Essentra plc (LON:ESNT)

Earnings Call: H1 2018

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Aug 3, 2018

Right. We should start, yeah? Right. Well, good morning. Thank you. All of you brave to the steering heat to come here. The plan today is we're going to have 2 sessions 8:30 to 9:30 Stephan, and I will be taking you through the results not updating you on progress generally. And then we will have a 15 minute break, And then at 9:45, assuming we finished on time, we will then give myself and Tim will be giving an update on the strategy for specialist components and the 6 businesses therein. So what's going to happen this morning, I'll give a very, brief overview. Stephan will then talk about the financials and go a bit deeper into each of the 4 divisions' performance. As you know, stability is the kind of byword and watchword for what we're trying to achieve at the moment to build a foundation. So I will show you some of the underlying, I think, very good progress that we're making there. I'll then talk about how we're proceeding on the strategic direction for the 3 larger divisions and then just conclude with the outlook for the balance of the year. And then as always, there'll be questions. I understand from Joe that we've got three constituencies. We've got the people looking on the web, we've got the people dialing in, and then we have you wonderful people here. I shared, with the board, some of the data that you're going to see today, in an email about 2 days ago, and I entitled it turning the corner. And I think If you want to borrow a headline, I've just done it for you. We've got we've got tolkien now, so I've on their jobs. I'll have a refund, please, Talkin. But I genuinely believe that's the case, and hopefully I can demonstrate that not just in the financials, but more importantly, in the things that are going to make those, turnaround financial sustainable. So what do I mean by that Again, we will illustrate all of these: strategic momentum. We outlined 3 sets of strategies for the 3 larger divisions: They are at the 95% level unchanged, and we are successfully prosecuting all of those. Stability, every metric that I showed you last time, has progressed again. And finally for the first time since 2015, we have both revenue and profit growth. It's quite instructive that if you were to look at the top 100 people, in a central to meet for a conference, less than 1 in 2 of those would have ever been part of an Essentra that had either sales or profit growth, so it's a bit of a novel experience for us all. Some of the headlines, profit growth, 5% on a like for like basis taking out, the exiting impact of Newport 1.3 percent sales growth, reported operating profit growth of 8, EPS up 2, Stefan will reconcile those for you in a minute. We continue to focus on cash. The first half typically has a slightly lower cash conversion ratio, but you can see that from 71% in the like for like periods up to 84. Net debt EBITDA of 1.9 Stephan and I have said, we're going to keep it in the 1 to 2 times range. So we're comfortable there. As I will illustrate, I think in our stability strategy and growth, program, everything is going not perfectly, of course not. But actually well and in line with our expectations. And if we look at the revenue and margin improvement in the first half, we expect that trend continue into H2. Consequently, we are happy to maintain the dividend. In 2 sets of graphs, and this is what I sent to the board, I think I try and encapsulate pretty much the whole thing, This is group like for like revenue growth. You can see that the average in, so it's looking at each of the last five halves. And comparing it to the comparable period 12 months ago. So for instance, what that says is in half on 16, compared to half 'fifteen, we had a 7.5% revenue decline, equally a 10.6% in H2. You can see a very strong sequential, an improvement there, minus 7 -ten-four plus a little bit, plus 1a half. One of the key areas for us is packaging, as you know, and the really encouraging thing is that actually on a like for like underlying basis, in half 1, that is -1 percent, and that's actually plus a small number in Europe and minus a small number in America, and we are confident, that in probably Q3 and certainly for H2, we will peak above that, that 0% line, which will be an important milestone for us as a team. Equally, and I talked about this, 1 in 2 people in, in, in the senior team of Accenture, haven't experienced it, we see, perhaps, most critically that on an operating profit growth from some fairly tough times, as you see, minus 18, minus 14, minus 35, minus 16, were at about plus 5%. Are we happy with plus 5% profit growth? No. Do we think inherently this business is capable of a lot more yes But nonetheless, it's the direction of travel for me. And equally, we then got on the right hand graph there, ladies and gents, the adjusted operating margin, clearly a very, very major decline as packaging goes from roughly, roughly, 10 to roughly, roughly 0. Percent margin. And as you can see, it plateaued in 2017, and we're seeing a 30 basis point improvement in H1 'eighteen with an expectation that, that will continue. So I think probably those 4 graphs pretty much say it all. So without further ado, I'll ask Stephan to give you some detail. Thank you, Paul. Good morning. So let's start with the, group income statement. We, reported $530,000,000 of revenue, an increase of 1.7% at constant currency. Components grew 19% over half of it on an organic basis. On a reported basis, packaging down 6% and filters down 2.5%. The operating profit, printed 44,000,000, an increase of 5% constant currency, implying an operating margin of 8.5 percent, a 13 basis points improvement year over year, with all the 3 large divisions, contributing to the increase. Profit before tax, SEK38 1,000,000, increase of 6% and adjusted earnings per share, 11p increase of 2.3%, which is a result of higher minority interest in our filter JVs in Dubai and India. Taking a look at the revenue trends by division components, just under 10% like for like growth. Very strong across all geographies, particularly in Europe, both Continental and the UK, also the U. S. Are performing very strongly. Packaging on a like for like, I. E. Was out the effect of the disposal of our Bristol side as well as the shutdown of the, Newport Carton Consumer side, 1% underlying decline as Paul said, Euro Asia back into growth, and America is still in modest decline, sequentially, a significant improvement. Fit us 2.5% down, which is really a result of the ongoing volatility in terms of projects ramping up and ramping down. Particular in Europe, also to be called out here, our China business continued to show very, very good growth in half one. Specialist components, newly established division. We are going to hear much more later today. It's a portfolio of 6 smaller business some puts and takes, PPT continued to show good growth, exposure to oil and gas market in North America, extrusion, low growth, but in positive territory, or industrial supply business, which is predominantly distribution in North America and to the maintenance repair and overhaul segment, is doing well, good macro environment, and, and this has been offset by some headwinds in our tapes businesses, both in tear tapes, which is, supposed to the tobacco segment as well, in specialty tapes where the point of sale segment is showing some, some headwinds. Stock a little bit more in detail about the businesses, components. We continue to driving a broad range of initiatives really focused on our our product range, the customer, the customer proposition, customer experience, for instance, in our Access Hardware Product category, which are really locks and hinges, the business is growing strongly benefiting from further investment, as well as investment in production capacity. The business overall, we continue to invest organically, we are building out our digital platform form to enhance the customer experience. We also continue to invest inorganically, as most recently, demonstrated by the the position of Hertila, a Swedish cap and Plax manufacturer. In the U. S, as I said, good momentum, not only organically, also the integration of our microplastics acquisition is on track, both operationally, but also commercially where we seeing some benefits coming through from cross selling of the respective complementary product ranges. So net netcomponents continues clearly to be a very attractive, high, high, high growth, high margin business. Packaging, I think the key really is sort of the operational improvements and improvements in the key steps Paul will talk to more in detail, such as OTIF, quality complaints really are the foundation for the reversal of the revenue trends. And that in combination with good structural change in regard to the commercial activities such as key account management, really led to some encouraging business wins and hence sort of confidence in the inflection point in half 2 for the business to turn back into growth. We continue to develop our product pipeline to meet customer needs market needs, such as complex literature, literature, large, large leaflets. We also set up a second design hub in the U. S, to be closer to our customer and to provide value added services. And finally, we continue our investment program in the business, as you may recall, we identified the need of additional CapEx, to bring certain pieces of equipment up to standard. So that really will create a foundation for future margin expansion. Filters, modest, like for like decline. So said, some puts and takes in terms of the projects ramping up and ramping down overall, we think the business is is stable. We continue with our drive and focus on innovation, particularly in special filters. We also strengthened the relationships of our supply base, which is the source of innovation. So some commercial activity has, has resulted, of of that ongoing dialogue. Some encouraging progress in regards to, next generation products. I think Paul will talk more in detail about it some commercialization sort of in China and ongoing activity across the spectrum of our customers, multinationals and independence. Also worthwhile calling out in Fieldas is, they are very good operational initiatives going on across the global manufacturing footprint leading to improved waste rates to improve quality rates, and hence, and proven an operating margin, with a slightly declining top line. Specialist components, again, many puts and takes, PPT, growing, growing high a digit as a result of being a leader in their segment and also the overall good momentum in North American, oil and gas, particularly a fracking, extrusion, we continue to focus on the, on the more technical demanding, applications and attractive end markets such as water treatment, industrial supply, again, good, good momentum, against a good, good market, backdrop, but also as a result of range increase in terms of products, and while, as I pointed out, in the tear tapes, volume, trends, relative to tobacco, as well as some, some, value added lines, led to headwinds, we, we also see some headwinds in specialty tapes, which broadly speaking serves 2 markets, sort of the point of sale, an industrial, and applying. So the point of sale headwinds could not be completely compensated by the, by the momentum in appliance and industrial. So in terms of profit, for the group, as we said, 30 basis points improvement, the various, divisions all contributed to it components, 50 basis points improvement, to 22.6%, clearly driven by, meaningful volume growth and the associated gearing effect the same time, we are reinvesting in into the business to build capability going forward, enhancing the customer experience, range, digital platform, etcetera. Packaging, improvement by 50 bps, I think the packaging margin, was helped by the closure of the Newport Cartons facility last year. We also received, some, some small further proceeds, from the insurance in regards to the damages incurred and losses incurred at our Puerto Rican sites, last year. Overall operational improvements are underpinning sort of the margin improvement. At the same time, we are investing in the business