Morning everybody. Nice to see so many people in the room on what's quite a busy day. Thanks very much for making it with half year results for the Restore plc , but a half year ending at the end of June. Well done the team for getting the results out. Just a quick preamble before going into the slides. I think it's not particularly easy out there for business at the moment and I'm not talking specifically about our business. There's been quite a few headwinds generally and like everybody else in response to the NIC and things like this we obviously tightened up on all costs and started trying to push through price increases, but actually funnily enough a lot of other people are trying to cut costs.
At the same time.
It has price increases, but actually, funnily enough, a lot of other people are trying to cut costs at the same time. It hasn't been a particularly easy time. We're fine, but I think generally these are robust results rather than anything more sensational than that. We've also had a couple of specific headwinds. Harrow Green, I've never seen, nobody's seen that industry suffering such delays in work, which made it very competitive for the work that's going on. I think it was very well flagged before that we had a major scanning contract which came to an end at the end of 2024 and hasn't been replaced yet, but it's about to be replaced in terms of slightly more volumes and similar profitability by the Department for Work and Pensions mail room, which I visited last week, which is looking really good.
Having said all of that, I think I, Dan, our Senior Management Team, were all feeling actually really chipper. There's a lot of good stuff going on in the business. Records management continues to be very steady. We're getting our property cost savings through. Some of that is being spent in offsetting rent reviews elsewhere, but the margins in that business and what it continues to turn out is still incredibly strong. Digital, which we changed the management about 14 months ago, has had its problems, but we feel where we are now, we're through the nadir and we're really extremely on the way back. The first half of this year has not been easy for them with the loss of the contracts and ongoing changes, but we're increasingly excited about that business particularly and what it can do for our operating margins across the group.
Elsewhere, it's lovely to see datashred into double-digit operating margins, and we think there's more to go there, particularly with some of the bolt-on acquisitions we're doing. Our technology division, that's the IT asset disposition, has recovered. It was losing money. Now the margins are only 7% in the first half of this year, but it's really beginning to matter. Synertec has proved to be a very good deal. It's trading well.
There's no suggestion that we're going to lose any customers, great management who are taking the odd bit of advice from us, which is nice, and also what I think is interesting about the current market is if for a market leader like us it hasn't been particularly easy, it has been really tough for some of the independents, and we feel that we are actually slightly hedged that we're seeing good quality core acquisition opportunities, some of which we've taken advantage of already. We view this as a really exciting time for the business. Really solid results, but we feel very optimistic about the future. I probably covered most of what I was going to say. The PACs will be available at the end of the meeting. Dan will take you through the numbers, but revenue up, adjusted operating profit up, adjusted profit before tax up and after tax.
The operating margin, as people are aware, when we bought Synertec , about 55%- 60% of their revenues are postal pass throughs, which obviously has an impact on their operating margins. I don't think we're cheating by when we calculate our operating margin, we're taking that out of the top, out of the top line, which shows that the operating margins moved up 17.7%. Bearing in mind that we had a really tough time in Harrow Green and that the information management, the digital operations were not really firing on all cylinders yet, we're very comfortable with that, and we think that it's an encouraging direction of travel. The information management, property consolidation. We've now Markham Vale, which we took on about 18 months ago in Chesterfield at low rent, that's now pretty much full, and our site in the northeast is now approaching half full.
That's gone through. We've moved 2 million boxes, there's probably another 2 million to go. It's really about the jigsaw puzzle as to where we want to be, what properties are, etc., so that's good. I wouldn't underestimate the fact that I can stand up and say we've moved 2 million boxes. The impact on the business in terms of not just the exceptional costs relating to the trucks and the racking costs and sorting out the buildings, actually there's a lot of boxes whizzing around our estate, and you go around our sites and people are going, that's coming from there, that's going out to there. I think we're probably carrying a bit more cost just related to that. That's not exceptional, that's just part of the business, the scanning business. How we've managed, I'm very pleased with how we've managed that business.
Over the last 14 months, we had significant problems in the business and over the last 14 months we worked incredibly hard in lots of ways and the cost savings. This is a business which turns over GBP 40 million or so. We've taken out GBP 5 million of cost. This is pretty serious stuff. Our SLAs are improving out of all recognition. Our productivity has changed dramatically. There's a lot. This is a good space and we weren't doing it well and now we're beginning to do it really well. I was very pleased that we won a big contract which won't come through till next year, Oxford University Hospitals, which is not huge, it's several millions. The idea that we're really back in business now, we weren't the cheapest, we competed for the work, we won it at decent margins.
