We should start, yeah? Right. Good morning. Thank you all of you who've braved the searing heat to come here. The plan today is we're going to have two sessions, 8:30 A.M. to 9:30 A.M. Stefan and I will be taking you through the results and updating you on progress generally. Then we will have a 15-minute break. Then at 9:45 A.M., assuming we've finished on time, myself and Tim will be giving an update on the strategy for Specialist Components and the six businesses therein. What's going to happen this morning, I'll give a very brief overview. Stefan will then talk about the financials and go a bit deeper into each of the four 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.
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 three larger divisions, then just conclude with the outlook for the balance of the year. 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 two days ago, and I entitled it "Turning the Corner." I think if you want to borrow a headline, I've just done it for you. We've got Tulchan now, so I've just done their job. I'll have a refund please, Tulchan.
I genuinely believe that's the case. Hopefully I can demonstrate that, not just in the financials, but more importantly in the things that are going to make those turnaround financials sustainable. What do I mean by that? Again, we will illustrate all of these. Strategic momentum. We outlined three sets of strategies for the three 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. 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 Essentra who meet for a conference, less than one in two of those would have ever been part of an Essentra that had either sales or profit growth.
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% sales growth. Reported operating profit growth of eight. EPS up two. 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 period, it's up to 84%. Net debt, EBITDA of 1.9x. Stefan and I have said we're going to keep it in the one to two times range. 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.
If we look at the revenue and margin improvement in H1, we expect that trend to continue into H2. Consequently, we are happy to maintain the dividend. In 2 sets of graphs, 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 it's looking at each of the last five halves and comparing it to the comparable period 12 months ago. For instance, what that says is in H1 2016 compared to H1 2015, we had a 7.5% revenue decline. Equally, a 10.6% in H2. You can see a very strong sequential improvement there, -7%, -10%, -4%, plus a little bit, +1.5%. One of the key areas for us is Packaging, as you know.
The really encouraging thing is actually on a like-for-like underlying basis, in H1, that is -1%. That's actually + a small number in Europe and - a small number in America. We are confident that in probably Q3 and certainly for H2, we will peak above that 0% line, which will be an important milestone for us as a team. Equally, and I talked about this, one in two people in the senior team of Essentra haven't experienced it. We see perhaps most critically, that on an operating profit growth from some fairly tough times, as you see, -18%, -40%, -35%, -16%, we're at about +5%. Are we happy with +5% profit growth? No. Do we think inherently this business is capable of a lot more? Yes. Nonetheless, it's the direction of travel for me.
Equally, we've then got on the right-hand graph there, ladies and gents, the adjusted operating margin. Clearly a very major decline as Packaging goes from roughly 10% to roughly 0% margin. As you can see, it plateaued in 2017, and we're seeing a 30 basis points improvement in H1 2018, with an expectation that that will continue. I think probably those four graphs pretty much say it all. Without further ado, I'll ask Stefan to give you some detail.
Thank you, Paul. Good morning. Let's start with the group income statement. We reported GBP 530 million 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 GBP 44 million, an increase of 5% at constant currency, implying an operating margin of 8.5%, a 13 basis points improvement year-over-year, with all the 3 large divisions contributing to the increase. Profit before tax GBP 38 million, increase of 6%, and adjusted earnings per share GBP 0.11, an 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 U.K.
The U.S. performing very strongly. Packaging on a like-for-like, i.e., without the effect of the disposal of our Bristol site as well as the shutdown of the Newport Cartons consumer site, 1% underlying decline. As Paul said, Eurasia back into growth and America still in modest decline. Sequentially, a significant improvement. Filters 2.5% down, which is really a result of the ongoing volatility in terms of projects ramping up and ramping down, particularly in Europe. Also to be called out here, our China business continued to show 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 six smaller businesses. 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.
Our Industrial Supply business, which is predominantly distribution in North America and to the maintenance, repair, and MRO segment, is doing well. Good macro environment. This has been offset by some headwinds in our Tapes businesses, both in Tear Tapes, which is exposed to the tobacco segment as well in specialty tapes where the point of sale segment is showing some headwinds. Let's talk a little bit more in detail about the businesses Components. We continue to drive a broad range of initiatives really focused on 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 to enhance the customer experience.
We also continue to invest inorganically, as most recently demonstrated by the acquisition of Hertila, a Swedish cap and plugs manufacturer. In the U.S., as I said, good momentum, not only organically, but also the integration of our Micro Plastics acquisition is on track, both operationally but also commercially, where we start seeing some benefits coming through from cross-selling of the respective complementary product ranges. Net Components continues clearly to be a very attractive, high growth, high margin business. Packaging. I think the key really is sort of the operational improvements and improvements in the key stats Paul talked about in more detail, such as OTIF, quality complaints, really are the foundation for the reversal of the revenue trends.
That in combination with good structural change in regards to the commercial activities such as key account management, really led to some encouraging business wins and hence sort of the confidence in the inflection point in half two 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, 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. 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. That really will create a foundation for future margin expansion. Filters. Modest like-for-like decline. As I said, some puts and takes in terms of the projects ramping up and ramping down.
Overall, we think the business is stable. We continue with our drive and focus on innovation, particularly in special filters. We also strengthened the relationships with our supply base, which is the source of innovations or some commercial activity has resulted 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 independents. Also worthwhile calling out in Filters is, there are very good operational initiatives going on across the global manufacturing footprint, leading to improved waste rates, to improved quality rates, and hence an improvement in operating margin with a slightly declining top line. Specialist Components, again, many puts and takes.
PPT growing high single-digit as a result of being a leader in their segment and also the overall good momentum in North American oil and gas, particularly fracking. Extrusion, we continue to focus on the more technical demanding applications in attractive end markets such as water treatment. Industrial Supply, again, good momentum against a good market backdrop, but also as a result of range increase in terms of products. While, as I pointed out in the Tear Tapes, volume trends relative to tobacco as well as some value-added lines led to headwinds. We also see some headwinds in specialty tapes, which broadly speaking, serves two markets, sort of the point of sale and industrial and appliance. The point of sale headwinds could not be completely compensated by the momentum in appliance and industrial.
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. At the same time, we are reinvesting into the business to build capability going forward, enhancing the customer experience, range, digital platform, et cetera. Packaging, improvement by 50 basis points. I think the packaging margin was helped by the closure of the Newport Cartons facility last year. We also received some small further proceeds from the insurance in regards to the damages incurred and losses incurred at our Puerto Rican site 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 are investing in capital equipment to long-term put the business back to sustainable profit growth.