to build the capability we're investing in capital equipment to long term, put the business back back to sustainable profit growth. Firdapse small increase, 20 basis points, driven really by the operational initiatives I referred to earlier, and specialist components, margin declined as a result of the mix particular, the, the, the tapes impact. If you look, little bit further down at the income statement, finance charge, 5,200,000, small decrease compared to last year, really mainly driven by, pension finance costs, We expect the second half to be slightly higher taxation, the underlying tax rate, 20%. I think in line with expectation, we expect the rate to be, sustainable going forward, leading to adjusted earnings of 11p again, driven the the the smaller growth relative to PPD, driven by the minority interest. Recorded 6,000,000 of, exceptional items and other adjusting items in, in the period, 1,500,000 relating to costs associated with acquisitions and disposals, small restructuring cost in regards to our microplastics acquisition of $200,000 and then a further $2,500,000 associated with the strategic review project Phoenix, once in the gen generation review, we, Paul initiated in, in 2017, This review has now now come to an end, in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in- in restructuring, particularly in packaging, as a result of Phoenix and increased stability, and, the capital investment going into the ness, we were able to reduce headcount in a certain number of sites while maintaining stability. Cash flow, 84% operational cash conversion compared to 71.5 year 2017. So we out of 44,000,000 operating profit, we can convert it then into 36,000,000 of cash, CapEx of 23,000,000 exceeding depreciation probably by a factor of, 1.3, as we are reinvesting in the business, We said for the full year, we expect between 50 to 55 and, this is what we still continue to expect. So there will be more CapEx in half 2. Working capital, a small outflow in terms of cash flow, mainly driven by components, which is our most working capital intensive business and which showed substantial growth in the period. So from 36,000,000 operating cash flow, 9,000,000 cash tax, 5,000,000 cash interest, 23,000,000 free cash flow generated in the period. Net debt we are at, 2,39,000,000 end of June, implying 1.9, net debt EBITDA. Main drivers, you know, were other than the free cash flow generation, the dividend, 40,000,000, plus another 10,000,000 of exceptional cash spend, mainly related to Project Phoenix, the restructuring and M and A cash costs. And last but not least, the dividend, will remain unchanged at 6.3p. Okay, let's talk about stability. We broke that down into internally into Four areas: our people, our customers, our processes, and our finances, and we've already talked about the finances. Why is this very important? I basically compare it to putting the right foundations in any building we could achieve probably faster, more superficially, attractive at financial recovery, but if we don't get this right, then those self inflicted wounds that we've talked about would basically come back to haunt us. Somewhat depressing. I was talking to Paul Lester. That wasn't the depressing part. He's, he's the chairman. The depressing part is we've been running as CEO's, 40 years of PLCs between us, which really is quite a depressing thought. He's still slightly in the majority, but I'm catching up fast. And we reflected on it, and we said that if basically, you'd offered us the situation we're in now, June 30 compared to where we're Jan 1, 2017, we definitely take it. So I kind of feel like we're we kind of played 9 holes of golf so far, and maybe 1 or 2 under handicap. It's kind of got that feeling. Is everything going well? No. Are most things going well? Probably yes, actually. But you can judge that, I guess. So our most important metric of the lot, health and safety, we have achieved over a 50% reduction in loss instance, clearly, the only acceptable number is 0, but I think it measures process efficiency actually, it also measures, employee engagement because you can have lots of safe processes and practices but if people don't actually want to abide by them, that really means it's meaningless. So we're very, very pleased that we've reduced it by over a factor of 2. Employee engagement every year we we do a survey, we do it in the second half, so there's no data, but what are we doing? Basically, Scott, Foursa, who, a number of you know, the EMD of Components and myself, are leading a diversity and inclusion steering committee, it comprise about fifteen people from across literally the whole, company in terms of age and everything else. We have now, thanks to Lucy, finally joined the 21st century and got an employee intranet. As of 2 or 3 weeks ago, we've got an Outstandingly Good Learning And Development Director We have a sustainability committee. The really encouraging thing, I was in microplastics in Arkansas 2 weeks ago, The engagement there and the change I saw in 12 months is just phenomenal. On every metric, it's exceeding, it's in it's, it's acquisition case, whether that be safety, financial performance, cross selling or whatever. So I think there's a lot of good work that's going to that will drive that forward. Stephan's already mentioned we were not doing good by our customers, whether that be a service or quality, And the really encouraging thing is, and this is the on time in full, so right product, right place, right quantity, right time. You can see that in every single aspect of that across all of the 4, we are either sustaining or mostly improving those metrics Some of these now are world class performance. We were really on the naughty step a little while ago. And some of this is best in class now. That's not to say it can't get better, although filters is getting close to, I think peak performance 98 doesn't give them much more to go. But I think that's really encouraging. Let's look at the other one. And if anything, this is an even better story now. Packaging, we have seen a 42% reduction in complaints, and we've seen an 80% reduction in meaningful complaints. Filters, you can see, a 66% reduction in complaints. Components are 34% reduction. Specialist components, a way to go, but that's only compared to 1 year because we didn't have the data prior to that. So again, as with OTIF on time in full, our quality continues to really, really improve. And again, we are at world class levels in many aspects now. What are we doing to sustain that? I think it's now it's what we've done is we've applied very bright people in a focused interventionist way at a site specific level. It's now about growing our professionalizing and standardizing. 1 of the downsides of doing multiple acquisitions and not integrating them is if we have 49 manufacturing sites, we often have 49 ways of doing things. So if you look now rolling out standard operating procedures or lean capability. We can now we're now at a stage where we don't just have to focus on service and quality. We can now focus on productivity, and that's site specific productivity, which you only earn the right to once you have a safe and a stable, factory that serves its customers well is the natural, area. We've also talked, for instance, about, the need and the opportunity to increase our procurement capabilities, which we're very fragmented. IT, Gosh, where to start with IT. As I say to people, when I do these town halls, and I must have spoken to 4 or 5000 people I reckon around the group, if I was Harry Potter, and I had a magic wand. If I could teleport us into a brave new world, the one area I'd really focus is IT, really 2 or 3 things, one of which is we just haven't invested in the infrastructure. So we would have factories that probably had less bandwidth than your house, particularly with Charles Fall here because He's probably got still bandwidth bigger than any factory we have, but, this is underinvestment, but also then the fact that we had 52, 53 different variations of ERP system, etcetera. So what we're really doing and It's not just at the back end, the kind of engine room, but also at the front end, and I'll give you some examples in a minute. Is we are really focusing an awful lot of time on that. So is it working? I think yes, The metric we choose is what we call a major incident, right? A major incident is basically where a key process in a site or facility is taken out for at least an hour. So a factory can't work for an hour or, Martin Greece and his treasury team can't process things for an hour or whatever it may be. And you can actually see that we've had a 60% reduction in the last 12 months. So we're getting some of the basics, right, IT is no longer totally impeding the business from doing what it should be it wants to. So I think that's an important area of progress. Have we got a long way to go? Yes. Do we need to, focus very much Our efforts now on standardizing, removing these unsupported old systems? Yes. Are we going to take our front end customer facing front end from somewhere roughly 1978, to hopefully at least this decade yes, and I'll give you a couple of examples. But the key thing is that we are winning in that area as well. It took It was more badly broken than any other area, so it's taken probably longer to fix. But, again, I think we'd have taken that 12 months ago. Where are we? So that's stability. I'll take any questions about that at the end. But as you can see, I think we're kind of getting there. Let me just counter through the strategy for the last for the 3 larger divisions. Components, basically, and I have the fortune of, well, the enjoyment of seeing Linsley Ruth at Electro's and his team, a few days ago, and I've mentioned it before, they focused on just doing the basics brilliantly. And I think from an organic point of view. It may not be a sexy headline, but we just want to do those basics really well. And how do we define that? We want to be just what we call hassle free. We want to make it really easy for our customers to choose the best product ranges they can. So I'll talk specifically about our, our online thing, but you can see that whether it be, supply chain development because there's a big opportunity there in terms of leaning that, product training. China is a big area for us. I think When you look at our M and A activity, we tend to focus on the Americas North America, Western And Central Europe and China, Stefan has already referred to MP and to Hettila, We have others now. There is a pipeline in those 3 geographies. So as and when we have the opportunity, to get a decent quality business at a sensible price we will do so. Digital capability, we will be launching in quarter 4, a new front end. The plan is, at the moment, we have 45 websites, which tend to be product specific. What we will be doing is having 30 odd websites that have the full range, but are country specific. So it's actually much easier and much user friendly, The CapEx there, just in this year alone, is just shy of 1,000,000. I mentioned microplastics, very uplifting visit, I thought. I enjoyed it. The people are engaged. The business is going well. I'm seeing great teamwork between the rest of the, Components U. S. Business. And our microplastics colleagues, and they're seeing the benefit of the investment that we promised they would see. And actually, parenthetically, I'll just go back to MP, we are now using it to help one of our other manufacturing facilities, which is kind of quite capacity constrained, which is a nice problem. So again, great example of teamwork. Huddila, the latest addition to the family does basically catch some plugs came out of, Nilato, which is AA a very different business, a kind of specialist plastics business. It gives us non UK European Manufacturing, which is helpful, it adds, a number of different complimentary product lines, in an area, which is one of our 5 target product sectors, namely caps and plugs. So, I think that's That's not a big deal. Is it going to transform the shape of the group? No, but I think it's a nice little tuck on. You go to packaging, this is all about clawing their way out of the swamp. 