There's a lot of good stuff going on and also some of our tougher mail run contracts, we're really working through those and our customers appreciate what we're doing and there is scope to where we've got one particularly difficult contract. We think our customer understands how hard we've worked to put it right and that it is underpriced. What you do is you get it right then you go to the customer and say look, we're doing this at sub cost. Really, really pleased with that business. Datashred and Technology, these are nice businesses in the right slot which we're driving harder and harder. Datashred, obviously it'll benefit from some bolt-ons, but IT recycling, we're really cracking into the value added resellers. We did a very big job for one customer and I think we've got three more big jobs coming up on the back of very pre.
You know when that SBTi, this is not just greenwash or anything. It's really important to us. Dan and I are incentivized in terms of what we do on our ESG targets. We believe wholeheartedly that a business particularly like ours which is focused on the U.K. has a lot of social obligations around this and we're not going to be the super best but we want to be in the top decile in terms of our responsibility. I'll talk, so Synertec, really pleased with that. That's in an adjacent area. It's got decent growth prospects. It's trading well, young management team who know what they're doing, and occasionally they'll take advice from old gray birds like Dan and Nigel. That's good. Other bolt-ons have come through, which I'll just touch on briefly. Divisional performance: the information management physical storage activity box is broadly stable.
As people know, it's a very good business. We run it very well. We're continuing to look for cost savings wherever we go, and there's a better pipeline than we've seen for a while, but it tends to take quite a while for the pipeline to convert. Digital, I've probably lauded that one enough. There was a very decent contract which finished in December 2024, and we should be fully operational on the DWP mailroom, which up there the other day was described to me by our person there as probably the biggest mailroom in Europe. It's quite impressive, and we're taking that on and doing it very well. Datashred, 15% increase in revenues converted to approaching doubling profits. Great KPIs, the number of visits.
We've looked at some of our competitors, particularly when we've been looking at buying them, and our number of visits and average collections per vehicle per day are well ahead of the norm. This is a great area. I've always stressed historically about when we first bought Datashred, and even before then, I thought this was a market which should be consolidated one day. It's taken a while for vendors' expectations to match the returns on investment that we need, but the Venn diagrams between those two are now overlapping strongly. Harrow Green, it's been tough. A lot of major projects have been postponed. We've got a lot of work for high profile names coming out of Canary Wharf, legal firms moving. They're not happening this year, and you'll see Dan will do his great bridge, and we'll see that the revenue and adjusted operating profit have gone down.
Technology really coming on. This is an interesting business. I've described it before as a sort of cottage industry, and we believe we are professionalizing the business there and that there is good market opportunity. Just touching on the acquisitions completed so far in 2025, Synertec, we discussed, that was completed in March. We bought one of my favorite deals, a small trading business in Gravesend in Kent from a couple of. Couple of bookies who'd set it up to shred their betting tickets. Very small, but it was a classic example of we paid GBP 300,000 for it. We had GBP 300,000 of revenue. The revenue was stuck and we probably need just about one bloke and one truck to do that work. It's not going to make us all rich.
If you look at the ROI on something like that, you can work out just go straight into our Crayford site. There's one bloke, one truck, and GBP 300,000 of revenue coming in. Shred On Site was one of the biggest independents in the U.K. It does what it says on the tin of shred on site. Mainly on site shredding. With that, we had three sites. We've closed Vista and we've got a big site in Camberley. The synergies coming out of that haven't started to see them yet because it's all about sorting out the routing. We're nearly there on that. The sort of ROIs on that, it looks like a high multiple of their current earnings. The synergies are really incredibly obvious in terms of how we, it's really just about bolting on their customers onto our reach.
That's very good.
Topwood in Wrexham earlier this month, that was. They actually had stall scan and shred. That was. They've got a decent site there, which gives us a bit more facility in Wales. Also, we could uplift. We've uplifted the shredding revenues and put it into our Manchester site. It's not particularly complicated. We're going. Data shredding services was another tiny, tiny business. They're out there. They've got regular customers. There's very low churn in these types of business on acquisition. That's there. I think generally, I think I touched on it earlier. It's for a lot of independents. I wouldn't want to be competing against us in this type of market. You know that people are facing higher rents, they're facing more taxes. It's just so.
If I look at historically what one used to buy those sort of businesses for when I specialized, normally sort of seven or eight times earnings. It's nowhere near that today and I feel very sorry for a lot of great small entrepreneurs in the current climate and I'm afraid that it's to our benefit. Dan, tell us about the, tell us about the numbers.
