Essentra plc (ESNT) Earnings Call Transcript & Summary

Thank you all for joining our Essentra 2026 Half Year results. So, I'm Scott Fawcett, Chief Executive and joined by Rowan Baker, our CFO, and we'll take you through the presentation today. So, I'll start with a quick summary. Rowan will lead us through the financial performance. I'll give a little bit of color to the 3 regions, and then we'll talk about strategic update, which we'll do together, and then we'll summarize with an outlook and move into Q&A. So, to get going, a strong start to the year. So, a very pleasing start to the year. Half 1 revenue in line with our expectations, growth of 9% on a reported basis, 7.8% on a like-for-like basis as well, leading to adjusted operating profit growth of 9.7% to GBP 18.1 million. So good start to the year overall, robust cash conversion of 79%, and Rowan will talk more about full year cash expectations in her presentation as well. Good focus on our strategic priorities. So broad-based growth in all 3 regions, which is great. Volumes also recovering, which is good to see, but as always, supported by disciplined pricing, which has been even more important than ever given some of the inflationary pressures that we've seen during the first half of the year due to the Middle East crisis. Delighted with another small acquisition completed in June, Boteco, so a machine components manufacturing business, very complementary to our existing manufacturing capabilities. I'll talk more later about some of the in-sourcing opportunities we have there. Great to see our target markets outperforming the average and actually significantly outperforming our legacy markets, if you like, and Rowan will give some more color there, but 8.5% growth in those target markets. And we've launched a strategic execution program called Growth and Simplification, aiming to help us drive our sales and marketing resources into those areas that will generate greatest returns and also simplify how we run the business and reduce the cost to serve as well to help us drive improved margin expansion. Rowan will give more details later, but we are talking to a new 14% operating margin target for 2028. So still very much believe in that midterm target of 18%, but thought it was beneficial to bring something closer to home, closer to the current period. So, a 14% 2028 target has been announced. And again, we'll talk through that in terms of how we get there later in the presentation. And most importantly, expectations for this year remain unchanged, a good solid start to the year and very much the business is on track. So, with that, let me hand you over to Rowan to take you through the financial highlights.

