Good morning and welcome to Bodycote's 2025 interim results. I'm Jim Fairbairn, CEO, and I'm pleased to have with me our CFO, Ben Fidler. I will kick off today with a summary covering the strategic progress that we've made in the first half of the year and the context in terms of our end market environment. Ben will then take you through the half-year results in more detail, and I'll come back and take you through an update on how we're executing the strategy, the benefits we're now beginning to see, and our outlook for the full year, where we remain on track and in line with expectation. To start with some key points about the first half, we have made some important strategic progress on all of the areas we flagged at the Capital Markets Day and at our full-year results in March.
That's against a backdrop that has been one of challenging end markets. In terms of the first half highlights, firstly, as I said, market conditions have been very tough, but sequentially we've seen 4% growth in revenue versus the second half of last year. I have been pleased with how we have executed, particularly in Q2. Secondly, we're really happy with the momentum of the Optimise program, and we've decided to expand it. Ben and I will talk about that later. In short, we're increasing the benefit and significantly reducing the cost. On growth, whilst this period was challenging, we're still sowing the seeds for future growth through our investments and M&A activity. I'll talk about some of our current organic investments later. Today, we're also announcing a further GBP 30 million share buyback.
The strong financial characteristics of our business mean that we can invest well and at the same time provide shareholder returns. Our full-year outlook remains unchanged, with an improvement in profit expected in the second half. Overall, I'm pleased with the progress we've made in difficult markets and encouraged by our operational response. This gives us confidence in our medium-term targets. Looking at the end markets, I want to give you the context for our first-half performance. The left-hand chart shows it was a challenging period. Year- over- year, core revenues were down 3.6%. We saw growth accelerating in aerospace and d efence as expected, up 3% year- on- year, and remembering that's against a strong comparator. Clearly, market conditions in industrial and automotive were tougher. Energy revenue was down 12.9%.
This was largely expected as we flagged several oil and gas contracts that ended in the second half of last year. Moving to the right-hand chart, this chart shows our sequential growth versus the second half of last year. Overall, core revenue was up 4%, and there was a sequential momentum in almost all of our key end markets. Although we do typically have a slight bias towards the first half, the growth rate we've seen has gone beyond that. Most markets have stabilized and have improved from what was a weak base in the second half of 2024. Although automotive and general industrial are likely to remain challenging, we did improve sequentially there. However, it just remains too soon to call any type of recovery. We expect continued momentum in the second half in aerospace and defence.
Therefore, it's key that we continue to focus on controlling what we can control. With that, I'll hand over to Ben to take you through the detail of the half.
Thank you, Jim. Just to add my welcome to all of you, thanks for coming along today to the new venue. I'm now going to spend a few moments just talking through in some more detail the key elements around the financial performance that we delivered in the first half of the year, as well as taking a little bit of time just to dig into some of the more detailed aspects of our technical guidance for the rest of the year. Let's start off with a reminder of some of the key highlights of the numbers.
As Jim said, some challenging market conditions compared to the first half of last year saw core revenues decline by 3.6% organically, sequentially up just over 4%, but clearly down year over year. We worked hard to manage costs while also maintaining the capacity that we need and are going to need in specialist technologies for the high level of activity that we can see there in the second half of this year. As a result of the lower top line, core margins were down 220 basis points to 15.4%. Reflecting the lower operating profit as well as the higher tax rate, EPS fell to GBP 0.213. As you can see here, cash conversion remains healthy at 68%. Leverage remains very comfortable at 0.6x .
That's 0.3x higher than the year-end, as we executed on the further share buyback in the first half of the year and paid the final dividend in June, taking total shareholder returns for the period to GBP 60 million. Now let's delve into the numbers in a little bit more detail on this next slide. Firstly, focusing on the core business, a 3.6% organic revenue decline in the period. That reflected challenging market conditions and delivery phasing in specialist technologies this year. On that lower revenue base, core operating profit fell by 14.7% organically, as you can see here, to GBP 54.3 million. Margins of 15.4%. Margins will improve in the second half as divisional mix improves and also as Optimise benefits ramp up further. More on this in more detail from Jim later.
Secondly, looked at through the group lens, including our non-core activities, revenues were GBP 369 million, down just over 4.5% organically, with group operating profit of GBP 55.1 million and margin of 14.9%. With higher financing costs and a 70 basis point increase in tax rate, together with the lower share count benefiting from the share buyback, adjusted EPS fell 15% to GBP 0.213 . Despite the lower EPS, the interim dividend was held stable at GBP 0.069. Next, I want to look at the key drivers of the group's operating profit performance. I'm going to talk in a moment more about the divisions in more detail. As you can see here, looked at in aggregate, divisional profit fell by a combined GBP 11.4 million. That reflected the lower volumes both in specialist technologies and also in precision heat treatment. Non-core profit was unchanged over the prior first half.
