Essentra plc (ESNT) Earnings Call Transcript & Summary

Good morning, both for everybody in the room and also people online. I'm just going to do a short introduction, and Scott and the team are going to do all the hard work, which is what Chairman do. They just hand over to the management team. Just a few words. We decided as a Board, probably 3 and a bit years ago that there was an opportunity to create a new business that would have a similar market cap to the whole group at the time. And hence, we went down this path of selling off packaging and filters. And you'll see in the presentation, there were a few other divestments as well. And I think that's worked pretty well that we have ended up with a business that we can invest in. There was always a fight for funds, particularly between packaging and components, manufacturing, equipment, systems -- enterprise systems, which you'll hear about in Scott's presentation. So it means we can focus all our financial resource on 1 business. And I think you're referring from the presentation, it's an exciting business with great potential, both organic and bolt-on acquisitions, which we have to fire power to execute. And why are we doing all this? It's quite simple. We want to do it to improve shareholder value, both in terms of what the value of this business is over the next few years and to be giving a special dividend back which we'll be identifying when we do that fairly shortly. So just a quick one on the Board, just to make sure that we've got the right balance: I've been with the business coming up 7 years; Scott, the new CEO and Components man through and through. Jack, we brought in as -- can I call you [ Mitchera ], CFO. So in other words, it's been around the block a few times and has the right background, both in manufacturing and plc. Mary as independent -- Senior Independent Director, but also Audit and Risk Chair, a great experience from a days from Deloitte, sits on the board of a number of FTSE 250 businesses. Adrian is based in the States. He's an exec. He runs a fairly large manufacturing and some component type businesses. So he really knows what this is all about and responsible for businesses in Europe and the U.S.A. So he fits our profile, and we search high and low to find somebody like Adrian. Ralf. Ralf spent 10 years in Asia. So he knows the Asian market. He currently spends 50% of his time in Germany, which is a very important market for us and Europe and also back in Asia. So he's got that balance between the two. Dupsy, she currently has a strategy -- Director of Strategy in a large company. And we thought bringing her on solves a few problems. One, she's very digital. If you look at the Board, I think not everyone on the board is digital, although we try hard to get that. So she brings a fresh look that the way we go about our business. And certainly, when you hear what Scott is trying to do in terms of having a very digital front end of his business. And Emma, was the company secretary in the group before and has moved into Components. So we think that's a pretty good team. So we're going to start off with a short video, then Scott and the team are going to present the new Essentra. [Presentation]