Thanks very much, Scott. Good morning, everyone. So, I'm going to take you through our financial highlights. And as Scott said, we've had a strong start to the year. Revenue grew by 9%, up to GBP 166 million. Our adjusted operating profit stood at GBP 18.1 million, a 9.7% increase there. And we did see a small increase as well in our adjusted operating margin level. So that rose to 10.9%. Now we have a large increase actually to our adjusted earnings per share which stood at 4.3p, and that large increase mainly was created by a lower effective tax rate, which I'll talk about in a moment. Our net debt to adjusted EBITDA was 1.6x, which is exactly as guided, so slightly above our 1.5x usual guidance, but that was because of the acquisition that we made just before the half year. Our adjusted operating cash conversion was at 79%, so slightly below our 85% guidance, but we are confident that that will return to well above that 85% by the full year. And our dividend per share just ticking up slightly to 0.9p. So, let's take a look at the P&L. Now our gross margin importantly, has remained resilient. We saw growth in both the Europe and APAC regions in terms of their gross margins, but that was more than offset by temporary dilution in the Americas, mainly due to the transfer of our Costa Rica operations to Mexico. We are expecting that to unwind in the second half. Our adjusted operating profit, as I've already mentioned, showed a strong increase of 9.7% to 18.1%, and that was really supported by the volume growth, the pricing and some strongly disciplined cost control. We had a lower effective tax rate at 12.9%, and that was mainly due to an adjustment to our deferred tax. So that went through the P&L there, increasing our adjusted basic EPS. And then also wanted to draw your attention to the strong reported EPS growth, which does also reflect a GBP 1.7 million credit for discontinued operations, which relates to the legacy sale of the Filters business. So essentially, that is actually a GBP 4 million inflow that is due to come into the business in the second half, offset by a tax adjustment. Now moving on to revenue. So, we were at 9.8%, some strong growth in terms of volume and pricing. Pleasingly, that was made up of just about half and half between volume and pricing. But let me talk you through a few of the moving parts in terms of the regional performance. So, Europe was up 8.9%. That was made up of about half and half in terms of pricing and volume. Americas, 5.7%. That was about 1/3 volume in the Americas and APAC, 8.2%, and that was about -- 3/4 of that was volume. Now that 4.2% pricing growth year-on-year did also include a specific Middle East-related surcharge. Now we dealt with our pricing response to the Middle East situation in different ways in different regions actually, some that we put through an overall pricing adjustment and some we went with a surcharge approach. So, in Europe, we went specifically with a surcharge, and that was 0.4%, but a strong response to the Middle East situation there in terms of pricing. And then on that bridge, you can also see the 2% growth that came from our Device Technologies acquisition that we made just before year-end. So let me give you a little bit more color now in terms of what has been driving some of that growth. And you'll have heard us talk at various presentations about targeting specific growth end markets. And you can see in the chart on the right-hand side that we've made some really good progress there. So, we saw 8.5% growth in those target sectors that does represent 47% of sales. And you can see that there in contrast to the negative 1.1% from those traditional sectors like automotive. So, some strong growth, particularly places like digital infrastructure, which is really pleasing to see and is part of the strategy paying off there. And over time, we do also expect this to improve the overall quality of growth, reduce the dependency on cyclical end markets and lead to a more sustainable level of revenue growth with associated margin progression. So, let's move to the operating profit bridge. Now I've already talked a little bit about the volume and revenue side. But important to note on this chart, how clearly we are offsetting the inflationary impact that we have seen with our pricing. So that's a good position that we're in there. But what becomes a little bit more challenging is to be able to maintain absolute margin when we see inflation at this level, but we have been able to cover it with pricing. And indeed, some of the pricing actions are relatively recent, so they should see us through to more positives in the second half. We then saw the benefit of what I guess I'd say is our usual manufacturing efficiencies that come through. We are always targeting efficiencies in our factories, automation, et cetera. So, we saw some benefit of those efficiencies coming through. That was somewhat offset by some of the service investments that was needed to be made in Mexico and will, as I say, unwind as those efficiencies improve. And then we also had planned reinvestment in strategic initiatives, part of this growth and simplification strategic program that Scott will talk more about in a moment. And then we also had as has been well flagged actually, the bringing above the line of some of the D365 implementation -- sorry, D365 run costs. Now we've moved from implementation to BAU. In addition to that, we also have a contribution of the inorganic growth from Device Technologies and all of that brings us to the GBP 18.1 million for the half year. So just a word on adjusting items. So, you can see here that we were at GBP 6.1 million for the first half in terms of adjusting items. But important to note that reduction that you can see in the breakdown of the numbers in terms of the Software-as-a-Service number, which is mainly our D365 implementation, which has improved half-on-half -- sorry, half year-on-half year by GBP 1.7 million. And just a reminder as well that this will be the last full year of those ERP implementation costs. They will continue into the first half of next year, and that will cause a reduction -- associated reduction in the adjusting items for 2027. But this year, we're maintaining guidance at the GBP 12 million for adjusting items for FY '26. Moving on then to cash. So, we have the net debt bridge here, which takes us from the GBP 60.7 million at the opening of the year to GBP 70.7 million and a net debt-to-EBITDA ratio of 1.6x. As I've already said, that 1.6x was a little higher than the 1.5x that we generally guide to, but that was because of the acquisition that we made, and you can see that in the chart. So, the main elements in the chart really in terms of the cash outflows have been the adjusting items. So that represents an opportunity clearly for when those do come down once the implementation is complete. So that will -- that cash position will improve. And the M&A of GBP 5.7 million, so that was the Boteco acquisition that took place just before the end of the half. And we purchased that business for EUR 7.4 million at a 6.5x multiple of EBITDA. So that's what's mainly driving the cash outflows. Now our adjusted operating cash conversion stood at 79%. Now some of that being slightly below the 85% is a matter of timing. So, we would expect that cash conversion to improve in the second half to be well above the 85%. We do really focus on this as a business. So, both our cash conversion and our net working capital to sales ratio, which you can see there stood at 24.5%. Now for the full year 2025, that was above 26%. So, you can see that we've made some good progress there to that 24.5%. Now picking up the focus on these things. So, we are now guiding to a 21% target for that net working capital to sales ratio as a percentage of revenue rather. And that is a target that is in place for 2028. Now some of the spend that we've been incurring on our new systems in the business will help us there. So, we're able to see now, particularly through our connected planning software, what improvements we can make in terms of working capital. And there has also been a more recent challenge around working capital through the D365 implementation itself, where clearly, in some areas where we're going live, we have held more stock to ensure that we are able to get over any initial go-live challenges. So once that comes to an end, that will enable us to focus on getting that working capital to 21% and build on the progress that we're already making. And finally, then for this section, our 2026 guidance. We're seeing total group revenue growth as 6% to 7%. That is a small increase on our previous guidance there. And you can see that evidenced through the strong growth that we've had through the first half of the year, and that's total revenue growth. Our adjusted operating profit margin, now we have a number of activities that are driving margin accretion. And Scott will pick some more of this up later on, but we are being successful with those initiatives, we are seeing improvements, but there is a deliberate build back here of some variable compensation, which I think has been well flagged in terms of the need to add that back in. And as a result, we would expect the margins overall to remain broadly flat year-on-year. This will be our final year of ERP-related adjusting items. So, we're expecting the GBP 12 million for 2026, reducing to around GBP 6 million in 2027. Our effective tax rate for the current year, we expect to be around the 20% mark, and that's really reverting in the second half to that usual level or more of the 26% to 29%. Operating cash flow, we do expect that to be above 85% for the year, including our usual level of CapEx spend at around 4%. And we expect to maintain a strong balance sheet and be in the region of our 1.5x net debt to adjusted EBITDA with an unchanged capital allocation policy. So, with that, then I'll hand back to Scott for the regional update.

