Good morning, everyone. I'd like to welcome you all in the room and on the webcast to the TT Electronics 2024 interim results presentation. It is a very busy morning for results, and we thank you all for making the early time to be with us. I'm really pleased to have our CFO, Mark Hoad, with me this morning, and he will take us through the interim results. I will then talk about the great progress we have made in the first half on Project Dynamo, and I will provide more detail on the eight work streams that have been initiated, together with some early results. We will then take Q&A, and I just wanted to say, before we get into the detail of the presentation, that we have been very active over the period.
Despite some challenging macro conditions, during the first half, we have completed the sale of three business units described as Project Albert. We have reorganized the management structure, refreshed our strategy, and introduced our self-help program across the business Project Dynamo. This early progress not only supports reaching our expectations and targets for the year, but it also strengthens our view that we are well positioned for significant further improvement over the coming years. So here are some of the key messages for today's presentation. Group revenue is at 1% organically, excluding the unwind of pass-through revenue and adjusting for the Project Albert divestment, which completed at the end of March. Our regional businesses have had a mixed period, depending on product mix and end-market focus.
We have seen strong European and Asian growth, and this has been offset by weakness in our North American region, where we have experienced significant headwinds in the shorter-cycle components business, with a significant impact on three sites where destocking has persisted for longer than anticipated. And although we are seeing some early signs of improvement, we have taken the difficult decision to reduce our workforce by just under 400 people for an annualized saving of GBP 9 million. The reported adjusted operating margin is unchanged at constant currency against the prior year. However, the run rate margin, if we adjust for severance costs and Project Albert, is 9.3%. And encouragingly, for both H2 and the future, we saw very strong order intake, up 15% over H1 2023, and book to bill in the period was 110%.
The area I'm most pleased with is the progress we are making with Project Dynamo. There is real momentum in the business, and I'm happy to share that we have identified some GBP 17 million of potential cost savings and incremental margin, net of GBP 4 million, which will be reinvested in the business. This is a significant step up from the GBP 5 million-GBP 6 million we committed to deliver from SG&A savings back in April. I can also confirm that GBP 4 million of this saving has already been actioned. These structural improvements, taken with the volume-related cost action, support the board expectation for the year, which remains unchanged, and includes our full year 2024 guidance of 10% operating margin and leverage at the lower end of our range. I'll now hand over to Mark to take you through the financial results.
Thank you, Peter. Good morning, everyone. There are a lot of moving parts in the first half numbers, but I will try to set it all out as clearly as possible and give you a good sense of the visibility that we have to a step up in both profit and cash performance in the second half of the year, so here we've set out the overall financial metrics for the business, and although it makes the table a little busy, we've shown you the numbers both including and excluding the contribution from the Albert divestment, which completed at the end of Q1. Revenue was down by 8% on a constant currency basis, but 3% excluding the divestment, and if you adjust for the impact of pass-through revenues, which dropped significantly in the first half, revenue actually grew by 1% on a like-for-like basis.
You can see the moving parts in the bridge on the bottom right. Adjusted operating profit declined by 8% at constant currency and 5% excluding the divestment. As Peter said, there was strong growth in Europe and Asia, but a significant drop in components demand in North America. The impact of this mixed change is apparent through the first half numbers. The adjusted operating profit is net of GBP 1.7 million of severance costs incurred in the first half. Adjusted operating margins were unchanged at constant currency at 8.1%, and excluding the divestment were 8.7%. Earnings per share declined by 12% at constant currency due to the reduction in operating profit, together with increased interest expense due to higher interest rates. There was a GBP 7.8 million free cash outflow in the first half, driven by GBP 21 million working capital outflow.
We have clear visibility to that reversing in the second half of the year and delivering our four-year guidance, as I'll explain in a little while. Return on invested capital was down slightly due to the weighting of profits the second half, but remains above our pre-tax cost of capital of 11%, and excluding Project Albert, return on invested capital on a trailing 12-month basis was 13.2%. Finally, the board has declared a 5% increase in the dividend to GBP 2.25 per share. Excuse me. Before we dive into the moving parts behind the numbers, there are a couple of key things I want to highlight. First, as I said, headline margins are unchanged at 8.1%.
