Earnings Call: H1 2019

Aug 2, 2019

Good morning, everyone, both in the room and in cyberspace back there. A very warm welcome to the 2019 interims for Ecentra PLC. I will be kicking off. I will give you a summary and a brief update on the highlights. Lily will be taking you through the numbers pre post IFRS pre post disposal, pre post anything else as well. I will then be giving you an update on what's been happening in the engine room of the business, the stability agenda. We'll then talk because there's an awful lot of moving parts about the impact of our portfolio simplification and hopefully give you some information that will enable you to knit the fog that we have created for you through our active management of the portfolio in the last 6 months. So if we were to stand back and say the journey since January 1, 2017, is a book. You can choose what type of book I'll leave that to yourselves. Then I think at the moment what we would be doing is starting the 3rd chapter. To one, it's really about understanding what the fundamental issues were, It was about developing solutions. It was about bringing stability. It was about reinventing ourselves in the eyes of our customers and our people, it was about creating an inflection point where and we'll put some dimensions on it in a minute, the negative momentum that had been generated in 2015, 2016 was not any stabilized but reversed. It was also about developing strategies for the 3 now only divisions we have that have in the last two years of their implementation, broadly, stood unchanged whilst being tested both by our own internal challenge, but also by the forces of external reality. Chapter 2 then We're saying, okay, so we have some stability, we have strategy, but we also have a cluster of businesses with very different profiles, And as we have always said, are not necessarily strategically additive. So we've very much taken on the basis of The strategies that Tim shared with you this time last year are very if you like capital allocation based approach and said, which businesses should naturally remain part of, Accenture Plc in the 3rd chapter that we're talking about and which are better added to another entity and where we can free up capital that we will use for the benefit of essential PLC and its shareholders. So as you can see in the title, what I think 2019 really shows is encouraging financial progress, a major portfolio rationalization, and now we have 3 focused global divisions. So we have de facto, and this isn't a slide of hand, really gone from 9 businesses to 3 businesses in the course of 6 somewhat hectic months. If you actually look down, we'll see a solid result in components. I'll put some parameters on that in a minute. As I called back in September, we anticipated that the underlying markets would weaken We cannot escape the gravity of that, but we can outperform it. Packaging, if there was an MVP award for the half year, I think, Ian Persil and the banking team would get that for an accelerated performance and an encouraging trajectory consistent with the guidelines that we have said, which will enable us to get back to the target returns for the industry in 2021 and then filters for the first time in a long time, it has grown both its sales and its margin, and we are increasingly confident that growth can be sustained, not only by getting the fundamentals, right? You can talk about that, but also by successful implementation of the game changers in the second half. I said that later on, I'll take you under the bonnet. And what you'll see is that on our people and our operating performance, we have again continued to improve in all businesses on all key metrics. And we have announced today that the specialist components business will be wound up no later than the end of Q3 enabling us to proceed with a much simpler portfolio. There is a triple digit 100+1000000 fund that we have generated from this disposals, and that's been used to reduce net debt. And to fund 2 value creating acquisitions, I do not expect that either to be the end of that in H2. To give you some and profit has gone up 10.8 percent if you adjust for disposals, closures, etcetera. Our reported operating profits moved that's primarily the impact of acquisitions disposals in the first half of both years. You can see there that EPS up 7.5 percent debt, depending on whether you want to look at it on a pre or post IFRS 16, I think in real money, it's 193, but Lilly says I have to say 100 and 242 as does Nick Stevenson, my auditor, he hates APMs, and with the strength of our bow sheet and the confidence we're happy and very comfortable maintaining the divvy at 6.3p. This is you'll now see some charts in the presentation that we have used, every time since H1 2017. The left hand one is the like for like revenue growth. You can see there that there is a pleasing and a constant increase in our trend. The Before we started chapter 1, it was a minus 11 run rate sales decline that that's moved by 15 percentage points in five halves, which is very encouraging. And clearly, also, if you look there in the halves of the packaging underlying revenue growth, 9.5 compares to -9.2 percent only 3 halves before. So there's an 18.6 percentage point movement in the period of 18 months. Which I think is testament A to the fantastic work, but B, the fundamental defensive robustness