Essentra plc (ESNT) Earnings Call Transcript & Summary

So good morning all. Thank you all for joining. So I'm Scott Fawcett, Chief Exec of Essentra, and delighted to be here with Jack Clarke, our CFO, to share with you the results for the first half. We'll go through the agenda. I'll give you a quick summary to start with, over to Jack for the financial performance. I'll come and talk a little bit about strategic updates, and then we'll cover the outlook. Also in a strategic update, cover the regional performance as well, give you a little bit more color on each of the 3 regions within the business.  So in summary, the word we're using to describe performance in the first half is encouraging. Again, it's a difficult market context. It remains challenging out there but encouraging overall for the group. So we managed to get overall revenue growth and profit growth on a constant currency basis. Jack will talk through the revenue bridge in terms of like-for-like impact of acquisitions and the impact of FX, but delighted to see some momentum in the business with growth from Q1 to Q2, leading to us being in a like-for-like growth again in quarter 2. So we have reached that inflection point, which is really important for us.  Europe's performance is very solid. We'll go through the European details later, but the diversity of the region continues to be its strength, although the external market continues to probably be the most challenging around Europe, particularly the German economy as we know. America is showing some good signs of improvement, some good progress from the start of the year. Obviously, we had the poorest performance last year, but we have now seen some stability in that distribution and customer segment. So that destocking phenomenon that we've had for much of the last 18 months has now come to an end from the data we're seeing.  And from an APAC point of view, we're seeing good growth in APAC which is driven by APAC export markets. The China domestic market continues to be quite soft and challenging, not got any worse for sure but not recovering as many of us would have hoped. But overall, within that external market continuing to be quite challenging, very pleased with the results we managed to achieve, and that return to like-for-like growth in Q2 really is an important point for us.  The acquisition of BMP, very much on track, and we've got a slide later that will cover the highlights there, probably doing slightly better than we'd expected in terms of commercial opportunities. Good progress on sustainability. And I think the important thing for this half-year in sustainability is actually now starting to lead to some meaningful commercial wins. We are doing sustainability for a whole host of reasons, partly employee engagement, partly it's the right thing to do, partly because it seeks commercial opportunities, and those commercial opportunities have now really started to come to life in the first half. And Jack will then cover the dividend, which again is in line with our stated policy.  So overall, encouraging set of results, difficult end markets, but the business is performing well in the context of the end markets for sure.  Over to you, Jack.