That's despite the decline in revenues in non-core. Why is that? It's primarily because we focused our site closures, as you'd expect, on the most underperforming and loss-making locations in the first half. Central costs, as you can see here, were GBP 1.7 million lower. That reflected overhead savings, together with lower incentive share-based payment costs. Finally, foreign exchange had about a GBP 2 million headwind to profit in the first half of the year, primarily movements in the euro and dollar. All of which, put it all together, led to the delivery of our GBP 55.1 million of group operating profit. Let's now turn to look at each of the two divisions, the core divisions, in a bit more detail. Compared to a strong prior-year revenue comparator, specialist technologies had quite a challenging first half.
Revenues, as you can see here, down 7.7% organically off what was, you can see from that bottom left-hand bar chart, a particularly high revenue base in the first half of 2024. That was, though, nonetheless an improvement from the - 11% revenue you may remember we reported at the May AGM trading statement for the first four months of the year. May and June did improve. In fact, May and June revenues for specialist technologies were flat year- on- year, showing improved momentum as we went through the second quarter, which we're confident will carry into the second half of the year for this division. Looked at by end market, aerospace and defence growth was good, up over 7%, with a nice acceleration in particular being evident there in the second quarter. Other markets were challenging.
Industrial suffered a material decline in the more CapEx-driven end markets, such as extrusion and tool steel. Consumer, medical, and other remained weak in specialist technologies. As expected earlier in the year, energy was impacted by the end of a sizable oil and gas contract in our surface treatment business. We've worked hard to replace much of that lost work, which will ramp up as we go through the second half of this year. Finally, there was also a phasing impact in HIP product fabrication, where delivery volumes will be unusually second-half weighted this year. Margins in specialist technologies were lower, not surprisingly impacted by the revenue phasing we saw here, but still good at over 25%. As we look to the second half of specialist technologies, we've got a good line of sight for growth and performance to improve significantly. Aerospace supply chains should continue to improve.
We very much saw that in the second quarter, and that will carry that momentum into the second half. Also, revenue phasing on HIP Product Fabrication contracts will ramp up. A lot of that is in our backlog. The ramp-up of the new oil and gas work that we've won on surface technology will also feed into the second half growth. Turning to precision heat treatment, a resilient performance in the face of some challenging end markets. On an organic basis, revenues fell 1.8% to GBP 246 million, with growing volumes of IGT work within our energy subsegment, growth in aerospace, in consumer, medical, and other, offset by weakness in automotive and industrial markets. Sequentially, precision heat treatment revenues were up 7%, which is ahead of our normal level of seasonality and did compare to a particularly soft level of activity in the second half of 2024.
We took a number of actions to manage the cost base carefully here. Although margins fell on the weaker top line, they were maintained at over 14.5%. Let's look at cash flow. We delivered cash flow in line with expectations in the first half. As you can see here, adjusted headline operating cash flow of GBP 38 million. That was a decline of GBP 11 million year- over- year, but entirely reflected the lower level of profit and was achieved despite a 10% increase in capital expenditure. Cash flow was also helped by the non-recurrence of the provision outflow that we'd seen in the first half of last year. Overall, operating cash conversion stood at 68% below last year, but in line with normal type of first-half levels for Bodycote. Restructuring spend rose to GBP 7 million, as you'd expect, as we deliver and execute at pace on the Optimise program.
Finally, cash tax was back to a more normalised level of phasing after the unusual waiting that we had in the first half of 2024 when some prior-year payments fell due. Overall, this left free cash flow at GBP 18 million. After executing GBP 30 million of share buyback in the first half and payment of the final dividend in June, net debt at the end of the half rose to GBP 112.4 million. That’s all leverage increased slightly, but still to very comfortable 0.6x net debt EBITDA towards the bottom end of our 0.5x to 1.5x target range. We continue to apply a disciplined and balanced approach to capital allocation, exactly what you should be expecting us to continue to do at Bodycote.
CapEx rose by 10% to GBP 38 million, as we drive investment in future growth to enable and to enable continual operational improvement, both of which are key to our strategic execution and delivery leaders. Dividends were paid of GBP 29 million, and as you heard earlier, the first half dividend held flat at GBP 0.069 per share. Finally, GBP 31 million deployed on share buybacks. We do continue to progress well on building our M&A capabilities to support and to drive our growth strategy. Based on what we can see in the pipeline in the near term, together with the strength of the balance sheet, we've announced today a further GBP 30 million share buyback, which is an attractive use of capital to drive value. Finally, I know your summers wouldn't be complete without your technical guidance slide.
Some details to consider here as you revisit and build out from your forecast for 2025. I'm not going to step through every single one of these. A lot of them haven't changed compared to what we talked about in March, but just a couple to draw out. Firstly, on foreign exchange, rates have been fluctuating, as you know, quite a lot recently. If maintained at today's levels, this means we could well see a larger headwind than we'd flagged in March. We now expect potentially a GBP 3 million profit headwind from FX, more than half of which was felt in the first half. Secondly, due to the additional GBP 30 million share buyback that we've announced today, our guidance for share count and interest costs have also modestly changed compared to what we said in March.
