Mpac Group plc (MPAC.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Mpac Group plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would decide to submit the following poll. And if you can give that your kind attention. I'm sure the company would be most grateful. And I would now like to hand over to the executive management team from Mpac Group plc. Adam, good morning, sir.

Good morning. Good morning, everyone. So I'm Adam Holland, I'm Chief Executive of the Mpac Group. And over the course of the next 30 or 40 minutes, Will, and I will tell you a little bit about Mpac. In fact, we go to the next slide, please, Will. Agenda. We'll talk a bit about Mpac markets that we operate in. We will, of course, cover the impact of U.S. tariffs and how we are responding to them. I'll hand over to Will, who will take you through the interim results after the first half. And I'll take you through the 5 pillars of our strategy, tell you a bit about the progress that we're making there. And then we'll summarize confirm the outlook. And of course, let me start with the end in mind, the outlook is that we're on track to meet the full year guidance that we issued back on the 1st of July. So let's get that out of the way at the outset. So that's what we're going to cover. Next chart, please, Will. Very good. Let's come on to the first substantive chart, I think it's the next one. Okay. Those of you that know Mpac well, this chart be familiar. For those that don't, let me introduce the Mpac Group. We design, build, install and service the machines that millions of people around will depend on. Our customers are FMCG producers, half of our customer base operate in the food and beverage market, that's customers like Nestle, Mars, Diageo, PepsiCo, Mondelez and so on. And about 25%, 30% of our customers operate in the health care sector, people like -- organizations like J&J, so Johnson & Johnson, Reckitt, Stryker, GlaxoSmithKline, AstraZeneca and so on. If you don't know Mpac, you certainly know our customers, they are blue chip multinational companies and they are household names. Today, we operate 6 businesses from 6 manufacturing facilities in North America, the U.K. and Europe. And the capabilities that we provide to our customers, everything from raw food handling and hygienic conveying, machines that our customers used to assemble all their products, anything from lasagna through to contact lenses, so a whole variety of different kinds of end products that our machines produce. We also make machines for the packaging and specifically secondary packaging machines. Those are the kinds of machines that might put say, ice cream bars into the kind of carton that you stick in the freezer at home. But at very high speeds, 12 bars a second, those kinds of rates. So high-speed cartoning. We produce machines for putting cartons into larger corrugated cases and trays, case conveying through factories through to the palletizing systems that take those cases and then stack them on to pallets for on-road distribution at the end of a factory line. Today, the group is made up of about 1,100 people, half of whom are engineers and designers and our customers are right across the world from Mexico to Malaysia. We support an installed base of about 6,500 machines worldwide. And so services are an important part of the way that we support our customers. Next chart, please, Will. We've often talked about the kind of 5 stage model, the way that we retain and win new customers in fact. And that starts with consultation. It's a very small part of our revenue and profit in the group, so financially perhaps not the thing to start with. But consultation is the way that we develop our customers' products and the packaging materials, packaging design and help to automate the way that our customers' processes operate. So it's a key part of winning new customers. Then we move into design, build and installation, which is our original equipment business and then monitoring and optimize the services businesses for the Mpac Group. Next chart, please. Now the markets that we operate in are attractive, and they offer us very significant growth opportunities. They are attractive in four ways. Firstly, they are very large. And every year, more than GBP 50 billion -- around GBP 50 billion worth of packaging machinery equipment is bought somewhere in the world, and our market share of the addressable part of that market is about 2%. So we have a 98% market share to go for, a very significant growth opportunity there. The competition that we face is fragmented, very large number of competitors, some are much smaller than Mpac, might operate only in a niche machine type or perhaps within a single region in the world. Some are much larger, have global reach that Mpac does, right up to companies of a few billion in revenue and operating right around the world and with a full line offering to customers. And we're able to compete and win business even with those very large competitors because our customers often make the decisions based on the technical performance of a line that's being proposed. So it's the engineering capability of our teams to innovate and come up with creative ways to automate that are -- that make us successful in winning against those large competitors. Every chief exec will tell you people are the key to their business, but in Mpac it is absolutely true. Next chart, please. So the investment proposition, if I think about Mpac from an investor perspective, there are four ways in which our group is an attractive investment proposition. First, we've covered the growth opportunity, the market share already. If I look at quality of earnings. Over the last 5 years, we've seen a 12% compound annual growth rate in services. Our operating margins in the first half of this year were up to 8.9%, up from 7.5% at the same time prior year. And if I look at it in terms of capital employed, we talked about being a capital-light business. Our return on capital employed was 14% in the first half of this year, up from 12% in the prior year, and there's more still to go out in the second half of 2025. We've always excluded the pension, the U.K. defined pension scheme from our calculation of a return on capital employed. But there was a very significant change in the first half of this year as we announced the buy-in to the U.K. defined benefit pension scheme. That announcement was