of that market. The margin, which hit its low point in 2017, you can see 8.28.2 continues to progress another 30 bps. Let me then just delve very briefly into each of the divisions. You can you can see we have at least 2 of the 3 divisional heads now. So clearly, they are feeling better about life because they dare to turn up. So components like for like 0.8. The actual real number, is you can see at the sub bullet on the first point, 1.7%. This is a business that is multiple transactions, very fast lead time, low value. It is de facto It has the same kind of characteristics as a distribution business. So we always look at sales to working day, which is about 2%. Effectively, I've always said we target, industrial production growth plus 4%. That would imply circa 2% underlying industrial production decline. What I would say is that Q2 was stronger than Q1. If I look ahead with all the news that surrounds us and uncertainty, do I think that's a trend you should extrapolate? No, not necessarily, but I am confident that between price and market share gain, we can continue to outperform industrial production. One of our particular highlights is Access Hardware. This is the centered in the Mesan, Turkish business, seen encouragingly is the beginnings of cross selling in things like our fasteners. And that's very important because you have about 6 product categories, but very few of our tens and tens and tens of thousands of customers take multiple product categories. So actually, there is our fate is within our own hands in that aspect. The key essence of how we can improve the ease of our customers to find the right products and to order from us and trade with us in as a frictionless away is actually through our website. This was piloted in Q1 and has now been rolled out in a number of markets. It broadly covers now about 40% or so of our sales base, And by the end of the year, it will cover 80% of our sales base. So far, it has been very encouraging. Scott, who you can ask about it later, is a master of such metrics, but our Google performances and things like that have gone orders of magnitude, better and we're getting very positive feedback from our customers. What we're also trying to do in terms of hassle free is to improve the logistics, that provides faster, more immediate customer service and also gives us for fairly obvious reasons a stronger logistics capability in, in Europe, in Continental Europe, We have been from a logistics point of view, probably too heavily weighted in a post Brexit world or whatever on our Oxford facility, So we will be launching a brand new warehouse on the Dutch German border, in first half of next year. And also this is a the picture there is our Houston warehouse, which is very new, which not only gives us a better ability to serve that Southern Industrial base, but also gives us the capability to absorb innovative components or innovative components and microplastics product and increase their geographic reach. Hatila, the acquisition we made in Sweden continues to perform to plan. Microbatik as a is trading ahead of our integration plan and we'll have something to its Chicago site, innovative components, which again, you can ask Scott later on about the details, but it It complements that very successful access hardware range. It's a combination of plastic and metal, and gives us also in the form of the Costa Rica base, a low cost variable manufacturing base. Packaging What I should also say is that, as the title shows the operating margin has despite a relatively slower growth still being maintained and increased at 40 bps, that's about 23% all in all. Packaging 9.5 percent underlying revenue growth. Please do not extrapolate that. We will not sustain 9.5% in perpetuity. The comps will get harder, but I think that certainly Ian and team will achieve somewhere between the 5% medium term target that we're saying that you should use as a trend and that 9%. So excellent performance. The really encouraging thing is that it's been pretty much consistent in both Americas and Europe and across our product categories. The good thing now that we have stability is that we're having a totally different dialogue with our customers the record bank keys as the AstraZeneca's at whomever. It's all about now not only how do we on a day to day basis can maintain what we're doing, but it's how do we help you design products that are tamper proof? How do we help design products that are cheaper to make in your factories, etcetera, etcetera. And I have seen in the last 18 months a sea change, in that regard. I've always said that about 2 thirds of the benefit as we go on this journey back within the next 2 years to industry standard margins is going to be about the benefit of volume through the factories. And we're seeing that, but we continue to invest in the equipment, we continue to use the continuous improvement lean 6 Sigma capabilities, and it's encouraging to see that We've also got had investment in the last 6 months to address the nice problem of being capacity constrained in certain product areas Filters 1.3% growth like for like operating margins up, I cannot think of a time. I went back where we could have pluses in both of those. I don't think, Joe, you've ever been able to write 2 pluses. So that's great. What is interesting is I mentioned last that last year, we for the