Filters, small increase, 20 basis points, driven really by the operational initiatives I referred to earlier. Specialist Components, margin decline as a result of the mix, particular the tape's impact. If you look a little bit further down at the income statement, finance charge, GBP 5.2 million, 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 GBP 0.11, again, driven the smaller growth relative to PBT driven by the minority interest.
We recorded GBP 6 million of exceptional items and other adjusting items in the period, GBP 1.5 million relating to costs associated with acquisitions and disposals, small restructuring costs in regards to our Micro Plastics acquisition of GBP 200K, and then a further GBP two and a half million associated with the strategic review, Project Phoenix. Once in the generation review, Paul initiated in 2017. This review has now come to an end with half year 2018. Finally, GBP 2 million of costs mainly associated with restructuring, particularly in packaging. As a result of Phoenix and increased stability, and the capital investment going into the business, we were able to reduce headcount in a certain number of sites while maintaining stability. Cash flow, 84% operational cash conversion compared to 71% half year 2017. Out of GBP 44 million operating profit, we converted that into GBP 36 million of cash.
CapEx of GBP 23 million, 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 GBP 50 million-GBP 55 million, and this is what we still continue to expect. There will be more CapEx in half two. 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. From GBP 36 million operating cash flow, GBP 9 million cash tax, GBP 5 million cash interest, GBP 23 million free cash flow generated in the period. Net debt, we are at GBP 239 million end of June, implying 1.9 net debt EBITDA.
Main drivers were, other than the free cash flow generation, the dividend, full year dividend, GBP 38 million, plus another GBP 10 million of exceptional cash spend mainly related to Project Phoenix, the restructuring, and M&A cash cost. Last but not least, the dividend will remain unchanged at GBP 0.063.
Stefan?
Cheers. Thanks. Okay, let's talk about stability. We broke that down 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 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 the chairman. The depressing part is we've been running as CEOs, 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.
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 were January 1, 2017, we'd definitely take it. I kind of feel like we're kind of played nine holes of golf so far and maybe one or two under handicap. It's kind of got that feeling. Is everything going well? No. Are most things going well? Probably yes, actually. You can judge that, I guess. Most important metric of the lot, health and safety. We have achieved over a 50% reduction in lost time incidents. Clearly, the only acceptable number is zero, 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.
We're very pleased that we've reduced it by over a factor of two. Employee engagement. Every year we do a survey. We do it in the second half, so there's no data, but what are we doing? Basically, Scott Fawcett, who a number of you know, the MD of Components, and myself are leading a diversity and inclusion steering committee. It comprises about 15 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 two or three weeks ago, we've got an outstandingly good learning and development director. We have a sustainability committee. The really encouraging thing, I was in Micro Plastics in Arkansas two weeks ago. The engagement there and the change I saw in 12 months is just phenomenal.
On every metric, it's exceeding its acquisition case, whether that be safety, financial performance, cross-selling, or whatever. I think there's a lot of good work that will drive that forward. Stefan's already mentioned we were not doing good by our customers, whether that be service or quality. 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 four, 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.
I think that's really encouraging. Let's look at the other one. 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, a 34% reduction. Specialist Components, a way to go, but that's only compared to one year because we didn't have the data prior to that. Again, as with OTIF, on time in full, our quality continues to really improve. Again, we are at world-class levels in many aspects now. What are we doing to sustain that? I think 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.
One 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. If you look now at rolling out standard operating procedures or lean capability, 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 were 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 4,000 or 5,000 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 two or three things, one of which is we just haven't invested in the infrastructure. We would have factories that probably had less bandwidth than your house, particularly with Charles Hall here, because he's probably got still bandwidth bigger than any factory we have. This under-investment, but also then the fact that we had 52, 53 different variations of ERP system, et cetera.
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. Is it working? I think yes. The metric we choose is what we call our major incident rate. A major incident is basically where a key process in a site or facility is taken out for at least an hour. A factory can't work for an hour, or Martin Green and his treasury team can't process things for an hour, or whatever it may be. You can actually see that we've had a 60% reduction in the last 12 months. We're getting some of the basics right. IT is no longer totally impeding the business from doing what it wants to.
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. The key thing is that we are winning in that area as well. 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? That's stability. I'll take any questions about that at the end. As you can see, I think we're kind of getting there. Let me just canter through the strategy for the three larger divisions. Components.
I had the fortune of, or the enjoyment of seeing Lindsley Ruth at Electros and his team a few days ago, I've mentioned it before. They focused on just doing the basics brilliantly. I think from an organic point of view, it may not be a sexy headline, we just want to do those basics really well. 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. I'll talk specifically about our online thing, 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&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 Hertila. We have others now. There is a pipeline in those three geographies. 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 four, a new front end. The plan is, at the moment we have 45 websites which tend to be product specific. What we'll be doing is having 30-odd websites that have the full range, are country specific. It's actually much easier and much user friendly. The CapEx there, just in this year alone, is just shy of GBP 5 million. I mentioned Micro Plastics. 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 Micro Plastics colleagues, they're seeing the benefit of the investment that we promised they would see. 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. Again, great example of teamwork. Hertila, the latest addition to the family, does basically caps and plugs, came out of Nolato, which is a very different business, a kind of specialist plastics business. It gives us non-U.K. European manufacturing, which is helpful. It adds a number of different complementary product lines in an area which is one of our five target Product sectors, namely caps and plugs. I think that's not a big deal.
Is it going to transform the shape of the group? No. I think it's a nice little tuck-on. If you go to packaging, this is all about clawing their way out of the swamp. Three or four 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, 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, I'm really encouraged by that, our processes, which were nonexistent, I was going to say weak, probably nonexistent, would be better. Things like S&OP, planning, looking ahead, having one version of the future, those things are coming well.
We are not going to change the platform on which packaging operates or the multiple platforms. It needs stability. It is about two years away from anything more radical, unlike, say, Components or Filters. Revenue growth opportunities. Quality and service perception, we have kind of had the temerity to put that as green because all of the feedback is saying that we are 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. We have probably less than them. Key account management. What we are 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. My screen is gone. That is better. Thank you.
Design Hub, I will talk about in a minute. Critically, in terms of training on commercial effectiveness, et cetera, managing the pipeline, and I will give you examples of the order book, et cetera, in a minute, pricing skills, et cetera. 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 is 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. Margin growth. Five levers here. Pricing we have talked about. Service levels, when we build better routine and predictability and rhythm into our business, it helps us.
It 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 for IT and packaging. We have been upgrading particularly our presses. These can be 20%, 25%, 30% more unit cost efficient, primarily through reducing changeover 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. Once you have done that, the next thing is to actually then say, "How do we continuously improve?" We have ambitious plans to promulgate CI, Continuous Improvement capability.