back on the 1st of July, and Will is going to cover that again today. Lastly and perhaps most importantly, the barrier to entry. It is the expertise of our people that is key to our customers. It's the insights that our people have into our customers' operations and the way that we do innovation, both on and off projects that makes us sticky with our customers, and that also creates a high barrier to entry to others trying to enter into our market space. So attractive in four ways, growth, quality of earnings, capital light and barriers to entry. Next chart, please. Over many half year results announcement, full year results announcements now, we've presented a chart very similar to this one. And the update today, 90 original equipment orders won in the first half of this year with 41 different customers. By value, 42% of those original equipment orders were with customers that were new to the Mpac Group, and that's been a very deliberate focus to help broaden our customer base over many, many successive half year periods now. Of that 42%, GBP 8.6 million, so about 13% of our original equipment orders in the first half came from 4 global account customers who have the scale, not just to place a single order with us in a period, but many orders over many successive years. And those are really important when you think about why this strategy is so important to us in terms of growing our business in the future. Now I'd love to give you those 4 customer names and to talk in detail about specific projects, but nondisclosure agreements with our customers mean I can't give you specifics about future FMCG launches and the particular companies that we work with. What I will do is to give you some examples to give you color. Of those 4 customers, one of them was a new win in the personal care sector. This is a global customer with more than EUR 10 billion of revenue Very, very pleased that our first project with them has been launched. It's a factory that we're building with them in Europe. Our machines will go into the factory in Europe. And it's taken many years to get the relationship to the point where we've started on that first project. And it's really exciting what it could lead to. And I'm going to describe what it could lead to by thinking of another new customer win, but this one from 2023. That was a customer that we won our first project in Singapore back in 2023. Right now today, that line is being installed and commissioned in Singapore. And earlier this year, 2025, we secured a second project with that customer. This is for a new factory build in the U.K. Why is it notable? Does it always take 2 years to go from that first win to a second win? What's really the ramp-up rate? Well, I think most importantly, we are bidding right now at 10 other projects with that very same customer for facilities in the U.S., Europe and Asia. So it really shows why we start that process of winning and broadening our customer base. The final example I'm going to give from this chart is a customer who is a multinational global customer, we've done projects with them all over the world over many, many years. And earlier this year, we won a cartoning machine doing a tender process for a new factory build in Mexico with that same customer. Why is it notable? Well, shortly after the tender was won for the cartoning machine. The next machine down the factory line as a case packing machine. It takes those cartons and puts them into corrugated cases. A few weeks after the award of the cartoning tender, we tendered and won the case packing machine. And following that, we went into a direct negotiation with the same customer for the palletizing system that sits downstream of the case packer and successfully secured that contract as well. So we now have, for the first time, a Langen cartoner, a Langen case packer and a CSI palletizer from the business that we acquired late last year going into the same factory in one of our customer bases. So notable, I think, for that reason. But the big story in the first half was all about U.S. tariffs, and so we'll come on to that on the next chart, please Will. Now when tariffs were first announced earlier this year in the U.S., our immediate concern was about the impact on projects that were already up and running in our business, existing orders. And our concern was that customers might look at the increased cost as a result of those tariffs and look at cancellations. When we announced the impacts of our tariffs on the business earlier this year, we briefed that there have been no cancellations of existing orders as a result of tariffs. That was true on the 1st of July, and it is still true today. There's been no impact on existing orders or indeed on our service business, which has also held up well. What has happened is that new capital expenditure decisions by our customers have been deferred. And the impact on us was that our order intake in the U.S. was very significantly down in the first half of this year as customers paused the launch of new projects rather than embarking on new investments. I talk that through in numbers. At the 1st of January this year, our order book was GBP 118 million. By the first of July, our order book had declined GBP 27 million to GBP 91 million. And if that trend had continued, we'd be in a very different position today. It has not continued roll on 2.5 months since the 1st of July. What have we seen the order book today is GBP 93 million. I'm going to call that broadly flat. I guess it's marginally up, but let's call it flat. That decline in the order book has stabilized now, but we've seen an impact on half 2 revenue and cash, and that was the announcement that we made back on the first of July. What have we done about it? What can we control? Well, we've done quite a bit. The first thing we announced on the first of July was that we were going to consolidate our U.S. businesses and close the Cleveland facility that we've operated. The last switch back machine has completed its factory acceptance test in Cleveland. We've moved a number of other in-flight projects of other Switchback machines we're building for other customers. to our other North American facilities. And as we continue to take Switchback orders in the future, we'll build those in our other North American facilities, not in Cleveland. And we've also moved the spare parts fulfillment center to Boston. So we now have a