Thank you very much. Okay. To take a canter through the first -- the 3 regions. So, Europe, a good strong first half, 8.9% like-for-like growth, as Rowan has talked about, very much split between volume and pricing. Again, high single-digit growth in the fast-growing markets, so again, outperforming the base. Some modest recovery in Western Europe. So that's been very pleasing to see. And Turkey continues to perform strongly. Again, that product range in Turkey, very much linked to those fast-growing markets. So definitely a positive trend there. 49.2% gross margin. So strong pricing and good efficiencies being delivered, but some of that being offset by regional mix with Turkey continuing to perform well, but good underlying pricing and efficiencies coming through the region. OTIF continues to improve as a result of us having that disruption last year with [ Nettetal ]. We've seen OTIF improvement, Nettetal being the German warehouse, sorry, through the end of last year and through the first half as well. So, a much more positive sense around customer service in Europe, even though we've gone live with the U.K. manufacturing site at the start of the year, as I said at the full year results, little disruption from that go-live. It's been, again, another good implementation. And Dynamics, the platform itself is enabling us to start delivering efficiencies. So, the finance shared service center has been launched and will be fully up to speed in H2. Second half focus, so continues to work on the growth markets, think about how we're executing in those growth markets. We've had a strong new product introduction this year, which will also be helpful. The acquisition of Boteco coming at the end of the half, obviously, a big focus for the second half. As I said, there's a lot of excitement in the business about Boteco. Preparation for the final Dynamics go-live. So, from a European point of view, that is the BMP, the Italian business in October and then a Q1 go-live in Turkey and then continue to drive operational efficiencies and items such as the shared service benefits as we trade through the rest of the year. But good strong start to the year for the European region. Americas, again, pleasing to look at positive revenue, so 5.7%, again, a good combination of pricing and volume. Device Technologies performing in line with expectations. So, at this point, it's really their core business performing well. Obviously, we've done all of the right things from an integration point of view. We actually launched the products into the rest of Essentra in H2, so that will have a further impact on their performance. Again, good progress in those fast-growing markets led by digital infrastructure. However, as Rowan has mentioned, we have had this temporary hit to gross margin as a result of the migration of manufacturing from Costa Rica to Mexico, which we did through the second half of last year. Again, we're expecting that to improve as we trade through the rest of the year. And we also have a little bit of a pricing lag impact in the Americas with quite a lot of pricing actions happening during June. So again, they will certainly support margin improvement in the second half of the year as well. And some good self-help actions. We are implementing something called an 80/20 customer segmentation model. I'll talk more about this later to bring that a little bit to life. But again, that's giving us a renewed focus on some commercial effectiveness and continued strong cost control is helping us to offset some of that gross margin dilution. So, we do expect those margins to come back in H2 as described. So focus very much on the settling in of Mexico and management of that cost base, driving commercial execution of the 80/20 initiatives, the Device Technologies' synergies, which is the product launch in many ways into the rest of the business and pricing -- actually, the pricing actions have already happened, so they will start to come through even more strongly in the second half of the year. And then finally, for Asia, again, a good strong start to the year in Asia, so over 8% growth from a good level of new business wins and pricing actions. Pricing has always been more challenging for us in Asia than the other 2 regions, but this has been our best half, I think, in memory for pricing. So again, great to see some progress there and well done to the teams for that. Continued momentum in those faster-growing markets, machine building and automation, digital infrastructure. You may recall, 2/3 of our Asia region really is in China. China continues to have a buoyant export-orientated market, and we continue to see good volumes in that space as well. So gross margins improved, a mix of customer profitability, I say that improving pricing and some ongoing cost control, driving a good level of margin expansion. The simplification of the Japan trading model. We talked to the end of last year, we've actually closed our direct operations in Japan, moved to a third-party model using a distributor. That actually weakens gross margin but improves operating margin for the region. So again, that's delivering us some benefits at the op margin level. And continue to invest in those growth initiatives and customer mix. So, access hardware in China continues to be a big focus for us. The business we bought 4 or 5 years ago, really selling that into the export markets is going quite well. We are going live with the Dynamics ERP into Southeast Asia in the next few weeks. I think I said historically, the Asia business actually largely runs on the European legacy ERP infrastructure. So, we will be migrating that over the next couple of years. And we have an opportunity in the summer to effectively