Okay. Well, thank you, Paul, and thank you to everybody for coming along today. I'm Scott Fawcett, CEO Designate for the new Essentra. I've been with the business for almost 12 years now and excited to be able to share with you today the story of those 12 years in many ways and our plans to accelerate that as we go into the future. So this time what we're going to tell you today are 3 key points. So firstly, about the unique business model that we're operating. We are both a manufacturer and a distributor. And we talk about the manufacturing strengths of having expertise and flexibility and we talk about the distribution strength of having a broad range and high levels of service and being very customer-centric. And we're bringing those together, which is creating value both for our customers and for Essentra as well. We operate to this highly fragmented market, and we'll talk later about the opportunity that gives us for growing both organically and inorganically. Our service proposition is -- our customer proposition is service-led. We call this hassle-free internally. So we want to be easy to do business with. And that's because of the nature of the products we sell. We're selling relatively low-cost components to manufacturing customers. It's critical in our customers' mind that the components arrive on time that in many ways is more important than the actual cost of those components as the cost of disruption can be very high. And we're innovating that proposition as we go forward through digitalization, both digitalization in the front end of the business, but also the supporting back end and the processes by which we run the organization. And we see sustainability as a great source of advantage moving forward. We're working on programs to make our operations more sustainable and the products we manufacture more sustainable. And that's leading to both organic and the inorganic growth opportunities. And then finally, we'll talk about the resilience of the business and the opportunity we have to expand margins. And in many ways, that margin expansion and cash generation is part of the way we'll fund that inorganic growth story. And so let me talk about the new Exco. We spent most of this year, bringing the team together, delighted to present them to you today and most of us are here in the room. We have the mature, now our visit will last for a long time. CFO, and Jack. Great that Jack has joined us with his experience of running finance functions in the FTSE 250s. Oshin is supporting us also from the Legacy Essentra team through the transition, helping us build the existing team of the new team and get that team in place. Paul's mentioned, Emma's moved across to be company's secretary for the new organization as well. Then delighted that Rob, Sam and Hugues have stepped up from the divisional team with me to form part of the new Exco and we've recently recruited Lynne, who will speak later also as our CMO and running the Americas business. And Lynne brings a breadth of experience from both consumer and B2B marketing roles in the past. We have got 1 vacancy today. So we'll likely update the full year results, but we're recruiting somebody to run the Asia region for us as we speak. So let me tell you a little bit about the model and the way the business is operating. Firstly, we've been on a journey to simplify Essentra. Paul mentioned the divestments over the last 5 or 6 years. This has been driven from having strategic clarity and understanding that these businesses didn't really have much common ground. And that's driven us to the point of having a much simpler organization going forward of a pure-play components business. I'd like to thank Paul Forman, the predecessor and current CEO for Essentra for his part in giving us that clarity and driving us to this point in the journey and enabling us to stand forward as a pure-play components business. So today, we're a leading global, a manufacturer and a distributor of essential industrial components. What we want to be in the future is the world's leading responsible hassle-free supplier of essential industrial components. And what do we mean by world-leading? Well, we want world-leading employee engagement, we think that's critical to enable us to drive the business forward. That will feed into world-leading customer satisfaction, and we typically measure that by our Net Promoter Score. We want to be world leading in terms of our sustainability efforts. We want to be shaping and driving the market about being a more sustainable business. And ultimately, this all together will lead to world-leading financial results. And with that, our ambition is to double the revenue of the organization and to triple the operating profit as we go forward. Now that's a lofty ambition, but based upon a good track record and history of growth. During my time with the business, we have more than tripled the revenue of the Components business. And you can see here, we've gone from less than GBP 100 million up to over GBP 300 million in that period. An organic growth of between 4% and 5% CAGR through the period, and our expectations and plans are to be able to accelerate that to over 5% as we go forward. We've also been involved in 10 acquisitions during this period of time as well. So we brought 10 additional businesses into the Components family, predominantly manufacturing businesses who have brought us new products that we can plug into the Essentra components distribution processes. So a good track record of growth over the past decade or so. Just to give the business a little bit of flavor and color. We have 12 manufacturing sites and Rob will talk later about the geographic footprint and the resilience there. We're making a high volume of these relatively low-cost products, 80 million parts produced per week. But the real magic is in the mix, is a very broad range of products. Anybody can make a high volume of a single unit that's quite straightforward, making high volumes of high mix, complex operating model is where the magic is. We have 45,000 standard parts. So there are parts that we would carry in our websites and have in our distribution centers. But beyond that, there are another 45,000 parts that we sell each year that are manufactured for customers in particular. So a very complex business from a mix point of view. The stocking proposition is delivered through 23 distribution centers and supported by an emerging hub strategy, which Rob again will refer to later. And that lease is having about 1 billion parts in stock at any 1 time. We then take this offer to market through 32 sales and service centers. So it's important that we have this local customer touch, reaching out to our circa 80,000 customers. That's then generated this high level of transactional flow through the business, so 1.08 million order lines per year, 17,000 orders shipped through our distribution centers each week and all managed by around 3,000 members of the new Essentra team. Quite a complex business from a digital and data point of view, lots of opportunity for optimization. So continuing to digitalize the business to make data work for us is really important. And we'll talk about how we're doing that, both front end and back end as we're going through the presentation today. We talked about those local customer service centers. So here's a map of our geographical footprint. Rob will cover later the manufacturing and warehousing locations. But just touching on the customer service locations. We are operating in all 3 regions from Edmonton over there in the West in the Canadian oil field down to Sydney, over here in the East, northernmost point, probably Helsinki in Finland down to Johannesburg in South Africa. So a very good range covering the majority of the world's industrial production scale effectively. In terms of the shape of the business, we are just over half of the business in Europe today, around 1/3 in the U.S. and growing obviously in Asia, circa 14% right now. Most of our business is sold directly to end users, directly to these manufacturing businesses. However, there is about 23% that goes through distribution. This can be for a number of reasons, but -- and a common reason is -- we serve our MRO customers. So anybody wanting to maintain or repair product typically is served through distribution rather than serve direct. Our core focus is on the production user. In terms of the revenue by offer type, most of our sales come from these 45,000 standard parts that we published on the website and that we hold in stock. However, there's a significant minority coming from configured products or out and out customized products. Again, this is really the combination of distribution and manufacturing on the show in this 1 chart. And then in terms of the manufactured versus sourced goods, around 70% of what we currently sell is manufactured and Rob will talk later about our plans to continue to increase that manufactured bias. And then we have a very broad customer base, but our core customer target, and I'll explain why later, is this broad industrial manufacturing sector where roughly 70% of our customers and 70% of our sales are today. That's really our key focus area. Over the past decade, we've diversified the business quite tremendously. That's diversification in terms of product offering from the legacy products very much around the protection areas, we've grown a lot into the electronic hardware, plastic fasteners and cable management products, probably the standout being access hardware since the acquisition of the business in Turkey, which Jack will refer to later, that's been a real driver of growth for us over the last 7 or 8 years. So diversification of the product offer has been important. And that's enabled diversification of the customer base as well. The largest sector still is this other industrial manufacturing sector. So customers who are very fragmented in here. This could be anybody from an industrial cleaning manfacturer to a vending machine manufacturer to a trailer manufacturer. So lots and lots of niche manufacturing businesses, but all typically making equipment for other businesses to use. But then coming through, obviously, some growing markets around automotive is a big market for us, increasingly into electronic vehicles, electronic vehicle charging, which Hugues will talk through. Telecoms automation is obviously growing in the trend and renewable energy is a fledgling market for us, but one that we're focusing on and building some good opportunities in. Now whilst today, we're talking about the midterm and the future opportunities for Essentra, we obviously can't ignore the fact that we're likely to see a more difficult economic period in the short term. So just to touch on that. Here is our performance over the last 12, 13 years through the cycles of the global financial crisis and COVID. So the business is somewhat cyclical. It's becoming less cyclical over time as we diversify. If I take you back to the global financial crisis, around 23% of the business was in the U.K., right now we got 7% and conversely, Asia was around 3%, and we've seen Asia is now 14%. So we have diversified to give us greater resilience going forward. Also, what's very interesting coming out of any downturn, we see these great periods of acceleration. So we have a mindset during downturns of managing our cost base but also keeping an eye on what's happening and when the market is likely to turn and how we take market share through that market. We have the strength and the resilience to outperform the competition in these down cycles and take share for sure. So even with some elements of cyclicality, the bottom line has remained very resilient. These are the divisional operating margins, so they exclude the central costs, which Jack will again refer to later. But you can see even during the financial crisis, the operating profit dropped to circa 14% on a divisional basis. And during COVID, we dropped to around 18% on a divisional basis. So still a very strong, resilient business even in those times of cycle. So we have a good understanding of how to manage the business through down cycles, what leave us to pull, how to manage the variability of cost to ensure we're protecting profitability, but as I say, always with a mind on the future and the opportunity to take share during these periods of time. So I'll talk a little bit now in terms of the proposition and the market environment in which we're operating in. So we have estimated the market to be between GBP 8 billion and GBP 10 billion of opportunity. That's based on the products we sell today. So if we broaden that product offer, the market opportunity, the total available market will also grow. There are thousands of competitors. Our competitors are typically local. They're typically manufacturing one of the product areas in which we have expertise and we have 7 areas in which we're experts. They're not spending across those multiple product areas in the way that we do. And there are probably 1 million customers out there who fit into our target audience of manufacturing businesses. So a very fragmented market. And I should also add on the thousands of competitors, obviously, that's also a source for potential acquisition targets as well. So today, we have something like a 4% market share. That ranges from up to 6% in Europe, down to less than 1% in Asia. But fundamentally, all of our regions have lots of opportunity for growth. And the overall market will grow in line with industrial production through the cycle. I've touched on this before, but let me reinforce what's key about this business is the proposition. So our customers are manufacturing businesses, and they're using our products, predominantly in their end products, sometimes in the process of manufacturing their product. Our products are small, typically fairly low cost but they're a critical part of the customer's bill of materials. Without our products, the customer cannot manufacture what they're looking to manufacture. But if you rank that bill of materials from the most expensive to the least expensive items, our products would definitely be in the lower quartile there. So product availability in peace of mind is typically more important than price to our customers. And Hugues will talk later about our ability to manage pricing and pass through inflationary pricing, which we've done successfully over time even during the last 18 months of higher input cost inflation. So we shouldn't abuse the position of pricing that we have. It's important that customers feel if we're pricing fairly, but the pricing is pretty inelastic having said that. We do an annual survey every year. We have just launched this in the last week. So this will be, I think, our 11th or 12th survey during my time with the organization, so we take feedback from our customers in terms of what they're valuing about Essentra, what we're doing well and what areas we can improve. The things that they're valuing are typically service-related aspects of our capabilities. So breadth of stock, our responsiveness and quality, fast delivery, ease of ordering. And some of these are coming from our warehousing distribution capabilities. Some of these are coming from our manufacturing and flexibility. So they're matching in many ways the way we're setting the business up, which is important. Hugues will touch again on digital later, but our customers are telling us the vast majority of them start looking for new products online. These are existing Essentra customers, not even new customers coming to us, but existing customers typically go online to start looking for products. However, because we're selling on to their bill of materials, typically, we get an output which is some sort of system-generated e-mail that comes to us. So we'll never be a high online sales business, but online is critical to us for acquiring and identifying new business opportunities. And moving forward, we're seeing a great opportunity in terms of sustainability, both it's the right thing to do, but it gives us a commercial differential. We have the ability to not only report on but also manage down our customers' Scope 3 data for them, and Lynne will talk more details about this later. Let me talk about, I think, the magic of how we're trying to bring the business together and again, how it's uniquely and compelling. So I'm going to touch on the product areas in which we have deep expertise because we have manufacturing history and understanding of these. The first of these is, again, probably the legacy of the business, the oldest part of Essentra, these red caps and plugs, they're blue within America, just history again. But we manufacture probably 1,000 different varieties of fairly simple caps and plugs that are used by customers to typically protect products, sometimes on the end product as well to fill a hole effectively in a metal cabinet. So caps and plugs is an area that we have a depth of understanding and a very, very strong history. It's also the area that we're leading in terms of recycled content. So this is actually one of the 1st batch of 40% recycled LDPE products that we produced last year. Lynne will talk more about how we've made progress since that time. Secondly, the second area of expertise is around cable management. This is a cable clip. So this fixing fixes on to a panel and your routing cables. Virtually every product our customers are manufacturing is some sort of metal enclosure with cables flowing around it. We probably have 2,000 different ways to manage cable around an enclosure or a car or a tractor or a vending machine. So there are a multitude of opportunities to how you can manage cable, and we have depth of expertise in this. From there, we move to electronic hardware. This is a spacer, it's a PCB spacer. So it's used to space the printer circuit boards that are held in any sort of electronic device -- electrical electronic device. Again, we have actually configurable tooling in this area. We can make probably 20,000 varieties of spacer for you, various lens, various fitting connections on either side, various materials, both metal and plastic actually. So this is, again, a huge area where we have a depth of experience around electronic hardware. Moving on to plastic fasteners. So plastic fasteners is another area that we have great experience, two businesses through history that we've acquired, Jack will talk later about micro plastics, which brought us the Imperial ranges of plastic fasteners that we obviously sell in the U.S. business as well. But this is an area of deep strength as well, multiple materials and obviously, various sizes and shapes of these things. Then moving on from access hardware. So this is a quarter turn lock. This is a simple locking device that will be used on any form of cabinet, access control panels, actually train panels, you'll see these quite often. So we have, again, a very broad range of these. These were -- originally, we were sourcing these goods from a company called Meta, and that Jack will talk to later. It was working very well for us, and we acquired this business at the end of 2014, and also linked to the acquisition we made in China last year, which gives us more capability in this space as well. So locks, latches and hinges are sort of evolution of that offer. Then moving on to knobs. So our acquisition of Innovative Components in 2018, 2019, I can't remember, brought us a great capability around manufacturing with knobs. This is effectively insert injection molding, so a similar technology to use elsewhere, but again, a broadening out of our capabilities. And then finally, we have a very wide range of security seals. So these are slightly different, typically used to secure goods in transit. And again, we manufacture both cable and plastic security seals through our facility in Rayong. What is absolutely unique about this business, nobody else has that breadth of products offering that they can bring to the market. At its broadest perhaps, there are other competitors of ours who can manage cable management and electronic hardware, but with less breadth than we have and certainly not on a global scale in the way we do, but nobody else has any of those other products coming together in this single proposition. So nobody else has the potential to be able to meet as many of the customers need effectively to cross-sell and Hugues will talk later about the importance of cross-sell to the business. We flagged earlier in terms of the breadth of our customers. Our key targets, as I mentioned, is this industrial manufacturing customer set. And the reason why they are our key target is their needs most clearly meet our capabilities. They're manufacturing between 100 and 100,000 units of this vending machine or this industrial cleaner or this EV charging station that Hugues will refer to later. So they don't want to redesign every single component they're using. And typically, our components are not going to differentiate their end product. So they're looking for a supplier who can help them identify and source and supply this broad range of products to help them complete their bill of materials. And we are best placed to do that, uniquely we're the only people who can bring them that breadth to complete their bill of materials. Now typically, there's a lead product. Each of these industries will typically start talking about one area because it's the area that initially comes to mind or the problem they're trying to solve for. But -- each of these areas actually has the capacity, the potential to buy across the entirety of the range, and that's what's really key. In a very oversimplified way, pretty much everybody has a metal box with wires coming in and out of it and some sort of electronics inside. So it's fairly ubiquitous in terms of that opportunity to cross-sell, understanding how the application is working and which products are apt, suit the application is the key skill and the expertise that we bring to the party. And here's a great example. Back in the height of COVID, hopefully people remember the UK ventilator challenge, we're going to involve quite early on with Penlon, who were an existing customer of ours, they started researching a product on the website. They actually called us because they wanted the product on a same-day basis, which again isn't normal for us. Our research asks customers typically want 3-day delivery. But Penlon wants the same day. So we made that happen, supplied them some products. Actually, our sales guy hadn't delivered it to them given the situation at the time, clearly. But from conversation, we then got into a situation where we supplied 5 products onto the Penlon ventilator across 4 of our key product categories. Again, nobody else has the ability to deliver that breadth of products to help the customer in this situation. So that's it for me for now. I will hand over to Hugues, who will take us through our organic growth story.