With that, I'll hand back to Jim now to cover the update on strategy and to focus more on outlook. Thank you.
Thank you, Ben. As I said earlier, what's one of the most pleasing aspects about the half is the strategic progress we've made across the three legs of the strategy. As you know, Optimise is about enhancing the quality of our portfolio. As you'll recall, this involved exiting around 10% of our sites and just over 5% of our group revenue, which was lower quality and lower margin. We are progressing well and are ahead of plan in terms of cost efficiency and timeline. We have also decided to expand the scope of the program, and I'll give details on that shortly. Perform focuses on identifying areas for performance excellence and also driving internal best practice. We execute this through the HEAT framework, and we continue to make progress on a daily basis of each of the elements of HEAT. That's an important distinction.
Every day in Bodycote, teams are working on each element of HEAT to make us better. I'll give a really good example of this later. Our priority in Grow is about driving organic growth and improving the overall business mix. As you know, 65% of our business is in high margin markets. Improving the overall business mix, as you know, 65% of our business is in higher growth, high margin markets. Our strategic actions will get that to at least 75% in the medium term. I'll come back to some details in a few slides. In May, we launched our Carbon Smart program, offering customers a reduced carbon footprint for their in-house heat treatment. We're in full engagement mode now with many European and U.S. customers. As Ben mentioned, our acquisition pipeline is also very much focused on this high growth, high margin area of our business.
Whilst nothing is imminent, we've continued to make good progress on building the pipeline. Moving to Optimise, at the recent AGM statement, we signaled we saw the potential to expand the scope of the Optimise program. We've been doing lots of work in the background, and now we're confident of being able to deliver an increased benefit for a significantly reduced cost. Let me take you through the key changes in this graphic at the bottom of the slide. As you can see on the far left, the original program involved around 20 sites, and that was set to deliver a GBP 12- GBP 14 million in recurring benefits for a cost of GBP 25- GBP 30 million. Let me step through the red boxes. Firstly, improved execution.
We have been delivering well on this plan and have increased confidence in our ability to retain the planned revenue and to deliver at lower cost. We expect around GBP 5 million lower cash costs than initially guided. Next, we've expanded the scope of the original program. This partly reflects the increased confidence I just mentioned around our ability to execute site consolidations. Some of our end markets, particularly in areas such as automotive in Western Europe, remain challenging. With that backdrop, we've taken a fresh look and expanded the scope of the program with some additional sites and also some further overhead reductions. This will cost around GBP 10 million and delivers an attractive payback. Thirdly, we also looked at other execution options, including divesting some sites. We've been able to further reduce the cost of the program.
We've entered into a contractual process with a buyer for a package of automotive and industrial sites in France. The expected proceeds are around GBP 20 million for a package of sites that were generating lower than the group average margin. Put all of that together, and on the right-hand side, you can see the new program. We will be exiting around 30 sites, which is about 20% of our portfolio. These sites have revenues of around GBP 80 million, and we aim to retain around 25% of these revenues. The full program will now give us run rate benefits of at least GBP 15 million by mid-2027, and the net costs are considerably lower at GBP 10- GBP 15 million. For this year, we still expect profit benefits of GBP 4- GBP 5 million. Moving on to Perform, let me pull out an example of HEAT in action.
This is a site in Minneapolis, and I visited it as part of my induction program in early 2024. We have a very forward-thinking General Manager who likes impact, and his plan became part of our initial Lean Management Pilot Site program in the middle of last year. That initial program was about implementing daily management. That's safety, quality, delivery, and cost improvements daily. The site has implemented superior workplace organization, or 5S in Lean Management terms for the gurus, as well as some other Lean tools, including visual management. What you usually also find is that there are process deficiencies upstream of the core processes that you're trying to change. We found some here in order entry and in scheduling that the team fixed. With some additional selective small investment, turnaround times have improved by over 20%, and on-time delivery in full has improved by 6%.
This type of focus is also a huge sales differentiator. It helps us get more utilization through our asset base, and it keeps our teams focused on what really matters for our customers. We continue to progress and roll out HEAT as a multi-year program. Examples like this one show that the benefits are tangible, and these sort of actions are applicable to most of our sites. Moving on to growth, I want to give you an example of where we say we are targeting high-growth markets. What does that really mean? Here's an example in aerospace and defence, which, as you know, is around a third of our business. Here are some of the things that we're driving.