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?" Et cetera. It is the next stage in our evolution. 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 is 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 U.K., but now also in the U.S., that works with customers. What you have is either people who are very good at aesthetic design or structural design.
If you're in, say, the personal care and you want something to stand out on the shelf, we will work with you. As critically, if you say in the pharma 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," et cetera. It can range from the very aesthetic to the very practical and functional. To give you an example, we were probably talking at the early days to 1 new company every 3 months. We're probably talking to a new company every 2 weeks now. 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. 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 supplier in the wrong space. When you're talking to the R&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 to their success as a business, as opposed to simply being a supplier of an input into another product. That elevation of the relationship is really what we're trying to achieve there. I think, is this working? Well, you can see there on the left-hand side, the order book. You can see that June 30th, 2018, 8% higher than June 30th, 2017. Is there a one-for-one read off? Do I want you to go and put 8% sales growth in your model for H2? Please don't.
Well, you can, you'd be wrong. I think that is encouraging. The important thing is that that is, as you can see, this is the book-t o- bill ratio. You can see that our orders are currently, for the first six months, exceeding our revenue. Our 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 significant, which in the current world environment, 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 definitely H2. Turn on to filters.
If you recall, there were 2 or 3 important things about filters, 1 of which is 70%-80% of our business is in special filters. These are things with capsules or tubes or whatever. That is a stable market. Overall, the combustible market is in gentle decline, 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. That's point 1. Point 2, nobody has made more filters in the history of mankind than Essentra or Filtrona. Over 10,000 different ones. We have more cumulative experience and know-how. We have not been translating that into commercial benefit. That's really where the innovation, which Stefan has already talked about, comes from.
The third point, this wasn't helped when we had a fragmented matrix organization, is that we need to be more user-friendly in terms of how we interact with our customers. We are now bringing global opportunities. We're now bringing genuine innovation to them. We're having workshops. I was talking once to the ex-head of R&D at Philip Morris, we've met him once in 12 years. We should be seeing these people once every six months. There is a huge raising of our game. The good news is that we're getting there, and we're having, again, same as packaging, a kind of different level of dialogue. Still a 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 GBP 280 million goes in and out every year as products change or taken in-house or out-house 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. This illustrates the point I just made. Headline, -2% in volume. That's the Chinese market. 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 can see there that against a headline of -2%, these segments grow at 7% per annum. That's a classic.
We are in a stable growing segment in an overall declining market. We've talked before about these three game changers. How are we doing? On outsourcing, we have two or three live discussions with parties about outsourcing opportunities. Maybe they're combining sites and they don't want filters. Maybe they want to exit a specific country or whatever. The catalyst varies, but the discussions are happening. Next generation products. We are now supplying as a backup to one of the MNCs. We are having another multi-year product development agreement or discussion with another MNC. 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. Also certain components. We're having some pretty concrete discussions that are looking quite hopeful there.
On the China JV, there is an active discussion going on with one of the industrial companies, with the blessing of the Chinese state monopoly. 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 opportunity there. Specialist Components, I'm going to say nothing about because we're going to beat you to death with PowerPoint on that in about half an hour. What we've said, this is just to grab out of the thing. 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 sit in the half. Actually, the comp in Q1 2017, for reasons that we've discussed before, probably wasn't meaningful. 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, et cetera. Filters, again, if you look actually at the last 12 months, that business is level versus the previous 12 months. If you like, July 2017 to June 2018 is actually level in revenue terms. Actually margin ahead in margin terms. We see broadly that pattern continuing. Specialist Components, lower H1 margin than 2017. That might tweak up, but we don't see it returning to necessarily 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. That's the bit. We've got 15 minutes. Shall we start by taking any questions in the Well, there's a surprise. Charles Hall.
Wait for the microphone, will you, please?
Sorry, Charlie, I see Peter.
Oh
nipped in before you.
Oh, hello, Toby.
Morning.
Nobody does that, Charles.
While Charlie's describing. Couple of quick questions on packaging-
Yeah
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.
No.
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, 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. How much I know 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 share of wallet. If you remember before, I said that like in H2 last year, we were on stop with a lot of customers. We couldn't bid for new business. We were on stop with zero 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 at one of only two companies that have a multi-continental and multi-product sector offering. It's partly market. There's a tiny bit of pricing in there. It's market share gain. We lost one customer, two customers, I think, in the U.S. of any size. Critically, we have now started selling to one of those again.
Okay. That's great. Thank you. The second question was in the presentation, I think you referenced a 10% operating margin in packaging back in the day.
Yeah. High single digits. It's eight to 10 if you look at the benchmarks, yeah.
Okay. Was that a real number and therefore, is it a realistic sort of medium term target?
Yes, 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. eight, nine, 10, whatever it may be, Toby.
Perfect. Thank you.
That's a real number. Sir.
Charles Hall from Peel Hunt. 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? Clearly it takes time for new contracts to come on board once you've won them, and you still have some coming off.
Yeah.
With that margin target, you really need the volume growth to really deliver on the margins.
I said benchmark, not target. I don't give targets, you know that, Charles.
Benchmark. With the costing, you 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've been six months ago?
Yes, we can talk about the fact that we believe we'll get revenue growth. Actually getting it is kind of there. It also affects the confidence of our salespeople. Our salespeople now want to go and meet customers because they've got lots of good things to talk about. It's a bit like your sales force, isn't it? They're confidence players. I'm not implying that your Peel Hunt was as badly broken as packaging, by the way. I think that, look, let's get the business as a whole in H2 into positive territory. Let's try and grow along with the market, and let's focus with things like the design hub on getting in excess of that. We've said 3%-5% revenue growth on a global basis should be there.
We haven't really even scratched some of the opportunities outside, well, any of the opportunities outside Europe and North America, Charles.
You put in place some global agreements last year. How important are those in terms of getting you back on track, delivering your share of wallet, or are those sort of more?
They're kind of an insurance policy, Charles. It's not a contract. What it is a kind of LOI, letter of intent, or a statement of commitment between ourselves and some of these people. They're reflective of the nature of the relationship, and that we are no longer perceived as a risky choice of supplier.
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 were four presses. Three are in and operational. One is going in quarter three. Is that right? Yeah. This is made of wood. Yeah. Yes. I'm going to assume there's wood under there. Yep. Andy, hello. Oh, James. Hello.
Someone stole the mic. Morning. It's James Beard from Numis. I've got three questions, if I may. First question was on IT. You mentioned on slide 28 about the sort of strategic investment for process and tech transformation starting in January 2019.
Yep.
Does that imply that there's some incremental CapEx versus where our numbers are today, that's going to be going into the business in that year for that?
I don't think so. Have detailed costing out? No. We're saying 50-55 for a three-year period.
That's factored into that?
Yeah.
