Good morning, everyone. I'm Scott Fawcett, Chief Exec of Essentra. Great to see so many faces in the room. Delighted to be able to share with you our half-year results for 2023. The first real reporting period for us as the new Essentra, the components pure-play focused business. Jack and myself today will run through an agenda, covering sort of highlights to start with. I'll hand over to Jack, who will give you more detail and color on the numbers, and then I'll come back and talk a little bit about our strategic progress, how we're doing on some of our key projects, some of the key themes, and a little bit of color around the three regions within the group that we haven't previously talked about. Hopefully you'll find that insightful.
I'll finish with a view of the future and outlook for the rest of the year, and then we'll move on to Q&A. Hopefully that all makes sense. Without further ado, let's move on to the highlights for the first half. Resilience is a word you'll hear a lot about today. We talked about it in the Capital Markets launch event back in November. This is a very resilient business, and we've demonstrated that through the first half of the year. The macroeconomic conditions clearly haven't been favorable. It's been hard going, but despite that, we've delivered a very good level of operating profit, and operating margins, expanding to 13.8%. Broadly, the top line has been pretty stable from Q1 to Q2.
On a sales per day basis, a fairly flat performance, Q1 to Q2. That's led us to do a lot more work on managing the, and controlling the controllables. Disciplined work on costs, continued progress on pricing, some good benefits coming through on procurement as well. Very much helping us manage that, that end result of, of the operating margin performance. Jack will talk more about the corporate costs as well, but we're well on track to bring that corporate cost in line with our guidance of a, an exit rate of GBP 13 million. Balance sheet remains robust, a, a slight level of leverage at this point in time. We continue with the share buyback, and we continue to have investments in both organic, and I'll talk later about our inorganic opportunities as well.
Very good cash conversion in the first half, as 89% above our midterm target. Pleasing to see cash coming through strongly. We continue to invest in the business, investing in service, working through our, our stocking positions. Continue to invest in the infrastructure of the organization. I'll talk later about Monterrey, the new site we have in Americas, which has gone live, driving our cross-selling. And I'll have a, a bit of a case study later showing cross-selling with an example from Wixroyd, the acquisition we made at the end of last year. From a sustainability point of view, I'll talk about the progress we're making there. Really great progress in the first half, and we are about to submit our targets to SBTi as well. We continue to be a leader in this space across the ESG agenda.
Importantly, the expectations for the year remain unchanged. We are forecasting or setting the business up for a continuation of that flat level of revenue performance into the second half. So we're not expecting a, a miracle, economic recovery. We may see some in some places by year end, but our, our starting assumption is a flat performance for the second half, and on that basis, we're very comfortable that we'll be able to deliver the expectations that we set out for the year. With that, let me hand you over to Jack, who will take you through the financial details.
Thank you, Scott. Welcome, everybody, this morning. It's really nice to see so many business partners and stakeholders. Thank you for your continued support. I'm delighted to announce a really positive set of results this morning. They are very much in the theme of resilience. We said back at the Capital Markets Day, that one of the USPs of Essentra was that it is resilience. We saw that during the global financial crisis, we saw it during COVID, and we're seeing it again in some lackluster markets. We're seeing that we can pull through and deliver, so that, that USP is being delivered, as we said in our strategy. What we're also going to demonstrate this morning is we set out an ambitious set of KPIs back in November, and again, we are delivering on those, and we'll see that.
Just looking broadly at the numbers, you can see that revenue is down, but that's against some very difficult markets and in line with our peers. Adjusted operating income is up significantly. The margin is up 520 basis points. Cash conversion is almost 90%, which is well above our target, our KPI. Net debt, we are at 0.2, we're very well positioned for future growth. We have the firepower. ROIC and EPS are both progressing well. The dividend, we paid the dividend at GBP 1.2, which is in line with our 1/3, 2/3 distribution at three times cover. Strong set of financial results in quite challenging markets. In terms of the revenue then, you can see that we are down 10.4% overall. We've had a contribution from Wixroyd, which is going extremely well.