But as you can see in the bridge on the left, this is net of GBP 1.7 million of non-recurring severance costs worth 60 basis points and includes roughly GBP 16 million of Albert revenues, which generated a small loss in Q1. If you strip both of these items out, run rate margins are 9.3%. Secondly, following the order intake lows of the second half of 2023, we've seen a really strong pickup in order intake, as you can see in the chart on the right. Order intake was up 15% organically over H1 2023, and you can see that sequential improvement over H2 is even better. Book to bill was 110%. And although some of this intake is building the order book for 2025 and beyond, this supports increased revenues in the second half of the year.
When you take into account the benefit of significant cost actions taken in the first half, this positions us well to deliver improved profit and margin in H2. The other piece of scene setting I want to touch on before we go through the performance of the regions is the end-market growth, which shows a mixed picture in the short term. This slide shows the revenue and growth by market, excluding the divestment from both periods. Healthcare was down 17% at constant currency, but roughly GBP 6 million or 8% of the reduction relates to the unwind of zero margin pass-through revenues, all affecting the Asia region. The balance of the reduction all impacted Europe and North America, reflecting softer life sciences demand and the end of certain contracts in North America as we've prioritized certain aerospace and defense customers.
Aerospace and defense itself continues to grow strongly, up 40% at constant currency, with the main benefit in Europe, but we've also saw growth with some key customers in North America. Automation and electrification was up 4% at constant currency and 7% excluding pass-through, with the main impact in Asia driven by metro rail and semiconductor equipment demand. Finally, distribution, which is where we've experienced the main challenges in the half. This is the primary route to market for our components offering, most of which is in the North America region. Revenue here was down 28% at constant currency, reflecting the more protracted destocking than originally expected.
We are seeing inventory levels gradually reduce as distributor sales to end customers exceed their intake from us and are starting to see early signs of improvement in order intake, but we are not expecting a sharp uptick in activity and anticipate a longer recovery path. So, as you know, we're now running the business along function lines with a regional organization, and our segmental reporting now reflects this. In the appendix, you'll also find the first half results based on the old divisional structure. The European region delivered strong improvement in the first half. Revenue increased by 17% on an organic basis, and this translated to a 74% increase in adjusted operating profit and adjusted operating margin improved by 440 basis points to 9.7% or 12.3% excluding Project Albert. This improvement came from operational leverage as well as good efficiency improvements.
With excellent order cover, we're confident of delivering increased growth in the second half, which is expected to support further margin enhancement. As we indicated in our trading update, North America has faced a more challenging market backdrop related to components demand in the first half, with that low intake in the second half of 2023 being compounded by destocking taking longer than expected. But we've taken cost action and are seeing order intake improvement. Revenue was down by 14% organically, with a low demand from distribution impacting our three component sites in North America. Low utilization of these facilities meant that the margin impact was high, and the 62% reduction in adjusted operating profit also reflects those severance costs associated with headcount reduction actions taken to address the volume reductions.
We've reduced headcount by roughly 400, virtually all of it in North America, which will have an annualized impact of GBP 9 million, with GBP 5 million of that coming through in the second half of this year. As you saw on my earlier slide, order intake has improved. In North America, orders are up 21% over prior year, and in components, we're starting to see early signs of improvement. We therefore expect a modest sequential increase in revenue in the second half. The benefit of higher revenue and the cost actions taken give us good visibility of improved profitability in the second half of the year. Finally, Asia, which had a really strong first half. On a constant currency basis, revenue was down by 3%, but adjusting for the divestment and the unwind of zero margin pass-through, revenues were up by 10%.
Pass-through revenues in H1 were down to just GBP 2.8 million. Adjusted operating profit increased by 26% at constant currency and 33% excluding the divestment. The growth in profit and 330 basis points of margin improvement were driven by operational leverage on the growth, and with pass-through revenues now much lower, the impact on margins is far less pronounced. The order book for the Asia region covers revenues for the second half, giving us confidence of increased revenues and sustaining margins at this sort of level. So, as I said, there was a GBP 7.8 million free cash outflow in the first half, driven by a GBP 21 million working capital outflow. There are sound reasons for the working capital outflow in the first half, and on the next slide, I'll explain these and why we see it reversing in the second half.