Number one, we are improving the quality and structure of our sales teams and ensuring that the wider Bodycote team, on an inter-divisional basis, is always putting the best unified position forward on all our services to the customer. Enhancing on sales capability and cross-selling has already yielded results. One of our key target areas is the Pratt & Whitney supply chain, and we've just managed to secure a long-term purchase agreement with a tier-one supplier there with this approach. In terms of organic investment, we're in the process of two major U.S. upgrades, essentially creating two entirely new expanded aerospace and defence sites that will give us significantly extra capacity. We can see from our customers' order books that the demand picture is good, and we are positioning ourselves for that. Thirdly, we think there are untapped opportunities around how we can combine our services for our aerospace customers.
It's specifically beneficial for additive manufacturing in aerospace and for industrial gas turbines. Our customers have been inquiring about it for some time. As you can see, we are laying the foundations for an acceleration in growth going forward for these target markets. It's really about very specific and targeted investment that will deliver for the customer. Moving on to confidence in the second half. As I said earlier, we see increased second-half profit, and that's for three key reasons. Firstly, in the market environment, whilst there is clearly uncertain macro outlook, we expect continued growth in aerospace and defence and industrial gas turbines. We saw some of that coming through already in May and June. Secondly, we see profit improvement in specialist technologies reflecting the recent order wins. The HIP PF business order book has benefited from a sizable win in U.S. defence.
The team in surface treatment have been working hard to backfill with oil and gas projects from the Middle East. Lastly, because of the Optimise program we are successfully delivering, we expect benefits to ramp up in the second half. We have enacted the majority of the overhead savings towards the end of the first half, which help underpin the full GBP 45 million full-year benefit. Taking all of these elements together means our full-year outlook is unchanged, and we remain on track and in line with market expectations. We remain focused on operational delivery and also strict cost control. We will improve operating profit in the second half, and we will continue to progress at pace on Optimise, Perform, and Grow. We remain focused on creating the higher quality, more resilient, and faster-growing Bodycote and remain confident in the delivery of our medium-term targets.
With that, we will open up to questions. For those of you listening online, you can submit questions via the webcast service. Thank you. Can we get the mic here? Andy, d o you want to go first?
Good morning, James. Thanks for your presentation. I've got three questions. Do you want to do one at a time or do you want to?
No, I think go for them all.
Let's crack on then with Optimise. Can you help us understand two things within Optimise? What exactly is it that's allowing you to execute ahead of plan from a cost side? I think you talked GBP 5 million. Is that conservative guidance, or is it once you start, you realize that actually there's more opportunity? What's driving that improvement? Secondly, the scope. You've increased the scope. Why is that? Is that all that you now need to do given the current market environment, or is there scope for more scope? Second question is on capital allocation. GBP 30 million buyback. Yeah, very sensible. You also talk about the pipeline and the M&A pipeline. I just really want to understand really how that's building and what is the aspiration here. Clearly, you've got a strong balance sheet. You can do lots with it.
I just want to make sure I understand kind of where we're at in your thought process. Last, but by no means least, one for Ben on, no, not the cash tax. On the second half guidance, clearly we've got specialist tech. It's a big chunk of that second half improvement. Just want to understand the confidence maybe now compared to May or your confidence that some of that slippage we've seen into the second half doesn't go into 2026.
Okay, let me take the first there too, then, Ben, and pass to you.
Sure.
I think in terms of the Optimise program, I mean, we're very happy with progress. As you say, Andy, we're executing at lower cost. I think we're on track at being able to retain the revenues that were in the model, and that's obviously a key part of the improved profitability and margin. I think what's two things. I think we've actually realized that if we move at pace in terms of the site and also in the overhead, then it just brings us more confidence about executing. The other point about execution is that we put in a very robust program management framework. It just brings us more confidence about executing. The other point about execution is that we put in a very robust program management framework, real-time, and I think that has been kind of very important for us.
I think we've always wanted to be proactive around the Optimise program and be on the front foot. Therefore, you know, we took a fresh look, as I said in my prepared remarks, we took a fresh look, you know, considering the underlying market base, especially in automotive and general industrial. We saw the opportunity to, because of the confidence we had in execution of expanding that program. We have expanded the program and we've also kind of divested. The upshot is that we will deliver more and it's going to cost less. This is the program. Unless there's, you know, material macro shifts which none of us can predict, then we expect that this will be the final part of the Optimise program. Just on your M&A comment question, sorry. I mean, M&A is actually an important part of the growth story going forward.
You know, Ben and I both said that we're, you know, increasing the pipeline there. We haven't got any deal imminent at all. The key thing about the pipeline is that it's targeted, focused, and also high quality, and it has to be aligned to the strategy. It either has an element of, you know, structural growth quality or some kind of technical differentiation or a combination of both. Building that pipeline, building the relationships, you know, talking to people does actually take time. We will, we will make, I'm sure we take our time, but do it properly and be disciplined, you know, around the capital requirements kind of for that. The board, you know, continually reviews capital allocation, acquisition pipeline. We have very sensible, robust, and quite insightful discussions, and, you know, I'm really happy that we're all aligned on acquisitions going forward.