Within that 10%, we have had strong pricing, which has helped offset some of the market drops that, again, it's not just us, it's our peers as well. As we come onto the profit, we'll see how we've mitigated that. Going into a little bit of detail in the regions, Europe has remained quite resilient in terms of revenue. We've seen far less of a drop in Europe. It's our real strong suit. The Americas, the destocking has continued, and that's proved to be challenging. Asia Pac, after a very difficult start in Q1 with the continued lockdowns, et cetera, and the economic wobble, that's now recovered and is on a steady trajectory. Revenues have been challenging. Nonetheless, we've been able to maintain our profitability. Talking of profitability-...
You can see that our income has progressed to GBP 23 million, as opposed to GBP 15 million last year, our operating profits. Which, you know, a big part of that is the fact that we said that we would drive down the corporate central costs, and we have. That's come from three pools: the discretionary costs that exist within the business. Obviously, in this difficult environment, we've been razor-like in terms of making sure we mitigate any discretionary cost and stop it. We've also restructured to take out costs that were in the old larger Essentra. That's now complete, and our operating run rate that we said that we would get to for the PLC of GBP 13 million, I'm pleased to announce that we've got to that as at the end of June, which is, which is good.
We also had some restructuring costs, some legacy costs that rolled over from the old group. Again, we've mitigated those and managed those costs extremely well, and we had GBP 5 million for that. We're nowhere near in terms of that spend. That won't recur next year, but nonetheless, it's a good mitigation this year, and it helps with our cash flow as well. We have the adjusting items. Now, in the past, this has been a source of challenge to explain because there were so many adjusting items. I'm pleased to say that we are down now to what I would consider to be a normal set of adjusting items. The first one, and the main one, is the development of our ERP. As you'll recall, you can no longer capitalize ERP-type projects.
You have to expense them in, in, in line with the new accounting software rules. Obviously it is genuinely an investment, so we treat that as an adjusting item, and that's consistent with prior years. That GBP 4.9 is in line with what we budgeted, in fact, slightly less than what we budgeted for H1, which is good. We had the normal costs associated with dis-disposal and separation, pension scheme charges for our le-legacy defined benefit scheme, GBP 0.8, and acquisition costs around Wixroyd of GBP 0.4. Much more normal set of what you would consider adjusting items, not the big long list that we used to have as we were going through the corporate transactions. That's the nice thing about this set of results.
You can actually see the underlying components of the business very clearly going forward and get a clear read on it, which is, you know, very, very welcome. In terms of the cash flow, this is a real standout home run for the team. We've managed to deliver 89% cash conversion. That's been managed through strong management of the balance sheet in terms of collecting our receivables, mitigating our payables, and managing our inventory well. It's likely in the second half that we will build inventory as we hope the growth returns. We'll have a small outflow in the second half, but that's a positive thing. In terms of a percentage of sales, net working capital is 18%. That's very much in line with the guidance we gave back in November. CapEx is at 3%.
It's slightly skewed to H2. Normally, we'd be running around about 4%. Within CapEx, we continue to invest in the business. We've put major money into our Turkey operations, which are... It's a bit of a, a golden child of the Essentra family. We're putting further resources into that to fuel its growth in terms of new presses, new machines. In the UK, in line with our ESG credentials, we've enhanced our chipping capability. The material that the waste material that's generated, we're rechipping that and putting it back into the mix. That's obviously an efficiency improvement, but it's also good for ESG. We continue to invest in the business. This is a very resilient, good long-term business, and we're committed to spending the money on it.
Nonetheless, the cash flow is extremely positive, and that comes from a position where we already had a strong balance sheet to start with. We've, we've paid out the shareholder returns that we promised after the two disposals, we're still left with a 0.2 net debt to EBITDA, a strong underlying cash flow generated from a good, profitable business. We have very good, cheap, long-term debt in the form of our USPP, which extends. It's roughly 4%, and it extends out to 2033. Very good, cheap debt, very strong cash flow. We have the funds, we have the balance sheet to fund and fuel our growth and provide certainty in uncertain markets. Capital allocation policy, I always talk about this. It's important. This is how we use the shareholders' funds.