have a small go-live. So, we have driven the Southeast Asia go-live into the summer window. And we continue to look at investment opportunities in India. We -- I was actually there with Richard a couple of weeks ago. Business is performing very well, winning good aspects of new business at good gross margin. So, continue to add some commercial resources, engineering resources and thinking about our operational footprint as we trade through the rest of the year, but clearly excited by the opportunities that we're starting to see in India as well. So, moving on to strategic updates. Let's remind you of the sort of foundations of the business. So, this is a manufacturing business. We make these small cost components that are used by other manufacturers when they're building a piece of equipment. Because our items are typically very low on a customer's bill of materials, our service proposition actually is the most important part of what we do. It enables us to price effectively. It enables us to retain and win more new business. We then look to take that into our target growth markets. Rowan talked about how they're performing. So, focusing our sales and marketing resources in those markets which have got structural growth opportunities. Winning customers initially by having strong product expertise, demonstrating that we're the right partner for their initial inquiry and then growing them because we have this very broad product offer broader than any of our competition from a manufacturing point of view, taking them through our cross-sell into different product categories and keeping them through this hassle-free service. That then enables us to drive high margins, a combination of this high mix of transactions, so a large number of customers, large number of products, relatively low order value, driving high mix of transactions and constant focus on how we manage the business, the cost in the business, the operational efficiency of the business to enable us to drive those high margins and strong cash generation and then seeking to invest that cash into further growth opportunities, be those organic or inorganically to drive further shareholder value. So, a reminder of some of the items we talked about historically, our 5 product areas. So, these are 5 areas where we have good levels of manufacturing expertise that we can bring to the market. And actually, from the machine components, the acquisition of Boteco has substantially improved our depth of expertise from that product category point of view. Worth noting, we've been investing in product category now for the last 18 months or so. We had over 15 new product series go live in the first half in Europe and the U.S. So, the biggest launch of new products probably for the last 5 or 6 years. So really stepping up that product focus, relaying that expertise to our customers. We've talked about the growth sectors, so structurally growing markets where we think we have the greatest opportunity, focusing much more of our sales and marketing efforts on the structured end markets to drive growth, reduce that impact of the cyclical markets. The work we've been doing in the first half of the year has focused on what we talk to as the growth and simplification program of work. And at the heart of this, there is this idea of having a dual proposition. So actually treating customers with high growth potential differently to how we treat customers with lower growth potential based upon the Pareto principle effectively. So how do we really focus our sales and marketing efforts on those customers which offer the greatest returns and how do we simplify how we manage and offer products to those customers who have lower potential, but actually are still profitable to us because of the relatively high level of gross margin that we have as a business? So, bringing that to life a little bit, and this is some work we've had some support on in the first half, looking at how we think about that customer and product mix. So, this is looking at revenue and taking the top 80% of revenue. And to get to 80% of revenue, we actually have 17,000 products that account for that top 80% of revenue. And then conversely, we have 90,000 products almost that account for the long tail of revenue. And from a customer angle, we have 6,000 customers who account for 80% of revenue. And again, this relatively long tail of 59,000 customers who account for the final 20% of revenue. So clearly, where we have high-value customers buying high-value products, this is the heart of the business, if you like, 68% of our revenue there. That's relatively straightforward to manage as an element of business. But there is some good complexity and bad complexity in this model. We have a long tail of products, some of which are purchased by our high-spending customers. Clearly, that's a necessity for us to run the business for us to track those customers to keep those customers in the main. So how we manage that is important. We also have a long tail of customers who are buying actually fast-selling products. And that's good business if we can manage it effectively, if we can serve it effectively, that's a very interesting business for us to manage. The biggest question mark for us clearly is when we have smaller customers buying the long tail of products, that probably is unnecessary complexity. So, let's think about how we manage this area. Let's think about pricing in that space, minimum order values, product range rationalization and then the type of work that we're putting in place as a result of thinking through the segmentation model. So, thinking very differently around pricing and service for our smaller potential customers, looking at much more of