single hub in Boston supplying spare parts to all of our customers across the U.S. All of that's been completed over the last 10 weeks since the announcement 1st of July. We've taken all the kind of normal cost and cash actions that you'd expect us to, removing contractors around the group, introducing discretionary spend restrictions, cutting back on capital investments and so on. But we also have opportunities with the acquisitions that we completed last year to go even further and even faster. So I'm delighted that in the first half of this year, we've completed the first electrical panel builds in Romania supplying from what was previously just the CSI business, now supporting, in this particular example, a Lambert project built in our U.K. facility with subassemblies from Romania. Langen electrical panels are currently in manufacturer in Romania to support our business in the Netherlands. And later this year, we'll see the first full Langen cartoner and OSTRO machine built in the Romania facility as well to support European customers of the Langen business. So really substantial progress there. And then if I look beyond the acquisitions, we've also announced the opening of a low -- a new engineering hub in Malaysia, providing global design engineering support to all of our facilities worldwide, taking advantage of the incredible capability of Malaysian engineers in KL and the cost base of the region. So some substantial changes, we've been very, very fast to implement, to address the market conditions that we see around us. And I must stress the acquisitions have really helped to make us a much more resilient group. It's given us levers that we can pull in response to what we see around us today. And with that said, let's go on to the next chart and talk a little bit more about CSI specifically. Now if I go back to pre-acquisition Mpac world, 50% of our order intake in the typical year came from the U.S. And if you look at the pie chart in the bottom right of this corner, in the first half of this year, that number has now declined from 50% to 10% in the first half of the year. By contrast, the CSI business is particularly strong with customers in EMEA, Central and South America. And these regions have been performing well. So at the half year, if you look at the pie chart, top right, CSI now represents just over half of the group order book, 51% of the order book. The acquisition, the impact of the acquisition on the group is very significant. You can see that from the data and it's been made possible by our shareholders last year. So thank you very much for your support to make that happen. The CSI team have done an outstanding job strategically as well in the bottom left-hand corner of the chart, you can see a series of stacked bars that show the progression in the concentration of customer orders for CSI over several years. If you go back to 2023 before the acquisition, customer 1, their largest customer made up 64% of CSI's original equipment orders that year. All other customers together made up 36%. And that level of customer concentration was seen by the team as a strategic imperative to address. The team went out to broaden their customer base. And within a year, moved that 36% up to 77% of orders from all other customers, a substantial movement from 2023 to 2024. How have they done in the first half of this year? Well, that trend has continued. So up from 77% to 95% in the first half of this year as the team continued to win orders for a much wider range of customers. That's important for the CSI performance, it's important for customer 1 as well. I must stress this. No customer wants to know that the supplier is dependent on them, and it's really important that our engineers are engaged on interesting and challenging projects. And so introducing other customers to our customer base is always seen positively by existing customers. I must also say, although the charters are stacked bar, if we look at the absolute value, the trend we be positive, too. So we're not trying to sort of hide away a deterioration that absolute value quite the opposite. Next chart, please. Okay. Turning away from numbers. I'd like to talk a bit about the HORIZON machine. It's a machine that we announced the launch from our innovation team in previous presentations. And innovation, the reason I stress it is that it's often the way that we win new customers. To the extent that we can find solutions to customer problems in a way that's better than our competitors, it always gives us an advantage to win business with new customers away from incumbents. We do that both on project in that example, and off project as we develop new innovative projects -- new, innovative products. So I'm absolutely delighted to be able to announce that the HORIZON machine has been awarded a Red Dot Award and one, you might know Red Dot, Red Dot is a global award. It's very prestigious in the world of industrial design. The Mpac group have never won a Red Dot award before. Previous winners include companies like Apple, Ferrari, Google, Sony, and so you add Mpac to the list, and we're in very good company there. Why did the judges select Mpac for a Red Dot award this year? Well, it particularly liked the new affinity operator interface that we provided on the HORIZON machine. It brings a kind of iPhone level ease of use to operators of that machine. And if you've ever worked in a factory and come to a new machine and try to operate it, you'll know that operations are often very complex to get the high performance and efficiency out of the production line. It takes a lot of experience and training to get there. The affinity interface takes a lot of that experience requirement away and make it much, much easier for a less experienced operator to quickly come up to speed and get the best out of the production line. The judges also like the sustainability credentials of the machine. We've designed it to be pneumatic free. It has a much better energy consumption than any machine we produced in the Mpac range before. And I'm really excited about the award. I'm even more excited about the opportunity to now take those kinds of features and read them across the whole of the Mpac range, not just in the Langen range, but right across the group. So well done to the Mpac Innovations team. And at that point, I'm going to hand over to Will to take you through the half year numbers.