Importantly, there are still the signs of structural improvement in cash flow that we've talked about previously. Exceptional cash costs were only GBP 500,000. There was no cash spend on the U.K. pension scheme, and the small pensions outflow relates to the buyout of the U.S. defined benefit scheme, which deals with that exposure. Net debt, excluding leases, was GBP 110 million, and leverage increased from 1.7 x at the year end to 1.9 x due to the lower H1 EBITDA weighting. Despite all of this, we expect cash flow to step up in the second half, as it did last year, and for the full year, still expect to deliver strong free cash flow and to bring leverage down towards the bottom end of our target range. So now to look at some more detail on the working capital position.
So in the chart on the top, you can see the evolution of working capital as a percentage of revenue from 2018 onwards. As you can see, this metric increased through 2021 and 2022 as we grew inventory with the order book, and there was a lag converting this into revenue. This then normalized in 2023, as you can see in that top chart. We expect this metric to move down towards the mid-20s by year-end, with working capital reducing and revenue increasing. The bottom chart shows you different elements of our working capital days and how the same dynamic played out with increasing inventory days, partially offset by increasing payables days. The outflow in the first half is down to a few things, but the two main impacts are first, seasonality, which we always experience. This caused a GBP 6 million outflow, which will reverse in the second half.
And then secondly, the growth we've seen has come from parts of the business with typically longer customer payment terms, causing receivables outflow. We're still expecting to see only a modest working capital outflow for the year. The seasonality will naturally reverse, and the inventory controls that we've implemented from May, and which Peter will talk about a bit more in a moment, expect a supported GBP 15 million inventory reduction in the second half. So, as I said upfront, quite a few moving parts, but hopefully you can see that we've got good momentum and you have a better understanding of the drivers of improved profit and cash performance in the second half of the year. With that, I'll hand you back to Peter to talk some more about Project Dynamo.
Thanks, Mark. In April, we introduced Project Dynamo and explained that our strategic focus would be on improving efficiency, growth, and innovation, while focusing on developing our people, products, and markets for sustainable, more profitable growth. The central theme running through all of this is disciplined execution. Much of what we have focused on in the first half, and what will be evident from the Project Dynamo slides I'm about to talk you through, is the need to achieve both operational excellence and service excellence to drive growth while also managing our cost base to allow us to remain competitive and achieve the returns that we need. In April, at our capital markets event, we committed to delivering GBP 5 million-GBP 6 million of already identified SG&A savings by 2026. Today, we are increasing that number to GBP 17 million of potential savings and some incremental margin improvement.
This number is net of reinvestment of around GBP 4 million to deliver growth, either in IT system support or focused resource. The anticipated benefit underpins our short and medium-term financial goals. The pie chart on this slide shows that most of the Dynamo savings are in the efficiency bucket, followed by growth. We always said opportunities from innovation would take longer to achieve, but I am pleased with the progress that we are making in this area. As I've already said, GBP 4 million has already been actioned, with the rest spread across eight different work streams. More detail on that to follow. As you can see on the right of this slide, we have identified GBP 6 million of SG&A savings, and this is at the top end of our estimate of GBP 5 million- GBP 6 million.
8 million from efficiency projects that we have scoped, GBP 7 million from growth and innovation activity, with the GBP 4 million reinvested to give us our GBP 17 million. We are also focused on working capital improvements, not just profit. Mark has already explained the H1 movements and our expectations for H2. However, we expect a further GBP 15 million cash benefit by 2026 as inventory turns improve further. I will also share details of the work underway in our inventory work stream to support this. So let's take a look at the various work streams that we have commenced in the last few months. As I said at the capital markets event, our capabilities are good, but we can do better. We need to leverage all of our engineering and manufacturing assets across the business.
The old divisional group structure hampered some of the opportunities to share best practice by being focused on the individual site or division, rather than maximizing the resources across the company. Our move to the functional-led regional structure is already delivering improvements in efficiency, growth, and innovation. And these are the eight work streams that I will now cover individually. One of our priority areas was our cost base and, in particular, how we could be more efficient and reduce duplication. And I've already talked about the progress we have made here, but this work will continue as we seek further savings. We also identified logistics and energy use as important areas of spend. And our spend on logistics, in particular, was not consolidated, and therefore we felt that this was an area of opportunity.