Morning all.
Good to see so many of you still reeling from grayb eard Charles, but we'll pick that up later. Right, as Charles said, really feeling quite chipper despite the U.K. environment. You're pleased to talk through a good set of numbers. Good solid set of numbers. Revenue's up 15%. Most of that is thanks to the acquisitions, in particular Synertec. Adjusted operating profit up 8%. Margin up 80 bps to 17.7%. As Charles said, we have amended the way that we calculate the operating margin to exclude the pass-through cost from Synertec, and there's a rec at the back of the slides to work that out for you for this EUR 15.9 million of revenue that we've taken out. Adjusted PBT up 10%, EPS up 11%, and the interim dividend up 10%. Good solid set of numbers and good cash conversion as well.
The famous margin bridge is back for a second occasion, having good feedback last time. Just taking you through this left to right, it essentially goes through the four businesses and then a little bit of head office. Charles has covered most of this already, but just on the starting left to right, information management, you've got stable boxes and then we've got inflationary price rises on the boxes. That's feeding its way directly into margin. Then you've got the digital integration. This is the combination of the digital business and the physical business. We said a year ago, which is when this was announced, it would cost us about GBP 3 million and save about GBP 3 million. We've pretty much spent the GBP 3 million of costs, but we're getting more savings out than we thought. This is the in-period benefit, so GBP 2.5 million.
In other words, GBP 5 million on an annualized basis. Pleased with the cost savings there. The acquisition, that's Synertec feeding through into margin, and then the property consolidation. Bristol's the Markham Vale. Some of you have been to Markham Vale. It's the site in Chesterfield, up the M1 towards Sheffield. I was there last week. It's pretty much full now, so it's got just about a million boxes in it. Next year we'll get the benefit of the Durham one and enough. We're looking, as Charles said, we're looking for the third site. I haven't found it quite yet, but we said we would move 4 million boxes, we've moved about 2 million. Broadly about halfway through. Cost inflation coming off. This predominantly is NIC and national minimum wage. Of that GBP 1 million, about GBP 750,000 is that effect. That comes off the margin. This predominantly is NIC national minimum wage.
Of that million, about GBP 750,000 is that effect. That comes off the margin. The last block on there, the big red block, much of that is digital. Much of it is the contract loss that we flagged before. That ended at the end of December last year. DWP is the contract that will replace that on an annualized basis. DWP, you know, Charles has been there, I've been there. They're only just starting to come on stream. That will all be second half weighted. There is a little bit of loss in bed scanning, mainly NHS work. The good news there is that because we've sorted the business out large and taken a lot of the cost out, we can now pitch a much more attractive price. As Charles alluded to, we are confident that will improve in the future.
On shreds, you're really well run, very pleased with that business. We've got a little bit of benefit on acquisitions and then paper price. Paper price is really a weaker comparator. The paper price this year has pretty much stable. Long term prices on paper, about GBP 160-GBP 190 a tonne. It's been in that zone all the way through until today. This year, Harrow Green, we have made cost savings where we can. It's a well run business, so it's not at all the management team, it's the market they're in. We are seeing the drop in revenue flow through into profit. That's the GBP 1.3 million block there. Technology, we've been taking costs out. It's run a lot better now. It's got a new system in place. We're processing better quality kit from better quality customers.
When we get to that side, you'll see we're actually processing less volume, but the volume that we are processing is worth more. That's the margin to get to our 10% increase and then just a slide on each of the four divisions. Starting with information management, we've got the box on the table, so that just shows how we've adjusted for the postage cost. Standard performance in physical records, stable number of boxes, price rises, dropping all the way through to revenue and to margin consolidation halfway through as said. Then you've got Synertec coming through there. You have got the offset there from digital, which is the red block on the margin slide. Synertec's doing really well, pleased with it, in line with expectations, but it's got some really good, really good growth prospects for the future.
Future shred.
Really pleased with this. Paper price has come up, and you'll see the volumes of paper recycled tick up a little bit. It's got really strong KPIs. Number of visits per day we think is industry leading. The distance in between each visit we think is industry leading. Very, very pleased with that. It's being run really well, that business. They're fudging on the paper price, although it probably hasn't made that much difference in the numbers, it has improved the quality of earnings in that business. We've only got half the volume which is floating at market. Very pleased with the shredding business, and we've got some bolt-ons there, and we'll continue to look at bolt-ons in that space. Harrow Green. Obviously, we present all the numbers of the four divisions separately. Very transparent. You can see what's going on there.