The sweet spot for acquisitions for us is further Lake City's, and that's really what we're trying to build into the pipeline.
Thanks. I'll pick up on the question about second-half guidance and our confidence levels around that and why. Essentially, there's probably three or four main buckets and drivers of that, which we did lay out on one of the slides. Just to step through those and maybe lift the lid a little bit more, there's the Optimise benefits. As you heard, everything we're saying, we're executing well. It's on track, and for the full year, we're very confident of delivering around a GBP 4- GBP 5 million profit benefit from that, of which you saw probably about GBP 1 million in the first half of the year. A quite significant level of ramp-up is expected in the second half. That's the first bucket. Secondly, there's the aerospace improvement. Your question was, how did our confidence factor compare to May? Much more confident about aerospace.
It wasn't that we weren't confident in May because the fundamental demand is 100% there in the aerospace industry. The supply chain is having a few challenges getting back in gear. What we clearly saw in May and June was quite a material improvement in the aerospace end markets. In the first four months, aerospace was up just under 2%. It was up almost 6% in May and June. That gives us incremental confidence that the momentum in aerospace can and will continue through the second half. The third piece that we've already touched on in the presentation was really that in specialist technologies, in HIP P roduct Fabrication, which is probably our most backlog-driven business.
Jim referred to that $10 million order for defence equipment for valve parts used in the naval industry on things that might spend more time under the sea than on top of it. That was only secured midway through the first half, and more than half of that will trade this year, none of which traded in the first half as an example. That gives us confidence, things like that, as well as those oil and gas, surface technology, new contract wins ramping up to replace the contract that ended. In specialist technologies, we've got a good line of sight that we'll get improvement there. The final driver, which is a slightly more arcane technical guidance point, is just share-based payments.
You look at what it was in the first half, you look at what we're guiding in the full year, it'll basically be about GBP 1 million lower in H2 than it was in H1.
Very clear.
Thanks, Andy.
Thanks, guys.
Jonathan.
Morning, guys. It's Jonathan Farkas. I just have three questions as well, please. Firstly, just in terms of those French sites, can you just give us a feel for the absolute profit number of those? As you look to 2026, obviously, that's going to fall out. What kind of savings are we going to get from Optimise in 2026? That was the first one. The second one was just about those contract wins of specialist technology. Obviously, that's been good in H1. If we kind of look at the cadence of those contracts, are we kind of seeing sort of an uptick in terms of your win rate there, and can that continue going forward? Thirdly, just in terms of auto, obviously, challenging end market down for you in the first half. Can you just sort of talk us through what's happening there? Are you managing to get market share?
Are you managing to get into the back to electric vehicle sort of powertrain angle, which you were looking at quite heavily in terms of the investor there? Give us some color there, please.
Yeah, I'll do the automotive, Ben, and then pass to you for the other two. Automotive, as a market, obviously remains challenging. We did actually see sequential progress, but I don't think that's any bellwether for recovery. It remains actually very difficult. We do have some bright spots in automotive. China and Mexico are our bright spots. In China last year, we deliberately changed the focus to a more domestic kind of targeted, and we also made a local management change. The new General Manager there is actually a local Chinese who is amazing. I think that was actually very good, and China is growing very nicely. The other market that is doing well is actually Mexico. Year- on- year, we're up just over 10%. That has been from some program wins local to Mexico. We're not seeing any tariff issues there at all.
At some point, we're going to run out of capacity in our two automotive sites. The Board and I and Ben were debating a few weeks ago on how we can think about it. It's a good problem to have. Very different in the U.S. and Europe, where light vehicle production is actually down low to mid-single, broadly reflecting our performance. In fact, we're slightly worse in North America than we are in Europe, which maybe is a little bit of a surprise, but both are down very, very similar numbers. We thought we had actually hit the bottom the second half of last year. We think we must be around there, but we're certainly not calling any type of recovery. Certainly, in terms of our agnostic work, we're holding share, we're winning share in some programs.
The most important thing for me that I talk to the teams is that we're not losing share. That's like leakage. We don't accept that in the business, and I am confident that's actually true.
Okay. Let me pick up on some of the others. There was also specialist technology contract win rates and such.
Oh, yeah. Do you want me to pick up on that?
Yeah.
Have a think while I'm answering the first two.
On the French sites, can we give you an absolute profit number? Quite a simple answer, no, because of commercial sensitivity. Let me give you some parameters that may help you figure something out there. What was the exit multiple on the sale? Not surprisingly, it is a little below the group multiple that we trade on. That shouldn't surprise you in the context of these are lower margin sites, quite significantly lower margin than the group overall. They are auto and GI focused. Clearly, they are France, Western Europe focused. Structurally, probably lower growth. The multiple was lower than the group level of multiple, but we still think actually overall we were quite pleased with the multiple we achieved on those, recognizing the genre of assets that was in there.
