how do you store them?
Do I keep them in the box or do I scan them? The economics are that it costs GBP 3.50 to store a box with us for a year, so GBP 0.01 a day. If you wanted to scan that box of documents, GBP 100, GBP 150, so 30, 40 years' worth of storage, that means that people will keep them where they are. Actually, us moving the boxes around, haven't really noticed any difference in the destruction rates. What we are seeing when you step back is public sector are continuing to create more and more documents, and they're not really destroying very many. When you think about what's in the files, you can understand why. Corporates are being a bit more regimented and stick to the GDPR rules unless there's a reason such as the sort of pharma trials I mentioned.
We are seeing a slight, although the boxes are stable, we are seeing the proportion between public sector and corporate. Public sector is about a third of our boxes. The public sector proportion is getting a bit bigger, but overall stable number of boxes. That means when we're moving our boxes around, actually, it's a really good time to do it because we know how much space we need. We can predict, okay, we need X hundred thousand square foot X spaces to fit our boxes. We think we're doing it at the right time in the lifecycle of the business. Sorry, slightly waffly answer, but hopefully covered it.
That is it. That's just a thank you from me to our audience for attending and both of you for your time this morning. We look forward to an update in another six months.
Thanks all.
Great. Thanks, everyone.