We are looking at cost savings, savings where we can to try and reduce the lower revenue. There are some green shoots. I'm conscious I have said this previously, but there are some green shoots that things will move. There is a good pipeline of moves for 2026, and some of them will happen second half of this year. We hope it will get better. Technology. You can see the KPIs I mentioned earlier. Half the number of assets processed versus last year. What we've done during this period is process about 35,000 laptops for the Department for Work and Pensions. There are some customers like that coming down the pipeline. We're doing less of the schools and the hospitals, we're doing more of the blue chips who have newer quality kit that they replace more frequently.
They're more worried about data security and therefore happier to pay a reasonable price.
To get that work done.
Still a work in progress in technology, but we're absolutely moving in the right direction and progress is encouraging cash generation. Better than I thought actually this period. A good, a good cash conversion. A little bit of that is that we had a good long hard look at our working capital, in particular supplier payments, no window dressing, it was effectively just paying people when they were due. We've got a little bit of a bounce. It's probably a one-off bounce in the performance in the period. Otherwise, as you would expect, we bought some treasury shares in the first half of the year to satisfy share option schemes. We also got some acquisition costs, which is new since I've been in this chair, and we ended the period on just over GBP 120 million of net debt and leverage was 1.9x.
In my.
Last slide, so the things that you are used to in here. We've got the restructuring costs, so GBP 1.4 million in the period, that's all digital. Cumulatively, we pretty much spent the GBP 3 million now that we said we would. We've then got the property costs, and that is double rent and also the cost of moving the boxes. They're both cash costs, that GBP 1.4 and the GBP 1.1. We've also got some cash costs within the acquisition related costs. Just to highlight to you, in the acquisition costs we've included the earn out, GBP 2.1 million related to the earn out. As we mentioned in March, we entered into an earn out arrangement with the management team because we wanted to make sure that that business was handed over and stable. That earn out, the way the accounting works, means it will run through the P& L.
for the next few years. It's a non-cash item for the moment, it will translate into cash in the future, but just to highlight that that is different and slightly new. Otherwise, that's it from me.
I'll pass that to Charles.
Thanks Dan. The business outlook: the physical records business continues to underpin group profits and cash flow. It's, I think, a very strong business. We're continually improving it, we're looking to grow it, and it's all about tweaking the dials, improving the operating margins over the next year or two. I referred earlier to the cost cutting which we've undertaken in the information management, the digital business, and we're beginning to win business. When this was a separate division, I said I thought this was a 15%+ margin business, and looking through the overall information management business, I can see this heading towards 15%. Obviously, it won't be obvious within the numbers, but it is much more integrated and it is pretty much fully integrated. Same management team for whole businesses, etc.
This is a real opportunity to drive profits forward over the next couple of years. We're very pleased with Synertec . Revenue is very stable. We haven't won any major contracts, we've had some extra work coming through, but we are very pleased with that business. It fits very well with what we do. It takes us into a very logical position, and it's got genuine growth prospects, which, I mean, CAGR over the last seven or eight years has been well over double digits, so we expect that to continue given the quality of the management team and our support of it.
Datashred is trading well, and I've highlighted the advantage of these bolt-on acquisitions where you're effectively buying customers, and customers tend to be very sticky in this business, which means, just like the box business, customers don't leave you because there's a person wearing the same person who's wearing a different shirt. The opportunities we've got on routing will come through, and you can do your own flag packet on what we actually need compared to what we need compared to what an independent needs in terms of sites, vehicles, overhead, etc. If you can't do that, I can help you at a later date, but I think you all can. Technology now profitable, lots of scope to improve performance, and it'll still be quite a haul, but we're still targeting mid-teen operating margins for that business into your course, which will be a combination of improved efficiency.
We've got a very, very good IT system which has been going in over the last year and now it's there, that'll generate considerable savings. We're winning business and we're leaner, so that's good. Harrow Green, the outlook is improving as Dan referred to quite a lot of it. It keeps on moving. We're doing everything we can in terms of cost cutting in that business and we just need some sniff of the market improving for that to start turning around and delivering properly. Coming on to the group outlook, there's a lot of stuff which has gone on over the last year and it hasn't necessarily manifested itself in the numbers just yet.