first time in a long, long time, if ever, we moved to having a higher weighting in independence than the MNCs. Clearly, those 5 MNCs are very important but we are seeing a lot of further encouraging progress there. So that's really encouraging because it gives us, if you like, a lower risk profile, the lumpiness of a certain large player deciding to suddenly go in house or move or whatever, its impact gets ameliorated. In terms of innovation, which is one of the three building blocks along with key account management and world class service, we are seeing much more innovation. We are now having regular innovation workshops with our customers. And what we're seeing is that as we were mostly talking, for instance, to the procurement individuals, we are now talking to marketing, the product development, the R and D people, etcetera. And in terms of the game changers, we are I think making encouraging progress in our discussions in China We have now got commercial supply in heat not burn. We have got some specific component supply also within the vaping market. And we are having a number of live discussions as we speak about some material outsourcing contracts Specialist components, I suppose I'd comment on the operating margin increase there. Clearly, revenue has gone down for fairly obvious reasons. We highlighted last year that tear tapes in particular had underperformed. We put a strategic recovery plan in place and that I'm pleased to say has been moving up the margin quite significantly there and has therefore gained some good traction. Reid, which is the distribution business anchored in the Midwest, has had a tougher time, which is a directly in line and directly correlated with the underlying trends in, the industrial production in the Midwest. So that's a quick toured Doris on of what's going on. Clearly, I'll take questions about the detail later, but now I'll hand over to Lily. I will take you through the numbers. Over to you, Lily. Good morning, everyone. I'm delighted to be here to present our very first chapter 3 interim result alongside with Paul here. As Paul mentioned, we saw encouraging financial progress and significant portfolio rationalization in the first half of the year. So moving on, In March, I actually ended my presentation on the high of IFRS 16. I thought I changed the I changed the sequence, but the message is exactly the same. The net impact to our P and L and balance sheet is minimum, I'm pleased to present a bit more detail on the presentation impact on different lines, if you're interested in this topic, we have more detail in our RNS. So turning on to our income statement and looking at the year on year change at constant ForEx, as Paul mentioned, we reported 1,000,000 on half year revenue, a decline on the reported concept ForEx line of 2.7%. However, If you exclude the divestment, closures and business cessation, the underlying revenue growth for the whole group was 3.7%. Operating profit 1,000,000 at 9.6% growth with 9.5% operating margin 100 bps expansion, it's worth noting that excluding all the divestment, the FS16 business cessation, the closures, the like for like apple to apple and wider than the white measure is 10.8% as Paul mentioned. EPS 12p, a 7.5% increase. Now turning on to division by division, Paul has already mentioned most of the underlying improvement. So I would just point out a couple of things here. Number one component is 0.8%, but actually trading their adjusted, it's 1.7%. As Paul already mentioned, a solid performance. Supported by pricing management, pricing initiatives and it a relatively soft global output. In Manufacturing sector, packaging 177,000,000, excluding closures, a strong growth of 9.4%. Our futures returning to growth, 131,000,000, 1.3 percent like for like growth. This is against the backdrop of tobacco industry pipeline volatility that we have always talked about, independent customers now account for more than 55% of our revenue. Specialies component, again, on a like for like basis, is a decline of just under 1%. Overall group of 3.7 percent top line growth. Now turning on to operating profit, which again, at constant ForEx, component delivered an OP of 31,000,000, 3% growth, a margin of 23% of 40 bps expansion. On the pricing management paid dividend and the business demonstrated good margin resilience over the cycle. Packaging reported 7,900,000 profit, a 360 bps expansion. The improvement was partially helped by a one off just under million sort of benefit into the first half. Again, Paul mentioned pricing and the improvement on the underlying quality metrics and service level, we have seen pricing initiatives offsetting go uricast this half. Futures reported profit growth of 5 percent, a 50 bps improvement, thanks for the operational excellence continued contributing to this. Specialist component declined on profit as a result of divestment but margin showed 110 bps expansion. Now let's pause here for central cost central services, 1,000,000 as we expected, I previously stated that we invested into new and upgraded capabilities into the group such as security, cybersecurity, program management, operations excellence, continuous improvement, procurement and those capabilities underpin our stability and recovery. Now as a result of our disbursement, we expect circa 2,500,000 to 1,000,000 unallocated central cost for 2019. Now