Mpac Group plc (MPAC) Earnings Call Transcript & Summary

[Audio Gap] Mpac with their full year results, which were announced earlier this week. If you haven't seen it already, you can find the research note with updated forecast on our website. Otherwise, I will leave it to the team to take you through the presentation, and we shall take Q&A at the end. Over to you, Tony.

Thank you, Hannah and welcome to this webinar this morning. Very much focused on the retail investment community. And I'm delighted to be able to get the opportunity to present Mpac results for the full year and the progress we're making on our strategic goals. But first of all, may I introduce you to Adam. Adam joined Mpac last November as the COO and following an extensive onboarding period, I'm delighted that the Board has decided to make Adam, the new CEO, starting from the AGM later this year in May. And I'm very confident the business will continue in very good hands. Adam has already demonstrated that he understands the Mpac business model, the market situation and where the key driving points are to go forward. So Adam, can I just pass it over to you to introduce yourself briefly, please?

Yes. Thank you, Tony. So hello, everyone. I'm Adam Holland. I started my journey in life as a Cambridge physicist and left university to join a satellite power systems business. I actually was involved in putting the first lithium-ion batteries of any spacecraft application anywhere in the world or above the world. And I've moved on and spent the last 20, 25 years running various different businesses. Initially with Rolls-Royce and then Siemens and then just before joining Mpac in November, I was with JCB. So most of my experience was with large PLCs, but also JCB, obviously a privately owned business. The common thread through all of that for me was that each of those businesses were engineering and technology-based businesses. They were a nice mix of product and service and they were all global. So when I joined the Mpac team in November, I felt kind of instantly at home. So it is a business I get. I understand how we operate. What for me was really exciting was the opportunity. I've worked in businesses that were often a lot smaller than Mpac, some that have been 6, 7x bigger than Mpac and I've run businesses at every scale in between. Some of them have been turnarounds, some of them being growth opportunities. Mpac is absolutely all about growth. We'll talk today about the size of the market opportunity ahead of us. And for me, that was a really exciting thing joining the team. I'm obviously delighted with the Board's decision to appoint me as CEO. I'm looking forward to meeting more of you in the months and years ahead. Thanks, Tony.

Thanks, Adam. Yes, just to say it from myself personally, it's been a great journey over the last coming up 7 years. And I'd like to thank all the investors for their support. I'm really looking forward to start a new chapter of my life exploring new opportunities which probably don't involve too much long-haul travel and endless nights in hotels, I have to say. I absolutely believe Adam is the right person to take Mpac forward. We've worked together for 5 months and he really does get the business and where the opportunities lie. So I think we'll be in very good hands going forward. So for today's presentation, I'll start off with a brief summary of the progress we've made. I'll then pass you across to Adam so that he can explain the business model and where the USPs are. He will then pass you across to Will to go through the financial highlights. I'll come back and make a brief summary at the end, and then we'll have time for Q&A. So without further ado, I'll crack on. I'm pleased to report that Mpac achieved a strong recovery in H2 due to the prior planning, completely numerous projects that were held up due to the shortage that we reported previously of key electronic components. Overall, the group managed to navigate a challenging operating environment and is well positioned to get back on track for our strategic journey. I'd say we are back on track. The medium-term prospects for the group continues and I'm very excited that Mpac is well positioned to deliver on that growth. Just to remind maybe the new investors to what does Mpac do? Mpac provides automation and packaging machinery equipment used by the FMCG industry to assemble and package their products for onward distribution, storage and finally, consumption by the public. The equipment we supply maximizes packaging quality and process efficiency and work sustainably to minimize waste. So we provide the equipment for the FMCG companies to pack their products for onward distribution to everybody, including us as end users. Next slide, please, Will or Hannah on what we do in the logistics business. Next slide, please. So the overview for the year. We don't have it on here per se, but the order book is a key KPI for us. And the order book, you'll, if you read the note, you'll see that it's actually lower than it was the year before. But that is -- doesn't give you the perspective. And the -- at the end of 2021, there was a surge of order intake as our customers realized that lead times are getting elongated. So we had a surge of orders which meant that then you can see the order intake differences there. But normally, we start the year with 50% order coverage of OE projects or equipment projects. That's a good position to be in. And we're in the mid-60s starting 2023. So that is a really good position to be in. And when you add the recurring service orders that we've managed to build up over several years, that is an