Okay. Second question was on M&A. Just wanted to sort of touch on how the pipeline is there. Where you sort of see the opportunities in the short term. Also given that your balance sheet now 1.9 times net debt to EBITDA, does that imply you're maybe slightly constrained on your ability to go and do these deals over the short to medium term, or are you not too concerned about that?
I'm not going to stand up and say we've got a net debt to EBITDA ratio of 2.1 in February. This is the more cash generative half. We could do one or two more of bolt-ons. We have some opportunities that may require incremental CapEx in the filters business as well, James. Are we going to do a GBP 50 million deal in components in October? Not that I'm aware of. The pipeline itself is coming on. Scott is now becoming a traveling salesman, Scott Fawcett. This week, I'm talking to him and he's touting for business in Germany. Two weeks ago, I was talking to him and he'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 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. He's a real positive advocate for us.
Great. A final one on filters, if I may. You touched on there that you've got this effectively sort of 15% revenue volatility, revenue at risk, whatever we want to call it.
Yeah
On a sort of annual basis, we touched on that last year and I think we were possibly slightly surprised at the sort of scale of that level of volatility that existed within the business. I think at the time you said, "We think we can sort of get this down to 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
How this segment works?
No, I don't think I have. Look, if BAT stops a product line, there's actually not much I can do about that. If BAT starts a product line, great, 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. That will either reduce the profitability or it'll actually put growth in, and I don't care which it is, basically, as long as the net is that.
As I said, if you look at the last 12 months, James, from H2 2017 and H1 2018, broadly compared to the previous 12 months, that's just level. The previous period, it would've been, Joe, about minus 10, minus 15, something like that. We're getting more value added, we're getting better understanding of customers, and we're talking to a broader base, so we're getting less surprises. We were very accident-prone or surprise-prone before that.
Great. Thank you.
Okay. Hi, Andy.
Morning. Couple of questions, please, from me. On packaging, can you just give us a feel for our models and how much benefit you've got through from Newport? I think it was GBP 5 million-ish, near as damn it, for the full year. How much we've got through in the first half. On Puerto Rico benefit, does that drop out in the second half? Is that almost a one-off?
Sorry.
With respect to packaging, also in the U.S., you've put through some exceptionals there. Are we done there? Does the U.S. now kind of kick on? It seems like it's lagging good performance in Europe and in Asia.
Last but no means least, in filters, great news that we might get somewhere with one of the three 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 filters division.
Do you want to take the packaging one, and I'll do filters?
Yeah. Okay. Packaging Newport, the losses in half 2017 were GBP 3.4 million. In terms of Puerto Rico, the insurance proceeds, yeah, that's full and final. Full and final settlement. Nothing more to come in H2.
How much was that?
GBP 1.2 million. To the exceptional point, I think the exceptional is really sort of in packaging for H1. I think this is broader restructuring. I think touches a little bit the Americas as well, but it's probably more geared towards Europe, actually.
I think the other point, Stefan, is on the other side, we have, I think, cleaned up quite a lot in terms of balance sheet and taking it above the line. It's not all just losing negatives.
The U.S. is now in terms of breaking even
Yes.
Yeah.
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.
Yeah.
If you recall, Andy, the state monopoly needs to upgrade its product mix to keep its revenue growth. Strategically, and they recognize. Now, one in three new products in China involves Essentra, and they're all at the top end. They see both the kind of challenge, but also a potential solution. That business is our fastest growing market at the moment, even as an export market.
Perfect. Thank you.
Okay.
Thanks. 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 two years ago? Have you had to take slightly lower commercial terms, but is there a build in that once you get back up to the service levels?
Broadly, yes. You know the pharma industry better than me, Tom, and there is margin pressure in there. I think as a general trend, you're seeing volume growth but some margin pressure. We're prepared because we know we can make that more efficiently and we're getting gearing through it. It's a kind of trade-off, but it's not a profound shift.
Okay. Would you say 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. Then just in terms of any cost pressures or not that you're seeing, we're in a bit more inflationary environment.
Cardboard raw materials is one, which is why we're having to put pricing through, basically.
Okay. Just elsewhere in the group, in terms of staff costs, any other costs?
Not really. I don't foresee anything.
No. I think staff is normal inflation. I don't think there's any other particular meaningful raw material category where we see-
Okay
strong inflation pressure.
Cardboard and packaging is one area.
Okay. Thank you.
Okay. Joe, should we throw it open to the internet or whatever one does?
No one's online.
No one's. Okay. Is anybody on terra firma want to ask anything? No? Well, it's 9:30 A.M. precisely, so if you could reconvene at 9:45 A.M. precisely or switch back on or whatever you do, that'd be great. Thank you. I'm going to ask you to just say a bit about yourself.
Yeah.
Okay. Joe says start, therefore, guess what we're doing? Right. For the next hour or so, I think we're going to do a double act. This time it's not my friend Stefan, 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. I'm going to do a summary, and we'll take questions at the end there. Why did we do this? We announced this time last year that we would create a separate division called Specialist Components. There were five reasons. These were six little businesses, littler 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, we wanted Ian, we wanted Kamal to deliver entirely 100% focus on delivering their respective strategies, and hopefully you've seen that that's working. With very understandable reasons, the MDs of these six businesses really didn't get a lot of mind time, if you like, the GMC, the General Management Committee input. 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 is no doubt that because they are smaller, they benefit from slightly nimbler decision-making. Often the investments, whether it be in CapEx or P&L, have one less nought than perhaps in filters. We don't want that to happen at the same speed. There's due process in a major filters expansion.
Perhaps if one of Tim's businesses need an extra person or two, we don't quite need to debate it quite so much. What it also hopefully does is give you greater visibility once we've, I think, maybe it was Toby or Andy's point, once we've stripped out the kind of noise you see the underlying margin performance of the three larger entities. To that end, drum roll, a divisional president, Tim Wilson, who is here. He's from America. Was a point, that's not a judgmental statement, Tim.
Sometimes I feel that way.
Don't start getting defensive publicly, please. Keep it for our meeting room. Tim joined us in January, and so he's now seven months in. Just to remind you what they are. It's basically a GBP 160 million-GBP 170 million revenue business. Six businesses ranging from a card business at nine through to Tear Tapes. I'm not going to explain it because you're going to hear that. Collectively, mid-high single digit. It was kind of 8%, 6.5%, 7%, that kind of average. What we did say was that this was our hypothesis 12 months ago, because this is a slide from 12 months ago, that they did have strong positions, albeit in niche markets. I'll hand over to Tim. Tim will take you through the six, and perhaps, Tim, if you could kindly just introduce yourself.
Sure.
That'd be great.
Great. Thank you.
Thank you.