Thank you, Scott. Yes, so I'm going to present the financial results this morning. I think it's important to preface by saying these are a clean set of results. Previously, we've had sort of a little bit of noise from the discontinued businesses, the packaging, and the filters businesses. That's all now cleared through the system. So these are a proper clean set of results where you can really measure the underlying growth and sustainability of the component's operation.  That being said, Scott has prefaced it very well by saying that this is an encouraging set of results. We are seeing growth from quarter 2 to quarter -- from quarter 1 to quarter 2, and that is an encouraging sign after a long run of low PMIs, and difficult end markets. We're now seeing that growth. So revenue-wise, in constant currency, we're up 1.5%. I'll go through the bridge in a in a moment. Operating profits, again, in constant currency, 7.6%. Obviously, 90% of Essentra's business is overseas, 30% is in the U.S., and over 60% is in Europe. And both the euros and the dollars have obviously developed dramatically against sterling in the last year. So that's why you've seen the currency effect.  The operating margin is up again in a constant currency perspective. Cash conversion is down 80%, but I'll explain that. That's to do with the working capital and the investment we're putting into the business to fuel that growth that we're now seeing. Net debt to EBITDA has gone up to 1.1%. This is the new business. That's within the guidance levels of 0.5 to 1.5 that we've given previously for the ongoing business. Last year, we were sitting on a pile of cash that's now being distributed and the net debt to EBITDA has gone up. Return on invested capital, 11.9%, that's tracking in line with our overall strategic plan of getting to 15% in the next 5 to 6 years. Obviously, the 2 acquisitions we've made, they will only be fully accretive after 3 years.  Adjusted EPS, that reflects the interest charge that we've now got now that we are operating as a stand-alone business, and we've distributed the proceeds of the divestments. And the dividend, we've said that it will be a progressive dividend. I talked 4% this time. So we're going to carry on with that at the 3x cover. So overall, a good set of results. The key metric is that actually, despite the difficult end markets, despite the PMI being low, we have improved our revenue slightly over the year.  Constant currency, 1.5% up. But within that, we've got 2.2% organic decline. We've got 3.7% from the acquisition of TAPPI, and we've got a 5.5% significant effect from ForEx. Within that, most of the growth has come through volume. We've had very little pricing increases during this last year. However, on a materials perspective, we've seen decreases. So when we come to the margins, you'll see we're actually improving the margins.  In that as well, I think it's important to point out that in Europe, we were pretty much flat on revenues. The Americas was slightly down, but against some of our peer performances, not a pretty good performance, and APAC was actually up a little bit. Scott's going to go on and explain that in some detail, the regional performance. So revenue, good performance in difficult end markets.  In the income statement, the standout number there is the gross margin, 46.4%. We've managed to really -- despite the lack of revenue growth, so there's been no drop-through and that will come as the revenues return. We have managed to do very good efficiencies, both in procurement. And in cost savings, we guided on the central cost that there would be a GBP 13 million going forward. They are at GBP 13 million. Despite the inflationary pressures we've seen, we've maintained a GBP 13 million. We've now got a normalized net finance expense. So we do pay interest on the debt that we carry. Last year, we didn't have any finance cost purely because we were carrying all that cash and we got income off that cash in H1. So this is back to a more normalized effective kind of interest rate going forward.  The effective tax rate is at 24% to 26%. This is based on the fact that both the U.K. and Turkey, which is a significant operation for us, and now up at 25% corporate income tax rates. And in addition to that, the old effective tax havens that we had through the packaging and filters. They've now gone. That being said, despite the ETR having increased, our actual cash out is minimum because we've got tax losses that we can offset against that. So the cash out isn't that great.  In adjusting items, our ERP, that Scott will talk to. It's going well, very well now. That came in, in budget at 4.8 billion. We've got a total cost of GBP 10 million for the year. Restructuring activities, $0.7 billion relating to acquisitions, TAPPI primarily 0.4. The defined benefit charge is significantly down this year because of the increase in interest rates, our future liabilities on the pension scheme has shrunk significantly. So there's actually a pickup in the valuation of some GBP 11 million, which led to a lower pension charge.  In terms of operating free cash flow, as I say, we're at 80% from an OCC operating cash conversion. We're actually at 90 plus from a free cash flow perspective. We have invested in our inventories. We are seeing growth now. We are positioning that we have our fast-running products ready to go to the customer. That service and that availability of stock is key to our customer proposition. We're trying to steal a march here and get some market share. So we've invested in it both in the Americas and in Europe in some additional stock. We've also got some receivables growth based on the fact that our revenues are starting to pick up. So that working capital outflow is actually a positive thing from our perspective.  Net CapEx, we've invested heavily during the period. We brought in some new dipmold, which is a very high-running product line, both in Erie put a new plant in China. We've invested in significant CapEx there to upgrade their facilities. We put some new machines in Europe. So that carries on that investment in our core business. Net working capital, as I said, it's gone up to the top end of our guided range, which is 20%. It's now 21%. That's a good thing because we're investing in the business for future growth.  On our return to capital shareholders, it's very pleasing to see a number of the banks here this morning. Thank you for coming. We've just renegotiated our RCF. We've renewed it for another 5 years. We got it on some very favorable rates in working with our relationship banks and with some new banks as well. And so that's very pleased. Not core debt is the USPP that secured out to 2033 at 3.5% interest rates are very low. Our ordinary dividend has gone up by 4%, in line with our profit increase, and that'll be paid in October.  The share buyback continues. We've had guidance from a number of our investors that they're really looking for us to deploy the capital primarily around acquisitions that are accretive. We've done that with Wixroyd. We've done that with TAPPI. We'll continue to do that, but we are committed to maintaining the share buyback, and it will probably go beyond this year.  So just coming to our capital allocation policy. This is a slide I always show. Capital investment remains the key. It's the #1 priority. We are doing that with our CapEx as demonstrated in some of the investments we've made this year. Innovation is called what we do. Scott mentioned our sustainability credentials. They've been enhanced during the year, and we're going to carry on investing in that. The digital journey continues. We've made significant upgrades both to our ERP platform, but also to our online offering. The acquisitions, Scott will talk about where we are with that. But again, we've done too and we're committed to progressing in line with our strategy, and the dividend is maintained at 3x cover and has progressed in line with earnings.  So the capital allocation remains on track. Revenue growth was still showing as negative, although we're seeing some -- lately, the Q2 to Q1 progression is positive, which is good. Profitability, we are increasing that margin as we said. The gross margins are increasing quite rapidly. And that's all without the incremental drop-through that we'll get through the operational gearing with additional revenue. So that's the cherry yet to come. Cash flow was shown as yellow. That will improve during the second half of the year. Leverage is within our guided range. The ROIC is at 11.9%. It's progressing. It will be improved with the acquisitions over time and the dividend is at 3x cover. So a strong set of financial results. Scott said it's encouraging the revenue growth that we've experienced Q2 to Q1.  So with that, I will hand it back to Scott.