excellent position. So we're really confident about our 2023 forecast. The revenue grew marginally, but the most interesting part of that is the service continues to grow year-on-year. And as you all realize the service revenue brings a much better margin and also brings us closer to our customers. And I think that's the thing that people don't sort of draw the comparison to, yes, it's great to our growing service revenue but it just brings the customers closer. So that continues. Clearly, the overall profit was down, which is -- was a concern for us, but that's definitely a H1, H2 issue. We saw the supply chain challenges coming. We've worked hard with cost reductions, really focused on the supply chain, focused on engineering to look for alternatives and planned meticulous, planned together for the second half of 2022, which we then executed. So you can see that the, the situation changed in the second half. Working capital expanded, and I know that's going to be a key topic. That was necessary to mitigate the challenges we faced. This is now unwinding. We'll continue to do so during 2023. A key point in the year was that we delivered -- well, we delivered just recently the battery automation line, so called CQP, [indiscernible] FREYR in Norway. And the real milestone that we've got to keep in mind for this year is qualified battery, which is scheduled to take place in around July time. Just to be clear on that, we supply battery assembly equipment. That's part of our full line for FREYR. So the qualified battery is not within our [ gift ]. We are a key partner and we will do everything we can to support that, but it doesn't follow a number of other players. But that's the key milestone for this year, and I'm sure Adam will explain more about that. So strategically, Mpac made really good progress in the year, continued or our strategic journey, including innovation. We had the inaugural year of our Mpac Academy, which we'll talk about a little bit later as well, which I'm really pleased to have initiated and see the first year through. I'll now pass you across to Adam to take you through more details of the year's progress and what we actually do in more detail at Mpac. Thank you. Adam?

Thank you. Okay. Over the next few minutes, I'm going to talk a bit about what we do in Mpac, the markets that we operate in. I'm going to describe a bit of the progress that we've made in 2022, some of the things that we're focused on in 2023 and then we're going to run through 2 or 3 case studies, just to kind of bring that to life. But I think this chart is perfect to start with because at the bottom of your page, you can see some cartons that explain exactly what it is that we do. Tony described it at the outset. We build the machines that our customers use to assemble and package their products. And if we go from left to right, you can see us -- assembly machines and then packaging, our machines packaging, the primary packaging for those systems. That could be things like putting tissues into tissue boxes. Then we move on into our secondary packaging machines. They may move on into a secondary packaging machine. So that could be, for example, putting beer cans into a 6 pack or a 12 pack of beer. And then finally, we've got the end of line processes. So that could be putting all of those cartons into corrugated cases, cardboard cases or a tray and then onto pallets for onward distribution. What we do depends on a really, really close relationship and a really deep understanding of our customers. The way our customers assemble their products and the way their facilities then process those for packaging and distribution. In the middle of your screen, you can see 3 of our product ranges, the Lambert, the Langen and the Switchback product ranges. And we'll start with the Lambert on the left-hand side. The Lambert product range specializes in automated assembly. Okay. It's got a particular focus on medical and health care. So that could be things like contact lens manufacturing, ostomy, wound care and so on. Then in the middle and the right-hand side of your screens, you can see the Langen range and the Switchback range. So these are focused on secondary and end-of-line packaging, particularly in food and beverage and health care. That could be applications like putting frozen pizzas into pizza boxes, ice cream bars, right away through between medical devices and personal care items. And across the whole of that range, we really operate as One Mpac. The whole line philosophy, we might see a line in cartoner for example, feeding into a Switchback case packer. And across the whole of that, our whole life approach, we operate the Mpac Cube. That's our service offering. And that really spans the whole life of the product. And of course, sustainability and whole planet is a growing theme across the world, and we're going to talk much more about that in the slides that follow. Next chart, please. So today, at Mpac, we operate from 4 manufacturing sites, here in the U.K., in the Netherlands, in the U.S. and in Canada. We've got 8 customer service hubs across the world. And that global presence is really important, as we go into the case studies, you'll see just why. We've got more than 180 global engineers and designers working alongside supply chain professionals, project managers, field service technicians and a whole host of other support functions. And we support an installed base of more than 4,000 machines in service today worldwide. On the top right-hand corner of your screen, you can see a pie chart describing the sectors that we operate in. Food and Beverage makes up just about 1/2 of our