We have now started the process of reducing the number of freight forwarders and focusing on efficient use of freight. We're also targeting our energy use and contracts that will provide real savings in 2025 and 2026. Inventory management is another priority area of focus. Over the course of the last two to three years, inventory levels in the business have increased largely due to the external impact of supply chain issues and the growth in our order book. In some instances, this has been exacerbated by internal processes, and we need to do better here. This topic has been more difficult for the business to address, and inventory levels have remained stubbornly high. With the move to a function-led regional structure, we have already appointed a group lead focused on inventory management, incorporating both planning and control.
We have undertaken a deep dive on inventory levels across the group and taken a number of short-term mitigating actions and placed seven sites into what we've called special measures to get on top of the issue and implemented a number of process improvements as shown on the slide. And we are starting to see real progress. As I outlined previously, these actions underpin our H2 leverage reduction target by supporting the working capital improvement, and we are targeting a further GBP 15 million of additional cash benefit by 2026. With regards to outsourcing, we have identified more than GBP 30 million of external spend on things such as machining, calibration testing, connectors, and PCBAs, which has the potential to be insourced. For example, we have three machine shops in the UK: Abercynon, Fairford, and Sheffield. And we also have third-party spend on machining.
We are working through the opportunities to insource and benefit from our own capabilities, and we are confident that this will lead to increased productivity and profit. We see a similar opportunity on connectors and cable harnesses where we can establish regional centers of excellence. We are also using our teams to build in more TT content on bills of material where possible, supporting our One TT approach. But as well as improving our efficiency by insourcing, we have also identified four sites in particular where there is a high cost of production that we need to address. This is where the manufacturing processes lead to low yields or high scrap rates. We have formed teams leveraging the functional organization to focus on delivering improvements, reducing rework, and increasing yields. We recognize that we will need to invest in some processes with additional resource.
In some cases, the issue is related to machine reliability and/or capability. We will target our CapEx investment to address this. While a lot of the actions highlighted so far are focused on the efficiency part of Project Dynamo, growth and innovation are equally important. We have already made some significant progress in commercial pricing and in growing our sales opportunities. We have identified a number of lower margin contracts and inconsistent pricing. We have started to work with customers where pricing is an issue and with our operational teams where we have a need to lower our cost of manufacturing. Our actions have seen us refresh the global account management process and resetting expectations in some cases with our customers. In terms of pipeline and sales growth, we needed to strengthen the sales structure and our approach to the market.
The sales team have now been reorganized with a renewed focus on developing new business opportunities, supporting regional activities, as well as using our group resources to unlock opportunities that we would have missed in our old structure, and on innovation, there is a clear untapped opportunity to leverage engineering expertise across the group. While we expect the majority of innovation benefits to be realized over the longer term, we have already identified some tangible benefits from working together, such as reduced system licenses from a range of different software that is not required, or supporting sales and new business opportunities by sharing resources and collaborating as one team, but it's not all about the future. We have a good pipeline of new product launches, over 20 expected in the second half, spread across our full suite of products.
We have some great examples of the work our engineers are undertaking. And as an example, at the Farnborough Air Show a couple of weeks ago, we unveiled a technology platform of high-voltage DC power conversion solutions, enabling more efficient, longer-duration flights at higher altitudes for use in both civil aerospace and air mobility vehicles. This is part of our collaboration with the Aerospace Technology Institute. And this all positions us well for the future. So to conclude, a number of things give us good visibility: our confidence in the four-year outturn for the group, visibility from our strong order book and order momentum, the completion of Project Albert, significant cost action taken, and some early benefits from our self-help program, Project Dynamo. And all of these underpin the board's expectations for the full year.
We remain on track to deliver 10% operating margin and for leverage to fall in line with guidance to the lower end of our one to two times range, but the ongoing benefit of Project Dynamo, including the extra savings identified, will not only make the business stronger, it also underpins our medium-term financial goals: growth ahead of our markets, 12% operating margin by 2026, and over 85% cash conversion with strong free cash flow and mid to high teens ROIC.