Okay. So quickly covering regional performance. So looking at Europe first. We know Europe is probably the most complicated from an external market point of view. PMI still remains suppressed. They're yet to recover above 50. I think we're now 26 months or something. So difficult external market. Having said that, we did see that overall like-for-like revenue, only 0.1% down so broadly flat. Total revenue in growth given the acquisition of TAPPI, all sits within the European numbers. And overall, very much momentum from Q1 to Q2 with 3.7% growth like-for-like in Q2.  I'll come on to talk about TAPPI in more detail in a couple of slides time, but we are seeing good flow-through to gross margin and gross profit. As Jack said, probably only around 1% pricing so far this year. We are expecting a little bit more in the second half, but we are being quite selective with pricing. It's clearly more difficult in this lower inflationary market to achieve that sell price benefit. And in part, that's because we're seeing some reasonably significant cost price reduction. So a lot of our raw materials are falling, both in terms of market rates, but also good work by our procurement teams to reduce those input costs. So the combination of those 2 things, a little bit of pricing, certainly not giving away any input cost reductions and there's input cost reductions driving our gross profit quite nicely. And finally, talk about the ERP. It still remains the biggest single project that we have as an organization. When we set up the full-year results, we said we've just gone live in Eastern Europe. That's been a very successful go-live as well as an ERP ever goes. We returned to sort of BAU levels of service and resourcing probably in 3 or 4 months. So really pleased with how that's gone. It's proven that we now have a working template that we are now looking to roll out across the rest of Europe.  We're busily working through Germany, Austria, and Benelux right now. So we've done the gap analysis. There are not as many gaps as you'd expect, local tax, local configuration. So just working through that currently with a plan to start testing late summer, go live probably early Q4 for that next set of markets. We're then expecting 2 further go-lives in Europe next year. So 2 further waves going through next year. And then by the end of next year, we're expecting this to be a BAU program. So we may do some further rollouts in some Asian markets into the U.S. We're still looking at options, but it will be BAU by the end of next year because we've got confidence in the template now working very well for us.  Within Americas, so Americas showed an improvement from Q1 to Q2 actually from a momentum point of view, probably one of the larger improvements that we've seen, although we're still in decline in Q2, likely to come back into growth into Q3, certainly in H2 as they had a poor second half of last year, and we've got that ongoing momentum underneath the business as well. As I mentioned, the destocking trends have eased. We are seeing less of that. In fact, in the last couple of months, it looked like it has stopped, but again, eased for sure in recent months, which is taking away one of the headwinds of the business had through last year.  Margin improvements have been encouraging, tooling improvements, improving efficiency, some of those procurement drivers we talked about helping support margins. And we've got Chris in place now. As I said at the start of the year, Chris Brooks joined us in February, very much focusing on the commercial execution in the region and continuing to drive up service for the region. So we're definitely heading in the right way, new business wins starting to improve quite nicely. So service looks good. Looking at the product offering groups, good levels of stock availability in the region, and supporting that new business.  We've also got Mexico, which went live about this time last year. So that site stabilized very nicely, again, gives us lots of growth opportunities as the markets start to recover and will give us further margin opportunities, we take advantage of that lower labor cost as we return to growth.  Within APAC, again, the highest level of overall like-for-like growth across the 3 regions, so 1.8, somewhat based upon weaker comparisons last year when China was still in lockdown at the start of the year, but a good solid first half for APAC. As I said at the start, much of this is driven by the export opportunities in Asia Pacific. We bought a business at the end of '21. This is an access hardware business, similar to the Turkish operation that we have. The export of that business across Asia is really the area that's driving the most significant growth to us right now. It was always part of the plan. Turkey has been a good driver of growth across Europe. We expect the [indiscernible] business to be a good driver of growth across Asia, and that's really starting to bed in now, which is great. And that's been a big driver of the gross margin improvements as we've seen volumes increase through that business as well.  We also have a new leader in Asia, which I talked about back in March. So Richard has taken over the Asia region. He's reviewed how we're going to market in Southeast Asia. We're actually pulling the P&L back together rather than having commercial or not separately, pulling the Southeast Asia P&L, brought a new person into to lead that as well. So a lot more sharp execution in the region, which is going to help us drive through the second half as well. Probably most noticeably, we've also got some in-sourcing and near-shoring activities going on in the Ningbo facility in China. So we've put a new dip molding line in place, which is enabling us to manufacture locally rather than ship goods in from the U.S. or from the U.K. And we've also in-sourced some projects that were previously third-party sourced goods that are now running through our own facilities. So that's been good progress in the first half as well. So improving the supply and improving the gross margin at the same time. So a nice driver of some of the GM benefits you're seeing.  So in terms of strategic update, just to summarize back about the quality of the business. We continue to drive this positioning of being the world's leading responsible hassle-free supplier of essential industrial components. So everything that we manufacture and everything that we supply is a low-cost bill of material items. The market is massively fragmented. There are thousands of competitors. There are probably 1 million potential customers out there who are having to buy or manufacture this type of component. So we're taking a position of aggregating in this very fragmented market. And because the items we sell are critical to our customers, we can stop their production lines, but fundamentally, they're very low cost. We have this unique proposition of being service differentiated in a peace of mind type proposition. So a very nicely positioned business. Drives good margins, generates good cash flows, and then we can invest those cash flows back into M&A to consolidate in the market. So the fundamentals of the business remain extremely strong despite this being a very sort of challenging external market that we've been operating through.  Ambition remains to double the revenue and triple the profit as we set out when we launched the stand-alone components for the version of Essentra.  However, since we launched, we've gone through somewhat of an economic turmoil with PMI has been at 20-year lows, so much of that period and in Europe still are at that level of low PMI performance. This is a view of our internal volumes on the gray bars. It shows all the same old customers buying the same old products if you like. So it takes out any impact of price. It takes out any impact of new customers or customers lost. This is just customers that we've always had always buying the same products. And this is effectively a rolling 12 view of their volumes, so you can see coming out of the pandemic, the volumes significantly expanded. Supply chains weren't working very well, our own included, nobody could keep up with demand, and you have this huge peak of volume activity, which sort of peaked around the start of '22.  What you then saw coming through the back end of '22 and into 2023 was the unwind of that peak, both the unwind of the supply chain is improving, but also the end customer demand not being there given the sort of more challenging PMI markets that you can see. And we're actually is a low point in terms of volumes in September '23. So encouragingly, since September, as PMIs have started to tick up globally, driven predominantly by the U.S. But since that point, we have seen our own volumes now moving back towards that point of parity. So that's giving us encouragement that there is some underlying volume momentum in the business that we'd expect to be coming back into positive territory everywhere over the course of the next 6 months.  