For us on the economics of the transaction, recognizing that a number of those sites would have been closed as part of the Optimise program and would have been quite expensive to close as part of the Optimise program, much more attractive economics. Your second question was around what savings we could expect from Optimise. We've tried to be unusually helpful, actually. On slide 26 in the appendix is some more details on the Optimise. I think that gives you the numbers you probably want there, but let me just voice over the ones. For this year, we're saying we expect GBP 4- GBP 5 million of Optimise profit benefit. For next year, we're saying we expect around a GBP 10 million Optimise benefit. That full run rate of at least GBP 15 million achieved by the middle of 2027.
You can also see there where we've tried to lay out how we expect the cash cost and the P&L cost to be phased. The cash cost this year, just worth unpicking that broadly neutral cash cost comment, GBP 7 million of cash cost in the first half in the cash flow statement. If we're saying broadly neutral for the full year, remember you will see that split between two line items of the cash flow for the accounting nerds, which is you'll see the restructuring cost and you'll see an M&A disposal proceed. When we talk about broadly neutral, we're talking about the net of those two because that is the economics of the Optimise program. Don't put zero in your restructuring line for your cash flow or you'll have the wrong numbers. Hopefully, that's clear.
Yeah. On the Spectate, I mean, clearly, Spectate had a chat, you know, from the numbers were a challenge in the first half, you know, compared to the first half of last year. We did have a bright spot, and that's obviously aerospace, which is, you know, was up, you know, 7%, you know, in specialist technologies. A lot of that's coming from engine-related and also finished, you know, parts in North America, which we're very, very, very pleased with. I think the other key thing is that from a P4 trading statement, you saw that the spectate was down 11.5%. At the half a year, it was down just over 7%. We actually slightly grew in P5 and P6 in Spectate. I think that gives us confidence again for the second half. Energy has been impacted the most.
The new oil and gas wins is actually very, you know, important for the second half. Industrial and Spectate has been a mixed, you know, picture, much more difficult in Europe. We do quite a lot of, you know, extrusion working on one of our main HIP sites in Germany. That's been challenging. I think we're starting to see some potential green shoots there, which is actually good. I think, you know, all in the aerospace momentum and the phasing of the HIP , you know, Product Fabrication order book, you know, gives us a confidence. Just the kind of oil and gas order book, the teams have actually really worked hard, you know, especially in the U.K. We service this Stonehouse, which is near Cheltenham. I think the teams have actually really been working hard to backfill that.
It gives us confidence we're going to grow in the second half in Spectate. Behind you, Jonathan, and then we'll move back to spectate. Behind you, Jonathan, and then we'll move.
It's Harry Phillips, the pill hunt again, sorry, three from myself. Just, sorry, laboring on a little bit on specialist tech. If I remember earlier in the year, the hope was that specialist tech would sort of be flat for the year, maybe even a smaller, but just to sort of cut to the chase, really, all the aspects you've been highlighting, is that still essentially sort of achievable? The second is just on pricing. Pricing has become an issue more recently with some of your broader peers. Just a thought around that. Then just onto the balance sheet. If I remember rightly, target leverage is sort of +1 . If we do the buyback and we have the French money in and you end debt, let's say with $110 million, $115 million, that's 0.6 leverage, which is a comfortable distance below 1x .
I would suggest that pipeline is sort of getting pretty full and pretty actionable. Is that the right way to view it? Maybe just around the context of M&A, obviously, there is some competition. You've got some more focused peers, etc., etc. Is the availability in surface technology, is that an active part of the pipeline, please?
I'll do the pricing and just the specifics in the pipeline and pass to Ben. In terms of pricing, the reality is there's never a moment where there's not pricing pressure. The way that the teams work with our customers, the way that we've passed on surcharges, the way that we've actually looked at gross margin through there, and the way that we've entered into agreements around price, it's an important part of what we do. We're not seeing any more undue pressure on pricing, and that's important going forward. On M&A, obviously, surface treatment or surface technologies is part of the 65% where we talk about high growth, high-margin areas. You can imagine that there are targets within the pipeline that are focused on surface technologies. I've actually met a few of the companies that you may be referring to.
I'll only go back to what we said at the beginning. Nothing imminent. We're very much focused on bolt-ons that give us additionality to either structural growth and/or technology. That's really where our focus is in the pipeline and where we really want to grow our business through bolt-ons.
Should I pick up on a couple of elements of those? Maybe your first one, and then the other element on the leverage point. For specialist technology, your question was, like we said in May, do we still expect it could be flat for the year? I presume you're talking in OCC terms. Yes, we think it will be back to growth in the second half, specialist technologies, and therefore it should be flattish for the year with what we have line of sight over at the moment. The second one on leverage, the target range is actually 0.5- 1.5. We are within the range, but point taken, we're kind of very much at the bottom end of that range. Jim 's said enough on the M&A pipeline and where we are sitting on that at the moment.