3 or 4 aspects in which we're assessing this, a stable organization. We now have a single global business in place We have spent a lot of time refreshing and reinvigorating, the team, and those teams are now pretty much in place are they fully embedded? Are they fully coherent? Are they fully optimizing their potential? Clearly not because it's early days for some of them, but I'm really encouraged by that. And our processes, which were non existent, I was going to say weak, probably non existent would be a better, things like S and OPSO planning, looking ahead, having one vision of or one version of the future, those things are coming well. Systems, we are not going to change the the platform on which packaging operates or the multiple platforms, it needs stability. So it's about 2 years away from from anything more radical, unlike, say, components or filters. Revenue growth opportunities quality and service perception, we've kind of had the temerity for that as green because all of the feedback is saying that we're now at least as good as anyone else on the planet. Clearly, we have a bad hair day in individual sites just like our competitors, but we have probably less than them. And then if you look at the other areas, key account management, what we're now seeing now that we are seen, again, as a viable strategic partner is that we are talking to people at a senior level, not just in procurement and about multiple geographic relationships. Oh, my screen's gone. That's better. Thank you. DesignHub, I'll talk about in a minute. And then critically in terms of training on commercial effectiveness, etcetera, managing the pipeline, and I'll give you examples of the order book etcetera in a minute pricing skills, etcetera. We now have earned the right if we are having raw material cost hikes to talk to our customers about the opportunity to reflect that in our pricing. The underlying attractiveness of this market If you look at the health and personal care, it's probably mid single digit on a global basis. We think we could achieve at least that growth, from this business on a sustained basis. Which is why we think it is strategically attractive. And then margin growth, 5 levers here, pricing we've talked about service levels, when we build better routine and predictability and rhythm into our business, it helps us reduces the spikes and the need for unnecessary one off interventions, which are inherently costly. Investment We have earmarked for the majority of investment in this company in 2018 IT and packaging, we've been upgrading particularly our presses. These can be 20%, 25%, 30% more unit cost efficient, primarily through reducing change over times. Continuous improvement. As I say, When performing triage on a business like this, you need to get the safety right. You need to get the quality right. You need to get the service right. Those are the kind of entry tickets. But once you've done that, the next thing is to actually then say, how do we continuously improve? So we have ambitious plans to promulgate CI continuous improvement capability. So not only do we have teams going into factories, but we have actually teams of people within those factories who can say, how do I take 10%, 15% out of that process, etcetera? It's the next stage in our evolution. And then procurement establishment of category teams, the way we now handle procurement is that group handles either shared or indirect spend and then strategic spend exists within a specific division because that's where it makes sense on a global basis. We talked about this thing called the Design Hub. What is this? As the name would imply, it is an entity that exists in the UK, but now also in the U. S. That works with and what you have is either people are very good at aesthetic design or structural design. So if you're in, say, the personal care and you want something to stand on the shelf, stand out off on the shelf. We will work with you. But as critically, if you say in the farmer industry, you say design me a package that uses 10% less cardboard or design me a package that is 15% faster through my production machinery, etcetera. So it can range from the very aesthetic, to the very, very practical and functional And to give you an example, we were probably talking at the early days to 11 new company every 3 months. We're probably talking to a new company every 2 weeks now. So as a cementing tool, as a kind of stickiness builder, but as a clear value added proposition, which we are not aware of anybody else offering, It's a major innovation. And it's great at elevating the relationship I always tend to think that if you're simply talking to the procurement people, you're kind of in a B2B supply in the wrong space, When you're talking to the R and D people, when you're talking to the marketing teams, heaven forbid, when you're talking to the CEO of the company, you're kind of cracking it because you're more relevant their success as a business as opposed to simply being a supplier of an input into another product. And that elevation of the relationship is really what we're trying to achieve there. And I think is this working, where you can see that on the left hand side, the order book. So you can see that June 30, 2018, 8% higher than June 30, 2017. Is there a one for one read off? Do I want you to go and put 8% sales growth in your models for H2? Please don't. What you can, but you'd be wrong. But I think that is encouraging. And the important thing is that that is, as you can see, this is the book to build ratio, so you can see that our orders are currently for the 1st 6 months, exceeding our revenue. So order book is increasing. Are we claiming victory? No, are we saying that a corner has been turned and we've got an inflection point and that we will move into positive territory for the division as a whole. My belief, absent something extraneous that's very, very significant, which in the current world environment, you, where you couldn't rule out by any means, is that we will indeed see that business move into plus on both sides of the Atlantic in Q3 and and Stephanie H2. Then turn on to filters. If you recall, the 2 or 3 important things about filters, one of which is 70% to 80% of our business is in special filters. So these are things with cat or tubes or whatever. That is a stable market. So overall, the combustible market is in gentle decline, but we basically serve the segment that is much more stable. And in parts of the world like China and the rest of Asia is still growing. We're based we have an, that's point 1, point 2, nobody has made more filters in the history of MannKind, than the NetCentra or Filtrona, over 10,000 different ones. So we have more cumulative experience and know how. We have not been translating that into commercial benefits. So that's that's really where the innovation, which Stephan has already talked about, comes from. The 3rd point And this wasn't helped when we had a fragmented, fragmented matrix organization is that we need to be more user friendly terms of how we interact with our customers. So we are now bringing global opportunities. We're now bringing genuine innovation to them. We're having workshops. I was talking once to the X Head of R&D at Philip Morris, and we met him once in 12 years. We should be seeing these people once every 6 months. So there is a huge raising of our games. The good news is that we're getting there and we're having it again, same as packaging, a kind of different level of dialogue, still a long, long, long way to go, But in terms of improving the organic, the as is business through innovation key account management, leveraging that unprecedented level of expertise and recognizing that we're in a stable market space Yes, there's always going to be lumpiness. One statistic I shared with you 12 months ago is that 15% of our 280,000,000 goes in and out every year as products change or taking in house or outhouse or whatever. That's not going to change. By doing this, we can probably improve the stickiness as well as grow the underlying business, but we're not going to change that. Because our customers are constantly going to be changing their product lines. China, We serve this is a classic in- well, this illustrates the point I just made headline minus 2% in volume. That's the Chinese market, and we've been discussing this actually with Shanghai Tobacco, which is one of the best of the, industrial manufacturers in China. We primarily serve the grade 1 and grade 2, you see there that against a headline of minus 2 percent, these segments are kind of grow at 7% per annum. That's a classic. So we are in a stable growing segment in an overall declining, market. So how we've talked before about these 3 game changers, how are we doing? On outsourcing, we have 2 or 3 live discussions with, parties about outsourcing opportunities. Maybe they're combining sites and they don't want filters. Maybe they're want to exit a specific country or whatever. The catalyst varies, but the discussions are having. Next generation products, we are now supplying as a backup to one of the MNCs, we are having another multiyear product development agreement or discussion with another MNC. And in China, we are supplying heat not burn filters, to one and having another half dozen conversations. Interestingly, also in the vaping, both in terms of supplying hardware, but also certain components Again, we're having some pretty concrete discussions that are looking quite hopeful there. And on the China JV, there is there is an active discussion going on with, one of the industrial companies with the blessing of the Chinese statement, Opelie, if for any reason that doesn't happen, then we will continue to explore options for partnership within that because you've seen the size of the unity there. Specialist components, I'm going to say nothing about because we're going to we're going to beat you to death with Powerpoint on that in about half an hour. So what do we've said? This is just to grab out of the thing. So in components, We're seeing broad based geographic growth and sustained margin. I wouldn't read anything into Q1, Q2 and trends in that, we see it in the half. Actually, the comp in Q1 'seventeen for reasons, that we've discussed before probably wasn't meaningful, but we think that the level of growth achieved in the half should broadly continue. Packaging, you've seen the year on year revenue. We think that the actions we're taking on margins will move that up not just operational gearing, but the benefits, investment, pricing, etcetera. Filters, again, if you look actually at the last 12 months, that business is, level versus the previous 12 months. So if you like July 7 18 to June 18 is actually level in revenue terms, and actually margin ahead in margin terms. So we see broadly, that pattern continuing. Specialist components, lower H1 margin than 2017. That might tweak up, but we don't see returning to necessary, the margins it had historically, primarily because of the business mix. Therefore, we see an improvement in the rate of revenue growth and also a continued margin expansion. So that's the bit. We've booked 15 minutes. Shall we start by taking any questions in Well, there's a surprise Charles Hall. Wait for the microphone, will you please? Sorry, Charlie. I see it's a bit of nipton before you. While Charlie is describing. Couple of quick questions on packaging. Please, sorry, fairly astonishing improvement in like for like, I think in the latest first half, I think you said that's a year on year number, so there's no seasonality in there. I don't think. Could you give us a bit more of a feel for the component parts of that in terms of how much emphasis would you place on the improvement on, organic eye existing customers, improving share of wallet, how much is new business wins, which you did reference, but I think they came in towards the end of the period and how much of them, and it's a diverse spread of businesses, but how much of it is market related? There is some market growth, Toby. We haven't acquired any meaningful new customer, so its share of wallet. If you remember, before I said that Like in H2 last year, we were on stock with a lot of customers. We couldn't bid for new business. We were on stock with 0 customers. This is a market where the customer base