Thank you, Scott, and good morning, everyone. I am Hugues Delcourt, and I have the privilege to lead the sales effort of this fantastic company. In the next 10 minutes or so, I will take you to our winning strategy for organic growth, no quite -- I will take you to our winning strategy for organic growth and market share gains. I firmly believe that a good strategy can be explained to a 6-year old, and I think this is what this slide does, if I clicked correctly. Our strategy is based on 3 pillars. The first one is get more customers. You could tell me every company needs new customer and you would be right. But this is particularly fundamental to us because the industries we've been serving for over 5 decades have gone through massive changes over the last 5 years, essentially digitalization and electrification. We are now focusing on emerging players in our growth sectors, such as electrical vehicle and renewable energy. And you'll see an example of that later on. In short, we want to win with the winners. Our second building block, sorry, is grow them by cross-selling, and this one is still fundamental but very unique to us. Why is that? Because we combined as Scott explained, the expertise of a manufacturer and the breadth of a distributor. If we look at our highly fragmented competition landscape, we either compete against manufacturer with very niche and narrow expertise or against distributor with larger range than we have, but actually very little expertise in industrial or different industry. In short, we are in a pretty unique position to leverage cross-sell. If we look at our third building block, this is keep them by being a hassle-free. Our ambition is not to keep our customers by being the cheapest. I think Scott made that clear or granting the longest payment terms. Our ambition is to keep our customer by being hassle-free or easy to deal with. And that's why I'll explain you how we will do it later on. We have a clear and simple strategy for organic growth. Let's now go into more detailed and concrete examples of each building block. Let's start with acquiring more customers. We have already gone a long way to establish solid foundations. This is based on 2 megatrends. As Scott alluded to, the vast majority of our customers start their purchasing journey on the web and an increase in number of them do that. We have invested GBP 5 million in the new generation of website. We have invested in new underpinning digital tools as well. This has resulted in a doubling of our conversion rates and our organic traffic. The second trend is that the landscape of our customers is massively changing. We are seeing new emerging customers in area, high-growth areas such as electrical vehicle, automation, medical and renewable energy. No later than last week, we won a 1.4 million project for solar farm around the world. The company leading this project was not even in a radar 3 years ago, which shows you the magnitude of the change. We are winning with the winners. The good news is that we are not stopping here. We continuously invest in new digital tools and improvement of our website. We build functionality such as AI-based lead scoring, marketing automation programs, CRM enabled cross-border collaboration and last but not least, brand campaigns of which you see an example at the bottom right. Let's move to our second block, cross-sell, here again, solid foundations are in place as it is very well embedded in the DNA of our teams. We have successfully implemented new tools such as optimized CRM solutions, to maximize opportunity management, learning management solution to upskill our teams and make sure they stay on top of every industry and product category. And last but not least, AI solutions to deliver prompts via website and CRM platforms. You can see an example of those prompts at the bottom left of a feature of frequently bought items we recently added. Again, we are not stopping here as we are working on 3 work streams: digitizing expertise to make sure that our team, again, stay on top on every category. We also launched a global sales effectiveness program. The main goal of this program is to make sure that we identify best practices globally. We implement them, we monitor them and we incentivize them. We will also continue to expand our range through organic growth and merger and acquisition. Our target is to increase the number of product categories sold to our customer by 5% year-on-year. Let me now show you a concrete example of what cross-sell can bring to us. You all know what an electrical vehicle charger is, the ones among us driving electrical car or hybrid cars might have desperately looked for one and contemplated while charging. Well, what you might not know is how many Essentra items do fit in 1. No less than 4 product categories: cable management, fasteners, PCB hardware, access solutions, no less than 20 different SKUs. The projections say that the total annual project production of EV charger will grow from 4 million, so 1-2-3-4 in 2022 to 30 million, 3-0 in 2030. I'll let you do the math, but the numbers are mind blowing. I trust you will look at EV chargers in a different way now and you will think about us while charging. Let's move to our last building block, which is keeping our customer by being hassle-free, to offer an hassle-free experience, the prerequisite. We are convinced is to offer an internal hassle-free experience. This is why we are tracking two sets of KPIs. The first one is our employee engagement, which is internal. And the second one is the external one, which is our customer base, Net Promoter Score or NPS. Our NPS continues to improve on monthly 1 through 2022, and we have just launched the addition, the new addition of our customer survey and our employee survey. Again, we are not stopping here. And we are banking on digitalization to enable further improvements. Our new ERP platform, Microsoft Dynamics 365, which has gone live in Spain a year ago and just went live successfully in France 2 weeks ago will underpin the customer experience and service. We are adding new features such as global product availability, my account work-site functionality and case management to deliver a best end-to-end customer experience. Again, we are taking this very seriously, and we will continue to invest GBP 20 million throughout '23 and '24 in order to drive margin expansion, optimize working capital and enhance customer experience. Our success will be measured by consistently exceeding NPS of 50. The previous slides were mostly about volumes. Let's now drill down into pricing, as Scott says. I firmly believe that pricing is like a muscle. If we use it only once a year, it won't lose much weight, and it will hurt the day after. I've had over 30 years experience in different industries and geographies, and I must say that Essentra is a fantastic culture and discipline when it comes to pricing. We have a proven track of record because we did offset in '22 fully the cost inflation, thanks to pricing action. As an evidence, 83% of our recurring business has had a price increase over the last 12 months. Obviously, we still have room to go. I must also say that we are benefiting from the fact that, as Scott mentioned, we have a below-the-radar approach or wherever our products are essential to the customer they only account for a small fraction of the total cost, therefore, attract less attention and, therefore, yield a higher pricing in elasticity. As I mentioned, we have still room to improve in some geographies. 83% is not 100%, and that's what we are shooting for. Digitalization will provide multiple opportunities in the fields of visibility for our teams at products and customer level, global consistency of product approach, improvement in real-time user control, customer segmentation and last but not least, use of AI pricing. In summary, we have the right pricing culture and discipline and digital will take us to the next level. As I told you earlier, if there is one slide to remember, it is this one. We have a clear winning strategy for organic growth. It is based on three building blocks. The first one is get more customers through an improved website and digital presence and winning with the winners. Our success will be measured by a growth of 5% in new customer acquisition. Our second building block is grow them by cross-selling here again. We are in a unique position because of our industry expertise and the breadth of our range. We will measure success by 5% growth in categories per customer. The last one, keeping them by being hassle-free, digital enhancement will bring us new and better tools to provide a better customer experience. Again, here, success will be measured by exceeding NPS of 50. If we execute our strategy seamlessly and relentlessly, and we definitely will, we will organically grow our market share to 5% or 6% of a total addressable market estimated between GBP 8 billion and GBP 10 billion. Thank you for your attention. I hope I convinced you we have a winning strategy, which we will execute with passion and discipline. And now over to my colleague, Lynne, who will take you to a topic very close to our heart at Essentra.