At the same point, what we clearly have to do is think about leverage and whether it is right to do more buybacks, spend more on organic investment to drive growth, spend on M&A. When we think about spending more on organic investment to drive growth, spend on M&A, when we think about leverage, you've got to build capacity within your leverage to enable you to be ready for actionability rather than say, okay, you're always going to be right in the middle of that 0.5- 1.5 range. Because then when something actionable comes along, you're like, oh gosh, I wish we were a little bit below that to give us capacity to do that. That's the other dynamic that we're mindful of. Remember, the range is 0.5- 1.5. We're at the bottom end of the range.
We're fine to be at the bottom end of the range with everything that's going on in the world at the moment and what we see at the moment.
Good. Harry, do you want to pass the mic over?
Oh, you've got it. Sorry.
I'll go through it. I just really want to do a deeper dive into the A&D market. Is there any sort of additional color you can give around the splitting between the A and the D parts within the first half and perhaps for the year as well? Obviously, Jim, you touched on the capacity expansions of the upgrades that you're doing. Where does that get you in terms of capacity maybe on a two-year view, kind of a utilization rate within your assumptions? Lastly, obviously, tracking industry newsletters and pretty bullish company numbers coming out from some of your end OEM customers in terms of engines, for example. Can you chat to how we should think about the growth formula for your A&D business? Is there anything regarding inventory in the channel that we need to think about?
There are some pretty strong numbers out there. Any comments you can give about how to think about that business?
Yeah, I'll talk about the first two, Ben, and then if you want to talk about some of the numbers, yeah. In terms of aerospace and defence, I mean, both, both, you know, this year we'll see good growth in aerospace and defence and aerospace and also defence. I think that's actually key. I think defence is actually growing slightly faster than aerospace, but a lot of the programs are all with similar customers and it's actually very much focused on that. We're particularly seeing good growth in the East Coast of the U.S. where a lot of the engine work and all of the finished parts are there well ahead of budget. For example, I visit the President of Aerospace and our company asked me to visit one of the sites that was actually earmarked for closure.
It's in, I won't say where it was, but it's on the East Coast. They've actually taken the decision to stop all the low margin stuff. They've just been NADCAP accredited, and the local General Manager there is focused on the aerospace business. That is another avenue for growth. It's slightly different in the West Coast of America where we do more of the upstream work around castings and forging. There's still a little bit of congestion within the supply chain. It's not all kind of rosy. Obviously, some of you, I think we were at the Paris Air Show recently. I was there as well. The bullish mood around the supply chain and the majors is just fabulous. Structurally, this is a great business to be in for us.
We've also added in quite a bit of talent into aerospace structure in terms of management talent, a new President, new Vice Presidents, and they will make a massive impact. It's a third of our business. We want it more than that and actually really grow. In terms of the capacity, I have sites that you talked about now and actually really grow. In terms of the capacity, I have sites that you talked about. There's actually three of them. One in Cincinnati, where we're moving from, it's like an old kind of school with wooden beams everywhere to a brand new custom-built facility designed for workflow. We've probably tripled the capacity. Within Cincinnati, GE is our biggest customer there. They are absolutely delighted. That says something.
The other move we're making is a site in Los Angeles where previously the site wasn't really fit for purpose for what we're doing, and we're upgrading. That's more some of our other upstream work. It kind of goes there as well. We're actually aligned with our customers' order books, and we will grow as they grow. These are industry published numbers.
Yeah, there's a couple of others just to answer and pick on a bit of the detail. As Jim said, yes, defence grew more quickly than commercial aerospace did. In the first half of the year, commercial aerospace was up around 2% and defence was up around 6%- 7%. Commercial aerospace was the piece that accelerated, particularly in May and June, which is a reflection on that supply chain constraint effects that started to ease. We'd expect for the full year good growth in both, with commercial aerospace ramping up and supply chains continuing to ease through H2. Defence growth is also remaining very robust, actually, together with some opportunities that we are still pursuing for capturing more defence value in Western Europe, particularly in countries like Germany.
That's going to take a number of years to ramp up, even though stock markets have sort of reflected that in some German defence contractors immediately. There are some interesting opportunities that we are actively pursuing there as well. We see good growth continuing in both. Your question about the growth formula for our sort of aerospace business, remember the dynamics, roughly half our aerospace business is kind of engine-related, roughly. Overall, probably about 60% of our aerospace business is original equipment and around 40% is aftermarket. It's hard to be totally precise on that because most of our customers, you know, it's the same part where we make great money on both, rather than making terrible money on one and fabulous money on the other. We make great on both.