wants a successful Essentra because it wants the optionality of being able to source from us. Don't forget we're one of only two companies that have a multi continental and multi product sector offering. So it's partly market. There's a tiny bit of pricing in there, and it's its market share gain. We lost one customer, 2 customers, I think, in the U. S. Of any size, critically, we have now started selling to one of those again. And the second question was in the presentation. I think you referenced a 10% operating margin in packaging back in the high single digits. It's 8 to 10. If you look at the benchmarks, yeah. Okay. Was that a a real number and therefore is it a realistic sort of medium term? Yes, it was it was a real number because it had other stuff in it that made it look into low teens, but that wasn't reflective of the underlying business. So 8, 9, 10, whatever it may be, Tobey. That's a real number. Charles Hall from Peel Hunt. I'm just continuing on the packaging theme. You talked about potentially growing faster than the market at what stage would you expect that to actually be coming through in the numbers because clearly it takes time for new contracts to come on board once you've won them and you still have some coming off. Yeah. And with that that margin target, you you really need the volume growth to really deliver on the margins. I said, I'm benchmarked, not target. I don't give targets, you know, benchmarks. And so with the cost saving, you've put through some additional cost reductions. You've got the new equipment coming in. Hopefully, you've got the volume growth coming through. Is your confidence in moving towards that benchmark greater now than it would have been 6 months ago? Yes, because We can talk about the fact that we believe we'll get revenue growth, but actually getting it is kind of there and it also affects the confidence of our salespeople now want to go meet customers because they got lots of good things to talk about. It's a bit like your Salesforce, isn't it? Their confidence players. Now I'm not implying that your Peel Hunt was as badly broken as Packaging, by the way. So, I do I think that, let's let's get the business as a whole in H2 into positive territory then let's try and grow along with the market and then let's focus with things like the design hub on on getting in excess of that, but we've said 3% to 5% revenue growth on a global basis should be there because we haven't really even scratched some of the opportunities outside well, any of the opportunities outside Europe and North America, Charles. And you put in place some global agreements last year. How important of those in terms of getting you back on track delivering your share of wallet or are those sort of more? A conjugent insurance policy, Charles, you know, it's not a contract. What it is is it's a kind of LOI, letter of intent or statement of commitment between ourselves and some of these people, but they're reflective of the nature of the relationship. And that we are no longer perceived as a risky choice of supplier. And last question, you're obviously putting in quite a lot of new equipment that has obviously opportunities in cost savings, but also risks in implementation where have you got to in terms of that project? How's it working so far? The biggest set of investments where 4 presses, 3 are in and operational. 1 is going in quarter 3. Is this made of wood? Yeah. Yes. I'm gonna assume there's wood under there. Yep. Andy, hello. James Heather. It's James Beard from Numis. I've got three questions if I may. First question was on IT. And you mentioned on slide 28 about the strategic investment for process and tech transformation starting in January 2019. Does that imply that there's some incremental CapEx versus where our numbers are today that that that's gonna be going into the business in in that year for now? I don't think so. Detailed costing out? No, but we're saying 50 to 55 for 3 year period. I think And yes, so that's fine to then. Second question was on M And A, and just wanted to sort of touch on how the pipeline is there, where you sort of see the opportunities in the short term. And also given that your balance sheet now 1.9 times net debt to EBITDA, does does that imply you're maybe slightly constrained on on your ability to go and do do these deals over over the short to medium term or you're not not too concerned about that? But I'm not going to stand up and say we've got a net debt to EBITDA ratio of 2.1 in February. We are this is the more cash generative half. We could do 1 or 2 more of bolt ons, we have some opportunities that may require incremental CapEx in the filters business as well, James. So But are we going to do a 50,000,000 deal in components in October, not that I'm aware of? But the pipeline itself is is coming on. Scott is now becoming a traveling salesman, Scott Faucet. So This week, I'm talking to a mini's touting for business in Germany. 2 weeks ago, I was talking to a mini's touting for business in Italy as it were in terms of just forming or reforming these relationships. With a lot of the family businesses. Actually, we're looking at another one in the U. S. And I'll tell you what the best salesman for being part of Essentra is actually the guy who sold it Tom Hill. He's a real advocate because he's seen his business go to another level and so he's a real positive advocate for us. Great. And then a final one on on filters, if I may. You touched on there that you've got this effectively sort of 15% revenue volatility revenue at risk, whatever you would like to, whatever you want to call it. On a sort of annual basis. And we touched on that last year and I think we were possibly slightly surprised at the sort of scale of that that level of volatility that existed within the business. And I think at the time, you said we think we can sort of get this down to a a lot a slightly lower level, a little bit didn't sort of put your head on the line and give a target. Now, you seem to be saying that 15% is kind of that's the way this business is. Have you sort of fundamentally changed your view then on? No, I don't think I have. Look, if VAT stops a product line, there's actually not much I can do about that. And if VAT starts a product line, great, and they will do. What I do think is that we can get greater visibility of that. And I think that if we can extend the time from 12 months to 18 or 24 months that we do something before they take into production. Or if we can come up with new ideas and we then own those, we keep it in house or whatever, and they don't take it in house themselves because we've come up with the concept. Then that will either reduce the volatility or it'll actually put growth in. And I don't care which it is based as long as the net is is that. So if you look at, as I said, if you look at the last 12 months, James, from H2, H2 'seventeen and H1 'eighteen, broadly, broadly compared to the previous 12 months, that's just level. The previous period, it would have been Joe about minus 10-fifteen, something like that. So we're getting greater just we're getting More value added, we're getting better understanding of customers and we're talking to broader base. So we're getting less surprises. We were very accident prone or surprised prone before that. Morning. Couple of questions, please, for me. On Packaging, can you just give us a feel for for our models and how much benefit you've got through from Newport? I think it's £5,000,000 ish. For the full year. How much we've got through in the first half? On Puerto Rico benefit, does that drop out in the 2nd half? Is that kind of also one We just put the packaging also in the US. You put through some exceptionals there. Are we done there? And does the US now kind of kick on seems like it's lagging good performance in Europe and in Asia. And then last but not least, in filters, great news that we might get somewhere with one of this the 3 silver bullets with the Chinese joint venture. Can you give us a rough idea please on timing of that? Appreciate it's probably a slightly difficult question to answer, but that would be really helpful because I think that's potentially meaningful for that filter division. Do you want to take the package you want on Aldiford? Yes. Okay. So Packaging new port, the losses in half 17 were 3,400,000. In terms of Puerto Rico, the insurance proceeds, yes, that's full and final, full and final settlement. So nothing more to come. In half 2, 1.2. And, to the exceptional point, I think, section was really sort of in infection for half 1. I think this is broader restructuring. I think, touches a little bit the Americas as well, but it's, it's, it's probably more and more geared towards Europe actually. I think the other point, Stephan, is on the other side, we have, I think, cleaned up quite a lot in terms of balance sheet and taken it above the line. So we're kind of a cleaner set of so it's not all just losing negative, we're actually yes, it is. In filters, if I'm going to predict how long a tripartite deal between a state monopoly and an industrial business that has a love hate relationship with that state monopoly is going to take? No. If it doesn't happen within the next 18 months, I will conclude that nothing's going to happen basically because If you recall, Andy, the state monopoly needs to upgrade its product mix to keep its revenue growth so strategically, and they recognized now 1 in 3 new products in China involves Accentra. And they're all at top end. So they see both the kind of challenge, but also a potential solution. So and that business is our fastest growing market at the moment, even as an export market. Thanks. And just on the sorry, Tom Sykes from Deutsche Bank, sorry. On the packaging business where you're winning business back with customers, is that on like for like commercial terms for the same type of business as you were 2 years ago or if you had to take slightly lower commercial terms, but there's a sort of is there a build in that that once you get back up to the service levels? I mean, broadly, yes. You know the farmer industry better than me, Tom, and there is margin pressure in there. So I think as a general trend, you're seeing volume growth, but some margin pressure, but we're prepared because we know we make that more efficiently and we're getting gearing through it. It's a kind of trade off, but it's not a it's not a profound shift. Okay. And would you say the price increase that you're the small bit of price that you're seeing? Is that market level or do you think you're a little bit? Below just at this stage? I guess the latter. Yeah. And then just in terms of the any cost pressures, or not that you're seeing with a bit more inflation? So the cardboard raw materials is one which is which is why we're having to put pricing through Okay. And just elsewhere in the group in terms of staff costs? No, I think that is normal inflation. I don't think there's any other particular meaningful raw material category where we see strong inflation pressure. Okay. Thank you. Okay. Joe, should we throw it open to the to the internet or whatever one does? No one's okay. Is anybody on terrafirm or want to? Ask anything. Well, it's 9:30 precisely. So if you could reconvene at 9:45 or switch back on or whatever you do, that would be great. Thank you. I'll ask you. I can ask you to just say a bit about yourself. Okay. Joe says start. Therefore, guess what we're doing? Right. For the next hour or so. I think, we're gonna do a double act. This time, it's not my friend Stephan. It's my friend, Tim, instead. The plan is I will just contextualize, this a bit Tim will then explain what each of these six businesses do, and how we see we can add value to each. And then I'm going to do a summary and we'll take questions at the end there. So Why did we do this? We announced this time last year that we would create a separate division called specialist components There were 5 reasons. These were 6 little businesses, little lower businesses, sorry, which didn't really have a lot of synergy necessary with the previous host division. So there wasn't a compelling reason for keeping them as is. We wanted Scott wanted Iain, we wanted Kamal to deliver, entirely 100% focus on, delivering their respective strategies. And hopefully, you've seen that that's working. These with very understandable reasons. The MDs of these six businesses really didn't get a lot of mind time, if you like the the GMC, the General Management Committee input, and Tim's been able to do that and help them think through strategies. And you'll see the kind of fruits of those labors, imminently. There aren't there is no doubt that because they are smaller, They benefit from slightly nimble of decision making. Often, the investments, whether it be in CapEx or P and L have 1 less nought than perhaps in filters. We don't want that to happen at the same speed. There's due process in a in a major filters expansion. Perhaps if one of Tim's businesses need an extra person or 2, we don't quite need, to debate it quite so much. And what it also hopefully does is give you greater visibility, once we've, and it was, I think, to maybe it was Toby or Andy's point. Once we've stripped out, the, the kind of noise, you see the underlying margin performance of the 3 larger entities. So to that end, drumroll, a divisional president, Tim Wilson, who is here. He's from America, was a point that's not a judgmental statement, Tim. Don't stop getting defensive publicly, please keep it for our meeting room. So Tim joined us in January, and so is now 7 months in. Just to remind you what they are, it's basically 160,000,000 dollars, $170,000,000 revenue business. 