This is how we drive the business going forward. Number one is organic growth. I've talked about some of the things we're doing in the business, in reinvestment into the business, managing the net working capital. That is the holy grail of how we drive this business forward. We have a long-term organic growth. We are recommitted to our strategy in terms of doubling the revenues and tripling the profits. Revenues have been lackluster this year. Nonetheless, we believe over the period we can get there, that, that we can sustain that 4%-5% of sales growth. Innovation, it's very important to us to keep at the cutting edge. We are just about to open up our Sustainability Centre of Excellence, which is in Kidlington, in the U.K., near Oxford. I'm sure that we'll be showcasing that at some point.
Our digital hub in Istanbul goes from strength to strength. We have continued to enhance our customer proposition with that. We're very much. Innovation's a key driver of how we go forward. Scott will talk a little bit about where we are with the acquisitions. It's a very healthy pipeline. We're making very good progress. He'll go into some more of the detail on that. Lastly, we committed in our strategy that we would return an ordinary dividend to the shareholders, a progressive one. It would be a three times cover. Indeed, as I've already mentioned, we've done that.
I promised back at the Capital Markets Day, back in November, which seems a long time ago now, I promised that we would measure ourselves going forward and track it so that you could see the, the things we said then, we actually stuck to, and we're actually delivering or not delivering. Here's the scorecard, the first scorecard. Revenue, as we know, has not been at the level we hoped for, but that's in line with our peers, that's in line with the markets, and we've mitigated and managed that well. Operating profit, that's a clear green. We are definitely on track to where we want to get to in terms of the trajectory to 18%. Cash conversion, we set a metric of 85%. We're at 89%.
Debt leverage, we said that we wanted to be in that, in the near term, 0-1. We're at 0.2, clear green. ROIC, we are progressing from where we were. We're, we're moving up. On the dividend, we've done what we said. In summary, we have a very strong set of financial results. The business premise that this is a uniquely resilient business has proven to be the case during this period, and we are delivering on the strategy that we said back in November. With that, I'll turn it over to Scott. Thank you, sir.
Okay, moving on to our strategic review. No, click. Perfect. This is a slide that we used at the full year results as well, just to set out how the business operates. I'm not gonna go through all of it again, but let me recap on the vision of the group. We want to be the world's leading responsible, hassle-free supplier of essential industrial components. What does that really mean? Essential industrial components, what we manufacture and sell are small but critical components used by other manufacturing businesses. They tend to represent a very small percentage of our customers' bill of materials, but if we don't supply them, if they don't arrive on time, our customers cannot manufacture whatever product they're manufacturing. They have a high level of criticality and a low level of actual financial cost.
Because of that, being hassle-free is important. We need to be a supplier that our customers don't worry about. They should worry about those suppliers who have high percentages of their cost of goods, rather than us, who are providing this, this small percentage at the bottom of their bill of materials. Being easy to do business with, having good levels of service, being approachable, they're critical to us being successful as a business and very much how we set the business up. Then being responsible really covers across our ESG agenda. It's important that we are strong from an ESG point of view. It's important that it drives the right employee value proposition that will feed into customer value and ultimately financial returns and shareholder value as well.
We are this business that manufactures these low-cost components, and we aim to do that in the smoothest way. Hassle-free service is our key differentiator. Bringing all that together, we're expecting over the next five years to double the revenue and to triple the operating profit of the business. Jack has clearly shared with you the first half performance, and whilst we're making good progress from a profit point of view, clearly, our revenues have been challenging the first half, but we have been here before. We run a cyclical business. Our business is linked to PMI or industrial production. We've shown through history how those links work. We tend to be early into the cycle. We tend to be early out of the cycle. We tend to underperform on a down cycle. We tend to accelerate very quickly on an up cycle.