directionally, the full year central cost will be around 1,000,000 for 2019. As Paul mentioned, we continue to work on acquisitions and over time, we want to achieve we aim to achieve over efficiency, along with our global BPR program, Paul will provide a bit more color a bit later. Overall trading performance was strong with margin improvement in all the divisions. Now moving further down the income statement, interest charge slightly higher than prior year, largely impact by the presentation of RFS16 and also slightly higher sterling related debt to help mitigate some of the Brexit uncertainties. An effective tax rate 20 percent, in line with previously stated 19% to 20% range. The unchanged minority interest is a result of circa 3 months less minority interest allocation from futures JV in Dubai. But offset by stronger growth in our JV in India. So EPS 12p, 7.5% increase. Now turning on to exceptional and other adjusting items. We reported a gain of just under 1,000,000. The credit was largely driven by the gain on disposal as you can see the details on the slide. One thing I want to just highlight here, the tax payable, if you go through the back half of our earnest, it's slightly higher. Largely driven by the tax base is lower than the accounting base when it comes to net assets. And within the million tax payable, we outlined as a gain on well, tax payable on disposal and around 5,000,000 is associated with prior relief that benefited the group historically. We expect tax to be settled in 2019. We also reported again in other categories, from provision release to certain site closures, offset by just under a milling of external consultancy costs in relation to a review and investigations currently in progress of certain compliance matters in the subsidiary. Now moving on to cash flow. Our adjusted operating cash flow for the first half was 1,000,000, 76% cash conversion As a result of the investment we made in our networking capital, associated with 2 matters: number 1, as Paul mentioned, Packaging grew by just under 10% and we invested working capital to support that. And number 2, we build some finished goods inventory in our component business to offset and mitigate the Brexit risks. Overall, the net working capital ratio was 13.9 percent, a 20 bps improvement compared to previous year, despite the investment we've made. And this is the area we continue to focus on. Our CapEx is in line with expectation and we continue to invest in our IT infrastructure. And as Paul mentioned, equipment to support growth in the packaging area. After applying interest tax and pension, the free cash flow was just under million. Turning on to net debt. Our net debt ratio was 1.4, pre IFRS 16 and poses some 1.6. Whatever we actually look at now was a significant improvement from the year end at the 0.4 or 0.5 times reduction. On a constant currency basis and after applying IFRS 16, our net debt reduced by just under 1,000,000 as a result of the fund flow from net acquisitions and disposals, and all free cash flow generated in the business after paying a dividend and exceptional items. Now our return on invested capital for the first half is 10.2%, continuing to make steady growth, steady improvement as you can see on the chart. The low point was 2017 at about 8.6%. Last year, we were 9.6%, now with 10.2%, which is a great result. In line with our portfolio management and further M and A activities. As Paul mentioned, our dividend, the board reviewed and the proof of dividend unchanged for the interim at 6.3p for half year twenty nineteen. Thank you, Paul. Who's that? Thank you. Head back to you. One of the significance of ROIC is as you probably recall, that we've moved to ROIC as a measure for our long term incentive now. So stability, how are we going to sustain this and then get the organic and inorganic growth building on that engine? Will go through people, service, IT and our finances. Two stories here. This is looking at the cumulative lost time incidents you've seen that there is some improvement, but not enough in terms of the number of LTIs to a degree, the more we acquire because we have higher safety standards than anyone else We tend to find that it almost acts as a counterbalance to that positive trend. The encouraging thing, however, is that whilst we have a 5% reduction in the number, in terms of lost hours and therefore, the severity we've got an almost 60% reduction in the lost hours. So we are having fewer incidents, but they're also of a much less serious nature. Employee engagement, other than the safety of our people, the engagement of our people is my number two priority. We are really encouraging engagement in our local communities. We are following up on what a key area of desire from our people was in terms of development, personal development and career development, we have Osheen, who has been in place as group HRD now for some 6 months and is really developing, I think, a very coherent and powerful, strategy for our HR capabilities. We have a talent acquisition director in place. Mary Riley, one of our NEDs has with her customary Vimp and vigor taking up the role of board employee champion and has been visiting a number of our sites and is a key input and a very valuable input into how I and the rest of the team think about and perceive, how we optimize still further that engagement