6 businesses ranging from a card business at $9,000,000 through to to tear tapes, I'm not going to explain it because you're going to hear that. And collectively mid high single digit is kind of 8 6.5, 7, that kind of, that average. So but what we did say was this was our hypothesis 12 months ago this slide from 12 months ago that they did have strong positions, albeit in niche markets. So I'll hand over to Tim, Tim will take you through the 6 and perhaps, Tim, if you could kindly just introduce yourself. Sure. That would be great. Good morning, everyone. As Paul mentioned, I joined in, January as the, president of the Specialists Components group. My career has really been in manufacturing of server roles and operations, sales, and in general management, a whole variety of different industries. Start out at Welchall and in medical products, worked for an at Emerson Electric And Semiconductor Capital equipment, worked at Danaher in video in a Videojet Inkjet printing equipment, And then in 2005, a group of us had a chance to do a management buyout. We took a kind of a old stodgy magnetics company, carved it out of a publicly traded company called SPS took a private with a private equity group. You know, I was CEO of that business for 9 years, and we had a very successful exit. Most recently, I, was a chairman of an angel fund. A group of us, you know, again, set up a fund, and we invested in startup companies. So when Paul, you kind of mentioned, when I met with Paul and the team and they mentioned this opportunity last fall, I thought it was really a great opportunity take some of the industrial kind of process knowledge that I had earlier in my career, kind of combine that with the entrepreneurial spirit that I developed and really kind of work to take these 6 businesses to the next level. As Paul said, they're all really good businesses and and, again, kind of coined it for Jim Collins phrase in my role with it really take them from being good businesses to being great businesses. And so far, the journey has not disappointed. It's been great working with the various skilled management teams at each of these businesses. To develop the strategies that, excuse me, we'll talk about here. So again, I, I really like to thank all the the the team out there and as well as my CFO, Brad, kind of putting up with me during this time, while I ask about a million questions, you know, getting up to speed quickly on 6 businesses and then putting together the strategies, which I'm pleased to present. So with that, the first business we're going to talk about is our our pipe protection business. Those of you who have followed Ascension, you're probably pretty similar with this business. It's an injection molding business that specializes in caps and covers that protect the threads of pipe for the oil and gas industry. We have roughly, probably north of 4000 different unique part numbers in this space, and 75% of those are bespoke to various customers. So it's a, from a product line perspective, you would think, you know, kind of one cap fits all And that's not really the case because of all the different, pipe configurations and customers, etcetera. So it's a very unique customized business. When I look at businesses, I kind of I always start out and say, I ask kind of the question, like, why do you exist? What's your value proposition? Why are you, you know, what's What's the, what's the value proposition that we provide our customers? So in this particular case, these pipe casings cost about $800 each sorry, I'm not using pounds, and are about 20 to 40 feet long. So these get shipped out to the various drill sites. And how these are used is they're actually you're going down a hole, they're actually screwed together. So you're screwing these lengths of pipe down into the hole to either drill or to extract the oil. And this, you know, can happen globally. The, challenge there is that, again, if these threads get damaged, it's really a huge problem really on two fronts, right? They'll start to cross thread so it creates disruption and actually the drilling operation, which is hugely expensive. You can just imagine how much it it costs for those rigs to go down if they have a problem with the pipe, you know, as well as the making sure there's a very tight connection so you don't have leaks and seals. Tech in technology today and drilling technology today, especially with the fracking in North America, these these drills are go or these wells are going down two or three miles. Then they kind of hang a right or a left turn and go another mile with the fracking technology. So you can imagine that if you have a bad seal or a joint as a resulting from bad threads, it's a problem So why do customers come to us? You know, for our particular solution, we have the broadest range of products. So we, you know, have what I would call the cheap and cheerful, by protectors. It's a very highly more highly engineered, more robust protectors that you may need if you're transporting pipe out into the North Sea. So we can work we work with our clients very closely, you know, to engineer the proper solution for their particular pipe application. And again, we have great technical talent within our site. You know, from a market size perspective, the market is fairly limited. It's about £175,000,000. About half of that is in North America, which is probably growing faster than the rest of the world because of fracking, which we'll talk about, and then again, the other half rest of the world. We have a very significant share in North America. And we really have a kind of a de minimis share in in the rest of the world, which I'll talk about as a potential opportunity going forward. From facilities perspective, we have a state of the art facilities built in 2012 in Houston, Texas. We have 28 injection molding machines there. We have another facility in, Varacruz, Mexico where we have, 10 injection molding machines there, as well as also we have a site in, in or in Edmonton to serve as kind of the the Northern Canada oil fields as well as we have a small site in Aberdeen where we service the North Sea. Out of that operation also, we also make some pipe handling equipment, that is used to help transport the pipe, you know, out to the North Sea oil wells or oil fields. But somewhat from a market backdrop, you know, at the end of the day, pretty simple story. It's about the price of So you can see the business is really, you know, really tracks the the price of oil. Again, obviously, when it was, you know, $120 a barrel, boom time. It came it went down to whatever $25 a barrel. Just kind of the lower the cycle. And right now, we're seeing a nice recovery. We, you know, again, I'm not a forecastor of oil prices. If they if I wasn't, I probably wouldn't be here. But, you know, it's it's we we predict that the oil price is gonna kind of be in that 55 to kind of 75 which is a nice sweet spot for us to see growth in that space. I think the interesting dynamic though about this space is really you know, the US fracking technology that has come on. I don't know how familiar you guys are with that, but it's really sort of revolutionized the oil industry and it's made, you know, North America, totally energy independent. You know, with that, you actually have a lot more footage of pipe drills. So the the traditional way that you would look at the oil industry would be rig count. And really, for us, if we look at really linear feet drilled because each of those wells may have 4 or 5 tentacles going down, and then spreading out for fracking. So there's a lot more pipe used in the fracking technology than there is in just traditional, you know, kind of drill down a hole into a big what I would call ocean of oil. Okay? The other thing is those fracking wells, you know, they have a life. They probably last from 3 to 5 years, and then they have to do it again. Again, from our position in North America, you know, we see that as a pretty favorable trend. So again, path future value creation. Obviously, in our view, the market's doing well, as I just said, you know, the fracking technologies is, really expanding in North America. And it's, again, in US, the US is actually going to be a net exporter of energy. US has a enough oil reserves for a 150,000,000 years. The Permian Basin just in Texas as more than the Saudi Arabia reserve. So just to put that whole thing in context. So again, we're primarily North America based, and we're the leader in that market with the broadest range of products. So I think we're very well positioned there. But there's things that we can probably do to improve the business. 1, as I mentioned before, we don't we have a very broad product range, but there are others that we can expand into. So we're have programs underway to kind of either further complement our portfolio there. Again, we make every single type of protector out there. So we're we're working to do that, as well as we talked about the geographic expansion. Internationally, really, we have minimal market share, but we feel that by working with some of our partners or working with some partners, we can gain some traction in areas like the Middle East and Asia. So we see that as a a growth opportunity to us utilizing the existing products that we have. And then finally, with a with a lot of the businesses, you know, we have the operational loans initiatives, you know, coming up with new materials. You know, of our, excuse me, of our, of our, 38 molding machines, 17 have robotics. So we're very automated, you know, a very good manufacturing process, but there's always, you know, kind of room to improve there. Next, extrusion. So extrusion is as the name implies. We extrude different types of profiles using thermoplastic polymers. And The key differentiator here for us is that, you know, we really do a lot of work with engineered types pro engineered profiles. So Our value proposition to our customers really is the harder, the more challenging the profile, probably the better for us. We have a very skilled team of engineers on our site. They can work with our customers, help optimize the design. We're we're totally vertically integrated. So they can come to us with this kind of tough engineering problem again, some of these extrusions may have 4 they may there's co extrusions. There may actually be, you know, 34 different extrusions at once coming together. Again, we can take their very tough engineering problem, help them optimize the design to for manufacturability. We design the tools in house We manufacture the tools in house. We have a prototype area to set it up, then we have really a state of the art production facility that we just did a recent expansion on. Think we have 50 some odd extrusion lines there as well as numerous co extrusion lines. So