As a management team, we are focused on strengthening the company to deliver on its purpose of enabling a safer, healthier, and more sustainable world, and our action to date is making TT stronger for the future. We are now happy to open up for questions, initially from those in the room, but there is also the facility for those on the webcast to submit questions, which we will cover after those in the room. Thank you.
Hi, Vanessa Jeffriess from Jefferies. Just first, obviously, you've taken a significant amount of headcount out in North America. I know you think destocking's going to go on for a while longer, but how well set would you be if demand was to very suddenly come back?
So we've got a very good idea of where our locations are in those particular sites. There is a good pool of workforce available, and actually, we are an employer that people want to come back to. So we actually have a waiting list of people that want to join the company. So we're not worried that as the activity comes back, we'll be able to re-recruit as necessary, but the hope is, obviously, as that comes back, that we don't bring back all of the cost, and that's the expectation.
And then you've identified all these extra cost savings, which is great. And your margins in Europe and Asia are at 12% and 14% extra investment. Presumably, in two years, destocking will be over in North America. So it feels like 12% for 2026 is probably actually a bit light now. Would you agree with that?
We'll get to that, and then we'll see.
Thanks.
That's Harry Philips from Peel Hunt. Just a couple of questions, please. Just thinking about looking in the sort of old-style divisional split, just I mean, GMS had a stunning first half, 11.5%-11.6% margin, which is just incredible where you think it was compared to five years ago with all the benefits potentially to come. But just when you look at the North American performance and you look at sensors as was, and that's obviously been hit as you've outlined in terms of destock, but you've got a much higher distribution content in North America.
And I'm just wondering if part of the change you're going to undertake, particularly as you add more value, do you sort of replace direct sale with distribution? Because clearly, that distribution seems to be giving you that lack of visibility, is creating more volatility on the business and therefore making it harder to manage the cost base. Would that be a?
Mark may add something afterwards, but from my point of view, this type of business will always go through distribution. There'll be a large part that will be distribution because we are actually selling often to the end user and getting the agreement with the end user, but the end user is deciding to buy through distribution because that's how they do their purchasing for this particular product group. So we are influencing the end user. We are influencing the price, but the stock levels in the distribution are causing us the problem at the moment. We're starting to see that come down. It will pick back up. We will try and do more as the new sales structure gets more established, et cetera, but there will always be an element that will be distribution.
Just on the potential working capital savings, is that a function as you grow, you only need to put working capital in? Or if you were steady state, would we see a net inflow of working capital? I'm just trying to think of the sort of dynamic behind.
Yeah. So I think all other things being equal, we've said before that when we grow, the working capital drain, if you like, is about 25% of the organic revenue growth. So all other things being equal with the kind of growth numbers we talked about, you'd expect mid-single-digit millions-type outflows. And effectively, we're saying that we've got an opportunity over two years that should offset that to end up with working capital neutral for a couple of years.
And then, in terms of capital allocation, which I suppose this is going to be a positive comment, is obviously, if you then look at that cash and you look at the growth and you look at, say, the working capital dynamics, balance sheet sort of getting down into sort of below one leverage, et cetera, et cetera. I mean, maybe it's just too early to put firmly a label on sort of broader capital allocation. But I mean, is that how high on the agenda is it at sort of board meetings and what have you?
At the moment, we're clearly very focused on generating the cash in the second half that we've talked about, and that will get us back to the bottom end of the range. But you're right, thereafter, cash flows look very, very healthy and the leverage comes down quickly. So I think, and then we did talk about this a bit at the capital markets event, that clearly, once we get the leverage to the bottom end of the range, we have optionality. And yeah, thinking about things like buyback will absolutely be on the agenda.
Hi there. It's Joel Spungin from Investec. I was just wondering if you could maybe just unpick the comments around the organic order increase, the 15% that you mentioned. Maybe just give us a bit more color. I think you mentioned North America, but maybe a bit more color on the other regions, what you're seeing there, and also maybe by end market.