Morning, everyone. As Paul mentioned, I joined in January as the President of the Specialist Components group. My career has really been in manufacturing. I've served roles in operations, sales, and in general management in a whole variety of different industries. Started out at Welch Allyn in medical products, worked at Emerson Electric in semiconductor capital equipment, worked at Danaher in Videojet inkjet printing equipment. In 2005, a group of us had a chance to do a management buyout. We took a kind of an old stodgy magnetics company, carved it out of a publicly traded company called SPS. Took it private with a private equity group. I was CEO of that business for nine years, and we had a very successful exit. Most recently, I was chairman of an angel fund. A group of us, again, set up a fund, and we invested in startup companies.
When I met with Paul and the team, they mentioned this opportunity last fall, I thought it was really a great opportunity to 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, again, to kind of coin Jim Collins' phrase, my role is really to take them from being good businesses to being great businesses. 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.
Again, I really like to thank all the team out there and as well as my CFO, Brad, for kind of putting up with me during this time while I asked about 1 million questions, getting up to speed quickly on 6 businesses and then putting together the strategies which I'm pleased to present. With that, the first business we're going to talk about is our pipe protection business. Those of you who follow Essentra, you're probably pretty familiar 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 4,000 different unique part numbers in this space, and 75% of those are bespoke to various customers.
From a product line perspective, you would think, kind of one cap fits all, and that's not really the case because of all the different pipe configurations and customers, et cetera. It's a very unique, customized business. When I look at businesses, I always start out and I ask kind of the question like, why do you exist? What's your value proposition? What's the value proposition that we provide our customers? In this particular case, these pipe casings cost about $800 each, sorry, I'm not using pounds, and are about 20-40 feet long. These get shipped out to the various drill sites. How these are used is as you're going down a hole, they're actually screwed together. You're screwing these lengths of pipe down into the hole to either drill or to extract the oil. This, again, happens 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, it creates disruption in actually the drilling operation, which is hugely expensive. You can just imagine how much it costs for those rigs to go down if they have a problem with the pipe. As well as making sure there's a very tight connection so you don't have leaks in the seals. In technology today, in drilling technology today, especially with the fracking in North America, these wells are going down two or three miles, and then they kind of hang a right or a left turn and go another mile with the fracking technology. You can imagine that if you have a bad seal or a joint as a resulting from bad threads, it's a problem.
Why do customers come to us? For our particular solution, we have the broadest range of products. We have what I would call the cheap and cheerful pipe protectors to more highly engineered, more robust protectors that you may need if you're transporting pipe out into the North Sea. We work with our clients very closely to engineer the proper solution for their particular pipe application. Again, we have great technical talent within our site. From a market size perspective, the market is fairly limited. It's about GBP 175 million. 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. Again, the other half, rest of the world. We have a very significant share in North America.
We really have a kind of a de minimis share 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 facility. It was built in 2012 in Houston, Texas. We have 28 injection molding machines there. We have another facility in Veracruz, Mexico, where we have 10 injection molding machines there. We have a site in Alberta to service kind of 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 out to the North Sea oil fields. From a market backdrop, at the end of the day, pretty simple story. It's about the price of oil.
You can see the business really tracks the price of oil. Again, obviously, when it was $120 a barrel, it was boom time. It went down to, whatever, $25 a barrel, just kind of the low of the cycle. Right now, we're seeing a nice recovery. Again, I'm not a forecaster of oil prices. If I was, I probably wouldn't be here. We predict that the oil price is going to kind of be in that 55 to 75 range, 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 the U.S. fracking technology that has come along. 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 North America totally energy independent.
With that, you actually have a lot more footage of pipe drilled. The traditional way that you would look at the oil industry would be rig count. Really, for us, we look at really linear feet drilled, because each of those wells may have four or five tentacles going down and then spreading out for fracking. There's a lot more pipe used in the fracking technology than there is in just traditional, kind of drill down a hole into a big, what I would call ocean of oil. Okay. The other thing is those fracking wells, they have a life. They probably last from three to five years, and then they have to do it again. Again, from our position in North America, we see that as a pretty favorable trend. Again, path to future value creation. Obviously, in our view, the market's doing well.
As I just said, the fracking technology is really expanding in North America, it's, U.S. is actually going to be a net exporter of energy. U.S. has enough oil reserves for 150 million years. The Permian Basin, just in Texas, has more oil than the Saudi Arabia reserves. Just to put that whole thing in context. Again, we're primarily North America based, and we're the leader in that market with the broadest range of products, I think we're very well positioned there. There's things that we can clearly do to improve the business. One, as I mentioned before, we have a very broad product range. There are others that we can expand into. We have programs underway to kind of further complement our portfolio there.
Again, we don't make every single type of protector out there. We're working to do that, as well as we talked about the geographic expansion. Internationally, really, we have minimal market share. We feel that by working with some of our partners, we can gain some traction in areas like the Middle East and Asia. We see that as a growth opportunity with us utilizing the existing products that we have. Finally, with a lot of the businesses, we have the operational excellence initiatives, coming up with new materials. Of our 38 molding machines, 17 have robotics. We're very automated, very good manufacturing processes, but there's always kind of room to improve there. Next, extrusion. Extrusion is as the name implies. We extrude different types of profiles using thermoplastic polymers.
The key differentiator here for us is that we really do a lot of work with engineered profiles. 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 at our site that can work with our customers to help optimize the design. We're totally vertically integrated. They can come to us with this kind of tough engineering problem. Again, some of these extrusions, there's co-extrusions. There may actually be three and four different extrusions at once coming together. Again, we can take their very tough engineering problem, help them optimize the design for manufacturability. We design the tools in-house. We manufacture the tools in-house. We have a prototype area to set it up.
We have really a state-of-the-art production facility that we just did a recent expansion on. I think we have 50 some odd extrusion lines there, as well as numerous co-extrusion lines. We're very well kitted out in that space. Again, our value proposition to our customers there is being able to work with them on highly engineered products. From a market share perspective, it's a pretty fragmented market. We're one of the top manufacturers in Europe. Most of our business is European based. Again, it's a fragmented market, and we're one of the top 10. From a facilities perspective, we're located up in Buitenpost in the Netherlands, about two hours north of Amsterdam. From a market perspective, we serve a whole range of different industries and markets with our product, from building and construction to furniture, making. It's really the gamut.
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. This is really used in the aeration process at wastewater treatment plants. You, thank you. You can have a horse.
My caring side.