we're very well, you know, kitted out in that space. So again, our value proposition to our customers there is being able to work with them, you know, you know, on highly engineered products. From a, excuse me, from a market share perspective, a pretty fragmented market. We're one of the top manufacturers in Europe. Most of our business is European based. And again, it's a fragmented market and we're one of the top 10 From a facilities perspective, we're located up in Boyd Post about in the Netherlands, about 2 hours north of Amsterdam. From a, market perspective, can we we serve a whole broad, a whole range of different industries in in markets with our product? You know, from building and construction to furniture, I mean, again, it's really the gambit. And so we have a very well diversified customer base. One of the things I'll talk about is this, and I think Paul alluded to it a little bit, is the bio wastewater treatment. So this is really used in the aeration process at at wastewater treatment plants. So you you wish thank you. You got a little horse and my caring son. There we go. Thanks, Paul. So with the Bio Wastewater treatment, what that allows is the aeration of this. So the the biodegradability that's happened with the bacteria to get rid of the pollutants in the water. Is is enhanced by these products that we've made. They really have a they're special profiles that have a lot of surface area. So when you're agitating those, in a tank. It helps oxygenate the water again, so speed up this bioreactive process. So again, but the key takeaway here is it's it's really a broad range of and and end market, sort of just the opposite of the pipe protection business. So what are the opportunities here? The challenge here is that we have a great business, great talent there, but really, we could really do with some operational efficiency. The margins are not really, you know, where they need to be with business. So I I know how familiar you guys are with Danaher, you know, but I spent a fair amount of time there. So we're really implementing a lot of the tools of the Danaher business system. In this particular facility along with Nick Pinnell and the continuous improvement team that that, that Paul has put in place. So areas of scrap reduction, tooling lead times, setups, doing smed work, basically classic Danaher manufacturing improvement 101. Again, which I've had a fair amount of experience with. The team is very receptive. They're very engaged. They see this as really a way to make their business better and make their business more competitive. So it's been a really a good experience, working with them. Once we kind of get that, once we get that sort of behind us and get the business stabilized from an operational perspective, we see some areas of growth in other markets. One of them being, thermal bridges and glass spacers, and these are specific profiles that help insulate in windows, help insulate the aluminum outside, you know, from the cold elements on the outside. So it basically acts as an insulation barrier. It's a very large market in the US and in Europe and air that we think we could get into. So these are pressure sensitive tapes that are used in the packaging industry to help basically open up those products, okay? So products that we have are really there's only kind of 3 categories of products that we have here. So we have these tear tapes, again, which you think about, like, a cigarette pack, that's really where the genesis of this business was from. Like, wrigley's gum where you rip open the top pack and the plastic goes off. Right? So that's one area. We also, they'll make a product called Ripotape and box closure tape, okay, so those are used. If you think about a FedEx nailer, okay, so you rip it open, that's we make that tape, as well as the tape that you used to actually close the the, the mailer itself. So we also make that tape. And then finally, we make a product called reclose, which is a packaging tape that's used in the food and beverage industry to re close packages. So you think of it as portion control. In the States, we like jumbo size things, right? You know, the jumbo, whatever, you know, so you get the jumbo bag of potato chips. And instead of using a clip, this has actually a little it's a tape that you can actually roll up in self seal. Okay. So that's another product that we have. But again, the primary product, really, the majority of the business is, you know, the, the superstore product, which is used in the, in the tobacco and food packaging industries. What makes us relevant in this particular space? So we're kind of a one stop shop here, so you can come in, we can print the tape. Done work in authentication. So counterfeit control and that may actually come back that there's an EU legislation that may stimulate some good growth there with that particular space. We coat the product with a very kind of special coating process. And a lot of people can do this, and then we can slip the material down to basically 2 millimeters wide, okay, in roles that are 1.6 kilometers long. So who cares? Right? Well, that's because in a tobacco factory, you can set this thing up and run for an entire shift. Without it breaking. So again, from a value proposition, you know, these these products are regulated, right? So you have the adhesives, you have to go through all the regulation, And so we have bulletproof quality as well as these long lengths that allow them to run continuously for long periods of time. That's really a key part of our value proposition in particular space. From a served market, again, we we, we talked about a little bit. We had the tobacco, which is a significant portion, but it's the food and beverage in transit packaging, which I'll talk about in a second. Market size is a little tough to gauge here. I'm sorry, but for sure, okay, in this tear tape space in the food and beverage and tobacco, we're the market leader. There's very there's not a lot of options there in that particular space, and it's, again, we pretty much have that, you know, market. You know, we have significant market share in that particular space. Facilities. Our main facility where we do this is in Nottingham, but we have satellite sites to support a lot of customers. So we have site small satellite to do the slitting in LatAm, in India, and in Asia Pacific. So from a market backdrop perspective, we all know the story with tobacco. We talked about it with filters, right? So, you know, kind of call that, you know, probably an iceberg, maybe a slow, slow growth there, but it's not going to go away anytime soon. So really the opportunity here that we see is in the Transit Packaging and food and beverage, which I'll talk about here in a second. So from, what's the strategy in this business going forward? We have a a pretty good operational footprint. Obviously, we can do some things on operational effectiveness like we can with all of them, but it's not, you know, terribly broken. Per se. So there's some things we're working on there, but a lot of this is just pivoting a little bit. So we're going to continue to support the tobacco business. Great business for us. But we see opportunities now to to leverage this technology even more so in the food and beverage and what I would call the transit packaging, which think of e commerce, right, So this whole mailing thing and everything else, there's clearly a huge opportunity for us to expand in that space. So we're putting some more commercial feet on the street. To really expand our presence in those particular markets while still making sure we keep an eye on the eye on the ball for the tobacco industry and and and that those opportunities that are in space. Specialty tapes. So specialty tapes makes double sided tape bottom line. So we, what is it used for? Think of it as glue. Think of it as a form of glue. Instead of using glue, you can use double sided tape. Probably the majority of the product that we make is foam tape, and that's because it can. From a foam tape perspective, it can adhere to uneven surfaces. So if you have, like, super glue, right, and you try to glue it to uneven surface, it's not gonna work. K. But if it's you have a foam tape, you can get it here into there. So it's really for uneven purposes, but we make a whole variety of tapes, you know, from foam tapes to double sided tape to sticky. Whole bunch range of tapes for basically adhesion purposes. Why are why are we relevant in this particular space? You know, work, we have a great engineering capability. We're vertically integrated, and we can come up with custom solutions for our clients in this particular space. So again, we do our own coding. We, you know, do some adhesive formulation, which we outsource. We do our own coding. We do our own sledding and converting and we sell direct to our customers. So we're a one stop shop through the whole process. I think one of the most important differentiators is, and I find this from an operational excellence. I worked in a lot of plants in my life, where where that I care to know. And This facility delivers 98% on time with 1 day lead time. It's pretty mind. I've never seen that before in my life. And you think, well, you know, how many warehouses do you have storing inventory? Yeah. We have some WIP in process, but we run 3 shifts. So we have a lot of raw material set up in queue, and then we'll fabricate it. So when order comes in, today, we have the raw material, maybe we'll we'll punch it out at night so we can ship it the next day. Clearly a differentiator. Really, I've never seen anybody that can match that. So that's really clearly a supreme value proposition this business has. From a from a market perspective, we'll talk from a market perspective. So we really serve kind of as as, as Paul indicated, we have this kind of point of purchase display, which we talk about as the retail space, which, again, we're truly a a clearly a share leader in that particular space. And then we have the kind of appliance and industrial and all other where we participate, but we're a very small player, and I'll talk about that as the opportunity going forward. From a facilities perspective, you know, we have a state of the art facility in Chicago, Illinois, my hometown. And then we also have several satellite distributions sites throughout North America. But this, again, is primarily a North America business at this point in time. So from a market backdrop perspective, as I spoke before, POP is, you know, clearly, a significant part of our business, you know, and as Paul indicated, that's from a retailing space with the e commerce, that's declining a bit. Again, we're we're holding our own there. But again, from just the industry dynamics perspective, you know, we're seeing in the states anyway, all the, you know, whatever Toys R S closed, you know, Walmart's even having, I mean, it's, etcetera, across the board, and we're seeing that. So that affects us because really our business, although it's kind of cardboard end cap displays, that you would see in retailing spaces. So there's 3 kind of fixtures in REITs, but there's permanent, semi permanent, and temporary. So we primarily serve the temporary space. If they're gonna they're gonna put a special at Costco's for, you know, whatever candy canes for Christmas for sale, they'll put that out there. It'll last for, you know, 1 year or, excuse me, 1 year. It'll last for 1 month, and then they'll throw it away and do another one. But they're saying the retailers are spending a lot more time or more modern mind sharing money on ecommerce marketing, you know, versus that. But again, great business for us. However, you know, going forward, we're gonna really go add some more commercial resource, and we'll talk about that in a to focus on, you know, the other three areas, which we think we have significant room to grow in. So from a path to value creation, this one again, is a commercial strategy. So this is about the business used to be way more industrial and appliance in the past, and it kind of pivoted over to POP. Gonna kind of bring that back and balance it a bit. We have the minimum share in industrial and appliance space. We do sell into that space. Okay. We, you know, We have some very