Okay. Thank you, Adam. So I'll start with the financial highlights for the first half and walking through tariffs. It's been a challenging commercial environment in the U.S., but with some real positives around gross margin and operating margins. But if I start with order intake. So we report an order intake of GBP 64.2 million, which is 7.5% above the prior half year. And that's underpinned by a very strong performance from the CSI business that we acquired last year. On a like-for-like basis, we're showing order intake, 37% below the prior half year. which demonstrates the extent of tariff disruption on customer decision-making in the U.S. and the importance of completing the acquisition at the back end of last year as we did. I think it's probably be helpful, Adam, would give us some context. But to consider the U.S. market that was our largest market pre-acquisitions. In the first half of this year, original equipment order intake in the U.S. was less than GBP 5 million shows the extent of disruption that we've been faced with in the first half. That said, we made really good progress on customer diversification. Adam mentioned that 42% have ordered one from new customers, and that's helped to mitigate the impact. And regionally, it's probably no surprise now that EMEA is by far our largest market. If I move on to order book and revenue. I'll start with revenue, up 41% to GBP 84.7 million. On a like-for-like basis, if we take away the acquisitions and one particular onerous contract in the clean energy sector, the like-for-like revenue is broadly flat against the prior year. And by sector, Food & Beverage now, by far, our largest sector, the GBP 44 million, almost GBP 45 million of revenue coming from the food and beverage sector. Health care is our second largest at GBP 22.5 million. and then we sweep up in others, all other consumer products. So I think in terms of other graphs on here, looking at the order book, GBP 91.7 million at the half year. That's down significantly reflected in the lower order intake in the U.S., especially. But that order book gives us good coverage against forecast half to revenue for 2025. And indeed, we consider revenue profile on a rolling 12-month basis. And that order book at the end of June gives us approximately 60% of revenue cover for the 12 months to the end of the first half 2026. And historically, 60% of future 12 months revenue cover is a healthy position for Mpac to be. So whilst we've upgraded -- or downgraded, sorry, guidance for the full year 2025. We're now left with a high degree of revenue cover to achieve the full year guidance. Moving on to talk about margins and profitability. And as I mentioned earlier, that's really one of the highlights for the first half. We've shown very strong gross margin development, up nearly 8 percentage points to 36%. So what's the driver to that improvement? Well, it's the first and most significant contributed to that improvement is the margin performance from the CSI business we acquired last year. They performed really well, high degree of loading and utilization and they've been very successful in utilizing the low-cost manufacturing and assembly capacity that they have in Romania. Alongside that, our service business margins have been strong. And the comparator included the dilution effect of 1 large project within the clean energy sector. So those 3 factors are the main drivers to the good margin development over the previous half year. And as you would expect, that strong margin and the revenue growth is dropping through to an increase in underlying operating profit to GBP 7.5 million compared to GBP 4.5 million in the previous half year so it's up 67%. In terms of EPS, that equates to an EPS of 12.1p and that's after the impact of the issue of maybe 10 million shares last year to funds be CSI and BCA acquisitions. In terms of working capital and balance sheet related items. So net debt at the half year is GBP 43.3 million, that includes vendor loans and deferred consideration, which was associated with the CSI acquisition. Working capital, we show an increase from GBP 0.4 million to GBP 6.9 million. There's a slide on the balance sheet in a couple of slide's time, but fundamentally, that comes down to missing deposits from the lower order book. We move on to the next slide, which shows a bridge for profit before underlying PBT from the first half of last year to first half of this year, so from GBP 4 million to GBP 5 million. Main contributing factors on the left-hand side, okay, on a like-for-like basis, revenues increases contributed another GBP 7 million or underlying PBT and the increase in margin that we referred to the very positive GBP 6.6 million coming from the higher gross margin percentage. Offsetting that, the administrative and SG&A costs of the 2 acquired businesses and additional debt financing costs associated with the borrowings that brings it down to GBP 5 million for the full year. On the right-hand side, I think it's worth commenting on the split of OE and service revenue. So we see a very strong performance from original equipment revenue in the first half. And as I said, that's underpinned by a strong performance from CSI. And then in relation to nonunderlying items, the table on the right-hand side, it's probably worth just running through those positions because there's some large items in there. So the first noncash item was an GBP 8.5 million impairment of the goodwill of the 2020 acquisition of Switchback. In relation to site consolidation in the U.S., there was the impairment of the lease and fund leasehold improvements, which is another GBP 3 million noncash items and then amortization of acquired intangibles, GBP 3 million as well, so that's associated with the CSI, BCA and Lambert acquisitions. And the final item's related to pension related positions. In terms of balance sheet, I won't go through every position here, but I'll talk about the main movements compared to the closing position at the end of 2024. Starting with noncurrent assets, the most significant change there is in respect of our U.K. pension scheme. So the accounting on a buy-in basis, means we've seen a GBP 30 million reduction in the noncurrent assets of the previous IAS 19 valuation. Alongside that, there is the write-down of the goodwill associated with the previous acquisition of Switchback. Inventories and trade receivables fairly steady, not a huge amount of change there. The only other position where the significant change is trade and other payables. And within trade and other payables there's the position associated with customer deposits. So the lower order book at the half year is reflected here in lower customer deposits. Now the next slide shows a cash bridge. So this is the opening gross cash of GBP 18.2 million at the start of the year to the closing gross cash of GBP 8.6 million on quarter 4 between those 2. So EBITDA, we've spoken about that contributed GBP 9.7 million of cash. That's offset by the GBP 6.5 million of additional working capital and GBP 3.2 million of repayment of borrowings. The ongoing pension contribution commitment is shown as GBP 1.4 million, albeit it's worth saying that contribution was almost entirely gone to escrow and I'll pick up the impact of that on the following slide, we talk about the status of the pension scheme. And then alongside that some capital additions and lease payments. The other large blocking the pillar, tax, FX, interest and non-underlying items. The largest positions in there are interest and some tax. And then there is the costs from the 2024 acquisitions of CSI and BCA that have fallen through from a cash flow perspective into 2025. Also worth saying at this stage, we've got a committed facility with HSBC through until 2027. The company continues to trade with significant headroom above the covenants associated with that facility. And we have a very supportive relationship with HSBC. The last slide I'll go through is the state of the pension scheme. And I'll probably take a step back. Many may know that the history of the scheme. It's mainly associated with members and declared members from what was the Molins plc days of the group. The skin close a long time ago. It's a large scheme relative to the size of the company. At one point, liabilities were close to GBP 500 million. And we were running a deficit of around GBP 60 million, GBP 70 million. But we've worked hard over various triennial valuations. We've brought that back down to a surplus now. And in July 2025, we were able to announce that we reached an agreement with Aviva. We purchased a bulk annuity to GBP 249 million, covering known future liabilities associated with the scheme. So that was the point we achieved by in -- the time line here on in is conservatively estimated to be 2 years to go from buy in to buy out in which time we'll work with Aviva and the trustees and the ministers of the scheme to make sure we've got transparency on data that we're handing over to Aviva. And the goal remains to complete buyout and wind up as quickly as possible, with as minimal professional fees as possible, and we are anticipating we announced in July that we would expect the value of the escrow account where we've been making contributions to be returned to the company at the point we reach buyout. So that's estimated at GBP 5 million. So we're working to bring that time line in as efficiently as possible and achieve that buyout, at which point we will turn the focus to the smaller U.S. schemes, around GBP 8 million in liabilities of those schemes and mature schemes. And we'll work to do a similar exercise with them. It's a real success for the company. It derisks what was a very large scheme to us, and it will crystallize any future contributions that we need to make once we achieve buyout. And with that, I'll hand back over to Adam.