Yeah. So we've had a very strong aerospace and defense growth. We're talking here on revenue, but obviously, that's actually been mirrored in terms of order intake. So that's been very strong for us. And automation and electrification is going well. We have had a bit of slowdown in healthcare, so that's not as strong as it was, but it's okay. And in the components, actually, in terms of order intake, we've had a stronger order intake this year than last year, but it's not to the levels that we want. So it's a recovering situation and not a recovered situation.
And we think it will be slower for longer as it's coming back up. But actually, if you were comparing year-over-year, it looks a very healthy improvement. But it was a very low order intake through last year as we were waiting for destocking to happen, thinking it was going to bounce back up. Now we don't think it's going to bounce. So the answer is it's across all of the different end markets and regions. Actually, order intake has been very positive.
And just maybe to follow on from that, just trying to help me understand, obviously, your relatively cautious comments around the trends in North America, reconciling that with the order intake and the fact that you're saying that you don't see a recovery for a while. I'm just trying to understand. You saw sequentially an improvement in order.
Yeah. No. But the big issue is that the market is doing well, but the inventory levels are still high for distribution. And if you go back to the old school, Harry, and think about sensors, that was our highest margin business. So the impact of that being down is quite significant in terms of the impact of profitability. So that has to recover. So we've got to get that back up to a level for that to flow through.
That's what we're cautious about is because we think it will be slower for longer of that build. The other parts of the business actually are doing well, and that's the point. So we are doing some good work, and we've got some good pipeline, the good activity, the sales structure now, and the teams are very active, and we see some opportunities. But you can't change the stock levels in the distributors until that goes down. It needs to go down. And it's going down, but it's slow.
Then maybe just a very, very quick one for you, Pete, just in terms of the GBP 17 million for Project Dynamo that you're now talking to versus the five to six. Is it that the five to six was just SG&A, and now you've discovered all these other things as well that you can do? I'm just trying to understand.
Yeah. So we've kind of yes and no. I think what we said at the time was we've identified these savings, GBP 5 million-GBP 6 million of savings at the moment when we talked. And it was over a kind of a broader area, but we classified it as SG&A. But we said at the time we were looking at a lot of other things. Those actions were ongoing at the time, and they've been ongoing, and we found this is where we're up to. I don't think we're at the end. Project Dynamo hasn't stopped. This is an ongoing project that is embedded in the organization where we're looking to improve the efficiency and find other opportunities. So we have to keep going. But this is what we've identified so far.
Thank you.
Hi there. Colin Moody from RBC Capital Markets. A question perhaps on A and D. Obviously, some very strong growth. Could you perhaps give some color on the A versus D? And then perhaps on the civil side as a follow-up, I presume you're more biased towards kind of OE rather than replacement activity. So just any kind of worries about build rates, customers perhaps managing their working capital going into that? Thank you.
I would summarize that actually is that both are doing well, and I think our market share is actually still quite low. So actually, I'm not worried about the build rates. I think there's plenty of space to go into from where we are. So although it's a significantly growing part of our market, it's not the largest part of our market at the moment. So plenty more to be done. So I think if you think of it like that and the space, it can slow down. The whole market could slow down, and we could still see growth.
Thank you.
In terms of the splits, Colin, it's 50% growth in aerospace and 34% in defense.
Great. Thanks very much.
Hi both. James Bayliss from Berenberg here. Two questions, if I may. On the GBP 9 million of headcount savings you've taken out of North America, you referenced the fact that it's volume-related, which infers you'll put that back in as volumes recover. But I wonder, as that kind of recovery profile pushes out with destocking being more gradual and Project Dynamo gains momentum in the business, is there a sense that some of that could become more permanent?
Yes.
Over time? Perfect. And then the second question just around, I guess, the cultural reaction and regretted staff churn in the business in response to Project Dynamo. Obviously, you've stepped up that guidance in terms of cost savings quite a lot, inferring there's going to be a lot more change. You've now got the eight work streams. Can you just give us a bit of a flavor as to how that's been received by the people on the ground?