There we go. Thanks, Paul. With the bio-wastewater treatment, what that allows is the aeration of this. The biodegradability that happens with the bacteria to get rid of the pollutants in the water, is enhanced by these products that we've made. They're special profiles that have a lot of surface area. When you're agitating those in a tank, it helps oxygenate the water, again, to speed up this bioreactive process. Again, but the key takeaway here is it's really a broad range of end markets, sort of just the opposite of the pipe protection business. What are the opportunities here? The challenge here is we have a great business, great talent there, but really we could really do with some operational efficiency. The margins are not really where they need to be with this business.
I know how familiar you guys are with Danaher, but I spent a fair amount of time there. We're really implementing a lot of the tools of the Danaher Business System in this particular facility, along with Nick Pannell and the continuous improvement team that Paul has put in place. 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. It's been a really a good experience working with them.
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, from the cold elements on the outside. It basically acts as an insulation barrier. It's a very large market in the U.S. and in Europe, an area that we think we could get into. Tear tapes. These are pressure-sensitive tapes that are used in the packaging industry to help basically open up those products. Okay. The products that we have are really three categories of products that we have here. 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. Or like Wrigley's gum, where you rip open the top pack and the plastic goes off, right? That's one area. We also, though, make a product called Rippatape and box closure tape. Okay. Those are used, if you think about a FedEx mailer, okay? You rip it open. We make that tape. As well as the tape that you use to actually close the mailer itself. We also make that tape. Finally, we make a product called RE:CLOSE, which is a packaging tape, that's used in the food and beverage industry to re-close packages. You think of it as portion control. In the States, we like jumbo-sized things, right? The jumbo whatever.
You get the jumbo bag of potato chips, and instead of using a clip, this has actually a tape that you can actually roll up and self-seal. Okay. That's another product that we have. Again, the primary product, really, the majority of the business is the Supastrip product, which is used in the tobacco and food packaging industries. What makes us relevant in this particular space? We're kind of a one-stop shop here. You can come in, we can print the tape. We've done work in authentication, so counterfeit control, and that may actually come back. 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.
Not a lot of people can do this. We can slit the material down to basically 2 millimeters wide, okay, in rolls that are 1.6 kilometers long. Who cares, right? That's because in a tobacco factory, you can set this thing up and run for an entire shift without it breaking. Again, from a value proposition, these products are regulated, right? You have the adhesives, you have to go through all the regulation, and 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 this particular space.
From a served market, again, we talked about a little bit, we have the tobacco, which is a significant portion, but it's the food and beverage and 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 not a lot of options there in that particular space. Again, we pretty much have that market. We have a significant market share in that particular space. Facilities. Our main facility where we do this is in Nottingham, but we have satellite sites that support a lot of customers. We have sites, small satellite sites, that do the slitting in LatAm, in India, and in Asia Pacific. From a market backdrop perspective, we all know the story with tobacco.
We talked about it with filters, right? I kind of call that probably an iceberg, maybe a slow growth there, but it's not going to go away anytime soon. 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. From a, what's the strategy on this business going forward? We have 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 terribly broken per se. There's some things we're working on there. A lot of this is just pivoting a little bit. We're going to continue to support the tobacco business.
Great business for us, we see opportunities now 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? This whole mailing thing and everything else was clearly a huge opportunity for us to expand in that space. 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 ball for the tobacco industry and the opportunities that are in that space. Specialty Tapes. Specialty Tapes makes double-sided tape, bottom line. 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 a double-sided tape.
Probably the majority of the product that we make is foam tape, and that's because from a foam tape perspective, it can adhere to uneven surfaces. If you have, like, super glue, right, and you try to glue it to an uneven surface, it's not going to work. Okay. If you have a foam tape, you can get adherence there. It's really for uneven surfaces. We make a whole variety of tapes, from foam tapes to double-sided tape to sticky A whole range of tapes for basically adhesion purposes. Why are we relevant in this particular space? 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. Again, we do our own coating. We do some adhesive formulation, which we outsource.
We do our own coating, we do our own slitting and converting, and we sell direct to our customers. 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, more than I care to know, and this facility delivers 98% on time with one-day lead time. I've never seen that before in my life. You think, "Well, how many warehouses do you have storing inventory?" We have some WIP in process, but we run three shifts, so we have a lot of raw material set up in queue, and then we'll fabricate it. An order comes in today, we have the raw material.
Maybe 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. That's really clearly a supreme value proposition this business has. From a market perspective, we really serve kind of. As Paul indicated, we have this kind of point-of-purchase display, which we talk about is the retail space, which again, we're clearly a share leader in that particular space. 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, we have a state-of-the-art facility in Chicago, Illinois, my hometown. Then we also have several satellite distribution sites throughout North America. This, again, is primarily a North America business at this point in time.
From a market backdrop perspective, as I spoke before, POP is clearly a significant part of our business. As Paul indicated, that's from a retailing space with the e-commerce that's declining a bit. Again, we're holding our own there, but again, from just an industry dynamics perspective, we're seeing in the States anyway, all the whatever, Toys R Us closed, Walmart's even having. I mean, it's et cetera, across the board, and we're seeing that. That affects us because really our business are those kind of cardboard endcap displays that you would see in retailing spaces. There's three kind of fixtures in retail. There's permanent, semi-permanent, and temporary. We primarily serve the temporary space.
If they're going to put a special at Costco for whatever, candy canes for Christmas for sale, they'll put that out there, it'll last for one year. Or excuse me, one year. It'll last for one month, and then they'll throw it away and do another one. They're seeing the retailers are spending a lot more time or a lot more mind share and money on e-commerce and marketing, versus that. Again, great business for us. However, going forward, we're going to really go add some more commercial resource, and we'll talk about that in a second, to focus on the other three areas, which we think we have significant room to grow in. From a path to value creation, this one, again, is a commercial strategy. This is about the business.
Used to be way more industrial and appliance in the past, it kind of pivoted over to POP. We're going to kind of bring that back and balance it a bit. We have de minimis share in industrial and appliance space. We do sell into that space, okay. We have some very large accounts there, but from a, just overall, kind of share of market, it's actually quite small. We're investing in some engineering talent because these sales, unlike POP, where you get an order today and you ship it tomorrow, these are more of an engineered product sale, which I'm very familiar with. They can take three months to a year and a half to get spec'd into a new design at a major OEM for a particular foam tape or whatever, right. We're adding our engineering capability.
We put a better lab into place, as well as some commercial resource that is kind of more used to selling into that kind of environment, versus a POP environment. That's a work in process. This is going to be kind of a year or two, candidly, to kind of be able to turn this around, because of the sales cycle in these other markets is so long. We clearly have the technology and capability to go after those markets and serve it. 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, and we're a lot more responsive to the customers. Again, we don't need to take a lot of share here to move the dial with this business. Card Solutions. This is a people ID business.