Thank you, Will. Over the next couple of minutes, I'm just going to touch on the 5 pillars of our group strategy, which has been stable now for quite some time. And those 5 themes are going to growth outstanding customer service, innovation, people and operational excellence. I won't go through every point on the chart here, but just pick out some highlights. Under going for growth. I think probably the place to start. We think about our sales pipeline as a pipe. And in at the top of the pipe, what we see coming in are new projects that our customers are thinking about launching in the future prospective new projects. The value of new prospective projects going into the pipeline, has been higher this year in the first half than previous years. There is around the group from business to business and region to region, but the lowest increase has been 2% and the largest 14% year-on-year on a like-for-like basis. So put simply, we're seeing more ideas going into the pipeline of new projects than ever before. The pipe is not leaking. So we're not seeing projects that have been conceived of being shelved forever. What we're seeing is customers say, we're going to push back the launch of that until next month, next quarter, next year. we're going to delay the launch, we're going to pause on the launch. So there's nothing leaking out the sides of that pipe. But it's as if there is a cork in the bottom of the pipe, in the U.S. particularly, where customers are not then following through to actually place purchase orders with suppliers and launch those new capital investment projects. If you imagine a pipe with the cork in the bottom, it's not leaking and that you continue to fill it at an increasing rate. What's going to happen is the pipe is going to bulge. And at some point, something has to give. We don't know when. I'm not going to give you a kind of crystal ball gazing view today on when that will change, but something has to give. And we've seen that kind of cycle before. If you go back to 2008, '09 financial crisis, the COVID -- the impact of COVID on capital markets around the world, we've seen these kinds of behaviors before. So we know what is likely to happen in the future. Second thing, I'll highlight on the customer service. Again, it's sort of see the things to come is the progress that we've made with digital and vision. In the first half of this year, we've secured 9 orders in the digital services space. That's quite a small number if you think about the 6,500 machines that we have installed around the world today. But it's definitely a sign of things to come. And I'm really excited about the progress the team have made there with nine customers placing their commitment in us in the digital space in H1. Under innovation, we've already talked quite a bit about Horizon. Last year, we also launched a new machine in the OSTRO machine just to update you on that. We've now secured more than GBP 3 million of orders for the OSTRO machine, and that's continuing to rise. It's going very well. And earlier this year, we announced the launch of the Brisa cartoning machine and the Maestro XL and 2 machines specifically designed around the pizza market. And the reason we've done that earlier it was probably best exemplified earlier this month, I visited a pizza producer. We've been building a relationship with for 4 or 5 years now. The facility -- they operate a number of facilities, but the particular one I visited earlier this month, produces about 1 million pizzas every single day. So high volume from that particular facility. And it's the Brisa that really piques their interest. But considering a new line in the future to expand their capacity the Brisa can do -- meet the customers' needs in a way that nothing else on the market can. So it really shows the power of innovation to open a door to a new customer, and these things take time. Under operating -- operational excellence, I'm really pleased with the progress the team have made. Will talked about the improvement in gross margin percentage return on sales. I'm delighted with the progress in Romania around panel building and the OSTRO launch very good work from the team. There's more still to come. Next chart, please, Will, and we'll talk a bit about people. Also today, as well as the half year results, we announced a number of board changes. And I'd like to take this moment to thank Sarah Fowler and Doug Robertson for their support of Mpac Group over many, many years as nonexec directors. We've been working for quite some time now on succession planning. And today, we're announcing an expansion of our Board with 3 new appointments. I'm absolutely delighted to say Simon Kesterton, joins us as a Non-Executive Director and Chair of the Audit Committee. Simon is currently CFO of Kier Plc , David Squires joins us as Non-Exec Director; David is currently Chief Executive of Senior plc. And Clive Wiley joins us as NonExec Director. Clive is currently the Chair of Mothercare plc Senior Independent Director of Griffin Mining. And until July was the Chair of Delarue Plc as well. All 3 appointments bring very significant experience and breadth of the Mpac Group and the appointments position Mpac with a really, really strong Board now. I'm delighted to welcome Simon, David and Clive to the team. Next chart, please. Next chart, yes. So we're almost drawing to a close. In a minute, we'll turn over to Q&A. If you have questions that you still like to answer, please enter them into the chat function, and we'll pick those up. There are really 3 things I'm going to highlight off this chart, 3 key takeaways from the first half. The first thing is the acquired businesses are performing really well. The second thing is that the team have responded incredibly well and at great pace to some very challenging market conditions arising from U.S. tariffs. And they've made strategic changes that position Mpac well for the future as markets recover, and they will recover. And the third thing is the decline in the order book that we saw from the 1st of January due to the 1st of July, has flattened out over 2.5 months since then. So not 118, 91, now 93 in line with our expectations. And as a result, we can say that the group is on track to meet the full year guidance that we issued on the first of July. And with that, I'm going to turn to some of the questions that come through.