Thank you. Good morning, everyone. I'm Lynne Vandeveer. I'm the Chief Marketing Officer and President of Americas. It's such a pleasure to be with you here today. I'm going to talk with you about our source of competitive advantage from ESG. We've recently refreshed the ESG framework to more beautifully fit our pure-play components business. And that new framework has 5 pillars. I'll take you through each one of them with some examples. But before I do that, I have a video I'd like to show you, which highlights some of our goals on ESG as well as our progress so far. [Presentation]

Just load the energy of that video and the bright and sustainable future that it predicts for Essentra as a pure-play components business. Our ESG and sustainability strategy is a really important part of our overall Essentra strategy and very engaging for our employees, for myself and very inspiring for many others as well. So when I first started talking, I told you we have 5 pillars. These are the 5 pillars that we've designed for Essentra's framework. And we've chosen these 5 particular pillars because we've done a materiality matrix analysis, and these 5 fit our pure play components business beautifully. The 5 pillars are our planet, our culture, our communities, our components and our customers. And following on from Hugues' great presentation on our customer, I'm going to start with the customer pillar. As you heard from Scott and Hugues, we have a very broad and diverse customer base, small, medium and large. Many of our large customers do have defined sustainability goals and we are well positioned to help them to support them on their sustainability journey to help them meet their targets. We also have many small customers who are not as well developed or as advanced on their sustainability goals, but this is an opportunity for us. So in many ways, we're ahead of our customers on this, but we're also well partner -- well positioned to partner with larger customers when they are ready. There's an example on this slide of an alliance that we've built with Iracroft. You might know Iracroft as a large tube manufacturer based in the U.K. And the photo on this slide shows Iracroft's tubes partnered together with LDPE caps, like this one that Scott showed you. These are produced in our Kidlington U.K. facility. Because of our alliance together with Iracroft, 2.5 million of these LDPE caps do not go into landfill any longer, they are chipped, recycled and returned into the manufacturing cycle. Another way that Essentra is delivering on our ESG strategy through the customer pillar is by focusing on ESG supportive industries. These have been mentioned several times already in our presentation today, renewable energy and electric vehicles are two examples of that. The really inspiring or I would say, exciting thing about our progress in this area is I can tell you that for electric vehicle charging stations, our sales are up 70% versus a year ago. And this is a very good start, and we have lots more opportunity in this area as well. The second pillar is our planet, and this is the pillar that focuses on our goals for reducing carbon emissions. Essentra recently committed to the science-based targets initiative and we committed to refreshing our goals for midterm and long-term carbon reduction. Midterm, our goal is to reduce Scope 1 and Scope 2 emissions by 25% by 2025. And longer term, our goal is net 0 by 2040. We've made really good progress against this goal. Since 2019, we've reduced absolute emissions by 11% and normalized emissions by 14%. Another key goal of this pillar is 0 waste to landfill. And while the video I just showed said 9 sites were actually up to 13 of our sites are on track to be 0 waste to landfill by the end of 2022. We aim to have all of our sites 0 waste to landfill by 2030. The third pillar, components are our products themselves, and we're developing products using innovative technologies and sustainable materials. Essentra will be using 20% recycled content across all of our product range by 2025 through our commitment to the circular plastics alliance. Our manufacturing site in Kidlington, in fact, is doing really good work in this area. Nearly all of our LDP products produced in Kidlington contain 50% or more recycled content. In fact, some of those products are up to 98% recycled content. So in 2021, we achieved 8.5% towards that 20% goal. And so you might be thinking, well, that 20% goal doesn't really seem like a very ambitious target because you're almost halfway there. But actually, the next 11.5 points are going to be more difficult because in order to achieve that 20% goal, we're going to have to make our nylon products more sustainable. Nylon is a more challenging material to work with technically. So to face into that challenge, in 2023, we're opening a Sustainability Center of Excellence in our Kidlington facility. The #1 priority for R&D in that facility will be focusing on making our nylon products more sustainable. The fourth pillar is our communities. The scale of Essentra means that we have not only an opportunity but a responsibility to ensure that there are good practices in the communities where we do business. At Essentra, all employees are encouraged to volunteer time and good works in our own communities and we offer paid time off for hourly employees to make that possible for everyone in the company. There are some examples on this slide of some of the community programs that have recently happened across the company. On this photo, you can see members of our team in Flippin Arkansas, packing food boxes for food pantry. And we're also very proud of our team in Poland who pulled together and put in a lot of time to collect supplies, which were sent to Ukraine. Finally, we're working with suppliers to ensure ethical practices. And this is another area where we have an opportunity to digitalize the process through our supplier development program. And then last but not least is our culture. And this one is probably the one that just pulls it all together. This pillar contains the health and safety programs that, of course, you would expect us to have in all of our Essentra facilities. But at Essentra, it's more than just keeping our employees physically safe while they're at work. It's also about well-being in a broader sense. Well being means a lot of things to a lot of different people like bringing your whole self to work. And that belief at Essentra has led us to celebrate a lot of events on the D&I calendar. I feel very confident that as a pure-play components business, the D&I agenda will continue to be an important part of our strategy and a priority for us as we build our culture. One of the reasons that I feel so confident in that is that Scott Fawcett is the person who spearhead and initiated the D&I agenda at Essentra plc when it was a 3-part business. And now as a pure-play components business, we have the opportunity to continue to embed that D&I priority into our culture. Employee engagement, as has been mentioned already today several times is a really important measure of the health of our business. And we're starting from a very good place. The last time we collected results from an employee engagement survey. We got very good participation. 90% or more of our employees actually participated in the survey. And of those who participated, 80% of them said they're very proud to work at Essentra. So as I said, we're starting from a very good place going forward as a pure-play components business. Right now, our 2022 Employment Engagement Survey is in the field, and we'll use the results of that Employment Engagement Survey to shape and guide our D&I and culture agenda going forward. So to wrap up, our 5-pillar strategy: Planet, our culture, communities, components and our customers is well suited to our pure-play components business. I hope I've shown you how this 5-part framework will help to be a powerful element in our strategy and a source of competitive advantage for Essentra. We look forward to sharing more of our progress with you when we talk about our full year results at the end of the year. So thank you very much for your time and your attention. I hope that you enjoyed seeing this as much as I enjoyed presenting it. And at this point, I'd like to turn it over to my colleague, Rob, to talk about our margin enhancement journey. Thank you.