So what we're trying to do, obviously, as a business is trying to reduce the cyclicality and we'll talk later about some of the new markets that we're trying to drive more new business wins into to have less cyclical impact. Although it should be noted, we've not lived through a cycle like this in the last 20 years. It has been exceptionally cyclical. We've not had that level of volume movement up or down, but it has been a unique cycle for us to try and run through for sure. In terms of some of the product movements and the winners and losers from a product point of view, from a general protection point of view, the addition of BMP TAPPI has grown our general protection range, and that's now become a more important part of the pie. Access Hardware is the business that we have in Turkey and the acquisition I talked about in China, both being the key drivers of organic growth for us outperforming other product ranges. And then the area which is reduced most is the electronics and cable management. From the end customer point of view, we still see the electronics market as being the softest of end markets. And clearly, we have a lot of electronics products going into the electronics end market, which is why that's reduced a little bit. But encouraging the acquisitions over the last couple of years has been the key driver of the growth, both in protection and in access hardware product areas.  And what we're trying to do with our product offering effectively is to take these 6, 7 areas of expertise and sell them into multiple industries. You can see by the depth of color of the areas that we have the greatest exposure. And then these are the new market areas in terms of renewables and energies, medical, and more laterally defense as areas that we think we have good opportunities. So we're starting to put more of our commercial effort into these that are probably more structurally growing markets as we move forward. The big areas of growth for the first half have really been in some of our core protection products enabled by BMP TAPPI and access hardware, again, both Turkish and the acquisition in China doing that.  This renewable and energy sector is all around heating, ventilation, and energy networks. There are a lot of products coming out of our access hardware businesses going into that type of infrastructure investment as well. But you can see there's quite a mix of ability to cross-sell our products into different end categories, and then the opportunity that we have in the new emerging categories as well.  So I talked about BMP having a good first 7, 8 months of ownership with us. So in line with expectations, which is great. We have now got the first 1,100 products launched across Europe that happened during quarter 2. And in the second half, we'll take about half of those into the Americas offer as well, and they'll be stocked physically in the U.S. as the 1,000 or so products stocked in Europe. We are also looking to improve their sustainability tests. They are dragging down our overall percentage of recycled content right now, but we'll look to address that in the coming months.  What's really encouraging is the early quick wins that we're seeing in the business, both in terms of business that we've learned and a few examples here of products that we didn't have in the Essentra range that we've now taken from the TAPPI range and sold into either existing Essentra customers or new customers to the organization. So that's nice to see there are cross-sells coming in so quickly. We also have about GBP 0.5 million worth of pipeline for BMP TAPPI products and we actually only launched this a few weeks ago, it's a really encouraging start.  It's a similar-sized pipeline compared to Wixroyd, but it's 9 months ahead of Wixroyd from a timing point of view. So I think just the closeness of the BMP product offer to other things within our wheelhouse just makes it such an easy cross-sell for the commercial teams, which were a little bit more complicated. It's a different product area. So which we're still going well, still going on track, but BMP is starting to outperform it, given how close it is to some of the core business areas, which is really nice and really encouraging for the second half as well.  From a sustainability point of view, I mentioned at the start, the thing that's really taken hold in the first 6 months, we now have not millions, but a few hundred thousand worth of business wins or business protection driven by sustainable products. So that is customers who are demanding that they have recycled product offers in order for us to win business or to retain business that we already had. So it's becoming a meaningful commercial driver for us now. We always knew it would come. It's still the right thing to do even without this, but now the cherry is on the cake in terms of it starting to be commercially meaningful as well.  We continue to trial new materials in our center of excellence, so lots of new material trials going on place, '19 during the last 6 months. One of the more interesting is this one, which is a bio-based material, seaweed-based material. Again, it doesn't have exactly the same characteristics as the resin basement, the oil-based materials. So we'll probably launch it as a separate range, but it is carbon-free effectively. So we now have the option of getting to a carbon-free range that we're partnering with this manufacturer of seaweed-based materials.  Then across the rest of our environmental metrics, renewable energy consumption increased over 60%. Renewable Energy is the biggest single lever we have on our scope 1, scope 2 emissions. So very encouraging that that's continuing to make good progress. Our zero waste to landfill and actually waste management overall also being very positive, be one of the drivers behind the gross margin as well for sure. Scope 1 and 2 emissions are reduced by 50% on an intensity basis versus our 2019 baseline. Recycled content, slightly down versus this time last year. So BMP is diluting slightly. We do expect that to head towards 25% by year-end. So again, still in a very strong position. So our ESG credentials still remain strong. It's still seen very positively within the organization by our employees, which is important, but also now really starting to be seen as a competitive differentiator by our customers, which is excellent.  So on to the outlook, how do we feel about the coming period, the rest of the year into the future? So I started by saying we feel encouraged and I think that remains the truth here on the last slide as well. Momentum is building. So we're seeing the sequential improvement from Q1 to Q2. We're seeing a return to growth in Q2. I think what's encouraging about that sequential improvement, as I showed before, our internal volumes are trending up, which is pretty much the market impact. Also, our new business wins are trending up, which in part is the market is getting better within parties, we're getting better as well. So both those things coming together gives us confidence that we should continue that momentum into the second half. We're investing in growth initiatives to make sure we can take market share. So it is important that we put some stock into the first half. It is important that we're investing in in-sourcing and near shoring to help drive margins and help improve service and new machinery to continue to give us good levels of quality as well.  A balanced approach to cost control, driving efficiencies and margin expansion. We clearly have had to have a good view on costs for the last 18 months, and we make no apologies for that. I think you'd all expect us to do that. However, it's worth noting we haven't removed any physical footprint from the organization. So we've managed the flexible elements of cost base. We have all of the capacity still in the organization to turn it back on when the market returns. So whilst we've been very carefully managing costs, we've done it with an eye to the future. So we're well positioned when the markets recover, we can turn that capacity back on pretty quickly and enable us to take advantage on the up cycle as well.  So expectations for the year are unchanged. We do anticipate a further modest recovery. As I say, the underlying volumes are improving. New business is improving. PMI is generally up and down a little bit, but trending upwards over the course of the year. So we're expecting a modest recovery to continue through H2. We're well positioned. We've got the cost base under good control. Operating leverage as those volumes do start to recover, will be very strong, and we don't need huge amounts of volume recovery for the operational leverage to really drop down to the bottom line quite quickly. We remain confident the business still is fantastically positioned to take advantage of its characteristics in this very fragmented market and enable us to deliver those midterm targets.  So it's been a challenging 18 months through this economic cycle. We do appear to be building momentum out of the low points of that cycle, not at the rate we may have wished for a year ago, but momentum is there, and we remain encouraged both for the end of this year and then for the delivery of the midterm targets as well.  So with that, I think we'll hand over to Q&A.