So the first question that has come through is what barriers to entry does Mpac enjoy? And are these barriers increasing or being eroded? So this harks back to kind of one of the early charts in the pack where we talked about the barriers to entry that we enjoy. The key here is our people, okay? Our people have real depth of experience to be able to give insight to our customers in the ways to automate their processes and the ways that machines can be adapted and developed to meet in particular production line needs. So that's an overlap of two kind of circles on the Venn diagram. That's deep understanding of machine automation and a really strong relationship with customers. And that's really important when you think about the changes we made last year, bringing together the CSI, BCA, Siga Vision businesses with the rest of the group, the pre-acquisition group. That gives us an enormous opportunity now to cross-sell between the businesses to customers that each of the group companies know very well. And the best example I can give you to answer that question, is a popcorn factory that I visited last year. I went because we'd sold, I think it was a dozen cartoning machines over many years to this popcorn factory. The factory actually produces more than 1 billion bags of microwave popcorn every year. So it's a very significant operation, almost lights off almost nobody on the factory floor. And we'd heard that they were looking to expand production. So I visited with the sales team, I was keen to get to know the customer a bit better. And our interest was Langen cartoners. When we got there, what we found was that the Langen cartoning machines that we've already provided were actually not being used to their maximum capacity. It's absolutely possible for us to increase the rating of those existing machines and produce more popcorn bags from the same Langen cartons. So, was it a waste of a visit? No, the reason the cartons were not being stressed to their maximum limit, was that further downstream in the factory, the palletizing machines were the bottleneck for that production facility. They simply couldn't load cases onto pallets fast enough to keep the rest of the factory fully utilized. And so the customer was thinking about changing the palletizing machines. It was a great moment because we could, we could describe to that customer, the acquisition of the CSI business, the range of palletizing machines and, case conveying systems that, CSI offered, and, you know, all of a sudden we, had an opportunity for a CSI sale, that come from a Langen sales visit, so a real cross sell in action. We almost got back in the car and headed back up the road to the, to the airport to fly on to the next city, when the, factory owner or factory manager, just remarked, you know, that would make a big difference to us, and then the only remaining people on the shop floor will be those doing the quality inspection of popcorn kernels. So what, do you mean? Well we, have a large number of people who on any given day spend the whole shift simply watching the line to see popcorn kernels, and pick out bad quality popcorn before it goes into the bag, we do it manually. Visual inspection, and we were able to describe the Siga Vision team. We explained that we were doing a, project, a very similar project for an onion ring, producer, not very many miles away from that popcorn factory, and we were using AI to help train the machine to detect what a bad onion ring looks like compared with a good onion ring. We suggested, why don't we take the same machine and adapt it, to look for bad popcorn kernels instead. So, you know, it, it's a, it's the best example I can think of, how that kind of, customer intimacy and deep insight into how machines can support a customer's operations really creates those barriers and, gives us an advantage in the market. Okay. The next question will pick up is do to your prospective U.S. customers for U.K. manufacturing machines expect you to share the additional cost of tariffs or do you insist that they shoulder the whole burden? Okay. Well, I'm going to answer the question in 2 ways. I'll answer the question as written and then I'm going to also give you a different way of thinking about the same question. The question as written. The answer is that we're always in competition to win business. There are very few companies in the world who can do what we do. But almost in every case, in the final round of tendering for a project, we find we're up against 2 or 3 other competitors to win the project, and it's a different competitor list on different projects, but they're always very capable. So it's a competitive position. And therefore, we're not in a place we can just simply pass tariffs on and so on. But our customers do absolutely understand the impact of tariffs they can see the headlines the same as we can. What's the solution there? Well, in many cases, what we've offered to U.S. customers, who were concerned about tariffs on U.K. exports to the U.S., imports into the U.S. We've offered to complete the build in our Boston facility. Absolutely no problem for us to design and build it -- sort of design in our U.K. facility and build in our Boston facility. That addresses the problem to some extent. Of course, our Boston facility is still exposed to tariffs on steel that's brought into the U.S. for machining in the U.S. So it doesn't entirely eliminate problem, but it changes the nature of it. And those tariffs are changing day by day. So it's quite a complex answer to a very straightforward question. I'm going to answer it a different way. I actually don't think it matters. If I think about what's happening in the U.S., it's not that our U.S. customers are placing orders at an increasing rate with U.S. companies or U.K. companies or in fact, companies in any other country. We're simply not seeing U.S. customers come to a point of decision on launching new projects at all. And so it's not really a case of saying the impact of tariffs are on who wins the order. Customers are delaying those capital investments until a future period. So that's the reason why we've seen a decline in our order book in the first half. It's not a lot of market share, as a change in the way that the market has been performing. And I believe it's a pause. I don't believe the investment in FMCG goods in the U.S. is finished. I think that demand is still there. It's a pause. It will unblock at some point. And when is a question for another day. Okay. I'm going to have a question here for Will. We've got a question here. How long is a typical sales cycle?