Quite a lot of the benefit in Dynamo is actually doing things better, and that's been received very well within the organization. More collaboration, working together, seeing where sometimes people through the organization have seen opportunities and always felt that we haven't been maybe as efficient or dealing with some of those things, and they can see that we're dealing with them, so actually, that's a very positive swell of positivity in the organization. Clearly, when you're taking heads out, which is related more to the volume-related stuff, people can see that the business isn't there, and we've done it in a very positive way, or as positive a way as you can, and as I said, most of the people that have left would want to come back if and when the opportunity comes.
In our mind, we're thinking the aim is to try and have a third that doesn't come back of that. But depending on how it comes back, when it comes back, we might find that we can actually save more, but it will be because the revenue is not there. If it comes back really strong, then we may have to have slightly less than that. So we're not quite sure, but there is an expectation that through efficiency gains, not all of that will come back.
Once we've worked that out, we may transfer that saving into Dynamo and say that then that's a Dynamo saving because it's then a structural and permanent saving. But at the moment, we've kept the two separately to help with understanding that this is a temporary. We don't know exactly what it is, and it's the temporary saving. The structural saving is over here at the GBP 17 million, but that's permanent or that's a structural saving.
Thanks.
Morning. Richard Paige from Deutsche Numis. Just a couple for me, please. On the order book, how has your visibility changed? Obviously, with distribution tending to be shorter cycle, that's dropped away, but one of the consequences of the COVID era is you've got better visibility from customers. How has that dynamic changed?
So it's reduced. And Mark will have, obviously, he's got the history on this, so I'll let you answer this one.
Okay. Thanks. Yeah. So actually, we're back to about 11 months in total. Obviously, that's not the next 11 months. It goes over a longer period, but it's actually stabilized really nicely. Clearly, it still varies, so if you think about the old kind of product streams, the old components part of things probably sits about five months. The old power is probably 11 months, and then GMS would be the longest at about 13 months. But yeah, in aggregate, about 11 months in totality.
Thank you very much. And secondly, given the design and long lead time nature of your products, a lot of the changes you're making today probably sit beyond the 2026 timeline. Is that fair?
I think this is all about making us stronger and more sustainable as a business over the long term, and in any situation, you have things that you do that will help with the short term, help with the medium term, but you also have to do things that's going to put us into a better place over the long term, and I think we're doing that, so yes, some of the things that we're doing now is going to help the longer term rather than short term, but we're doing enough that's helping with the short term and the medium term, so it's an ongoing activity. It's never going to stop. It never ends of trying to improve the company, so I think we're focused on the short, medium, and long term is the answer.
I guess, Richard, that means that even the 12% is not the end of the journey.
I see. Thank you.
Harry Phillips from Peel Hunt, just, sorry, a point of clarification. Did you take GBP 1.7 million sort of above the line in the first half?
Yeah. Yeah.
Just to be clear, the balance, so the cost savings announced and sort of elaborated upon today, they will be taken below as sort of an exceptional?
So no, I mean, there's effectively no exceptionals to speak of. So the GBP 1.7 million severance cost is above the line in the first half results, and that relates to the volume-related cost reductions, the benefit of which in the second half will be about GBP 5 million. The GBP 17 million of saving, there are no kind of restructuring costs associated with achieving that. We are going to put some cost into IT and systems and also into some project resource to ensure it's delivered that will be ongoing costs, but the GBP 17 million is net of those GBP 4 million of costs.
Right.
So we've identified GBP 21 million, and it's net GBP 17 million, and we've put the cost in for that, and so that's above the line. So this is not exceptional stuff. This is just doing what we do, targeting capital spend that we've got in the right place, doing the right thing, the disciplined execution.
Again, just be really clear therefore on that basis, sort of restructuring cash outflows going out again.
Yeah. So it's GBP 500,000 of cash in the first half, and for the year, it will be GBP 1 million or so, GBP 1 million-GBP 2 million. I think the guidance notes say GBP 1 million-GBP 2 million.
Perfect. Thank you.
But the big cash exceptionals are, I think, of the past, Harry.
Thank you.
Right on time.
I know have to kick you out for the ones that get into Spirax , or else I'm going to be in trouble, all right? So any questions from the webcast? So if we don't have any further questions, thank you very much for joining us this morning, and we'll bring that to a close. Thank you.