of our employees. We are now targeting what we call the kind of supervisor level and piloting some really well received programs there. And we have also under Nick Pennell, developing a sustainability strategy. That is focused on 4 areas, responsible resource usage. We are big users of materials. So looking on an end to end. So for instance, there, a number of our sites now are on 0 waste to landfill energy and climate change. Clearly, that's something that's relevant to everyone, whether that be LED lighting, whether it be using solar panels in our these are all programs that we are kicking off. I believe personally as do my team that a business should be a responsible and a valuable member and contributed to the societies, the communities in which they operate, we are very much rolling out our community engagement policy, I think 97% of our sites now have an active program there. And with the responsible supply chain, again, we are looking both upwards and downwards across the supply chain to make sure whether it be know your supply, know your customer programs, etcetera, that we are making good progress there. We're very cognizant of linking it to some of the UN sustainable development goals, and you can see across referral there. It isn't pragmatic. To try and address all 17, but you can see that in many, there is an overlap with those. In terms of the operations, as I said, good progress on every metric pretty much across the board. Call outs, say, components there that's moved up almost a percentage point, filters maintains its world class level. The focus there is now not really on until it's about OTIF, but with reducing lead times and packaging, notwithstanding the factors growing at 10% has increased and Q2 was higher than Q1, and specialist components move forward as well. Quality, you can see there, components are halving of quality incidents a 75% reduction in filters, a 45% reduction in packaging and a 17% reduction in 2 years in specialist components. So I think it's all trending in a positive, encouraging way. It cements that relationship with our customers. It enables us to debate strategic matters, not day to day matters. And also frankly, if we are not having quality issues, it makes our factories that much more efficient. So Again, positive, consistent improvement across the board, which is encouraging. We will, at some stage, get into diminishing returns. So once filters gets to a bit lower, whether it can ever be perfect, who knows, but it's a really encouraging trend. The other major issue that we've been focusing capability are two things which we still need if we're at, say, 70% to 80% of the way through the stability, where are the big two levers? Is probably those who allied to making our people top decile in engagement. But what you can see here, this is the major incident rate You can see that in 2 years Richard and the team achieved a 75% reduction there. How is that? It's by having better processes in place but it's also by spending quite a lot of money, to be honest. So packaging and IT have been the biggest recipients. So if it hadn't, We'd have been having some interesting conversations, Richard Kamish and I, so he's doing well. This is a different timescale. So this is in 1 year, If you look at the hours lost as opposed to the number either severity, we've now got an 85% reduction in hours in 1 year. Which is very, very significant. So again, it just reduces the frustration in our people and it reduces the waste of time. So that's a very, very significant improvement. What it does is it allows Richard and the IT team to focus on defensive things like cyber and offensive things like supporting Scott and the website rollout and the BPR program, which is a much more constructive use of time, which leads us on to the BPR program. Why is why do we need that? Because we need better financial and business controls and because our 66 46, sorry, ERP systems are just falling over and are not fit for the kind of business we want to be. So it addresses those issues. We have I said we would come back and try and scale essentially 2 key points, one of which is within the CapEx guidelines of 1,000,000 or so, this will be absorbed. And secondly, if we look for the next 3 or 4 years on the impact the net of the benefits and the increased depreciation, they wash out. So if I were you and I were doing a model, I'd just ignore it. That's easy, isn't it, right? Good. What are the benefits, it enables us to integrate businesses required quickly It does enable us. We've already talked about working capital and end to end supply chain. It enables us to manage that in a much more joined up way. It enables us particularly where we have global customers to provide them a purview that's on a much more integrated basis. And in terms of planning, medium term planning, it enables this thing called sales and operation planning, S and OP. There are some benefits that we have quantified, which enables me to make that statement about it being a wash, such as S G and A, it will obviously help in terms of, say, the efficiency of Lilly's finance function, but also in terms of addressing cost of quality. But there are a number of other benefits that will enable in terms of working capital management machine utilization and just a general reduction two and a half years climbing out of the swamp from self