So, obviously different for our recurring service business to our original equipment, original equipment business, but let's stick with the original equipment. So typically, let's take it pre-sale. From the point we first have a request for a quotation or inquiry through to when we typically would take a purchase order, it can be up to 9 months of consultation. And working with the customer to absolutely define what they're looking for. From the point we receive a PO through till getting, factory acceptance, sign off on the equipment meeting performance criteria. There's quite a lot of variability there, but we see typically between 9 and 18 months depending on the size and complexity of the project. So, really not uncommon for projects to be within our order book. We'll be reducing in value for up to 18 months from the period from when we take the purchase order..

Very good. Okay. The next one is phrasing an observation rather than question, but I think it's excellent. So I'm going to read it out. Par of the reason for tariffs is to encourage more manufacturing in the U.S.A. So surely, that will mean greater demand for your products in the U.S. Also in the U.S., the crackdown immigration was surely lead to an increasing need for automation as there are less people available to do manual jobs, another positive view. I think it's a really good insight and absolutely correct. We have seen some U.S. FMCG producers already shift production into the U.S. from imports from other countries, taken really proactive states and exactly this is the way that I think the U.S. administration intended the tariffs to stimulate growth in domestic production in the U.S. And the reason we know this is that, that customer asked us to automate their new factory builds in the U.S. for them. Of course, U.S. labor tends to be more expensive than labor from some of the lower-cost regions that U.S. imports have come from. And so that same factory in the U.S. needs to be even more highly automated than the same factory in the low-cost economy elsewhere. So increased demand for the kinds of things that we do. And you're absolutely right as well to point out that in all the demand for automation comes as a result of increasing cost pressure on producers and looking at how to reduce labor costs is one of the things that automation does very well. So there are lots of positive drivers there that we believe in the long run will be very, very good for Mpac for companies like Mpac, particularly those that already have a manufacturing footprint in the U.S. to support U.S. companies U.S. customers, and we do in Boston. So I think there are some really good long-term trends there, long-term drivers. But in the very short term, in the edit here and now, what we're seeing is a slowdown in customer decision-making have to get through that pause and into those kind of long-term drivers and then the point is exactly right. Okay. A question here for Will. For large capital orders, what is your margin profile compared to smaller orders of recurring service business? Are there risks in large projects from overruns warranty and performance guarantees.

Okay. So large order -- probably the answer is it's not dependent on the size of the order. The risk profile and therefore, the margin risk profile is more closely aligned to the complexity and the number of engineering hours associated with it. . So where we see a different dynamic in terms of risk and margin profile, if there's heavy body of engineering, that inherently has some more risk in the project, quite often what we see project number one. We're improving the process and improving the principal with the customer and then there's repeat lines that follow. And you would expect the repeat lines typically come with a higher margin than the first line because the main body of engineering is associated with the first PO. So I'll answer the question slightly differently, where there's repeat orders related to previous order, we have proven the principle and completed the engineering and we see a better margin profile there. So it's not only aligned with value -- and the other part of the answer is tied into the question regarding the recurring service business margins compared to regional equipment. Yes, we absolutely do generate a the better margin on service business when go through the exact values because for commercial sensitivity, but the margin profile will improve for the group as we grow and develop our service business.

Very good. Will, any comment on warranty performance guarantees that you want to make?

Okay. Yes, I'll touch on that. So we offer warranty. We'll start with that on pretty much every project. Again, it's part of the commercial negotiation. We don't typically have a profile where we have projects in the field that are distressed and carry a high value of warranty costs. So our reputation is good in the market and typically we are completing projects for either factory or site acceptance testing that aligns with the contractual commitments and all other aspects are part of a commercial negotiation that we go into on a case-by-case basis.