business today and Healthcare makes up a further 1/3. And in 2022, Clean Energy grew to being just over 10% of our revenue in the group in 2022. Next chart, please. Now the way we -- way our business model works, the way we approach our customers is in 5 phases. And the first of those is consultation. We work very closely with our customers during their design phase, when they're designing their products, designing their packaging, designing the way that their assembly facility and their production is going to work. And that's very much for us to weigh into our customers. And it leads to the core of our business, which is design and build and installation. And in those phases, we are designing, building and installing the machines that our customers will use to automate their assembly and production packaging processes. And then finally, we move on into monitor and optimize. We're increasingly using digital technologies to monitor machines' performance and to optimize our customers' production facility, it very much speaks to the kind of industry 4.0 trend across the world. And whilst for us the digital piece of service is a small piece of our revenue today, it's incredibly important for that kind of stickiness that keeps customers coming back time and time again. Next chart, please. Now as I said at the outset, that for me, the opportunity was very exciting, the market opportunity that Mpac faces. And then you can see on your charts, it's going to be, the markets that we're in are huge. The data on your screen comes from PMMI, from other industry reports. And it gives you some idea of the market and the market share that we have today. And then not only are our markets very large but they are growing. And they've done so consistently year-on-year for many years now. You can see the compound annual growth rates on the right-hand side of the chart. The things that have driven growth in those sectors, in the sectors we operate in are pretty fundamental. Rising populations, we've got urbanization, growth in GDP per capita, all of these things are contributing to an increased need for packaged food and beverage. And then if you add on to that increased life expectancy and rising standards of living around the world, those trends are driving the medical and healthcare sectors as well. And then overarching all of that, we've got a growing focus on recycling, reduction of single-use plastics. There is a strong trend that Mpac is very well placed to support. And the growth in demand for batteries, that's a strong driver of the clean energy sector that Tony mentioned at the outset, is now a growing importance for us. And we've seen this year, 2022 just gone, how robust those markets are. We've been in the midst of an affordability crisis. We've seen the Russian invasion of Ukraine and the disruption that that's caused the markets around the world. Now for us, in our markets, there has been a change. The change has been towards more affordable food and beverage, for example but no overall reduction in the demand for new projects going forward. So that's very encouraging. Now all of that aside, in that the compound growth rate is exciting, there's the market share opportunity that I think is probably most important to take away from this chart. Although we're a decent-sized business already at GBP 100 million turnover, you can see in front of you the market opportunity that still lies ahead of us. And we choose to operate in these markets because of the potential for long-term growth. Next chart, please. We've got a lot going on, on this chart. So I'm just going to use it to pick out a few highlights from the strategy and in particular, I'm going to focus on people, on customers, on service and on delivery. So at the very top of your chart, the first row talks about going for growth. And new customer relationship growth -- new customer relationships are for us very important. That was a strong theme of the work that Tony and Will and the team led through 2022. One of the case studies that we're going to discuss in a couple of minutes will talk to exactly that. And it's increasingly important as we go into 2023 and the years ahead. If I jump to the very bottom of your chart, the fifth row on your screen, it talks about people. And the second of our case studies is going to be all about our people. We're a project, services and engineering business. That's what we do. It's engineering projects and services. And that fundamentally depends on the people in our business. So our focus in that area has been important in 2022. It's increasingly important in the years ahead. Then service-as-a-business, Tony talked about the growing trend in our revenue percentages. We're focused on driving our business to 30% of our revenue coming from services in the years ahead. We're not quite there yet but we've made some past -- so you can see progress over the last 6 years under Tony's leadership and we're going to continue to do that. In '22, just last year, we launched the Americas healthcare service team and that was in response to a demand from customers in the U.S., in the healthcare sector for increased service support. We've put that team in place. It's been really, really well received by our customers. And of course, it's led to growing revenues in that part of our business. But more importantly, for us, it's led to an opportunity for a further healthcare sales in the years ahead. So that works really well. We're going to continue to do that as we go into 2023 and future years. I think lastly, it's impossible to talk about strategy without touching on operational efficiency and delivery. So in