inflicted wounds. If we were to get this wrong, that would have been the way of an awful lot of time and effort. So we are taking a multi year approach. We are only looking at components, finance purchasing at the moment The other divisions will follow in time the other enabling units will follow in time, but it's a phased approach over up to 5 years. So half of our focus is about getting the benefits, half of our focus is about managing the risk. Our finances, as hopefully, our actions of the last 6 months have demonstrated, we have applied ourselves and the board and the team, a very rigorous capital allocation. ROIC is a very important determinant of our thinking. We do have and we have maintained strong discipline in terms of board agreed return parameters for M and A. But also we have introduced a very structured post investment review process with the board, and that, for instance, has confirmed the signal progress made with microplastics and the fact we're comfortable with where Attila is. Before IFRS, we've gone from 1.9to1.4 times net debt EBITDA If we were to do it pre, it would be 2.1 down to sorry, before applying FRS 16 and claim and say it, let alone understand it. We have gone to 1.4 from 1.9. If we were to do that on a post, it would be 1.62.1. So but anyway, a major reduction. In terms of the UK pension plan and those of you who know coats, can imagine the joy this says to me, we had a 1,000,000 actual deficit, which we are going to close in the next year or so. And you'll have already seen given the focus on the quality of earnings, the consistent improvement in both ROS and ROIC. Right. A lot of moving parts hopefully this will help you to, maybe understand the impacts. So disposals of the first column Gross proceeds are 1,000,000, loss of 1,000,000, loss of 1,000,000 profit and an EPS hit of circa 4P. We then had the purchase for 1,000,000 of the 49% filters JV which has obviously no revenue or trading profit impact, but an EPS uplift of circa 1p. And then the acquisition of Innovative Components brings us 1,500,000 of profits and an EPS impact, 0.5p. So those are the moving parts. List components, 2 businesses left, Tier tapes, Tier tapes, its primary customer base is the tobacco MNCs. It will operate a number of those customers and independence A number of customers have said it would be better to have the product offering under one coherent customer focus. So we will operate it as a stand alone center of excellence, but with a consistent customer facing focus, And then Reed is essentially a distributor in the Midwest of 3rd party branded products to broadly the same customer base and in complementary product areas. The mistake we made a few years ago was to try and smash it in and pretend it was exactly the same. We will not be doing that. It will be a stand alone autonomous unit within Scotts division. With its separate management team, but looking to leverage the complimentary custom basis, etcetera. So I'm sure we will learn from the lessons of the past. So there's a clear coherent strategic logic for that. We believe they can, there will be more valuable was part of Essendra with the synergies and benefits. And so we are committed to pursuing those 2 within our free global division content. What has been for the numbers? So this is a snapshot of FY2018. You can see that the components and we had the ST Express sites, though, the numbers, filters, packaging, and then the 6 specialist component entity. That is the before. The after looks like that. So you can see when you add in tear tapes and filters, you have the base components business, you have some of those express sites that moved out with the disposal of specialist tapes, and you add in the Read Industrial business, you can see there, and then packaging, that was what it looks like because it's unchanged. So broadly 1000000, 1000000 turnover global divisions, although of different margin profiles currently. So if I look ahead, whether it be financially operationally commercially, I think the strategy and the progress are on track. I cannot think of how the out come is different from what I would have expected 12 6 months ago or 12 months. If I had if you made me sit down and write this presentation, then to come out and broadly this. What do we want to do therefore? We want to continue to drive above market organic growth. I think we are doing this in all three businesses. We need to sustain that. In components, it's doing that. It's and it's looking at value enhancing bolt on acquisitions. For those of you who hate us for having to change your models. I apologize in advance, but you may well have to do it again. Packaging, it's continuing, this market share gain leading to organic revenue momentum and and looking at strategic bullseye bolt on low risk acquisitions. I think it's a sign of the confidence on board and the senior team that we are now happy to do that where we think that they are low risk and will add value. And with filters, we've talked about the importance of innovation and the step change Kamala's maze and key account management, underpinned by operational excellence and then pursuing those 3 game changers. As ladies and gentlemen, I've been saying for the last 11 months. The world was going to get a worse place. The good thing is We will outperform the underlying industrial output level, 3%, 4% and