Good morning, everybody. My name is Rob Baker. I'm delighted to be leading the supply chain and operations teams at Essentra. It's a great team. . Internally, we have a number of opportunities to go through. Externally, we operate in a challenging supply chain environment as we see in the news every day. But actually, for us, that are -- for some opportunities as well. And so this story of how we grow our margin to 18% is one about the internal and the external opportunities. And if we tackle those two together, then we'll not only will we grow our margin, but we will be -- have a more sustainable supply chain, and we will be more hassle-free for our customers. So I'm going to start with -- talk a little bit about the external environment and those opportunities -- sorry, where are we? There we go, sorry. We have really interesting change going on. So over the last 3 decades or so, we've seen these big shift changes in the supply chain. We've seen globalization, we've seen digitalization. We're now seeing something quite different. And we're calling it a -- well, it's not way calling, it is generally called the polarization of the supply chain. And by this, we mean it's a conscious shift away from the sort of traditional global low-cost manufacturing towards supply chains that are more local, reliable and more controllable. And with that, we're seeing also a greater sense of urgency in the sustainability agenda in supply chains. So a much stronger push for that more quickly. Now, so what? This is all very interesting. But for us, in Essentra, we have a great opportunity to capitalize on this change. So as I'll show you in a minute, we have a very diverse manufacturing footprint. And that enables us then to think about how we redeploy our tooling to move our make capabilities closer to the point of demand. And in doing so, we rebalance what we make where and what we make versus what we buy and bring more in-house. So this delivers for us a number of opportunities. From a customer point of view, we're more responsive, we're more reliable. From a cash point of view, we have shorter lead times, lower inventory. From a cost point of view, we can really cherrypick the opportunities in how we redeploy for -- to maximize margin at product level. And then sustainability, clearly, if we're shipping less globally, then we will have less Scope 3 emissions. So you can see how this directionally plays towards margin expansion, ESG ambition and hassle-free for our customers. So hold that thought because I will come back to this in a minute. But if we just now have a look at our internal opportunities. So Scott has already described this growth of the Components business through acquisition over time. And that inevitably leads to a degree of fragmentation and local processes and ways of working. And here this in lies our opportunity. So our internal opportunity is in how we standardize, simplify and integrate more tightly as a business. Now we're implementing a new ERP system. So that is clearly an enabler. But there is more to it than that. We have a number of opportunities internally that we can capitalize on and by deploying some internal investment in a focused way on quick returns, we can really deliver some significant changes and improvements in how we optimize our footprint and how we buy better and how we operate efficiently. So it's not just about the ERP platform. It's also about a number of other good opportunities that are available to us. And we have laid a lot of the foundations for this as well. So this becomes -- the key point here is it becomes a journey of incremental improvements rather than big bang changes, and that gives us a lot more control. So I'm just going to quickly run through now just these -- the footprint buying better and operating efficiently, just tell you a little bit more, give you a little bit more insight as to what is behind that. So if we take our manufacturing footprint, I mentioned earlier, we have this diverse footprint around the world. That is what it looks like. We are -- it's evolving. So we've already closed 3 sites as we start to consolidate, but coming back to this point around polarization. What we're trying to do here is make sure that we have low-cost injection molding and dip molding capability in every region and that we also have access hardware capability in every region. So that's playing to this point around polarization being closer to the point of demand. So our journey through how we optimize our footprint is, therefore, about that optimization between the consolidation for low-cost manufacturing and the need to be close to our customers. So we'll have to balance that as we progress. Now in terms of capacity, we have enough capacity to absorb our organic growth. And as M&A opportunities come along, we will therefore need to sort of reconsider and course correct accordingly. Now these are manufacturing facilities and indeed, our suppliers -- supply our hubs and our warehouses, our 23 warehouses company that Scott described earlier. But where we're moving to with our logistics footprint is in making sure that every region has 2 hubs. And the purpose of that is obviously to derisk the supply chain and make sure that we have continuity of service, if any outage occurred. But also, so we can deliver on our day 1 to day 3 stocked service promise. And that's really important because our customers have told us that's what they want. So we achieved that through this dual hub approach. Now within each of those hubs, we'll have optimized inventory. And we achieved that optimized inventory through a number of initiatives, not least ERP will support us in the delivery of that, but actually through world-class demand planning, so -- and demand management. So this will enable us to better forecast for this complex range that we have 45,000 SKUs. What we need and where we need it, so it's ready for our customers when they want it. So that's a critical part of how we will optimize the inventory. In terms of progress, we have -- we're doing well in Europe. We've got 2 new hubs in Europe. We've got an automated hub in Germany, which you saw in the video earlier. We've got a new hub in Poland. So our opportunity now in Europe is about consolidation, and we've got that infrastructure in place. AMER is where we have least scope for growth into capacity growth. So we will probably be investing a little in 2024 to support that growth in the EMEA region, but that's all within the CapEx plan that Jack will describe shortly. And as far as APAC is concerned, we have a mixture of in-house and outsourced logistics, and we'll stick with that, and we'll review that as that region grows. Now the other 2 elements are buying better and operating efficiently. This is where ERP really does help us because we will accelerate our improvements here through better systems, data and processes. So -- but there is still a lot we can do whilst we implement ERP. So for example, buying better at the heart of that is purely best practice procurement. So procurement operating model, getting the team geared up, category management strategies, consolidating our suppliers, consolidating our spend. So we can do a lot of that now whilst we implement ERP. A lot of that work is underway. In terms of operating efficiently, it is about a good operation -- good robust operational excellence strategy. And by that, that sounds a bit vague. So by that specifically, I mean we take the processes and the systems that brought about by ERP, and then we overlay the whole people piece and make sure that our people are motivated, capable and executing those processes day in and day out for our customers. Beyond our people, it is about automation at our warehouses and manufacturing sites and robotic process automation and back offices to support our transactional activity. So a number of opportunities there. Now I'd just like to finish with a real example before I summarize, in terms of a good example of what we mean by this. So currently, if we think about standardization and simplification, our warehouses today could receive an order from a customer for 75 pieces of something. Now what that might mean is that we then open up a bag of 1,000 pieces, and then we count out 75 and then we put them in a bag and then we ship them to the customer. So we have launched a program around mini packs. And basically, what that means is and conveniently here, we'll have a bag, a small bag of components, let's say, it's 100 that we will default to for those small orders. So you can imagine a world, therefore, where we're no longer picking 76 or 75 pieces, we were actually just picking once. And so you can see how that can really drive productivity improvement and reduce our cost to serve. And critically, the reason I called out, for example, is we don't need ERP to get started on that. So we can really start this journey through really picking those sort of big win initiatives and balancing against our interdependency with the ERP system. So that's just an example. And to summarize, this is an important thing to remember, polarization of the supply chain. We've got to capitalize on that, and I'll show you how we'll do that. Helped by ERP, we will standardize, simplify and integrate the business more tightly. And then through doing that, we will clearly will benefit from economies of scale, but actually, the initiatives that we're building will drive enhancement -- margin enhancements in buying better, optimizing our footprint and operating efficiently. And in doing so, we get to our 18% and we have a more sustainable supply chain, and we have some free for our customers. So thank you for listening to that. I now -- we're going to take a 15-minute break. And then after which, I'm going to hand over to Jack after the break, who is going to talk to us about our financial frameworks. Thank you. [Break]