the middle of your chart, you can see that there -- and obviously, we had an interruption in our supply chains last year. It led to a surprise for us during the year. And the response that Tony led with the business drove a really strong recovery in the second half of last year. . The things that we've done to address those issues in the semiconductor supply chain and the chip shortages that affected so many industries worldwide, those issues haven't gone away and so it's the way that we build responses to those issues to deal with the issues ahead, that's important. That involves us redesign our products around alternative parts that could be available elsewhere. Our supply is doing the same to redesign their products away from, particularly semiconductor shortages to take advantage of improving levels elsewhere. And of course, we've also put in place a significant stocking policy. So we're now increasingly buying ahead of projects in order to make sure we've got the components we need before we take those orders. So those activities and many more have really improved the way that the business is positioned to deal with those challenges in the years ahead. Next chart, please. And then I'm going to talk you through 3 case studies. This is the first, the Tattooed Chef. The Tattooed Chef are a leading plant-based food company. They offer ready-to-cook meals and organic smoothie bowls. And the team at Tattooed Chef, when they set out to put this facility -- their facilities together, were looking for a really automated approach to food production, in the way that they prepare their food but also in the way that they package and end of line their products. And then were trying to do that within a really tight footprint, within their factories and all of that at really quite high speeds of production. So the team at Mpac worked with Tattooed Chef during that consultation phase, developing a turnkey solution, the first time Tattooed Chef had done some of these things, they have -- the ability for Mpac to design, build, install and then support through the whole of the life cycle of the product is very attractive to our customer. And I think for me, it shows the innovation and the collaboration that the Mpac teams bring to work every day. Those are 2 of our core values within the Mpac business. Part of the reason that Tattooed Chef selected us for this program was whole line, whole life, whole planet. And you see on the bottom of your chart a whole line put together by the Mpac team. That whole line, so obviously we talked about installation, commissioning and support. And then Whole Planet is absolutely core to the message that Tattooed Chef are all about. So we're really pleased to work with Tattooed Chef on those programs. Next chart, please. You've got a fantastic picture there of Tony with a broad smile on this face shaking hands with Tom. I was in the room that day. This was the graduation of the Mpac Academy Graduates 2022. That's a program that Tony launched last year. And we brought into our first year of the Mpac Academy, aspiring leaders from across the Mpac world. And they went through a program of workshops, training modules, group project work. I joined the business at the very end of the program and was privileged to be with them for that graduation on the day that, that photograph was taken. This week, we've launched the Mpac Academy 2023 with a new cohort of Mpac Academy members. Class of '23 are now supported by the class of 2022. The graduates from last year are now coaches and mentors for this year's intake. And this program is absolutely central to how we build out the talent base across the Mpac team. Next chart, please. Okay, this is my final case study for you today. And this is an example from a healthcare application. It's an innovative medical device that's been launched by one of our customers just in the last few weeks to improve diabetes management around the world. So you might have seen those kind of diabetes patches that are linked directly to your mobile phone, giving you live data. These kinds of applications, they require really, really careful data control, to verify that the right device with the right instructions is put into the right carton and all labeled properly and done at very, very high speeds. So that -- the machine vision systems, the robotic handling that we've designed for this particular customer had to be highly integrated with the company's information management system. And all of that requires very close collaboration. I think it's absolutely fantastic to be on a program like this. It's a product that will make a huge difference to many, many people across the world. And it's that global footprint that's important. This particular customer operates some manufacturing facilities in the U.S. and in Asia and was looking for a supplier like Mpac and selected Mpac because we could offer that global support, to offer the same level of service, the same installation, the same standard of machine in the U.S. and in Asia. Next chart, please. So I've talked several times today about sustainability. And so perhaps it's appropriate that my final topic today wraps up with sustainability, too. I think it's impossible to work in any industry today without talking about reduction in packaging materials, elimination of single-use plastics, improvement in efficiency and in particular, energy efficiency and the drive to net zero. And at Mpac, we're really proud to collaborate with our customers on those topics. They are challenging topics for our customers to address and solving challenging problems is one of the things that Mpac does best. Will?