Jack and I have both managed through cycles previously, myself with Essentra, Jack in his previous employment with Marshalls as well. We have good experience of how to run a business through cycles. We've demonstrated the resilience of this business, and we've demonstrated we've controlled a lot of the controllables over the course of the first half. Whilst the first half revenue has been challenging, we're still very much expecting to double the revenue of the organization through that five-year CAGR and through the industrial cycle that will no doubt unfold in the coming years. Very much on track to deliver as we expected, given the resilience of the business and the proactive management that we've been taking place. Just move on. Perfect. A little bit about the diversification of the business.
We talked previously about the end customer markets that we serve, a very broad range of markets. About a third of the business is tied towards what are probably high growth markets, probably less cyclical markets, and two-thirds tied towards more broad industrial. What we've seen over the last six months, actually, is the, the consumer equipment, which is our sort of electronics exposure, is probably the market which has been most challenging, and we have seen some pick up in those more ESG related markets over the course of the six months. That's a trend we will be managing to continue. We'll continue to try and focus on winning business in those, those markets, which probably have the greatest dynamics. I was I was recently amused on Friday.
I popped into the Dutch office to show their, their local entrepreneurial behavior, they're focusing on e-bikes. A very Dutch thing to do, they've got a marketing campaign going out with all the products that you could possibly build into an e-bike. That's the Dutch version of electrification in action. I thought it was brilliant. Secondly, from a channel point of view, we talked about a reasonable % of our business being sold through third-party distributors. That is, in many ways, complementary to what we do, selling into MRO providers or R&D providers who do things differently to the way that we do that. Those distributors have continued to destock during the first half of the year, so that % of sales through distribution has somewhat artificially fallen because of that destocking behavior.
You can see that's down to 19% in the first half of the year. This has the largest impact on our U.S. business, where we have the highest channel share of distributors, and we haven't seen a changing of that destocking behavior through the quarter, which we were probably expecting at the start of the quarter. We're now in a position of not expecting it to change. We're planning for it to remain as is throughout the balance of the year. It may start to improve, but let's set ourselves up assuming it doesn't, given we were probably overly optimistic with that destocking cycle, when we last spoke. Just to give a little bit more color to the three regions. Starting with Europe, Europe is obviously our largest region, 54% of group sales.
Also has the strongest level of profit, gross profit level as well. It's a very diversified business, and that diversification has helped the sales performance through the first half in particular. A very broad range of customers, and we're doing a good job of winning new business in those, in those growth markets. The access hardware product range is a real key driver of success, so this is the products that, for Europe, we predominantly make in the Turkish business. A key driver of our success and a driver of profit and growth for the last few years and will be moving forward. I'll talk later about the impact of Wixroyd, that that's starting to have on the business as well. Good robust performance from our largest region, and our most profitable region.
Americas slightly more challenging. What we have seen through the quarter is a actually deterioration in revenue. That deterioration in growth has been driven by that distributor destocking. End customer is actually a little bit better Q2 versus Q1, which is encouraging and bodes well for the rest of the year. Monterrey is now live. I've got a slide later just touching on that a little bit, but that's a great opportunity for us as well. Working through that distributor destocking, driving new business to the end customer is really important, and they're starting to use Monterrey for nearshoring, and for looking at some cost management opportunities as well, will help us through the balance of the year and into next year. Then finally, the Asia region.
We've seen a significant improvement on a like-for-like sales basis from Q1 to Q2. However, on a sales per day basis, there's a marginal improvement. Again, we were hoping that China would be picking up post the lifting of lockdown restrictions. As has been widely reported by just about everybody, the Chinese economy is not growing to expectations. We are in a similar position. We are seeing some improvement, but it's not at the rate we were probably hoping for. We expect that to continue through the rest of the year. We do see some really good opportunities in growing access hardware products. We have the Hengzhu business that we bought a couple of years ago. Because of the lockdown restrictions, it was difficult to actually do very much with that business until recently.