large accounts there, but from a just overall, you know, kind of share of market, it's actually, you know, quite small. So we're investing in some engineering talent because these sales unlike POP where you get an order today and you ship it tomorrow, you know, these are more of an engineered products there, which I'm very familiar with. They can take 3 to 3 months to a year and a half to get specked into a new design at a major OEM, you know, for a particular foam tape or whatever. Right? So we're adding our engineering capability. We put a better lab into place, as well as some commercial resources kind of more used to selling into that kind of environment versus a POP environment. So that's a work in process. This is going to be, you know, kind of a year or 2, candidly, to kind of be an internist around because because of the sales cycle in these other markets, is so long, but we clearly have the technology and capability to go after those markets and serve it. And I believe a clear competitive advantage over some of the competitors that are in that space because we can be more nimble and we're vertically integrated. We're a lot more responsive to the customers. And again, we don't need to take a lot of share here to move to dial. Of this business. Card Solutions. So this is a people ID business. So the products that we sell are, we sell like the little, I don't think they may have them. The little, you know, ID badges that you use for access badges. To get into facilities so we sell those. We sell the printers that customize those. We sell the ribbons in the consumables. These are thermal transfer printers. That go into those, as well as we sell the lanyards, the kind of the accessories or the badge holders. So we are strictly a distributor. We don't make anything This is all the strictly distribution. We've got numerous printer partners, numerous card partners, etcetera. So again, why are we relevant? Because we can go with customers and offer them a one stop solution with really what the best solution is for them. One type of printer may not particularly work for their application best. We have a whole range of ones that we can supply them. So we can offer them really the best solution. And also, we have great technical expertise in this in this particular market. So that's, again, a clear differentiator. We're one of the market from a market size perspective, though, it's basically a $45,000,000 UK market. Our market is strictly UK right now because that's where our distribution agreements, allow us to operate. So it's a limited market, but you know, we're probably the share leader in this particular market in the UK. Again, great breath of technical experience, great product line, and a very enthusiastic and energized, management team. Facilities, we have a small site, you know, housed within our our facility in Kiddlinton. They're really kind of fun. I mean, I I like even though this business is small, I really like this business. Paul knows this. Because the whole ID space is really interesting. And, again, it kinda gets back to why we're re relevant. Think about it. The whole identifying people and this whole notion, you know, from a border perspective and everything else. It's it's really a growing space and very interesting in my view. And so we serve a whole variety of end markets. Education would be an example with the back to school, you know, that's happening right now. So all the kids come in, they get their, you know, they come, the university, the Sheffield University per se, will print out the little ID badge for them with their picture on it, you know, their their name has an RFID tag, and that gives them access to all the buildings as well as their meal plan on it. And they can get use it for cash, etcetera. So it's very interesting. Also, I heard this, you guys had this little tennis event here in in the UK in early July. Is that somewhere south of here. I don't know. But anyway, it's on grass and I don't know about it. But anyway, so if you happen to go to that, right, all your ID badges were printed, with our stuff that we supplied to that particular event. And we have other sporting events that we're working on. So again, interesting business. Again, what's our strategy here? Obviously try to expand our product line to other accessories that we can supply. So we have a pretty we have a very diverse really good customer base. So what else? I'm a share of wallet perspective, can we serve ourselves with those particular customers? So again, through a different product ranges, And also, we're we're in talks with our customers that maybe we can't expand outside the UK. They see how good of a job that we do in the in in the UK, now that this business is kind of set aside on its own, we're a little entrepreneurial business, you know, we may be able to go to them and say maybe we can do something in countries that are other countries in Europe. And we're because they see how successful that we've been in in the UK. So we see that as an opportunity. As well as, again, we have to up upgrade our digital website that is an important part of it. I mean, a lot of our value proposition is the client calling us on the phone and asking and talking to us, but there's still is a web element here that we have from an e commerce perspective, again, once they're a customer, but to make it easy with them. So we have to upgrade, you know, our our game in that regard. One of the things that, you know, people may ask is I'm gonna talk about one of the considerations is is the biometrics. You guys familiar with that? You know, so people say, well, we're gonna use biometrics and the cards are gonna go Well, there's a thing called 2 factor and sometimes 3 factor authentication, just because you have whatever fingerprint, there's another element that they want. That's the 2 factor part. So a a badge, right, with your picture on it, and an R. D. Thing is is a second element of that, if you think about it. Like, when I go through frequent traveler here in the UK, right, you know, I I slipped my passport into the reader, but they also do an iris scanning me at the thing. So that that's 2 factor authentication. In some cases, even going to 3. You know, so we see that the cards are not gonna go away anytime soon that there's always gonna be this multi factor, authentic, excuse me, authentication that is required. And last, we'll find out boring you guys. And last, but certainly not least, is our industrial supply business. So this is a, again, another straight up distribution business. Distributing branded products into the industrial marketplace, right? So we have, you know, 73,000 SKUs, 650 suppliers, but really 60% of our sales are really focused on kind of 6 product categories that I have here. Okay? So again, why are we relevant? Why are we relevant? Well, what we do is these are somewhat engineered products. So we have a team of technical folks that can go in. And if a customer has an issue, we work with them to help specify, you know, our particular product into their application. So it's just not just an, we've made this, I mean, online is good, but we've actually personalized this business so that we can go out to our customers and help them. It's somewhat a little bit of an engineer sale. Okay? The second part of it is that, you know, for quantities, we can be maybe commercially a little bit more friendly, you know, for volume types purchases versus maybe some of the competitors might be. So that's really, again, you know, what our relevance is in this market, and we have a great brand name, which I'll talk about. From a, market perspective, this is a distribution is a massive market in North probably it's here in Europe too, obviously, but massive market in North America. You know, so we're a very small player in that particular space. We've done a market study on this. We have a one point $2,000,000,000 market potential on these 6 product categories just in the Midwest. It's huge. And again, business from a facilities perspective, we're located in Muskegon, Michigan, Southern Lake Michigan, beautiful area. But the beauty of it is it's located in the industrial heartland United States, right? So all around there, the Detroit, the Illinois, all those areas are really the manufacturing heartland of the US And again, you know, say, like what you want about it, but from a US perspective, manufacturing is coming back. And, there's and so that area is really booming. So we are, you know, benefiting from some candidly some tailwinds from this administration, you know, with this particular business. People may ask this is probably the $1,000,000 question, and I I spent quite a bit of time on this. How are you going to compete with Amazon and Mastercard and Grainger, all these other distributors in this particular space. So I think this this mark this little map here, I think, depicts that. So If you look at the far left, that's those folks, and that's kind of a onesie, twosie, transactional based business that you're gonna get. So you're not gonna get Amazon to send an engineer out to your plan, right? So that's just, you know, kind of transactional activity. The next group of things will be integrated supply companies. And what those are is if you're big enough, let's say that you're, you know, up in, what would be a big let's say you're a Ford Motor company, right? And you have a big plant. You know, you don't buy MRO, you contract a company like this to come into your site and they manage all this kind of MRO bits and pieces for you. Okay? So that's another group. So that's if you're, you know, a big enough company to have that. There's the large OEM. So you could go buy direct from some of those manufacturers that we have like a de stake of, but you have to be shipped, you have to be buying truck loads, you know, So we kind of fit that interesting niche of kind of smaller, you know, less than 250 people, kind of midsized or small manufacturing companies, it kind of in the factory machine building space. That's really our niche where we do a really good job of. And, again, in that Midwest area, I grew up in Detroit, you know, there are just tons of them around. So the opportunity is is really significant. I think we have a great barrier to entry with our, you know, customer to serve our customer service you know, on our technical support. So what's the opportunity here? You know, this is a the opportunity here is really, again, So we're still gonna have to do some work on digital. Okay? Well, let me step back. So when when Accenture bought the business, a few years ago, it was named Reid, which was around for 80 years. It started by Gessu, Mr. Reid. So we rebrand the company rebranded it to EIS, and we kinda lost that kinda got lost in the shuffle. So we're putting the company back together. We pulled it back out. We're rebranding in his read, which really has brand equity in that Midwest area. We're doing that. We're all we're gonna launch a new website. So we'd still have to have a digital presence. You know, it's not we're not gonna be, like, an Amazon or whatever, but you still have to have it for people, especially to improve the shopping experience, not necessarily the buying experience. And there's a big difference there in sites, right? So we wanted to be able to shop on our site, but candidly, I don't mind them picking up the phone and calling us. Okay? So we need to get that kind of established. It's really part of a stability agenda. And then I think what we can do is we could probably expand outside the geographic area of Michigan a little bit or maybe add some other sales resource. Again, it's huge market potential for us. The other thing that's really key is this is a big data opportunity, as I call it. You know, so we've gotten some data. So of those 6 categories, a customer may buy 2. So being able to track that data and say, you're buying those 2. You really should be buying these other 4. So being able to take our existing customer base and mine that to do a much better job of cross selling across our range, you know, versus just buying one product. And that's really data analytics and big data. It sort of comes along the lines of, you know, what Amazon has where know, people who you buy, whatever. You