a fixed price position, no discounting, no negotiation, obviously, guided pricing, utilizing some of our new pricing tools to drive for larger customers. As with all organizations, because we manage all of this together today, we have got evidence of some small customers actually getting better pricing than large customers, which clearly doesn't make sense. So, a clear pricing opportunity by thinking about these 2 customer pools quite differently. Also managing the cost to serve, so rationalizing the product offer to those smaller customers, reducing the working capital and the way we manage those products. And then focusing our sales and marketing resources on to those growth potentials, particularly in those fast-growing markets, really helping us to drive volumes and leverage. So, a simple model on the face of it, but bringing a whole host of actions in terms of how we think we're going to manage the business into the future. Quickly touching on M&A and the inorganic story. So, a quick update on Wixroyd and BMP. Both continue to make progress. Actually, in both cases, synergies slightly outperforming the business case. However, we have had a more challenging external market than expected at the time. And therefore, we haven't achieved our 15% hurdle in year 3 in Wixroyd, and we're unlikely to achieve it in BMP. But in both cases, we are getting above WACC with further opportunities as we continue to drive synergies coming through. As a result of that more complicated external environment, we've clearly had a little reset of our valuations. And you can see the last 2 acquisitions have come through at a lower multiple compared to where we were 2 or 3 years ago. So again, greater certainty of achieving that 15% hurdle rate. We talked about a good start for DTI, and there is a huge level of interest and excitement around the business on the back of the Boteco acquisition, given it really does bring a whole range of new manufacturing capabilities into the organization that we haven't had in particularly in the European region. So, I remain very positive and excited about the last 2 acquisitions. Pipeline remains strong, a number of opportunities, as always, in discussion. Whether we close anything towards the end of this year, uncertain, but we're certainly working on options for the next 6, 9 months to continue to look for those right acquisition opportunities to take the business forward. As we come towards the end of what's felt like a very long technology investment period, I just want to talk to how this technology is now helping us deliver the strategy. So we have new generation digital platforms being launched around the group at the moment, which will complete towards the end of this year, early into next year, really helping us to think about that dual proposition, how do we manage smaller customers with much more of a digital-led offer, how do we engage with larger customers with much more of a product expertise positioning, and that will come to life through the new digital platforms. We talk a lot about the ERP, but part of that Microsoft Dynamics' investment has been in the CRM platform. That is launched globally, being used globally, enabling us to hone our sales and marketing resources globally into those growth sectors will enable us to hone those resources into those larger profit opportunity customers as well. So, the ability to have our global hands all over sales and marketing execution, really helpful and the Microsoft CE platform is enabling us to do that. ERP, as we know, coming towards the end of the rollout with Turkey in Q1 being the last of the sites. But already, we're seeing much better supply chain visibility. So, the ability to direct goods around the European regions dramatically better, and it's enabling us to look at shared service opportunities on the back of common process. Behind both of these is also the ability to reduce IT costs, and we'll talk about the cost simplification opportunities, but there is an opportunity to reduce IT costs by removing a number of legacy platforms now we have the new technology in place. And then finally, connected planning, again, Rowan's talked to this, but looking at our global inventory, managing global inventory, enabling us to select the right SKUs for that small customer cohort and effectively rationalize the stock to offer is all being enabled by this connected planning tool, which has been in place for a year or so. So again, coming towards the end of what's been a significant technology investment, but now both starting to deliver benefits and also enabling us to deliver the growth and simplification strategy. Now final slide for me, thinking about the footprint. We've talked a lot about the footprint through the course of the last few years with all of the supply chain disruptions we've seen. So, we're predominantly a local for local manufacturing and distribution footprint. So able to respond to supply chain shocks, able to respond to global trade uncertainties. And we continue to look at this footprint and think about how we simplify and how we manage cost to serve. So, we have closed or consolidated 5 sites over the last 3 years, continue to look at that as we buy new businesses, how do they fit into the overall manufacturing footprint as well. Then when we look at the 80/20 methodologies, again, there are options for us to reduce the cost to serve in terms of both larger customers and smaller customers by thinking about those things differently, less or more efficient flow of goods through our supply chain will lead to further cost efficiencies over the next 12 months or so. So that is it for me. I'll hand you back to Rowan just to conclude what all that means in numbers.