Over the last few months, we've had a lot of people visiting them. I, I've been to visit for the first time since we bought the business, and we've seen some great opportunities for that to be a growth driver, both in China and in the rest of Asia, both this year and into, into the coming years as well. That'll be a key area of focus for us as we move forward. I talked about ESG, we're making good progress. We've achieved our 20% of recycled content goal, 2 years early, in effect, already achieved that now. Safety performance continues to improve, a good reduction in lost time accidents, good improvements on waste, driving renewable energy.
The solar panels now in our first site in Thailand, really across the board, some really good progress on, on ESG. This isn't just a tick boxing exercise. Let's be clear. Most people we interview for joining the organization will ask us about our ESG agenda. It's an increasingly important part of our employee value proposition. It's becoming increasingly important from a customer point of view. We think helping our customers to be able to manage, articulate, and, and reduce their Scope 3 emissions will be a really important value proposition element in the coming years. Those things together will help our financial performance, and therefore, clearly help the shareholder and shareholder value proposition as well. It's a really important element of our, our business mix now, but increasingly will be going forward, and we're very much in a leading space.
A little bit on strategic projects. Delighted to announce that our Monterrey facility is now live, and we have the first machines operating. Actually, I heard a video overnight that we've moved the machines from the old Monterrey to the new Monterrey facility now, and they're, they're in production as well. Great to have the facility in place. It's a big place, 10,000 sq m. It's a large facility for us, one of the largest facilities in the group. Really is helping us set up for growth, and we hear a lot about nearshoring opportunities. Our customers are talking to us about reducing the risk in their supply chain. Typically, in America, that's about reducing Asia-sourced products and bringing them closer to home. Our Monterrey facility will really help us do that, both for our customers and for our own manufacturing mix across the group as well.
Important facility for us and, and great that it's live on time. Front-end digital website development continues, continues to be an important part of our mix. Most of our customers start their researching online, so we need a good shop window. The team in Turkey, really great performance there. Had the opportunity to visit them earlier in the year. Really nice set of skills, highly engaged team, and starting to work through those developments. We've launched some My Account work this half. We're doing work on find the right products effectively, so how do we optimize our search tuning on the website? Some really good progress there. That, that team have, have been a really, real strong find for us. Then finally, back-end digital ERP continues to make progress. Always, ERP programs are hugely complex.
We've put some improvements through the template now into France and Spain, which are great, helping us to improve customer service. We're on track to launch in Eastern Europe before the end of the year in five sites. Then we'll be rolling forward with the rest of Europe as we go into next year. Again, very much on track in terms of the rollout to Europe and the spend, as Jack's mentioned, up to GBP 12 million this year, maybe slightly less. Again, very much in control as we've as we set out from a guidance point of view. A little bit on Wixroyd now, if I can. So we acquired Wixroyd, I think at the start of December last year.
Very much around us, looking for new products that we can cross-sell to our existing customer set. That's our go-to synergy play, if you like. We've now launched the first 750 products into Europe. These are launched across all the European websites, translated into local content, and we have stock in place in Germany for these products. We're now starting to see that cross-sell in action, if you like. First example of this, we've got here is a company called Ingeteam. They're a customer of ours in Spain. They're involved in a whole load of electrification activities. One of their product lines is on EV charging. We talked about this before, but it's nice to bring it to life. Ingeteam are a good customer of ours.
They already buy access hardware products from us, so they buy locks and latches. They buy fastening products. They buy cable management products from us. They buy some general protection nut cap covers from us, so a good broad customer. What we've been able to do in the first half is also start selling them these little beauties. Always get excited by a little bit of product. These are spring plungers, effectively. At the end of this device is a ball bearing with a spring, which moves up and down and enables you to position anything that you're either turning or rotating. It will find its natural home and give you a positive feel that it's been located, so using any type of dial effectively.