The products that we sell are, we sell, like, the little, I don't know if anybody have them, the little ID badges that you use for access badges to get into facilities. We sell those. We sell the printers that customize those. We sell the ribbons and 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. We are strictly a distributor. We don't make anything. This is all just strictly distribution. We've got numerous printer partners, numerous card partners, et cetera. 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. Also, we have great technical expertise in this particular market. That's, again, a clear differentiator. From a market size perspective, though, it's basically a GBP 45 million U.K. market. Our market is strictly U.K. right now because that's where our distribution agreements allow us to operate. It's a limited market, but we're probably the share leader in this particular market in the U.K. Again, great breadth of technical experience, great product line, and a very enthusiastic and energized management team. Facilities, we have a small site housed within our facility in Kidlington. They're really kind of fun. I mean, even though this business is small, I really like this business. Paul knows this.
The whole ID space is really interesting, and again, kind of gets back to why we're relevant. Think about it. The whole identifying people and this whole notion from a border perspective and everything else, it's really a growing space and very interesting in my view. We serve a whole variety of end markets. Education would be an example with the back to school that's happening right now. All the kids come in, they come, the University of Sheffield per se, will print out the little ID badge for them with their picture on it, their name, has an RFID tag, and that gives them access to all the buildings as well as it has their meal plan on it, they can use it for cash, et cetera. It's very interesting. Also, I heard this.
You guys had this little tennis event here in the U.K. in early July. Is that somewhere south of here? I don't know. Anyway, it's on grass, and I don't know about it. If you happen to go to that, right, all your ID badges were printed with our stuff that we supplied to that particular event. We have other sporting events that we're working on. Interesting business. What's our strategy here? Obviously, try to expand our product line to other accessories that we can supply. We have a very diverse, really good customer base. What else from a share of wallet perspective, can we serve or sell to those particular customers? Through our different product ranges. We're in talks with our customers that maybe we can expand outside the U.K.
They see how good of a job that we do in the U.K., and now that this business is kind of set aside on its own, we're a little entrepreneurial business, we may be able to go to them and say, "Maybe we can do something in other countries in Europe." They see how successful that we've been in the U.K. We see that as an opportunity. As well as, again, we have to upgrade our digital website. That is important part of it. A lot of our value proposition is the client calling us on the phone and asking and talking to us, but there still is a web element here that we have from an e-commerce perspective, again, once they're a customer, to make it easy with them. We have to upgrade our game in that regard.
One of the things that people may ask is, I'm going to talk about one of the considerations is the biometrics. You guys familiar with that? People say, "Well, we already use biometrics, and the cards are going to go away." Well, there's a thing called two-factor and sometimes three-factor authentication. Just because you have whatever fingerprint, there's another element that they want. That's the two-factor part. A badge with your picture on it and an ID thing is a second element of that, if you think about it. Like when I go through frequent traveler here in the U.K., I slip my passport into the reader, but they also do an iris scan of me at the thing. That's two-factor authentication. In some cases, it's even going to three.
We see that the cards are not going to go away anytime soon, that there's always going to be this multi-factor authentication that is required. Last, hope I'm not boring you guys. Last, but certainly not least, is our Industrial Supply business. This is, again, another straight-up distribution business, distributing branded products into the industrial marketplace. We have 73,000 SKUs, 650 suppliers, but really 60% of our sales are really focused on kind of six product categories that I have here. Again, why are we relevant? Well, what we do is, these are somewhat engineered products. 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 our particular product into their application.
This is not just an Online is good, but we've actually personalized this business so that we can go out to our customers and help them. It's a little bit of an engineered sale. The second part of it is that for quantities, we can be maybe commercially a little bit more friendly, for volume types purchases versus maybe some of the competitors might be. That's really, again, what our relevance is in this market. We have a great brand name, which I'll talk about. From a market perspective, distribution is a massive market. Probably is here in Europe too, obviously, but massive market in North America. We're a very small player in that particular space. We've done a market study on this. We have a $1.2 billion market potential on these six product categories just in the Midwest. It's huge.
Again, the business from a facilities perspective, we're located in Muskegon, Michigan. It's on Lake Michigan. Beautiful area. The beauty of it is, it's located in the industrial heartland of the U.S. All around there, the Detroit, Illinois, Ohio, all those areas are really the manufacturing heartland of the U.S. Again, like what you want about it, but from a U.S. perspective, manufacturing is coming back, that area is really booming. We are benefiting from some, candidly, some tailwinds from this administration, with this particular business. People may ask, this is probably the million-dollar question, and I spent quite a bit of time on this, how are you going to compete with Amazon and McMaster-Carr and Grainger, all these other distributors in this particular space? I think this little map here, I think depicts that.
If you look at the far left, that's those folks, that's kind of onesie, twosie, transactional-based business that you're going to get. You're not going to get Amazon to send an engineer out to your plant. That's just kind of transactional activity. The next group of things will be integrated supply companies. What those are is if you're big enough, let's say that you're up in, let's say you're a Ford Motor Company. You have a big plant. 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. That's another group. That's if you're a big enough company to have that. There's the large OEM.
You could go buy direct from some of those manufacturers that we have, like a DESTACO, you have to be buying truckloads. We kind of fit that interesting niche of kind of smaller, less than 250 people, kind of midsize or small manufacturing companies, kind of in the factory automation, machine building space. That's really our niche where we do a really good job of again, in that Midwest area, I grew up in Detroit, there are just tons of them around. The opportunity is really significant. I think we have a great barrier to entry with our customer service and our technical support. What's the opportunity here? The opportunity here is really, again, we're still going to have to do some work on digital. Let me step back.
When Essentra bought the business a few years ago, it was named Reed, which was around for 80 years. Started by guess who? Mr. Reed. The company rebranded it to EIS, and we kind of lost that. It kind of got lost in the shuffle. We're putting the company back together. We pulled it back out. We're rebranding it as Reed, which really has brand equity in that Midwest area. We're doing that. We're going to launch a new website. We still have to have a digital presence. We're not going to 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. There's a big difference there in sites.
We want them to be able to shop on our site, candidly, I don't mind them picking up the phone and calling us. We need to get that kind of established. It's really part of a stability agenda. 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. We've gotten some data. Of those 6 categories, a customer may buy 2. Being able to track that data and say, "Hmm, you're buying those 2.
You really should be buying these other 4." Being able to take our existing customer base and mine that to do a much better job of cross-selling across our range versus just buying 1 product. That's really data analytics and big data. It sort of comes along the lines of what Amazon has, where people who buy whatever, you buy a toaster oven, right? People who bought a toaster oven may have bought a blender, right? You ever see those things that come up on your screen. That's the analogy that I would use with this in terms of being able to make sure we cross-sell across our brand. Finally, again, I've worked in private equity for many years, and the distribution business is a classic roll-up spot. Yeah, I'm not sure what we'll be doing here, there's clearly an opportunity.