packaging and filters effectively remain noncyclical. So as a defensive, as a defensive plan, a relative basis, yes, we can't escape the gravity of the world producing less industrially but actually that's A, relevant only to 1, and B will mitigate it because most of the valid levers are in our control. So let me just rephrase. We are now starting chapter 3. I think H1 is conspicuous for good financial progress. Across the board, major major changes, positive changes simplification to our portfolio, and 3 businesses that are now set to move forward organically and inorganically. And therefore, the final bullet point we do think across each of those metrics, we will continue to move forward. That's 42 seconds early, Matt. Right. I will pause there. I think the way this normally works is we take questions in the room first and then we go into cyberspace. If you could please wait and have a microphone, so the rest of the planet can hear your comments that would be helpful. Andy? Thank you. Good morning guys. It's Andrew Douglas from Jefferies. Three questions, please, if I may. Packaging clearly doing exceptionally well and you're making sure that we don't extrapolate 9% forever. Can you just remind us what you think the underlying market is growing at? Just I've, if you can kind of 3% to 4%. It's still 3% to 4%, right, brilliant. Okay. And I was slightly surprised by your comment on components that the 2nd quarter is to invest in the 1st quarter We've seen most other industrial saying completely in the way in the June as we complete disaster. Can we just kind of flesh that out just to make sure we understand kind of the moving parts? Okay. This is concentrate, Andy, okay. Right. We had a really, really strong Q1 2018 I apologize because we had a really weak Q1 2017 because in a different world, we have pulled forward lots of stuff into Q4 'sixteen. So we had lowteensq1 year on year in 2018. So it's nothing to do with the world. It's to do with what happened in Q4 2016, to be brutally honest. Does that make sense? And then last, central cost? That was fair, Joe, isn't it? Yes. Central cost clearing at a reasonably high level. And can we just talk about the, I don't know how long you want to look at it, 2, 3, 5 year view? As to what happens to the shape of those costs? Well, yes, as a percent of sales, we would see it coming down over time. I think we have seen So the reason that we've started, for instance, with finance and the BPR is we think there's opportunities there to to make that a lot more efficient and value added. So I think if you look at it as a percentage of sales now, it's what 3%, 3%. I think probably trending down to 2.5% over the medium term, something like that, Lily. James, hello. Good morning. It's James Beard from Numis. I've got 2 questions on components, if I may. Firstly, you know the answer is X Plus 4% Possibly not, actually, for these ones. On the margin, so we've we've got up to 23% in the first half. What are your expectations on that front in in H2, is that a maintainable margin over the short term and the medium term given your desire to undertake further acquisitions, which presumably will be in the short term margin dilutive? Yes. And then the second question, thinking slightly more broadly about some of the underlying metrics within that components business, you able to talk about some of the trends that you're you've seen over the last 18 months, 2 years in terms of customer numbers and average order spend, average order frequency and and how those have trended over over your your tenure. Right. That's not two questions. I have 22 questions. That's a rating of 2. Let's start with the first one then. Margins you're spot on if we do deals, there is going to be a short term dilution, although you've seen that with micro, etcetera, we are able to improve it. In the short term, I see no reason why the margins for the underlying business will go down I think in the medium term, depending on what happens in the world, I've said low 20s is kind of where we should maintain that the very worst, which was after GFC, it went down to about 'seventeen or 'eighteen, so for a year. So I think I think the position we have in the value chain and the ease of doing business with better logistics, better website should enable us maintain our position there, James. In terms of trends, we are continuing I believe I think that as we get more integrated with the systems, with the website, with the better logistics, I think we can nudge that up In terms of the overall profile, in terms of number of customers and products, Not really. I don't see a big change. We haven't yet licked, for instance, cross selling, I don't think We haven't fundamentally changed the nature of our business. So I think we'd just continuing to do what we do, albeit, we are now making it easier for customers to do it. In terms of value from new customers, we have had a marginal increase, the numbers of new customers we need to work on. So it's not hugely, hugely different. We've just got better performance And we've now launched some aspects of our offering, which and our people training programs that should enable us to at least sustain that 4% X plus X. Is that fair as well? I thought there was something wrong. Charles, you're always first at the books. Charles Hall from Peel Hunt. I'm just wondering on that question. Can