Okay. Thank you, Will. So the next question is around R&D. The question is, do you spend your own money or do your customers pay for it? And the answer is both. The examples I gave earlier of the HORIZON machine, the OSTRO development, the Brisa, those were all new products that we invested in our own R&D money into capital investments in prior quarters. And then we launched those new products for customers. But that's not the only way in which we do innovation. We do a lot of innovation on each particular project. Almost every project we do carries some form of development in it. The core of I don't know a cartoning machine, the way you erect and push products into a carton or load from the top is often standard. But the products that we're loading into that carton varies. And if we're handling a razor-blade cartridge or a contact lens, blister-pack confectionary items, whatever it might be. The way that we manage the infeed of those of those products into our cartoning machine very significantly, and it's the ability of our teams to take that kind of chaotic, infeed, of, product coming down the line at us often at very, high speeds, you know, we, our, pizza machines are running at, You know, 150-180 pizzas a minute and we consider that a mid-range, mid-speed machine, you know, 3 pizzas a second is mid-speed for us, and the spacing of those pizzas and the positioning on the conveyor belt is never absolutely perfect, so the ability to kind of take that chaos and turn it into something that we can then carton at that speed of 3 or 4 seconds. That takes real ingenuity, and, a lot of that innovation is done on a project, and we do, you know, as you saw, 90, project wins in the first half of this year, so it's, not something that we see as sort of an unusual risk to take on, it's something our teams are very, very well practiced at, and get better and better at doing it, you know. The, so there's a real skill in being able to innovate on a project, and our team are very good at being able to judge the risk in that, you know, what needs to be done on project and what, is done off project. So the answer to your question is both, we often spend our own money, but our customers also invest in innovation for particular applications, that they might need. I think the next question is for Will. It's -- the question is, given global trade uncertainty, how are you balancing exposure across geographies to mitigate reliance on the Americas?

Well, I think the first half of the year has probably demonstrated the outcome or the measures that have been implemented, take a step back. The acquisition of CSI was strategic in many ways, but part of that, the key value we brought to the group was it gave us an additional exposed to the EMEA market, whereas previously, we had a higher percentage of orders from customers in the U.S. market. So there's a natural rebalance from the acquisition of CSI in terms of geographical exposure -- the U.S. market has been tough in the first half, but the Americas overall is still trading. So Canada and LatAm is still trading in line with expectations. And the order intake that we are reporting in the Americas is weighted towards those 2 other jurisdictions as opposed to the U.S. And we are focusing our efforts and our sales teams and our capital in maximizing the opportunities from those other markets and from EMEA.

Very good. Thank you, Will. So next question is how much customization of Mpac's equipment is required for each order. I think we'll probably both have to go at this one. I'll describe in qualitative ways, and you can think about how we'd quantify how much. I'm going to give a couple of examples, I think. We've talked quite a lot about cartoning and case packing, but that's not everything we do in the group. If I think about the BCA business that we acquired in Boston last year, last year, that business produced a machine for a meal line that makes lasagna and literally makes lasagna. So the machine that the BCA team have designed, built, installed, commissioned and is now running and we're servicing and supporting in the field today, takes sheets of pasta and layers the sheets of pasta into a tray as part of building up the lasagna that can then be taken home and baked for home use. So a lasagna assembly machine. I mean, there's an incredible amount of customization that goes into designing and building a machine like that. I don't know the world have ever seen one like the machine that BCA put together. But does that mean we started from a blank sheet and everything was invented. No. What the team has done is to take building blocks that we understand very well and put them together in a very novel way in order to do that job for that customer. And that same theme actually carries across to many of the projects that CSI do in designing a palletizing system. The system for taking a corrugated case and moving it around the factory and stacking it on to pallets. That takes very standard building blocks of how you convey a case and how you divert channels, how you manage the data flows to track exactly where a particular case is in that conveying system. How you then plan the balancing of loading in particular palletizing machines at the end of the line. And some of these can be a single robotic cell or a really complicated in-line palletizing system that's running at many, many were very, very high rates let's leave it at that, without giving specific numbers. That takes some fairly standard building blocks and configures them in a completely unique way for that customer and their particular facility and their particular product need. So that's an enormous amount of customization, but of standard building blocks. So it's quite hard to give you a kind of qualitative answer in a sound bite that answers the question. What I will say is it's very unusual for us to see a project with almost 0 engineering hours where we're just building something that's exactly the same as the line before. That does happen, but it's very rare. And it's very, very rare for us to find a project that's so innovative, we're spending hundreds of thousands of engineering hours. Will, can you help us with a kind of way of qualifying or quantifying that perhaps for the question?

Sure. So whilst there's never one typical project, but if you looked at all of Mpac's project. We see typically a 60-40 split between costs associated with labor and costs associated with parts materials. So 40% being cost of our people. That's split between engineers, project management to assembly. That gives a context for the overall project. About 40% of our cost of sales is relating to people. Now that's not all associated with customization, but it's the engineering element, which is where there's always something new on our project.

Very good. Okay. Well, thank you. I think we'll mark that as our final question. We're just coming up to the hour now. So thank you to all of those that have posted Q&A. Anyone had a question that we haven't answered, we will do our best to pick that up.

Perfect. Adam, Will, if I may just jump back in there. Thank you for your presentation and for being so generous of your time in addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But Adam, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Yes. Thank you. I'm going to turn back to the kind of outlook comments. Three things to take away. The acquired businesses are performing really, really well. I think the team have responded well and at pace, some very challenging market conditions, positioning us much better for the future as markets recover and they will -- and the last piece is that the decline in the order book that we've reported back in July has now flattened out in the 2.5 months. And as a result, the group is on track to meet full year guidance. Thank you very much for your time today.

Perfect, Adam. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order of the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of Mpac Group Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.