Yes. So obviously, you've heard from Scott on the strategy and the key differentiators that we have for the components going forward. Hugues has clearly outlined a very strong commercial model, whereby we should grow, and there's some very clear pinning underneath strategies and tenants to support that. Lynne, has taken us through in detail the importance of sustainability to the company in the future. And Rob is very well articulated the operational strategy and how we're going to drive margin improvement. So it falls to me to wrap up on the financial framework, what does that mean to the investors going forward. Paul, our Chairman has very clearly stated that this is all about driving shareholder value. And I hope to make the case here very simply that it is. Scott said that we will be doubling revenues and tripling profits, we're on a 5% organic growth and 5% acquisitive growth we clearly demonstrate that we can double that revenue over the medium term being 5 to 6 years, and the profits will almost triple from 44 to 120. Very importantly, the profit margin will go from 14% to 18%. So we'll be improving the quality of the earnings over time. What are our targets associated with this? Where we go -- we're going from a 14% operating margin to an 18% operating margin. Net debt-to-EBITDA, we're going to keep at less than 1 in the near term. We'll talk about the medium term shortly. Net working capital, Scott has mentioned that it's really important that we have stock available for customers. We're also going to drive the revenues on this business, so receivables increase. So it will be 18% over the medium term. Other guidance, 4% to 5% CapEx. Rob's talked a lot about investing in the business. Hugues mentioned, the digital profile. We will keep continuing investing in the business and growing that business. Cash conversion, again, we're going to grow the business. It will be 85% or better. ROIC, we're going to measure all of our investments, whether it's acquisitive or organic at 15%. And taxes now seem to have settled down with the recent government discussions at a 24% to 26% range over the medium term. So you can see that idea of doubling the revenue and tripling the profits, the underlying financial assumptions are very conservative. We can achieve this. It's an ambitious target, but it's deliverable. How are we going to allocate the capital in the new business? Organic growth, this is very much in strict order of preference. Organic growth is core. The capital investment will remain at 4% to 5%. Year-after-year, we will keep investing in the business in the downturn. And in the upturns, we will invest. Innovation, Lynne talked a lot about sustainability, the new product developments and propositions. These are really important to our customers and also to our employees and other stakeholders. Digitalization is key to the transformation of the business going forward, and we will invest our capital in that. Acquisitions are going to come on to this in detail, but we have a strong pipeline. And the core of the strategy is around product adjacencies and getting the cross-sell across the business. We will be paying a dividend. It will be a 3x cover. It will be progressive in that as profits rise, the dividend will rise. So then on the acquisitions, many -- Scott and others have said, I will talk about this in some detail, and I will. You can see over the last 10 years, we have a really good, strong record of acquiring companies in different geographies with product adjacencies, very much built in on our core range and successfully integrating and acquire them. We have learned lessons as we've gone, strategic clarity is essential. We have a highly disciplined approach, the importance of aligning the different management teams, getting the right people, making sure they're comfortable with us, and we're comfortable with them is key. Communication across the piece is absolutely core to the process. It's essential and keeping agile and recognizing that the plans will change, first smoking battle, things change, we've got to change. But we've got a strong track record of delivering and we've learned our lessons, and we know how to do this, and we've got a good machine for integrating the businesses going forward. That gives us confidence in being able to deliver that acquisitive growth. Taking a couple of examples. We entered the Turkey market. We were there previously with the acquisition of Mesan Locks. It's a hardware access business. Scott and Hugues mentioned how important that is to the growth of the company. It's a key area for us. It allowed us to sell into the Turkey market or existing products. It also allowed us to bring hardware access products to our European and Middle East customers across our network. So that cross-selling, this is a really good example of the delivery of that. Microplastics, different markets, North America, but it gave us good penetration into the customer base across North America. It enabled our service levels to go up and to improve our pricing. And again, we were able to cross-sell. You can see from the numbers that we really did increase the revenue in a very short pace of time, and we tripled the profits. So again, that idea that we can triple the profit, double the revenues, we have case studies and reference points to show that, that is entirely achievable. That's the past. What about the future? Where we have a really good pipeline of projects. Hugues mentioned, this is a highly diversified and fragmented market. There are literally thousands of companies in our space across the world. That means that there's plenty of opportunities. We have hundreds in our hopper in the M&A. We actively track 50 and maintain relationships at a local and at a company level. We have focused priorities of around about 25 companies. And at any given time, we'll have up to 4 active discussions. Currently, we have a very focused opportunity in the U.K. for a manufacturer distributable of components. Discussions are going very well, and we hope to be able to announce something on that as and when it's concluded in the near term. We also have an active conversation in America where our team are visiting a company that will extend our product adjacencies this week. So the message here is, this is very much a real core thing. We know how to do, and we do it well, and we're active currently. So the idea of delivering our financial metrics is entirely achievable. In summary then, we have a strong financial framework, we got very clear financial targets, but they're retainable, they're achievable. We have a clear capital allocation policy, focused on organic growth, but with acquisitive. We have a committed progressive dividend policy at 3x cover, and we have a delivery of a M&A strategy that we know how to do, and we will achieve. With that in mind, I'll hand it back to Scott to conclude.

Thanks, Jack. So just to bring it all together to summarize. What we've told you today is explaining this is a unique business with a unique proposition. This combination of manufacturing and distribution across this broad range of these low-cost components is a unique business that we pull together, operating in this highly fragmented market, which today we estimate GBP 8 billion to GBP 10 billion, that market will grow as we acquire more product adjacencies as well. Hugues and Lynne have talked about the organic growth story, the strategy for market share gain, enabled by digitalization and investment in sustainability, both of our operations under the products that we're manufacturing. Rob has then talked about the margin profile of the business and the opportunity we have to expand this further to our target of 18% through scale efficiencies, through operating efficiencies, including buying better and also, as Hugues referred to earlier in terms of pricing as well. And then Jack has talked about the strong returns, the high levels of cash conversion, which is enabling us to fund the M&A opportunity in this way, again, a very fragmented market. So overall, we strongly believe the ambition to double the revenue and triple the profits of the business is well within our reach. And with that, I'd like to open the floor up now to Q&A. So we have some roving mics in the room if we start in the room, and then we'll move online with any questions. Henry?

It's Henry Carver from Peel Hunt. Just want to start with around the balance between distributing and manufacturing and I guess how that sort of direct your M&A thinking going forward and the strategy going forward generally. Is there a sort of perfect balance? Does it affect where you're searching for new deals or not? Or is it just all about products and products adjacencies?

Yes . I'm not sure there is a perfect balance, and we do see organizations in different shapes and different focuses being a good fit. Fundamentally, though, we think we've created essential components as a distribution business now. We have the logistics footprints in place. We have the sales offices in place. We have a digital front end in place. So it's most likely that we're going to acquire people who've got good product capabilities that we can plug into this distribution business that we've created that is essentially components. I also refer to the components now as an umbrella distribution business sitting on top of these product businesses that we either owned or acquired over the years. So likely more manufacturing, but not a 100% rule that it must be a manufacturing business. It's about product breadth probably as much as anything else. Occasionally geography, but product breadth probably as much as anything else.

Got it. Understood. And then just on the sort of resource you have for doing deals. How much of it was perhaps part of the central office before and now going on is just the central components? Do you have the resources you need to continue with the sort of momentum that you got on deals?

Yes, we do. I mean all of the profiling work, the hopper work, the relationship build is all held really within the old divisional team. So we have [ recalled ] [ Richard Seiderman ] who has worked for us for a number of years who is really the custodian of that. He's one of the team visiting the U.S. this week for us. Most of those relationships we talked about with potential targets are owned by people on the [Ex. Co], probably most of them with myself directly. So we're pretty self-sufficient. And again, we're going to be relatively conservative in the short term, 1 or 2 small bolt-on deals a year. So we'll be working with Jack's team in terms of sort of transactional aspects of M&A. But the relationship work is really with the team that have ever been in place for some time. Andy?

Andy from Jefferies. I've got so many questions. I'm not quite sure where to start. Let's go ahead. Let's go to M&A. Can you talk to us about the margin profile of the companies that are on your list? On your slide, you kind of got 15% margins for your M&A. Clearly, you get there over time. But are we starting with 10% margins building up? Or are we already at that 15% margin?