you just give more color on the pricing benefit in the first half in components? And also give some early thoughts on the website impact on customers. So a bit more detail around that. And obviously, it's not a transactional website, in the true sense, but what are you expecting to see? What have you C and all countries is paying bills. Qualitatively, yes. Okay. I think you put in your early notes circa 3%, didn't you? I would not choose to as always, Charles, disagree with you on that. Scott, could you just please come up because I'm happy normally to just try and wing it, but on this particular one, is this on? Yes, it is. Could you just talk about some qualitative and particularly stuff like this web page stuff I really don't understand. So still reasonably early days with the sites we've got live. Obviously, I think we talked in March. We're just going to have the 1st pilots in Finland. We've now got the UK Netherlands, U. S. And Canada Live. You're right around it's not really focusing on online transactions, it's about getting more eyeballs in front of the offer. The very first stage of that is our indexability in Google. And what we've seen there is between a 4 10 fold increase in the number pages that Google is indexing from our websites. So the old websites were quite poor at this. And in a very short period of time, the new websites have proven to be much better. So the UK, for example, has gone from, I think, 9000 pages in Google on the old websites, which were four, five years old. To forty thousand pages inside a month. So much better indexing. Now once you're indexed, you then need to get the visibility up search index system as a relevance piece and then we'll see traffic. So traffic has been stable, so far. You'd normally expect it to dip. So Staples were better than we expected, and we're now expecting that to start growing. So more whiteboards to the site which will be the key, then it's around getting lead generation from the side that we can convert. So early days, but probably better than we expected at this early stage I think is where we see ourselves. Great. And on the pricing point, on getting price improvements through and presumably that part of that is lower level of discounts to customers and presumably having a more effective way site will help in that process as well. You can be smarter. You can build in algorithms and things like that. So We suspect, so we've taken best practice that we've had historically in parts of the world and rolled out more consistently. It's been a big part of EMEA's focus in the first half. So really doing what we did well in some places and making sure we're executing a globe, which has led to a better result. We've always been okay, but we've just done it more consistent than globally this half. Thanks, Cody. Hey, Tom. Good morning. Thanks very much. Tom Sykes from Deutsche Bank. You mentioned the game changers and you mentioned in filters. And the progression on potential outsourcing contracts. So I wonder is there any possibility of you quantifying ballpark, how big relevant and substantial days could be to the division? And maybe just following on from the pricing commentary on components is there, or could you talk about positive pricing in the other divisions as well? Yeah, I think if we were to get all three firing as they possibly could, it could add 15% to the revenue over the medium term. Something like that. Okay. Thank you. And on the pricing element within Pay said there already. Pricing within Packaging is going well. We are at least recovering our input cost and filters particularly within the independent side, it is not something that has been I think you know me, I'm fairly straight, is not natural endemic in the culture of filters, but we are beginning to make progress in encouraging and giving the underlying value add through innovation and through world class service, to actually encourage people to start having discussions there. I think it's been the slowest out of the blocks of the 3. Okay, thank you. And on packaging, my understanding was that there were price reductions as you had service level drops in packaging and then you've been recovery? No, not really. We didn't. The bigger impact was that we weren't allowed to tender for business. So we are now Now that we have stability and now we have more value added on 2 things, one of which is we have been putting price rises in, but secondly, we been tackling the tale of negative or very low gross margin, recognizing that we can't continue like that. And so we have been imposing in some cases, certainly quite high double digit price increases where it is necessary because it makes no sense for us all for the customer to to be losing money on a job, why would we do that? So now I'm encouraged about the progress that Packaging is making And one of the one of the ways that I said 2 thirds is through volume, 1 third is through other things, pricing and removing that negative gross margin tail is another lever. Anybody else? Do we have anybody in the ether who wishes to ask any questions? I don't know how it happens, but it happens, doesn't it, mate? No questions over the phone, sir. Okay. Alright. Well, thank you very much on this busy results day for coming and joining us. I and my colleagues and there are quite a few of them, will be free to answer any questions afterwards.