Thank you, Scott. Okay. So just to bring some of this together in terms of what it means for financial targets for the business and what it really delivers tangibly. So, the whole growth and simplification program enables us to align our resources, our service levels and our inventory investment to that generation of customer value. And importantly, these activities are principally self-help initiatives that help us with the delivery of our targets. So, they include sharper commercial execution, the pricing discipline that Scott has already talked about, particularly when you look at that 80/20 layout, actually, we can think really hard and really carefully about how we price those different quadrants. And indeed, coupled with our procurement savings as well, and we are able to deliver some margin accretion. The simplification of our operating model allows us to focus on reducing our cost base, particularly looking at that lower cost to serve in with that long tail of customers. And we are looking to initially focus on our IT cost rationalization and the finance shared service center, which the investment in D365 has enabled us to launch, which is now up and running in Poland. So that's the detail of the benefit. But in terms of what that actually helps us to deliver, it's really the substance behind us being able to have confidence in a 14% adjusted operating margin target for full year 2028. Now those cost savings that I've talked about unlock a 150 basis points of margin expansion, which will initially come through the IT rationalization. That, in turn, unlocks for us a GBP 6 million to GBP 8 million cash flow benefit. Now that cash flow benefit is a little bit more than the 150 basis points because some of that has been going below the line today. And then also gives us confidence in the 21% average net working capital to sales target, which will unlock a further GBP 10 million of cash. And that net working capital, as Scott has mentioned, relates to the connected planning software, but then also the 80/20 methodology that enables us to focus on where and how we are building the inventory to support which products for which customers. So, pulling that together into a reshaped 18% margin bridge. Now our 18% margin bridge, we have definitely used in the past. A lot of you will know it. But what we've done here is we've separated it out to show the staging point at 14%. But also what we've done is we've put in some significant effort to reduce the dependency on market growth in this chart. So let me just illustrate that by walking you through the first section of the chart. So, the first bar is the standard efficiencies bar that we've always had in the chart. So that is our operational efficiencies through automation and procurement savings that we tend to deliver as a matter of course, in our factories. Now the second bar is the new one. So, this is our 150 basis points of cost savings that are going to help us to drive towards the 14% target. Then we have a reinvestment bar. So that is both our D365 and technology run cost that are in business as usual now, but it is also an element of investment in the strategic work that Scott has been talking about the growth and simplification program. And then we have our price delivery above inflation. So, this is a net benefit of pricing, which has also been derisked slightly in this chart as a result of the 150 basis points. And then the next green bar is our market share bar, and that is driven by a lot of the principles that we've already talked about in terms of focusing our products and our marketing efforts and our commercial efforts on growth sectors and those top customers in the first quadrant. And that is then deliberately, as we've already discussed, offset by a reintroduction of variable compensation, which we're intending to get most of the way there during 2026, but there is still a bit more to go in 2027. And then that is where you can see a significantly smaller market growth bar. There is still some market growth there in terms of what we're expecting in that chart. So, it's around the sort of 70 basis points of market growth. But you can also then see in the 14% bar, the hashing, the shading at the top of that bar, which essentially means that actually with M&A, we could derisk that market growth bar entirely. So that is our journey to 14% that the target is for full year 2028. The rest of the chart remains pretty much as was. So, I won't take you through that, but it essentially takes those principles on further and enables the journey to 18% and again, provides that potential for derisking market growth through M&A activity. So that's the picture as it stands, and that's our journey to 14%. So, I will hand back to Scott to finish with outlook. Thank you.