buy a toaster oven, right? Well, people who bought a toaster oven may have bought a blender, right? You you ever see those things that come up on your screen. So that's really, you know, that's the analogy that I would use with this in terms of, being able to make sure we cross sell across our brand. And then finally, Yeah. Again, I've worked in private equity for many years, and the distribution business is a classic roll up spot. So, yeah, I'm not sure what we'll be doing here, but there's a is a hugely fragmented market. There are 60 companies, small companies like us, just in the Midwest. So again, this is a classic from a private equity perspective, which I know of my last private equity group, I think they did 20 of these different industries distribution roll ups. They these very fragmented industries. So that's clearly an opportunity for us to, you know, consider my show it's gonna work out, but, you know, again, it's it's a it's a it's a clothing opportunity. So with that, I'm going to turn it back over to Paul. Thanks for the waterfall. It's okay. You owe me. You buy me a beer later. Delivered with your customary, Alan. Good job, my friend. So I just want to last couple of slides just to summarize. So what have you seen? You've got these 6 stand alone niche industrial businesses. They are all profitable and pretty much as you've seen, they are all leaders. Or joint leaders. Do we think it was the right decision to split them off? Yes. You can see, I hope, the step change in 2 things, one of which is the strategic understanding, and the engagement between the MDs and the senior team, And secondly, identifying those which have clear short term operational improvements from deeply understanding the management of those operations, this is a very decentralized business. You've seen 50% of the entire specialist components infrastructure and management team, there is one other person. So we have not created a kind of BMoth out of this. So what are we trying to do? We're trying to support them from an entrepreneurial environment and actually deliver some of those value creation opportunities that we've seen. Trying to figure out how to summarize all of that. And I only found out 3 weeks ago from my head of strategy that these are called Harvey Balls, ever since I found out what their name was, I've been using them wherever I possibly could. So we've got 6 axes here. And I'll walk you through it. Firstly, market position, so its position in its marketplace, historic market growth, 3 year, compound annual growth rate. Current profitability, what the short term margin improvement potential is what we think the longer term growth potential is, so that's either or it's a combination of the future growth of the market, but also, the deliverability of if you like scaling opportunities. And then 3rd party synergy potential. So if it partnered with someone, and that could be either inside this business or outside this business, and I'll explain a bit more about that. How do we see it? So if we take market position, as you've seen, PPT and tear tapes are the 2 largest or the 2 strongest in their relative market positions. But as I say, we have leadership in every aspect. The largest growth and it's benefited from industrial production growth. So the largest historic growth we've had in the underlying market is in industrial supply. PPT will have been a bit of a V, and then if you look at tear tapes or specialty, It's a blend of growth in those industrial markets and then a gentle decline in the point of sale or point of purchase as the Americans call it market. Current profitability, you can everything is profitable, specialty tapes and industrial supply, at the top end and extrusions and card solutions, at the lower end of that range, but as I say, all are profitable. There are two businesses, which Tim has identified where we can make a the biggest impact in terms of margin improvement namely extrusion. That's about operational effectiveness, Tim, within the current volume envelope, and it's great that you've managed to get the team enthused about that and positive about the opportunity, and the other one being, tear tapes In terms of long term growth potential, for the reasons we've articulated, we see that industrial supply probably has the greatest organically and inorganically, but in something like tear tapes and specialty tapes, what we're trying to do is rebalance because historically, there has been an underinvestment in commercial capability. So we're trying to rebalance away from either, the point of sale or point of purchase in specialty or the tobacco market, in tear tapes into these other applications with the most, the consistent one being, things like Amazon, FedEx, DHL, etcetera, but we've obviously got the other opportunities in both specialty and tear tapes, that we've talked about like industrial. It is interesting that Jericho, the specialty takes business was primarily an industrial that happened to do a bit of point of sale. And basically, we got a bit lazy and just milked to that bit. And kind of the rest declined. I think it's fair to say to him, yeah. And then in terms of 3rd party synergy potential, we think that the biggest is industrial supply. It's a natural, if you like bedfellow to our components business, But as part of a roll up strategy, we can see that we can add value to a third party or vice versa. But as the assessment would indicate, we can see that each of these businesses has scope for partnership or whatever. In the segments that Tim so eloquently covered. So that's specialist components, it's 1026 now. So what I'll do is hand over to the floor for questions, then again, we'll go into cyberspace after that. Charles. With the Tetates and Specialty Tates businesses, those have been the ones that have been under the most margin pressure. Can you just give us more detail on where they are in terms of tobacco share of their business and the POP share what's happening in the volumes and margin side. Are we reaching the stage where that those parts of the business stabilize, or is there still more downward pressure that you'll have to counteract by growth elsewhere? The reason for growth is not as much about margin. It's about just getting security or predictability of sales. So they happen to be leaders in markets, which have some decline. We have large shares in those two markets charged, so we need to rebalance to get the blended underlying market growth we need to get into a positive territory. Having said that, specialty tapes, as you can see there, is actually a still a very nice and profitable business. And in terms of the timing to get that rebalancing, is something that is a 6 month or an 18 months? It's as Tim said, it's an engineered product. So it goes into a domestic appliance or something like that. That's a, that's a 1 to 2 year time frame because you've got to get the people in place, then you've got to get the specs, got to talk, get in with at the start of a product life cycle development. Hi. On, test tapes, obviously that sets that principally services is the, the tobacco market with the, with the, sort of, terrible plastic, packaging. Given the, the, the recent sort of public sentiment swinging somewhat against single use, packaging. Does that present a a a long term challenged to profitability within that particular segment of the business given that that is the largest part of that individual business and how long do you anticipate that take to rebalance that business towards, some of the other products that Tim mentioned. But it the tobacco market is well, that product is declining as a total percentage. Partly because of the market and partly because we're emphasizing development of the other areas. In terms of the long term potential or otherwise for tapes, there's one headwind, which is potentially single use plastics and what's the role of the kind of exterior of a cigarette packet. On the other hand, we do have quite a lot of anti counterfeit tagging capabilities, etcetera, and there are legislative potential counters to that and equally in Asia, you've got a real problem for the cigarette manufacturers. So I don't know which of those two James is gonna is going to bounce out. The important thing is we've got to have the capabilities and do to maximize the opportunity The the other important thing is we have to accelerate the journey of balancing out the portfolio. So I have no idea the statistics on on how much the DHL Amazon market is growing, but it's pretty damn fast. And that whole market for, say, food and beverage is important. So if you take something like Japan, we do wraps that go around rice balls This is a very diverse product because it helps older people open things easily. And there are lots of old people in Japan. So there is a multiplicity of other applications and specialty tapes and tear tapes, are both facing the same journey of transitioning from a single product that frankly was milked to a much broader range of applications. And then a second if you'll indulge me. Thank you. Cancellations, looking at that, table that you've presented there. It's a quick glance would be sufficient to suggest that you sort of view this as the lowest growing relatively least profitable with a relatively lowest potential for short term margin improvement and low long term growth potential. Does that seem to indicate that this may be a sort of principal candidate for the departure lounge? Well, Tim, don't answer the second one, but answer the first one. Why do you love this business? I think, this whole trend towards ident product identification, right, so security, right, is is a huge trend. So if we can break out of just being the reason why the small because we're just UK right now. Okay? The strategy will be if we can get outside the UK, it's a significantly larger market. I mean, a comparable company to ours in the US, just one competitor is 40,000,000, okay? And I'm, yeah, so I've met with them, right? And so again, our our challenge is how can we take this particular technology that we have and and the partnerships that we have and expand that out of the UK. But the mark for security itself is is growing. It's really a question of our footprint in a limited UK market. So I think what we're trying to do is be prudent on this. And I think with the right hand of cards, particularly if you looked at it more than 3 years beyond 5 or 6, you could see this being bigger, but in terms of immediate opportunity, I think we see less short term opportunity because it either needs geographic expansion or repositioning. Andy. Hi, just a question on the margin improvement. I mean, clearly, we had 6.8% in the first half. I'm slightly surprised that we've only got one of the, charts having 3 quarters forward in terms of margin improvement. You tell me, and again, I don't care timing, how you get there. In terms of margin for the group or flow for this division, what is the what is this capable of? Is this a 10% margin business or you can put a benchmark or a 2 or 3 or 10% to 12% or how have you want to cut it? I mean, I don't want to put in the pressure Is this a 12 15% margin division over time? The 2 things, the reason the reason that margins went down those two were less significant as a proportion compared to those 4. So that's maths. If we if we can't get to 10% with that portfolio, I'd be disappointed and he wouldn't have a job. Back to America. And can you tell me how are you remunerated with respect to this division? Is this on getting the margins back to 10%? Is it? I would agree. Yes. So it says your your new ratio is on the margin? I'm sorry. What? Your new ratio for this division is on the margin? It's on a blend of things. It's hard for me because I believe that the GMC Management Committee partly need to feel ownership for the results of central PLC, which hopefully would reassure shareholders. So part of it is that and part of it is kind of 3 year improvement in the performance of these businesses. Anybody else? Should we go into hyperspace syndrome, see if there's any? No. Good. Well, in that case, Stephan, Tim and I will be around for chats thereafter and thank you very much for coming today.

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