This is a robust performance and we feel, I don't want to offer too many hostages to fortune in what is quite an uncertain world at the moment, but we can see from what we've been doing there is more good stuff to come. We'll continue to focus on this mantra, people in the businesses understanding it's all about operating margins. Obviously, reference is important as well, but revenue helps the operating margins. We've set the long term goal of 20% adjusted operating margins; that is now, let's call it a medium term goal. We can see that day coming closer. Strong cash generation, lots of opportunities for value accretive acquisitions, which I've touched on before. We're good at this stuff. We've got very solid businesses which you can bolt other businesses into very easily and we're looking to take advantage of that capability.
Before, when Dan and I first came in, we said the initial job is to get these businesses to work as well as they can. I think we're getting there. I think we're pretty close to the point when we can stand back and go, these are properly run businesses now. Where do we go next? Both in terms of organic growth, that's there. We also see, I don't like the word inorganic growth, and acquisitions I think is what we're talking about. See lots of scope for those and looking at where we are, there's no need for anybody to move the numbers. We're very comfortable with where they are. Brilliant. That's that. It's now—oh, we're back on time, Dan. So how long have we got for questions? Oh, right, okay. See who'd like to go first. I'm going to start there. Can you say 1, 2, 3, 4?
Can you say who you are? Because we can't afford the video these days. It's just audio.
Okay. With me, James Wood from Canaccord. Two questions in my May. The first on Synertec, obviously you've had your arms around that business now for four months. Just interested in your views on how that business is going in terms of is it ahead of where you kind.
Thought it'd be?
Kind of synergies. You're seeing both revenue and cost. Secondly, on the technology business, you see this business you've realigned with VARs, improving the quality and so on. Encouraging commentary, I think, on some of the projects you're seeing come through. I think 4% probably doesn't fully reflect that in first half, and I'm guessing what kind of run rate do you really see that kind of business getting to over the next 12 months or so?
Dan did the Synertec deal and is much closer to it than I am. Do you want to pick up on Synertec and I'll talk about technology?
Sure. Synertec broadly in line with expectations, kind of the ups and the downs. There are potentially more synergies that we can have sight of or that we've got sight of than we were expecting. We've seen some small ones, but there could be some larger ones coming down the pipe and that's both cost and revenue. We are going very slowly. It's a really well-run business, as Charles said. It's a young management team with good historic growth and good future growth. We don't want to break it. We've got sight of synergies both from cost and revenues, so tracking as expected, but we're kind of excited about the opportunity.
Good. On Technology we're still not quite clear in our minds what the operating margin should be in this type of business. Everything screams at me double digit, you know, comfortably double digit. We've done a lot of work on the cost there. We're becoming much, we're much more efficient. Our pricing model means that we actually now understand where we make our money and there are some highly profitable pockets. There's quite a bit of day to day forwarding it, recycling on a random basis which we're just working out how we can make more money out of that. It's really about focusing on the sweet spots which we can drive, where we can drive up the margins.
It'll be a combination of top line, more thoughtfulness and cost savings and the team there is determined to get to double digits as soon as possible in terms of operating margins.
Charles.
We're running it really well, and it's now about tweaking the dials to drive up those margins. That was slightly waffly, but that's what we are. Christopher
Morning.
Three questions if I may. First of all, the M&A pipeline, just the breadth of it, what you're seeing in pricing in terms of competition for assets. Secondly, in the statement you mentioned you're hopeful that Harrow Green will deliver better performance year on year. That implies a pretty strong performance in the second half, in excess of GBP 1.6 million against GBP 0.7 million last year. What gives you that optimism? I mean perhaps more cost savings coming down the line, whatever it may be. Finally, the 20% medium term margin target. When do you think you might have visibility in that? Maybe is it 12 months' time? I mean I know it's not exact science but when do you think you might position broadly when you might actually say yeah, we can see that coming down the track clearly. Thank you.
Okay, so in taking those in order, I think what's interesting about the M&A pipeline is that particularly in the shredding market, somebody had paid a lot of money for shredding businesses 15 years ago and that became the sort of market price and basically very few deals were done in that space. We are probably the only serious buyer in this space and the demographic is such that a lot of these people who have been hanging on for the last 10 years, they're running decent businesses. We see those, we see there's further opportunity in that space. I think it's also interesting that one or two smaller box businesses are coming on the market and probably some of the large independents turning over sort of GBP 5 million or whatever, making, they're sort of at the point when it is there.