We're now selling these to Ingeteam on top of the other product areas. We've gone from five product categories to six product categories, thanks to the Wixroyd cross-sell. Very pleasing start to life with Wixroyd, going very nicely, and good to see that cross-sell in place. We are also seeing some cost benefits as well. You know, revenue drive and cross-sell is our, is our number one play for acquired businesses, but we have seen some cost benefits. Things like our freight rates were much better than the Wixroyd freight rates, so that's delivered a nice upside to our business case as well. More broadly on M&A, we continue to work on the pipeline. A number of conversations going on.
I think as per the message at the full year results, conversations now are more bilateral than they are process, just given the nature of the, the, the debt market, I guess, and the general reduction in the number of businesses going through a sale process, through a structured ma- method. Because of the relationships we've built, we are having a number of bilateral conversations. We are seeing private sellers probably more interested in selling at this point. It's not the easiest time to manage a business, so because of that, they're having those conversations with us. We do have one conversation in particular, which is pretty well advanced. Therefore, we, we remain confident that we'll be able to, to bring another bolt-on acquisition into the fold during the, the balance of H2.
Generally, good progress and continued progress. Nice that Wixroyd's working and confident that we'll be able to do something else in, in H2 as well. A little bit back to our margin expansion. You know, good margin in the first half. Good to see expansion despite the, the revenue challenges. We continue to be highly confident of us being able to drive margins over that five-year period to our midterm guidance of 18%. The ERP benefits will undoubtedly be there. We've talked about pricing and efficiencies being two of the big catalysts. They are going to be in the later years as progress and rollout becomes more mature. Footprint benefits are there. Monterrey is part of that facilitating footprint benefits. The ability to nearshore, take some cost out, will be helpful.
Procurement and buying better, these are some of the benefits we're seeing already this year. The procurement team are doing a great job in identifying sourcing opportunities. We're saving money on resourcing raw materials, resourcing factored goods, also bringing some factored goods from from buy to back into a make scenario. A number of things there helping us to, to add to our margins. Then operating leverage and scale. Whilst we haven't seen that leverage at the start of the year because volumes have been down, our ability to take some of that corporate and central cost out will only help that operating leverage and scale benefit come back even more strongly when the markets recover.
I'm not predicting when that will be, but it will, it will clearly happen at some point, and we'll be very well set up to take advantage of that. Moving on to the outlook. The business model is fundamentally strong. You can see that in the performance of the first half, very resilient. We've had this history of being able to manage the business through cycles. We've been here before. We've maintained that strong level of profitability and resilience, and we're well set up for, for the future recovery. Confidence in the midterm targets. We are investing in the business. It's tough out there, we're not investing perhaps as much as we'd like to. We have to manage costs very tightly, but we do continue to invest in those strategic initiatives.
Monterrey's gone live, the digital platforms are developing, ERP continues to make progress. We have e-cycling campaigns in Holland. You know, the business hasn't stood still. We're still looking to win all those opportunities that we can and continue to drive that forward. Balance sheet's in great shape. We're in a strong position, 0.2 leverage, opportunities for us to then invest in both that organic growth, but also value enhancing M&A as we go forward. We remain confident we'll be able to do something else through the balance of this year. Very much, we continue to remain aligned to and confident in achieving those midterm targets. For this year, our outlook is, is unchanged, expectations are unchanged. The market conditions are mixed. You know, Europe is, is up and down.
Germany is quite tough, Southern Europe looks better, Turkey's doing very well. There is some potential for improvement in Americas and Asia as we go through the year, but we're not banking on this. We're effectively expecting a flat sales per day trend in H2 versus H1. We're taking quite a prudent view of the world, setting the business up in that basis. On that basis, we're, we're very confident in achieving the expectations for this year. Well positioned to deliver this year, and when the markets do recover, we'll be in a very good place to take advantage of that. You've seen our recovery trajectory tends to be very strong coming out of a downturn. Very much broad expectations for 2023 remain unchanged.
With that, if I can ask for Q&A and invite Jack back upstairs to take all the difficult questions. Andy Douglas. Three questions from Andy coming.