It's a hugely fragmented market. There are 60 companies, small companies like us just in the Midwest. Again, this is a classic from a private equity perspective, which I know my last private equity group, I think they did 20 of these different industries distribution roll-ups. These very fragmented industries. That's clearly an opportunity for us to consider. I'm not sure how it's going to work out, but again, it's clearly an opportunity. With that, I'm going to turn it back over to Paul.
Thank you. Thanks, Tim.
Yep. Thanks for the water, Paul.
It's okay. You owe me. You need to buy me a beer later. Delivered with your customary elan. Good job, my friend. I just want to Last couple of slides just to summarize. What have you seen? You've got these six standalone 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 two things, one of which is the strategic understanding, and the engagement between the MDs and the senior team. Secondly, identifying those which have clear short-term operational improvements from deeply understanding the management of those operations. It is a very decentralized business. You've seen 50% of the entire Specialist Components, infrastructure, and management team.
Firstly, market position. 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. I was trying to figure out how to summarize all of that, and I only found out three weeks ago from my head of strategy, these are called Harvey balls, and ever since I found out what their name was, I've been using them wherever I possibly could. We've got six axes here. And I'll walk you through it. So its position in its marketplace. Historic market growth, three-year compound annual growth rate. Current profitability. What the short-term margin improvement potential is, what we think the longer-term growth potential is.
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. Then third-party synergy potential. 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? If we take market position, as you see, PPT and Tear Tapes are the two largest, or the two strongest in their relative market positions. As they say, we have leadership in every aspect. The largest growth, and it's benefited from industrial production growth, the largest historic growth we've had in the underlying market is in Industrial Supply. PPT will have been a bit of a V.
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. Everything is profitable. Specialty Tapes and the Industrial Supply, at the top end, and Extrusions and Card Solutions, at the lower end of that range. As I say, all are profitable. There are two businesses which Tim has identified where we can make 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. 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. 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 consistent one being things like Amazon, FedEx, DHL, et cetera. We've obviously got the other opportunities in both Specialty and Tear Tapes that we've talked about, like Industrial.
It is interesting that Duraco, the Specialty Tapes business, was primarily an industrial that happened to do a bit of point of sale. Basically we got a bit lazy and just milked that bit and kind of the rest declined, I think it's fair to say, Tim. In terms of third-party synergy potential, we think that the biggest is in Industrial Supply. It's a natural, if you like, bedfellow to our components business. As part of a roll-up strategy, we can see that we can add value to a third party or vice versa. 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. That's Specialist Components.
It's 10:26 now. What I'll do is hand over to the floor for questions. Again, we'll go into cyberspace after that. Charles.
With the Tear Tapes and Specialty Tapes 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 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. They happen to be leaders in markets which have some decline. We have large shares in those two markets, Charles. 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 still a very nice and profitable business.
In terms of the timing to get that rebalancing, is this something that is a six-month or an 18-month?
No. As Tim said, it's an engineered product, so it goes into a domestic appliance or something like that. That's a one-to-two-year timeframe, because you've got to get the people in place, then you've got to get the specs. Got to get in at the start of a product lifecycle development. Is that fair, Tim?
Absolutely.
James.
Hi. On Tear Tapes, obviously that principally services the tobacco market with the tearable plastic packaging. Given the recent public sentiment swinging somewhat against single-use packaging, does that present a long-term challenge to profitability within that particular segment of the business, given that is the largest part of that individual business? How long do you anticipate that it will take to rebalance that business towards some of the other products that Tim mentioned?
The tobacco market is, or 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 exterior of a cigarette packet. On the other hand, we do have quite a lot of anti-counterfeit tag and capabilities, et cetera, and there are legislative potential counters to that. Equally, in Asia, you've got a real problem for the cigarette manufacturers. I don't know which of those two, James, is going to balance out. The important thing is we've got to have the capabilities and do to maximize the opportunity. The other important thing is we have to accelerate the journey of balancing out the portfolio.
I have no idea the statistics on how much the DHL Amazon market is growing, but it's pretty damn fast. That whole market for, say, food and beverage, is important. If you take something like Japan, we do wraps that go around rice balls. This is a very diverse product because it helps old people open things easily. There are lots of old people in Japan. 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.
A second, if you'll indulge me.
Always.
Thank you. Card Solutions. Looking at that table that you've presented there, a quick glance would be sufficient to suggest that you 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 principal candidate for the departure lounge?
Tim, don't answer the second one, but answer the first one. Why do you love this business?
I think this whole trend towards product identification, security is a huge trend. If we can break out of just being, the reason why that is small, because we are just U.K. right now. Okay? The strategy will be if we can get outside the U.K., it is a significantly larger market. A comparable company to ours in the U.S., just one competitor, is GBP 40 million. Okay? I have met with them, right? Again, our challenge is how can we take this particular technology that we have and the partnerships that we have and expand that out of the U.K.? The market for security itself is growing. It is really a question of our footprint in a limited U.K. market.
I think what we are trying to do is be prudent on this, and I think with the right hand of cards, and particularly if you looked at it more than three years beyond five or six, you could see this being bigger. In terms of immediate opportunity, I think we see less short-term opportunity because it either needs geographic expansion or repositioning.
Right.
Andy?
Hi. Just a question on the margin improvement. Clearly, we had 6.8% in the first half. I am slightly surprised that we have only got one of the charts having three quarters full in terms of margin improvement. Can you tell me, and again, I do not care timing, how you get there, in terms of margin for the group or sorry, for this division, what is this capable of? Is this a 10% margin business, or you can put a benchmark or a two or three, a 10%-12%, however you want to cut it. I do not want to put any pressure.
I-
Is this a 12%-15% margin division over time?
Well, two things. The reason that margins went down, those two were less significant as a proportion-
Sure
compared to those four. That's math. If we can't get to 10% with that portfolio, I'd be disappointed, and he wouldn't have a job.
Back to America.
I'll pay for the ticket.
Yeah. Can you tell me how are you remunerated with respect to this division? Is this on getting the margins back to 10%?
I would agree, yes. Yeah.
It's your remuneration is on the margin.
I'm sorry, what?
Your remuneration for this division is on the margin.
It's on a blend of things.
Oh, sorry.
It's partly I believe that the GMC, the management committee, partly need to feel ownership for the results of Essentra PLC, which hopefully would reassure shareholders.
Yeah.
Part of it is that, and part of it is kind of 3-year improvement in the performance of these businesses.
Okay. Thank you.
Anybody else? Should we go into hyperspace then, Jeremy, see if there's any? No? Good.