We look all the time both in digital opportunities, occasionally we look at technology opportunities. I'm not interested in buying other removal businesses and then it's really about trying to find these ancillary areas like Synertec. I've got, I wear after this, I'm wearing holiday for a week and then I'll enjoy pootling around in August looking at one or two people who've come along to chat to us. It wouldn't be difficult for Dan and I to bust down some gearing guidelines. That's probably the easiest way to put it. Harrow Green seasonally, the second half is a better time of year. It used to be used and we're seeing a bit of it, used to get a lot of school closures and the H1, H2 split was slightly skewed. By first half of 2024 we were finishing off the big AstraZeneca activities.
That meant that H1 in 2024 was better than H2 in 2024. The pipeline is stronger. We do a lot of clearances for a big telecoms business and that's been quiet, but all the signs are that's going to pick up again. One of the big automotive operators, they've been sort of stuck because of the tariffs situation, trying to work out what they're going to do. They'd be our biggest private sector customer outside. We're hoping they're going to pick up a bit. What we're seeing, which is not easy for us, is we're seeing people doing things at very short notice. People say, right, I was going to do that, I'm not going to do it. Sometimes we start the month with only 35% of bookings in place and we're. We're getting to 85% of budget by the end of the month.
There seems to be this pattern of just not making big decisions and then just panicking, going, let's get on with that, send us 50 units tomorrow. It's really difficult, and that's why we're sort of talking in terms of hope for that second half. It seems to be there, but the patterns are just not what we've seen in the past where, you know, you're going to move Goldman Sachs in H2 and that's going to be a GBP 3 million job. We're just not. We've got some like that. Obviously, things moving on from Canary Wharf, those won't happen for next year, so it's just become tougher to reduce, which is difficult for us given how all of our other earnings streams are so regular.
If you want to push me on the margin, it would be very nice to think that in March 27th we were sitting here going, told you we could.
Thank you very much.
Thank you. Sam from Stifel. Two from me, please. First on datashred and the hedging contract for half the volume, is that something.
You'll look to repeat next year?
Do you think half the volume is the right level? Second, on M&A or leverage, appreciate you spoke about that. Given references out there, the recurring revenue and your cash generation, could you tick up leverage more on M&A or leverage? Appreciate you spoke about that. Given references out there, the recurring revenue and your cash generation, could you tick up leverage more than 2x?
Given the opportunities out there?
I'll leave Dan to talk about where we are on. Yeah, the data hedging has been a great success. Funnily enough, it hasn't really. The paper price has actually been below our fixed rate, but the mill doesn't mind because we're giving them very high quality stuff. Actually, the price has started to stabilize in quite a narrow band. Yes, we will do more of. Yes, we will. We're negotiating again for next year. The mill's very happy. Some of the other mills are saying can they have a bit of it, so we will renew. I'd still like to have some of it unhedged because you don't want the paper price to zoom ahead and then all of our competitors can charge less for their service, so we'd probably stick with them. We might do a bit more, but you want to have some exposure.
It's been a great comfort to us. We do look at the paper price on a weekly basis, but not on a daily basis anymore because we know we're in the right space. It was very good. I particularly like most of our operations just so on it. I vaguely mentioned to the MD of Datashred it would be very nice if we could hedge this, and they got on with it and it happened. Makes Dan and my life very easy when you've got great people doing great things like that. I mean, M&A, yes, will continue, but impact on gearing, Dan?
Yeah, thanks for the question Sam. Leverage is interesting. I mean we have a tremendously debt-friendly business. I think the boxes are rock solid. We've got some of our banking friends in the room, and I'm sure they would be happy for us to go up to 3x leverage, but we've got the stated preferred range 1.5x- 2x. We won't change that, but if something makes absolute sense and it's in an adjacent or core area and it's accretive to earnings, we don't want to say no to it.
Cheers.
Sam calling Investec, just one please from me on CapEx. Just wondered what your thoughts were around sort of what run rate CapEx looks like outside of this transformation window, and if there's any sort of coming organic investment opportunities for the business to improve productivity, efficiency, stuff like that.
Yeah, thanks Tom. CapEx, we've got some additional spend this year because we've got the racking in there for the new warehouses, which counts as CapEx, so you've got a little bit more than normal. The same was true last year, and the same will be true next year as well if you strip that out. We're really well invested. Some of you have been to the shredding sites. We don't need to spend any more money there. Once we've finished the property consolidation, that will be on property, so I'd anticipate that that number will be lower. Synertec are really well invested. We're going to hold a site visit in October to the Milton Keynes Synertec site, so hopefully some of you will attend there. That's well invested. They don't need any more. We try to be CapEx light, capital light.