Andrew Nussey from Peel Hunt. A couple of questions, if I may. First of all, if you could explore the gross margin outlook in a little bit more detail? In terms of pricing, you obviously indicated you expect more price improvement in the second half. Is that driven by the improving service proposition or really increased sophistication around your pricing actions? And then second, from the input cost perspective, your thoughts around raw material costs maybe over the next 12 months, but also how much more do you think you can drive on the procurement side to improve gross margin as sort of the first question?

I'll make a start. So from a pricing point of view, our pricing is still not very sophisticated. It's still one of the things that we expect to get better at post the ERP program. So it's one of the benefits tagged to the new ERP program. But we are doing some selective price increases. We have done them effectively through Q2, which is why we're confident they're going to have some benefits. So areas where we think there was an opportunity for us to increase prices we have done. The service definitely helps out. The service is very strong. It means customers don't have an argument to complain about service for sure. But I think it's really just targeted areas where we think we're underpriced versus market opportunity. So some customer groups, some product areas, and the U.S. is probably one of the markets where we've taken more action in Q2 than others.  I think in terms of our look forward on raw mats, I was chatting to our resins purchasing lead a couple of weeks ago. There is some upward movement and pressure on resins right now, but we've actually done a great job of negotiating away from it. So we've done a couple of vendor switches, which have enabled us to effectively not be penalized by the upward pressure and actually see a further reduction. Now we have done a lot of the low-hanging fruit in procurement. We put the new procurement team in place almost 2 years ago as we started the journey as a new Essentra. So we're definitely through the majority of that, but they continue to do good work and continue to find good opportunities to either consolidate demand or offset inflationary pressures.  So I was actually really encouraged by the conversation I had with our resins lead recently 2, 3 weeks ago now.