Certainly, on the -- well, let's just look at the 2 that are the most active at the moment. One has a slightly higher margin than the group and one has a lower margin. Obviously, we tend to buy sort of 6 to 8x earnings. But after synergies and after putting in some of the efficiencies that we can, we tend to rather as bold with [ 4 to 6x ]. So we -- part of the game is to push their margin up over time.

That leads me perfectly on to my second question. Will you only contemplate acquisitions that have synergistic opportunities? Or would you buy business out? Because by definition, that means you're going to be a higher multiple if you haven't got the synergies.

We are only looking at highly synergistic businesses that we can plug into the business. Just adding to Jack's previous answer as well, most of the times we talked about we're buying manufacturing businesses, they tend not to be great at customer service. They tend not to be great at pricing. So by plugging them into our distribution channels, we're taking more direct business. We're definitely adding to their pricing capabilities, and that tends to be some of the drivers of the margin. But most businesses we acquired, won't be 100%, most businesses will have a strong product cross-sell synergy opportunity, and that tends to be the driver of our attraction to them. Two reasons for that. One, we can drive synergy, and we've got track record already, but also it adds to the customer value proposition of the whole thing. So we're adding to the value of the group. It's self-fulfilling in many ways. So...

And historically, you've talked about a lot of white space in China, India, kind of rest of the world, should we say. Is that still a key area of focus in terms of kind of balancing up that regional sales for the group?

I think over the midterm, it certainly is. Given the geopolitical tensions right now and some of the challenges in China, I would say less of a priority for the next 12 months, 18 months. we're going to be wanting to do things that are very much in our sweet spot for the immediate period, just while the world has been a little bit less certain. But strategically, still a very important area. China is 1/4 of the global industrial production, and we have a relatively low share, but increasingly focusing China for China as part of our go-forward strategy, but unlikely to make further acquisitions in China for the short term.

And then one more and I'll let someone else have a go. If we think about the cross-selling opportunity, the way I think about you guys is you are kind of GDP plus x. If your sales teams can sell 5% more to each of your customers, that means your kind of global GDP plus [ one time price ] plus 5%, we get to kind of 10% organic. Is that right in terms of my thinking? And if not, what is the answer from the upside from cross-selling in reality? Because it's not 5%? Was it 1%, 2%?

Yes. I don't know if the math works to 5%. And we're obviously doing some of it today. Our plan is to -- and the key metric we use in these categories per customer, so increasing the number of categories that customers are buying by 5%. That number is sub-2 today for the totality of the customer base, putting it over [ 2% ] gives you opportunity, but it wouldn't add 5%. The 2%, 3%, 4% margin on cross-sell opportunity should be there for sure. I wouldn't say at 5%. Adrian?

Adrian Kearsey, Panmure. [ I don't ] noticed on one of your charts that you have no access hardware manufacturing capability in the North America. Is that something you want to address quickly within the mix in terms of production?

It would be very much up there in terms of a key strategic priority for us. It's the availability of targets, the targets that we would now in the U.S. are privately held. Whether the owners are feeling now is the right time to be selling their businesses. But you're right. If we had access hardware manufacturing in the U.S., it would give us further advantage to be able to sell that range into the U.S. A little bit too much detail. One thing we are going to do is look at doing some configuration of access hardware in the U.S. So part of our strategy in the U.S. logistic space is actually giving our ability to configure products in the U.S., which is a pathway step towards the local manufacturing capability, which we can take with our existing footprint. So there are plans to improve, but undoubtedly an access hardware factory somewhere in the Americas would be a very great fit. If anybody finds one of them, please say , you know what my number is, so... James?

It's James Beard from Numis. I've got 3. I'll just do them one by one if that's okay. So firstly, on historic organic revenue growth of sort of 5% per annum, how does that split between pricing and volume growth typically? And then a sort of slight lead on question to that is, if it appears sort of commodity priced environment, is a bit more deflationary now, how does that sort of impact your ability to pass pricing in 2023 versus where we've been in the last sort of 18 months?

So we've been around 4.5% historic CAGR. I would say broadly 50-50 between pricing and volume over that 10-year period. So we've always had a good ability to manage pricing. Clearly, nothing like it's been in the last 18 months. So in terms of where we are now, we are still actively pushing pricing through to the market because we're still actively seeing cost pricing inflation. You're right, some of the raw material commodity prices are reducing, and some of the freight costs are at least at a peak, if not starting to reduce as well. However, we're still seeing labor cost inflation. The cost of living crisis is there, and we are planning certainly above-average merit increases for next year, which we need to manage. And then we have energy costs. And whilst we're not overly exposed to energy costs, and we're reasonably well covered, there are still energy cost inflation aspects that need to managed. So we're confident in our ability to continue to pass those through, even though we're seeing some prices deflate, other prices are -- other input prices are still inflating and customer is understanding of that.

And then secondly, on the customer side of things. Growing your customer base appears to be a core part of the organic growth strategy. Over the last sort of 5 years or so, the customer base has contracted from just over 100,000 to sort of about 75,000 I think it was in the most recent fiscal year. Can you just explain sort of how that process -- is that sort of bottomed out now? And are you in a position where, I guess, your core customer base is actually growing?

Yes. So we talked about those 3 customer groups on that pie chart. So the industrial manufacturing customers, the consumer manufacturing customers and then small/medium enterprises. We've deliberately been, trying to be less attractive to small/medium enterprises, and it's not easy given search marketing is one of our biggest marketing channels, and it's fairly indiscriminate. So tuning that has been important. You can see that I think still 25% of our customers are in that smaller ideal category. We need to manage those and manage it effectively, try and manage more of their interactions digitally, clearly. But we will continue to try and make that number a small percentage of the overall. Our focus, as Hugues talked about, is in those industrial categories, and we are seeing some good growth, especially in those higher-growth areas as well. So I think when we come to year-end, we'll try and identify the growth by customer, by segment and just make that a little bit clearer because you're right that the overall number looks like it's been declining, but it has been by design. So...

Cool. And then finally, just on the building blocks of the operating margin improvement that you're sort of targeting over the next 5 or 6 years. So going, what, circa 400 basis point margin uplift. How much of that is just operational gearing from volume versus some of the more specific initiatives that we talked to during the presentation?

I'd say at least half of it is purely through that through the gearing. Obviously, our fixed cost base is going to remain the same, the SG&A. So as we acquire extra revenue, gross margin will flow through to an increased operational margin. So that's the bulk of it. But some of the initiatives that we talked about with both you and Rob in terms of operational improvements and being smarter and more efficient and some of the stuff that Lynne talked about in terms of cost mitigation, the sustainability also reduces costs. So I think that will be the other element, probably 2/3, 1/3.

And obviously, we just inherited or built an additional cost base with the move of the central cost to enable us to be a stand-alone business. So we have a new aspect of fixed cost that we'll be able to cover and gear against as we grow the business both organically and inorganically. [indiscernible]

Scott, first of all, congratulations on your new CEO position. You're surely going to enjoy talking to us in the coming years. Two questions for you, one by one again. In terms of our acquisitions -- as you said, there are lots of opportunities. Are we possibly considering going to higher value, higher margin products?

We're not excluding higher margin products. And certainly, some of the businesses we look at have a higher margin profile and a higher operating margin totally profile. I would say most of the business we're looking at, though, we have a lower profile than we have at the starting point, predominantly because of the size and scale of those businesses and the fact that they're typically serving through -- more through distribution than direct. So I wouldn't rule it out. There were some interesting product adjacencies that I think could give us some good margin profile. Connector is probably the good example here. We think industrial connectors is a great opportunity. We've looked at a couple of assets over the last year or so, they haven't been quite right. So we've not pursued them, but that they could welcome with a higher-than-average margin mix. So I guess the margin mix isn't the starting point of what we're looking forward is that synergy and ability to cross-sell, but I think there are some areas out there, which may prove to be higher margins.