Good morning, Scott. Three questions, please. First one is on the margins. I guess there's possibly two in there, but anyway. There's a big differentiation between margins at the operating profit level, and I guess to some extent, gross margin. What is the ultimate kind of margin, do we think, for Asia Pac, and where do we kind of see that gross margin kind of evolution outside of Europe? Europe is clearly very good.
Yeah, Europe is good, and Europe will benefit further when operational leverage comes. It's not a terminal margin level in Europe. We still expect upside, then sets the bar for the other two regions. There are dynamics in the other two regions that we need to continue to work on. I think for Americas, there's both top line and bottom line dynamics. That sales through distribution clearly has a diluting effect. The breadth of the customer opportunity in the US is strong, but also labor costs in the US are very high, so Monterrey does give us somewhat an opportunity to balance that investment. Top line and bottom line in Americas will help drive margin.
Asia has a slight nuance in that we have a larger percentage of goods flowing from Asia to the other two regions versus the opposite direction. We tend to flow goods into company at a cost plus 10 basis, so it has a natural diluting impact on the reported margin for the region. Having said that, there are lots of opportunities in Asia. Over time, Asia domestic sales will be a continuing higher percentage of the total. It will continue to make progress. Clearly, it lacks some scale right now. You know, China is 2/3 of the Asia business. China has the greatest ability to scale up. The rest of Asia is a very fragmented footprint, and we do need to continue to think about how we drive scale through that footprint moving forwards.
Okay, cool. Thank you. On the cost saving front, can you just explain to us how that kind of works in reality? Does that come down from the central, you know, edict into the regions, or do they kind of do it for you? Explain to us how that works and, and how easy it is to flow through to the bottom.
Yeah, I think, certainly there is, there's some cost setting targets set at the center, then the regions will implement those cost savings and have a fair degree of latitude within. They've got to absolutely hit the target, they will have the latitude to do that. I think what we do very well is we track those cost savings, we don't just take them as read. We actually go through and get the proof that it's actually been done and implemented and in place, then we track the cash conversion that comes through with that following. Yeah, it's a pretty rigorous process.
Cool. And the last thing, you've done a cracking job on the central cost line, you're a year ahead of where you guided to.
Yeah.
Well done. The unallocated costs inside the divisions, I think, was a short GBP 10 million. Does that gently decline over time? Is that the kind of next area of focus, and can you drive that lower?
Yeah, I think so. That's, that's really a volume play. As the business returns to growth, we don't anticipating adding on lots of extra SG&A, so that should drop through in the margin.
Thank you.
Morning, guys. Henry Carver from Peel Hunt. Just a couple from me. First of all, just on that, on the Monterrey expansion, what capacity does that add? Just a sort of point of clarification there. Then secondly, around the kind of hassle-free, you know, doing business focus, just any sort of color on what you're seeing there. You know, I know the MPS-
Yes
... sort of comes out later in the year, but any kind of color on, on those sort of metrics, at this stage would be.
Yeah, certainly. I mean, Monterrey, as I say, it's a large facility for us. It can probably fit 120, 130 injection moulding machines, and, and that's our sort of largest volume manufacturing process. That's as big as any sites we have anywhere in the group. You know, it will have the ability to generate $50 million worth of revenues, something of that nature and size, I guess.
Yeah.
A, a, a good add of capacity as we go forward. Now, we're not gonna put 100 injection moulding machines in there this week. That would destroy Jack's CapEx number quite nicely, but it gives a lot of flexibility and options around how we, how we look to grow the Americas region. In terms of hassle-free, we continue to invest in service. We are adding a little bit of stock right now to ensure that our service is in the best possible position. I was around coming out of the pandemic, and we, we accelerated at such a rate we couldn't keep up, as with many organizations, so we want to be in a very strong position when the markets do turn. We are investing in stock, which has a good benefit into, into the service levels.
Whilst our big annual survey comes in Q4, and that's the number we always share from an MPS point of view, we do actually do a pulse survey every month, a post-purchase questionnaire. Now, it's small numbers, so therefore it gets a little bit volatile, but that's up strongly versus the first half of last year, and after six months, it's a fairly robust view. Generally, we're in a much better position than the first half of last year, and slightly better than the second half of last year from an MPS point of view. My expectations, all the indicators are MPS naturally will be up by the year end as well. Yeah, I, I think we're ticking along pretty well. Always room for improvement, but we're making progress. Adrian?