And sort of the second question, just in terms of when volume recovery starts or starts to come through or further momentum in terms of recovery, how quickly can you get that capacity back online? And where do you think you are relative to competitors and your ability to rescale?

So predominantly, it's going to be adding direct labor. And what we've done in our operational side is effectively we've retained the more technical skill set and lost the less technical skill set through the site. So we probably have overqualified people doing tasks which they would prefer not to do right now. But it means when the market recovers, we can bring in reasonably unskilled labor, train them pretty effectively within a couple of weeks, and have them adding value. So it can come back quite quickly. I think the whole world right now has fairly low levels of capacity and opportunities to improve. What they don't have is that investment in stock that we've made over the last 12 months, and we're probably getting up to GBP 8 million, 9 million in total between the second half of last year and the first half of this year. So we put ourselves in a very strong place because actually the stock will catch the demand before it then hits the factories anyway. So we'll be able to react pretty much instantaneously.  Again, if you think about the type of products we're selling, these pretty low-cost items in customers' minds, the desire for customers to switch suppliers is very low unless they can't get them. So if there are service failures, there's a great opportunity for us to win business and the up-cycle, certainly the last upcycle, which was horrific for everybody, but the upcycle is probably the best opportunity to win new business as other people suffer for service. So we think we're going to outperform on the upcycle.