As far as the growth formula is concerned, looking at delivery volumes for aircraft is at the moment like 100% misleading because it looks amazing because Boeing is delivering such a huge amount out of inventory, which is good because that is also freeing up underneath them some of the supply chain as they're bleeding through that inventory. The actual level of production ramp-up is clearly below the delivery output in particular for Boeing. Both Airbus and Boeing continue to increase their build rates. There are these pockets of tonicness that we still see in the supply chain. As Jim alluded to, if you look at the geographic difference of our aerospace business, castings forging is still a bit of a difficult spot.
That was reflected in our business on the West Coast in the first half, where more finished product, engine-related parts on the East Coast, and quite a lot more aftermarket-related parts and finished products for blades and stuff. That was very strong in the first half. There's still, I would say, quite a bit of mismatch in the kind of speed between the different sort of four lanes of the motorway on aerospace supply chains. That will resolve. It will normalize because it has to. I think it's going to take realistically another 12 months before that sort of settles down fully. The fundamental demand still remains very strong. Airbus, Boeing, the engine OEMs would love to be producing more stuff if the supply chains were able to support that. We certainly are. Jim talked about some of the capacity expansions that we're doing in the U.S. in our aerospace business. It's not just in the U.S. We're also doing some stuff in Europe as well now.
Two behind. Thanks.
Thanks. This is Andrew Simms from Berenberg. Just a few questions on, unfortunately, aerospace again. Just on the Pratt partnering agreements, can you maybe just give a bit more color on that? When we can expect to see that impact, what sort of growth is going to add? I suppose maybe the competitive position around that, why you won and who against. Just on the comp from last year in H2 for aerospace, obviously it was a tough time. Can you just remind us what sort of the shape of that was? That would be very useful. Finally, just on the HIP PF order in defence, is that part of a program? Is there more to come from that? Given your position in that technology, is that something that we should be expecting to see more of?
Okay. I'll do the HIP PF, and if you can do the aerospace, please, Ben. HIP PF is a very interesting segment in our business. It's one of the true growth areas we have because the company, I think, business development is actually all about looking at potential applications. It can be done through castings and forgings or fabricating parts and stuff. Going in to see the customer and saying, "Look, we can do this at cheaper, more integrity, more reliability. We can fabricate any material you want. We don't have any welds, minimal machining." Every month, quarter, six months, the team are actually finding new applications and piloting and testing. It is a true business development rather than winning share. It's like breaking new grounds and all this stuff. I think that is an important element of the growth story.
We've actually recently dedicated resource to further expanding the number of applications within that. In fact, we did an external study about six or seven months ago that showed all the growth avenues to take this business and we've got dedicated teams. I think that is an exciting avenue that we're going to really look at over the next 12 to 24 months. The specific win, I think you talked about, and you asked, that's not a new customer. It's just, it's a sizable number. Ben talked about $10 million, approximately half of that revenue this year, and another half. That's a continuing program that we do quite a lot of work with in defence and HIP PF because of all the things that I mentioned, high integrity, low failure rate.
There's nothing really, we put these PF units at the bottom of the sea, they just don't fail the same way that other kind of things actually can. I think it's a real growth story for us going forward.
Yeah, so there were two others, weren't there? There was the Pratt & Whitney long-term partnering agreement. It wasn't, first point, it was with a tier one supplier to Pratt, wasn't directly with Pratt, but still, that's exactly what we want. At the end of the day, it's exposure into Pratt & Whitney, and we've also got a pipeline of other opportunities. We won it from another third-party heat treat supplier who, yeah, we were pleased with that win. It's a name you may well be familiar with. We won it. Why did we win it? We won it primarily on service quality because that other supplier had been falling short on service quality and turn time in particular. We had a much more compelling proposition. There's a few others behind this that we're also hoping that we can execute on over the coming 6 months, 12 months, or something.
Hopefully, this is not the end of our inroads into Pratt & Whitney in its supply chain. It's the start of that, and there's other options there. As far as your other question about the first half, second half aerospace comp base, last year, first half. Aerospace and defence was up 15%, 14.5%. Second half, it was up just over 3%, and in particular, it saw a very big tail-off, as you may remember, in the fourth quarter of the year last year. First half of this year, as you saw from these numbers, it's up 3% on what was a more challenging comp base. As we go through the second half, not only are we carrying better momentum, witness those Q2 run rates in aerospace and defence, but also we're entering a period of significantly easier comps, particularly for the fourth quarter of this year. Hopefully, that gives you what you need.
Q4 was probably close to nil, I think. I think it was nil. It might have even—I don't think it was marginally negative, but it was nil.
Thank you. Any other questions? There's nothing from the web. Thank you for coming. Just in summary, I think the market backdrop remains tough. We have seen good momentum, especially in May and June, and that gives us confidence for the second half in terms of profitability and also specialist technologies. I feel the outlook is unchanged. I'm particularly pleased around the growth progress on strategy and also the improved economics around the Optimise program. Obviously, we've just announced the share buyback. Thank you for coming, and we'll see you out there for a cup of tea. Thank you.
Thanks.