So just to summarize then, trading in line with expectations to date. So sequential improvement in all regions from a revenue growth point of view, new business wins and particularly in those faster-growing end markets, focusing on those highest potential customers. Also, underlying volume trends do remain correlated to PMI. So, PMIs have been positive for the last few months, which has been helpful. And then finally, M&A, expanding our product offering, enabling us to target new products and the pipeline remains active. Expectations for this year remain unchanged. Obviously, we remain mindful of the wider geopolitical environment. But as you can see from the pricing, we've offset any direct impact of that and remain -- continue to remain positive of doing that through the rest of the year. Strong order intake and revenue momentum give us confidence in the full year, supported by the work we're doing on self-help margin improvement plans, so efficiencies, cost reduction activities, simplification activities, and we're confident that this is going to give us underlying margin improvement, enabling us to reinvest in growth and simplification program and reinvest in that variable compensation all in support of us achieving the 14% adjusted margin target for 2028. So with that, I will hand over to Q&A and invite Rowan to come and take all the difficult questions.

I've got one question. On the 150 basis points of margin benefit that you're talking to from IT costs coming out, so that equates to about GBP 5 million from what I can see. Can you just give us a reminder of how much the group spends on IT and technology today and where these savings will come from?

So, the total spend is a mixture of above the line and below the line because we have the dynamic spend, which is a program spend. And as we've said, it's coming to an end. So, about GBP 3 million of those savings are simply that program, GBP 3 million to GBP 4 million of savings of that program coming to an end. We then have another GBP 2 million to GBP 3 million of savings that we're aiming at, which actually is the element which flows into the operating margin because the previous element is only cash. So, the GBP 3 million to GBP 4 million that's flowing through the operating margin is coming through the simplification of the IT infrastructure, the turning off of legacy applications. We're also looking at how we manage IT support in the organization. So, we have had, unfortunately, a number of redundancies recently as we've moved away from direct support on larger sites to more of a third-party supported model. So, it's just challenging that level of investment and make sure it's rightsized for the organization that we are. So, we talked about a 30% total reduction, which that 6 million to GBP 8 million represents the 30% effectively. So.

But it also is slightly broader than that in terms of the broader SG&A because we mentioned finance shared services. So, we are -- it's a full SG&A number rather than solely IT, that number.

But IT is the [indiscernible]

IT is the first element. Yes.

So we have a long way with finance shared services, but we're confident of taking that 150 bps of SG&A out of the organization by 2028.