Okay. Cool. And if you were not at Essentra and you are looking at Essentra from a distance, would you form the view that we are trying to do too many things to too many people?

No, I don't think I would. I'd tell you, we are clear and unique in what we're trying to do. We're trying to aggregate this low-cost bill of materials category in a way that nobody else is doing that. The fact that we are able to aggregate means we attract a very wide base of industrial customers. But you need to do that if you're going to build some sort of aggregation and distribution business, you need that scale. So I think we're clear in the purpose of the business and the strategy of the business. And then taking that to market gives us the breadth. But no, I think we're pretty clear.

One quick one for Jack, please. I mean I'm referring to your GBP 200 million target. I mean what's our current -- I mean after all this debt and cash and net, what's our current position?

We are slightly cash positive.

And how much do you think this GBP 200 million acquisition will cost roughly?

The GBP 200 million -- well, we're going to do -- over the next 3 to 4 years, we're going to do GBP 30 million to GBP 60 million of acquisitions per annum. And then probably in years 4 to 6, we'll be doing more like GBP 50 million to GBP 80 million type acquisitions.

So the kind of small acquisitions funded by organic...

All bolt-ons. We've got a very strong cash flow of GBP 70 million plus per year. Plus we've got this very good conservative balance sheet to start with. So we should be able to fund it eminently sensibly.

One question from me. Andres Castanos from Berenberg. About your digital capabilities, the new front end, when did you launch it? And since then, how much has the acquisition and the sales through digital channels moved up? Can you describe...

So the launch has been over the last 3 years, I think, in total, but the last site actually went live early this year in Thailand. So we have just about -- not all, but just about all of the Essentra components sales centers with a local language, local currency website. I think Hugues referred to the point that since launching those sites, we've seen a doubling of both the organic traffic to the site. So we're having to pay less for traffic because we're tuning the websites better predominantly to Google, although Google keep changing the rules, which is why we need to keep updating the websites. But also, we've seen a doubling of the conversion rate. Now that conversion rate, it splits, getting a little bit technical. It's split between order conversion and lead conversion, and both have gone up, I think, fairly equally. So the percentage of online sales has gone up, but it's gone up from 3% to 5% or something. It's still very low, but the number of leads that we generate each day, week and month by the website has also doubled. So we're generating, I think it's about 1,000 leads a week of opportunities that are coming in from the website, which are again hitting the sale centers. Now one of our problems is that's a lot of new opportunities, and Hugues talked to this AI lead scoring, which is how we're going to use technology to try and prioritize that long list of opportunities that are coming into our call centers to understand which sales channels to use for which opportunities. So if there's a clear larger manufacturer in the solar industry where we just had a lot of success, the AI will be promoting that to the top. So we send our solar category person to go and talk to that customer where if it's a smaller local manufacturer, we'll probably push them into an automated marketing channel. So a lot of leads getting generated. And now it's about how do we prioritize that lead effort through the use of technology.

[indiscernible] how big the opportunity would be and that digital, in particular, can help a lot. But historically, what do you think the biggest barriers to more cross-selling have been? Has it been -- how the sales team have been incentivized, there's been a change in that?

It's knowledge of the sales team, I would argue. And it's an area that we're acutely aware of and working on. I think Hugues again talked about the knowledge management -- learning management systems that we've created to try and help improve that knowledge. We also have another program, which we're launching called effectively digitalizing expertise. So how do we have the expertise of each of these products most readily available to all of our sales channels. So I would say salesperson knowledge, the ability to be confident in inquiring about opportunities across the breadth of the product offer is probably the key barrier. But again, we can use technology to accelerate knowledge in people as well. So that's very much what we're working on right now.

Okay. As well as the knowledge, is there a change in how they're incentivized?

So we're very much focused on new business from an incentive point of view. And new business is a combination of new customers and cross-sell. So they have both of those aspects in their focus. I think there's always an opportunity for us to improve how incentivized programs work, and we've got a call tomorrow to start working through them as soon as for next year. But that new business focus, I think, is broadly right, whether we tune further into cross-sell, that may be an option for us, but the new business pretty much captures it. So it's one more back end, if you come back to him as well.

It's [ Karl Green ] from RBC. Just one question from me. Just a question around the interplay between your net working capital intensity and your self-manufacturing status. So if whatever reason you decided that you wanted to accelerate, and I think you've alluded to the fact you would push that, what would the dynamic look like in terms of the capital intensity in terms of having greater resilience within the model? I don't think it's necessarily a right or wrong answer here, but would you be confident you can still keep it to 18% if you push that on further?

Yes. I mean, broadly, the -- first we manufacture, we have greater control over the working capital impact. I mean it makes -- Rob's and his team's life very difficult, but we choose to run our manufacturing sites fairly inefficiently because we drive them to stock position and the working capital commitment. So we're driving pressure into the operational sites to keep working capital under control. So I would suggest we probably have a lower minimum order value for a self-manufactured item than we would for buying that item from the marketplace. So overall, there should be a working capital gain to manufacturing more than sourcing.

I agree with that.

Sorry. Andy, back to you.

Andy from Jefferies again. You talked a number of times about the uniqueness of the Essentra Components business. Why is that? Why is no one else kind of try to copy you? Or is there a reason?

I don't know. It's either brilliant or crazy, but I'm betting on brilliant quite clearly. It would be a brave move for their typically privately held businesses manufacturing one of these product lines to suddenly jump into the next product area. This journey started even before me, and I guess I was brought in to accelerate that route to distribution, if you like. But we've not seen anybody else try and break out of the historic product category. And I think without doing that, you then don't really have the scale to enable that stock investment and the marketing and sales investment you need to be a good distribution type business. So I guess I'm probably not the right person to ask given that we are the ones doing it, but I do sit back and think this is amazing. And if I have my time again, I would have done this somewhere else 15 years ago, but it's a fantastic business model, I think, we've effectively created.

And then following on to that, from a customer perspective, is there a short-term, long-term trend -- I don't know -- about kind of using Essentra as a one-stop shop as opposed to using [ modern power for ] bits and pieces? Or is it going the other way to reduce the kind of -- how strong you are as a market player?

No. I think this is -- the only danger of the strategy is that we've become above the radar at some point, but we're not there yet. So I think everything saying our customers will continue to want to consolidate suppliers. We know there's cost in dealing with suppliers and managing suppliers. And then I think on top of that, the opportunity around sustainability and being able to provide that information about the sustainability, Scope 3 emissions of the products we're managing and a commitment to reduce those emissions, I think that need or that value in being the one-stop shop is only going to increase in all honestly.

Rob Plant from Panmure. You've talked about the -- you talked about exciting new areas like EV. Are there legacy industries where you just don't think it's that worth investing in or just pulling out from?

Yes. I would say managing for cash possibly is the way to articulate them. So interestingly, when you look at the legacy of our business, we probably had GBP 0.25 of the business tied up in automotive historically, and we've moved away from that over the last 20 years. And we see, obviously, the industrial -- the internal combustion engine opportunities are going to reduce over the coming decade and probably stop at the end of that period. So we have some products, which are not solely for that market, but which are sold into that market, and we'll be managing those to cash and to exit. I think what's really interesting here, though, is we've done some work to look at the value of components we can sell to a car with an industrial combustion engine versus the value of components we can sell to a car, which is either hybrid or electric, and there's like a GBP 0.30 or GBP 0.40 uplift in the new world. We've not going to go out and win that. So the opportunity, again, is there to be had, but that's probably one of the areas that we're clearly seeing that transition and is very well published, and we just want to make sure that we're moving with that market. And Hugues talked about a little bit of that from an EV point of view.

I think you guys are staying on for another half an hour or so, Scott and his whole team. So if you want to have a one-to-one or 3-to-1 or whatever it is, then these guys would be happy -- yes. But thanks very much for all who attended. I hope you found that enlightening. And I think -- we think it's a great strategy going forward, and I think we've got the team to deliver it. So thank you very much.

Thanks all.