We've got a little bit of a bump on the property, but that should come back down. No, no, no cause that we can see at the moment spend too much.
Very good.
O.
Hi Greg Poultman.
Seeing a couple of markets just on.
The cost savings in Harrow Green depend upon those. Are there sort of upside?
Could you quantify what you see as the opportunity there, please?
Yes, there may be an opportunity to reduce our property exposure in this business, which would be good if we could. We certainly, in Manchester, Leeds, and Glasgow, Harrow Green is now operating out of Restore Records management sites. We share a site in Bristol, so we do have opportunity. We've been able to send back some vehicles or some vehicles have been taken on, but where we're contracted to take on vehicles, they've gone to other places. It's a difficult one in terms of generally you want to keep your full-time employees fully busy and then you use reliable agency when you get busier. It's always tough in this business because if your full-time employees are experienced, you make most money when you've got your full-time employees doing the job.
They know what they're doing, so you don't really want to cut into that base. We've also been reasonably savage on the sales front and people who aren't selling but are more customer relationship people. We've been seeing cutting costs then, but the top line is just smashed into the bottom line on a scale which we were unprepared for. There are things around property which we can continue to do. I felt that we've taken quite a lot of heads out of the overhead. There just sort of comes a point when you're bumping along the bottom. If you keep on cutting, you've got very experienced good people who, when it picks up, you'll be going, why did we let them go?
There's a lot of cost.
Savings that come up. There are more coming out. It'd be very nice to have an opportunity to move out of one of our bigger properties. It's about when you're bumping along the bottom, you don't want to throw the baby out with the bath water. Greg, that's where we are on that one. Just touching on the properties, we are very lucky with, you know, if we're a landlord, our best business is just the most wonderful tenant because we're going to be there forever. We're quiet, but all these things come with huge yards which actually we don't move, we don't need. There might be six or seven vans and ten cars parked there. In Datashred, we're now in the car park of Coventry, we're in the car park at Southampton, we're about to be in the car park at Manchester.
There are a couple of other sites where we can turn them into collection sites. These are really big advantages. If we're competing with a shredding business and our shredding business is paying no rent because it's in the car park or even the removals business, Harrow Green borrow a bit of storage off information management, then they can have their canteen there, they can have their vehicles there, etc. There are great advantages we have across the business, particularly feeding off these big car parks which come with the information management sites and they're there. The MDs of different divisions get on really well. There's always a bit of, sort of, what are you paying me for your parking space? It tends to be Nigel's information management business, which can afford it more than anybody else, so he tends to get a bit stuffed on that one.
Very good,
James.
Purple Equity Development. A couple of questions on Synertec. When you made the acquisition, you talked.
Quite a lot about cross selling opportunities.
I think, particularly in NHS. Are you starting to explore some of those opportunities as management team at Synertec and welcoming that there's revenue growth, but there's another volume drop in technology assets recycled as you've been sort of shifting out with the lower margin, lower quality stuff? Is this the last period where we expect to see that and to grow from that?
There is absolutely an opportunity, James. What they're doing now is the physical and the digital business, scanning business are going, holding joint seminars with the Synertec team, and they're doing those with the NHS on a regional cluster basis. They are a slower burn given the buying process of the NHS and who the stakeholders are, but there is a lot of opportunity there. Nothing in the bag quite yet, but lots to go after.
Great, thanks. Yes, we've seen that, the volumes coming down because we're just not processing rubbish, and we expect volumes to start to pick up at these higher values. We have the direct customers, so those are people who deal with us, which tends to be end of life. We've got the VARs, the value added resellers, and we see quite a lot of opportunity. We see more opportunities with the value added resellers. What's really been happening there is the SLA, the service level agreements with them. It's not the VARs, it's their end customer asks for the moon, and the VARs go, oh, brilliant, of course you can have that. Then they come to us and go, we want the moon. Historically, we said we'd give them the moon and we didn't. Actually, what's helpful is nobody else in the industry could do it either.
Now, where we are is there are two things. They've asked for the moon and we've pushed back and said, look, you can have three quarters of the moon, but don't be silly. Also, we're delivering on it, and for a lot of the VARs, they want their end customer to be happy.
Happy.
If you give them a decent service, they kind of go like, okay. They can be price conscious on occasions, but on other occasions their end customer wants something done and that can be. We're seeing a lot more of asset tracking. We've actually. I was somewhere the other day and we were loading up the IT before it went out to the.