A couple of questions from me. First of all, with the acquisitions of Device Technologies and Boteco, to what extent are those scalable? Are you able to take that manufacturing capability into new markets to help drive additional revenue synergies? The second question, Slide 21, with the sort of the 80/20 split, I noticed that was 2024 data. Has the business been shifting in a particular direction anyway, which will make that understanding and that change easier to achieve? And thirdly, just a modeling question on the tax rate for '27 and '28. Would you expect that to normalize back to the 25%, 26% level?

We'll do that one quickly, yes.

So, coming back to Device Tech and Boteco, 2 slightly different product opportunities. The Device Tech product is very [ nichey ]. It's sort of a Rolls-Royce cable management product suitable for high-end applications. We definitely see good growth opportunity there. They're growing well today because they have exposure to energy transition and aerospace markets. We're launching that product range into Europe and the core Americas business second half of this year. So, I think there's a very healthy growth trajectory there, but it's not a product range that's going to be worth tens of millions of pounds. It may double over years, but it's not going to magnify by 10. And Boteco is the other end of the experience. They've got a broad range of standard products, many of which we are sourcing today, many of which we haven't driven heavy sales and marketing into because we haven't had all the manufacturing capabilities. So, there's a really good opportunity to in-source and focus growth coming out of that Boteco product range. So, I can see that business scaling at a faster rate than Device Tech. Device Tech is great. It's nichey, it's high margin, it's a really nice product. Boteco's broader and has a sort of longer growth trajectory associated with it. They're probably not overstating, but I don't think I've seen the organization so pleased with an acquisition since we bought [ Methane ] 10 years ago. So, there's a real sense of this is a great business, great product offer, things that we really want to get our hands on and drive harder. So yes, I think Boteco probably has a longer runway of growth opportunity for us. And then 80/20, 2024 data because we actually first used this last year in our strategy work. And we have done some work already on things like minimum order values and pack sizes. So, we're already squeezing that Quad 4 space, if you like. And the U.S. have been the guys piloting this in the first half of the year. So, they're also done some pricing work on Quad 4. They're deploying more sales resources into the Quad 1, the large customer, large product category space. So, we're starting to see the business shift a little bit. But as we come through the rest of this year, we're thinking about how we use methodology in the European business. I had a great session a couple of weeks ago with the European leadership team. And again, just thinking about the setting of fixed pricing in that Quad 3 space, so the fast-selling products to smaller customers, how do we do that? So, we effectively plan to launch that by year-end. We'll do some more work on that opportunistic pricing in the long tail in particular. And then generally, how do we deploy sales and marketing resources in high spend, high-growth customers is underway, but will continue to be refined as we come through the year.

Just a follow-up from Andrew's on that -- on the default and the sort of -- well, both moving towards these target higher-growth segments and customers and that 68% that is default now, and I know that, I appreciate that's 2024 data, but is there a number that you're trying to get that to? Because it seems to me a fairly reasonable kind of spread at the moment.

Yes, I mean part of our challenges with high gross margins, we don't actually lose money anyway. So, there's not an obvious cut. I think there's opportunity to improve margins in each of the quadrants by treating them differently effectively. So, I don't think we seek to get that 68% to 75%. I mean mathematically, 64% is where it sits. So, we're slightly heavier weighted than the Pareto principle today. I think leaving it there, enabling it to grow, probably reducing the Quad 4 is important and moving that into the other 3 because that Quad 4 is a real question mark. That is complexity that we should be thinking differently about how we manage.

And is that -- can you actively exit those customers easily? Or is that what you're doing? Or is it more a case of just shifting everything or the focus towards [indiscernible]?

See, I think when we increase order values and reduce the product offer to smaller customers, that fourth quadrant of long-tail customers, long-tail products will just start to shrink. So, we'll have more barriers in terms of protecting the business. Now it is still profitable, so, it's not that we can just turn it off, but making it more profitable or moving it back towards the core will be important for us.

And just -- I guess, in the target market, a similar kind of question, there are something like auto, for example, currently very weak. But at some point, that could return to being a pretty useful sector. Do you just sort of leave it as is and let it rumble along and then refocus when the outlook is better?