Adrian Kearsey, Panmure Liberum. I'm actually -- Scott, do you mind if sort of follow on from your comment on investments in inventory? You said about adding GBP 8 million, EUR 9 million into the inventory. Has that sort of uplift -- have you -- is that investment finished? Or is there more investment to come? And also which product categories are you investing most into.?

Do you want to take that one?

Yes. So in terms of the initial investment, it is about GBP 8 million to GBP 9 million. We set somewhere between GBP 5 million to GBP 10 million in terms of stock investments. So that's being paid. As that stock depletes and some of that stock is depleting, we will renew it. So we're going to carry higher levels of that GBP 8 million to GBP 10 million additional stock. We're going to carry that for the foreseeable future because we believe, and there's some evidence of this, that it allows us to still match all products because the customer will typically stock up, and then when they're out, they need it straight away. So that ability to service if you get a call in and you don't have the product, they're going to go elsewhere. So having that available as the market returns is a key to taking some market share. And we've got some small but growing evidence that this is a successful tactic.

It's across all product categories in reality as well. We've got about 30,000 to 40,000, depending on which region you're in of standard parts that we want to have on the shelf and it's across all product categories, more depth in some than others. I mean access hardware, for example, as much as it's a growth area. There are probably only 1,000 standard parts, and a lot of that is then configured. So it's less about the stock offer. It starts with a stock offer, but it's more about having flexible lead times from the factories to then meet that configured business, which, again, we're down at 3-week lead times in most factories now to capture any configured or customized items as well. So service is in a strong position. The opportune is listening, I always like to do a little bit better, but we are in a good position right now.

Henry Carver from Davy. Just a couple for me. First of all, maybe Scott, one close to your Net Promoter Scores. It might be a bit too seen in the half year to sort of update us on it, but any sort of color around that would be great. And then another one, maybe for Jack. Just to help us with the bridge as you see it to full-year revenue expectations just in terms of the organic -- the contribution from BMP TAPPI. And obviously, FX was quite a big swing in the first half and just how you're looking at that.

So NPS first. We measure NPS in 2 ways. Effectively, there's a big survey that we do in Q4 every year, which is the number that we print into our annual reports and talk about at the full year. We do have a monthly pulse on NPS. Now every month, we get a few hundred responses, so it's not statistically significant. But over the course of the first 6 months, we've seen that much higher than it was over the first 6 months of last year and actually at record highs in various periods. So my hypothesis would be, we're going to get an uptick in NPS when we get to the Q4 survey because to have 6 months constantly above last year and actually a record level is a good place to be. And that's posted by the service proposition that we've got in place and also some work we've done around customer service processes as well. So no, it's in good shape.  Again, the customer experience team at this thing could always be better. But no, it's in a good place, and it looks like we'll get a full-year uptick as well.

And in terms of the revenue profile, I think the markets anticipate that full year will be somewhere around about 330 ml. That's what the kind of view is. Within that, organically, we are expecting growth in H2, low single-digit growth, but we are expecting growth in line with Q2 and Q1. That's helped by the comparators being somewhat easier on the prior year. But nonetheless, we're expecting real growth, too. In terms of Forex, we're not expecting any further deterioration, but that's the vagaries of the market. We do hold net cash hedges on both euros and dollars. So in terms of the P&L exposure on that, again, in H1, we had an upside, if there was going to be a further strengthening of the pound in H2, we would have a net cash flow hedge for both the euro and the dollar.  In terms of TAPPI, TAPPI is performing in line with the plan. You've seen that it's added 3.5% year-to-date. We would anticipate something similar in the second half.

James Beard, Deutsche Numis. A couple of questions, please. Can you talk about order trends in a little bit more detail what you've seen over the course of the last few months and assuming more of that gives you confidence about where we are going into the second half? And just a confirmation question. So the $25 million completion accounts outflow for the filters disposal. Will there be any further cash inflow outflow related to the previous disposal?