To.
The customer. I was trying to think where that was, us being in Birmingham. Yeah, we were sorting out the kit before it went out there, and that's a newish thing.
We've also got.
There's a couple of very big contracts. There's a very big contract which we think is coming our way. Also, there's some high security stuff which we're the preferred supplier for. There's a lot of good stuff going on in that business and as I say, we haven't quite worked out but we haven't quite honed the model so that we know exactly where things are going to be and there's a bit that the quality of earnings is there but you're not quite sure whether you're going to get 35,000 tablets in one go or whether actually this order's come in and actually it's not quite what we were expecting but we're running it. There's a book today but we're nearly running that business really well and our Trustpilot and things like that, I mean it tends to be great.
It's all B2B really so Trustpilot is less important but people have really got confidence that we can actually do what we say we're going to do,
which is great.
Sorry, just one quick question for me. It's Max Hayes from Cavendish. Just on digital, how are you expecting the revenue from DWP to develop in the period?
Is it going to be sort of...
The steady ramp up into FY 2026?
Yeah, where we are. We've had the first two.
There'S a.
Huge shed and basically the previous occupant, which is Equans, which is a city of weig. The construction business we have taken. We're taking on the contract from them. The building is kind of almost divided and steadily we are taking over more desks. When I was there before last we had about a third of the building and we were doing about a third of the work. The big moment is coming in about two weeks' time when we take over most of the building. We should have about three months of revenue from that contract. It won't kick in a big way in H2 but it'll begin to come through in H2 and then we'll see the full year effects in 2026. It's on its way and I think how we're approaching the job is more interesting than the previous income government, which appeals.
It also appeals to the DWP.
We store all their boxes. We do quite a lot of work for the DWP anyway, so actually they're much more comfortable with us doing their digital storage and everything than they were with, and again, Equivalence wasn't doing a particularly bad job. It's just they do a million things, whereas this is our absolutely our sweet spot, and a lot of the technology transfer we can use on this contract. This was the only big contract they had, so they weren't specialists in this space, whereas we are. It's a very good example of being a U.K. focused business where we know the customer intimately. We're by far the biggest operator of this stuff in the U.K. Why would you be giving it to a subsidiary of a French building company? It doesn't make any sense. Chris, he's determined to use that.
All our time questions are optioned, by the way. We don't have to keep going. Anyway, Chris,
A couple of quick ones.
How did service revenues perform in records management and datashred? Secondly, are you seeing any changes in behavior at Stericycle following its acquisition by Waste Voice Management?
Thanks.
Yeah, I'll take both of those service revenues in the box business. It was comparatively quiet in the first half. We do quite a lot of lift the lid exercises, which is what it says. We've got one particularly big customer, which is a big state body, and actually they had a big project and it's been delayed, but they're kicking off again, so actually they had a big project and it's.
It got.
It's been delayed but they're kicking off again, so the deliveries and collections are pretty stable. I think they were sort of 1% less than where we were. Project work was slow. It's not a huge percentage of our revenue, probably project work's about 5%, and it can be quite bulky in that area. The service revenues in datashred have been fine. We've seen slightly higher customer churn and a bit more pricing pressure in datashred than we had previously. I mean, it's all fine, but we've seen customers sort of go, you were collecting once a week, we only need you once a fortnight. One or two people, particularly our partners, say that's the mighties and the alias and things like that, sort of beating us up on rates. It's fine. There's nothing to worry about, and service revenues are good.
Speaking to the sales teams, they're sort of going, it's, it's. To be honest, I don't. That's nothing more than a reflection that everybody's out there sort of going, why have we got these people collecting our bins every week, let's do it every month and things like that. There's a bit, but that's sort of noise rather than anything fundamental, and I think we don't. We're just not seeing Shred-it being aggressive in the market at the moment. I don't know what Waste Management, the U.S. group, whether they want to be in the shredding game or not, but I suspect that it's a bit of a holding pattern and that suits us down to the ground.
I don't think the UK management of the subsidiary, which they didn't want to buy in the first place, is going to be particularly motivated to get out there and beat the hell out of datashred. Great. Very good. Thanks everybody.
Should we just. Quite a few people dialing in, so I will offer if there is anybody on the line. I'm getting the shake of the head from Katya at the back, which is granted.
That's very good, all those listings. Thanks for tuning in. We're very lucky to have six brilliant analysts who cover our stock, who have exhausted Dan and I with their extensive questioning and great thanks.