Morning, Adrian Kearsey, Panmure Gordon. Can we go back to the gross margin area, if we, if we may? You gave some sort of details in terms of what are the drivers. To what extent, does the gross margin vary across the different divisions because of the route to market and also because of the product category split?
Yeah, a little. Route to market definitely has an impact. You know, effectively, distributors are taking an element of the end-to-end margin. Where we have more sales, direct to end customers, typically, I'd expect our margins to be slightly higher, and that's one of the factors that affects the Americas business. Across products, there's a little bit of difference. They're all... You know, we don't have any real low-margin products, but there is a little bit of a mix, maybe from, from a 40% gross margin level up to a 70%-80% gross margin level. All profitable, but there is some variety in there.
One of the, the challenges we have, and you see a little bit in the European numbers, the, the Turkish products, the, the access hardware products are probably in that 40%-50% gross margin category, so slightly below an average level. It does have a diluting effect, and that's growing strongly versus the rest. Now, as the whole business grows, we don't see that mix effect normally being a problem, but when we're seeing declines in areas and volumes down, that mix effect is actually showing out in that European margin position a little bit. A little bit of mix in Europe, on the back of the access hardware, but still a good level of profitability, and as we're growing, it all blends very positively.
Thanks. Morning, James Pilling, Numis. A couple from me, please. In terms of order trends versus H1 2022, can you give a bit of color on, on, on how that's how, how that's trended through Q2? I know in, in sort of H1, I think we were sort of maybe a little bit below the sort of peak levels, but, but you were sort of seeing notionally more positive trends at that point in time. Secondly, on the ERP implementation, just wondering how how the implementation went in France. Am I correct in thinking that you've maybe sort of slightly delayed the implementation in, in, in Eastern Europe, and if so, why, why is that the case?
Yeah, yeah. Good question. Let me pick the ERP one on first. From an ERP point of view, we took the decision to put some improvements into Spain and France ahead of going live in Eastern Europe. If we look back and look at how the ERP is performing across the sales and finance processes, which are typically some of the more complicated ones, we're, we're in a very good place, working very effectively. We have some challenges in, in supply chain, effectively, and a lot of that is to do with the old world talking to the new world, and we just wanted that to be working more smoothly before we put more people into the new world. We've taken some time to, to look to resolve some of those challenges.
We're probably two months later than we probably were expecting to be at the start of the year into Eastern Europe. Not, not a significant move, but a, a deliberate decision to put a bit more focus onto France and Spain, work on some of these supply chain challenges, because they're having a direct impact on customer service. It wasn't just a cost issue. We were, we were not doing as good a job as we wanted to from a customer service point of view, so we put the priority there, and, and don't make the problem any bigger, resolve those, and then move into Eastern Europe. That was a balance.
Orders?
From an order point of view, we are pretty flat trading from an orders through the first half. That's still, on average, up versus last year. It was down versus the first half of last year.
Mm-hmm.
It's up versus the exit rate of last year. That big tailoff that we saw at the end of last year, we definitely recovered from that effectively. We have this position of now stability, and we're calling it as expectation of stability going forward.
Yeah
recognizing it might be a little bit worse in Europe, it might be a little bit better in the other two regions, broadly, expecting stable sales per day, and well, orders per day into sales per day in the second half. We're through July, that's very much what we've seen in July. August, who knows? It, it, it, we're okay, but it's an impossible month to call. September will be the important month. I, I said this this time last year when we were talking about what happened in the second half. September is always an important month for us. How Europe comes back from the holiday season, whether they have a sense of optimism and push for the year end, or whether they have a sense of pessimism and hold everything back until the new year.
We saw the latter last year. I guess we're not expecting to see the same again this year. September will be an important month for us. Yeah.