Okay. Thank you, Adam. Hannah, could you go to the next one, please, as well. So I'll run through the financial review, the highlights for the year. Those already have been expressed. Clearly, the challenge in first half for the year with supply chain disruption, especially impacting project efficiencies and project margins. And then pleasingly, however, the mitigation measures that were implemented around the turn of the half year, as expected, they improved trading performance in the second half of the year. And to go through the main KPIs on the screen in front of you, so I'll start with order intake. So order intake was GBP 83.8 million, its 29% down on the prior year of GBP 117.9 million. For those who followed Mpac some time, you might recall that we -- we shared with you beginning of the last year that we saw above -- over the board orders coming in from customers at the end of 2021. This was on the back of customers trying to secure delivery dates as supply chains extended. So the comparison is somewhat inflated there due to the basis of orders being brought forward by customers. Now to give you a little bit of color on the split between service and original equipment. So services, really strong order intake, up 21% to GBP 26 million -- GBP 26.6 million. So a strong year for our service business. OE order intake because of that acceleration of orders to the prior year was down 40% to GBP 57.3 million. And regionally, it was the Americas that we saw customers making that step to accelerate order intake. So it was the Americas that we see lower order intake in the year. EMEA was broadly unchanged from the prior year. Moving on to revenue, GBP 97.7 million, up from nearly 4%. And perhaps easier to look at the bar charts at the bottom of the page there to get some more color or flavor. So OE revenue, broadly unchanged, GBP 74.6 million. But in service revenue, you can see there a significant step-up again to GBP 23.1 million in the year. And it also demonstrates quite nicely that the trend over the 5 years there, where we've put all the focus on developing the service business, and you can see the development on revenue over that time horizon. And there's a little bit more detail on revenue on the next slide, but I'll skip past that now. But the combination of order intake and revenue plus obviously the open order book, it leave us with a closing order book of GBP 67.2 million, which gives us good coverage over forecast revenue for 2023. And then talk about -- moving on to gross profit and profitability. The gross profit for the full year was 25%, down from 30.6%. But again, it's probably reflect -- were reflecting on the bar chart below, which shows the half year trend of gross profit margins. And it's clearly first half, as we've spoken about, significantly impacted by project execution margin. Those mitigation measures, which we spoke about, June 2022, they included identifying and sourcing alternative sources of supply of electronic components, really close vendor management and supply chain management and utilization of the data within our ERP system to plan meticulously on component requirements. They helped to shore up gross margin in the second half of the year. And there was a significant receipt of control systems around the end of quarter 3, beginning of quarter 4, which allowed us to start to clear the backlog of projects in that time horizon. And that's pushed through to a much better trading performance in the second half of the year. So margins in the second half, 29%, they broadly take us back to where we've been in prior years. And that trend has continued into the first half and -- sorry, the first quarter of 2023. That lower margin dropped through to underlying operating profit of GBP 3.9 million. And after underlying interest on borrowings, underlying PBT was GBP 3.5 million in the year, which calculates through to an underlying EPS of 13.3p. Then move on the slide, please, Hannah. So there's a little bit more detail here on the income statement. I'll call out a couple of points that haven't already been spoken about. You can see the split of revenue development and percentage growth there. So service up above 14%, strong development and it's generating the returns from the investment in that -- and developing the service part of the business is one of our main strategic growth initiatives. In terms of gross profit, we've already talked about some of the drivers there to the lower gross profit. Then going down to that in marketing and distribution costs. Distribution and shipping costs have been higher. We've experienced about GBP 0.5 million of extra shipping and distribution costs in 2022. In addition, there was a flagship packaging machinery trade show in the Americas in 2022. They don't happen every year. Its every 2 or 3 years. There wasn't such an exhibition in 2021. And that -- those 2 factors explain some of the transition from the GBP 6.8 million to the GBP 8.1 million from '21 to '22. Administration costs are lower. We kicked off a variety and a series of cost out measures in the second half of last year to help shield the operating profit from the disruption in supply chain and some of that savings is coming through in lower administrative costs in the year. The only other item I'll pull out here is non-underlying items, which you can see is GBP 3.3 million compared to GBP 0.4 million in the prior year. So that's a significant transition. So in the prior year, we had GBP 2.4 million of release of credit in spite of deferred consideration on the 2019 acquisition of Lambert, taking that out that's broadly unchanged. And within non-underlying items, it's the amortization of acquired intangibles and pension admin charges making up the bulk of the cost in that position. If we move forward on the slides, we can -- so going through the balance sheet. Again, I'll pull out the larger items. The U.K. pension assets, surplus of GBP 31.5 million on an accounting basis. Probably more important is the technical provision basis. So the actuarial deficit, we have concluded on the June 21 valuation. We got signed off on that with the trustees in December 2022. That took the actuarial deficit down from GBP 35 million to GBP 28 million, reconfirmed broadly an unchanged recovery period. It takes us out to December 2025. But it also -- it captured in that several other benefits for the company within the schedule of contributions. What it really confirms is that we -- the scheme remains on the same glide path to get to a fully funded position. And once funding levels improve, obviously, it gives us the opportunity to talk meaningfully with trustees about a furthermore full derisking, decoupling in the pension scheme, which remains the company's longer-term strategy. I suspect it will take that full recovery period before we can realistically reach anything like that type of goal but the good news from this triennial valuation was that we remain on track. Then moving further down the balance sheet, inventories, sorry, Hannah. Yes. Thank you. Looking at the inventory. So yes, they are higher. That was a conscious decision that we made during 2022, both to bulk buy the critical control systems that we needed to clear projects that, really order book, but also to give us coverage against forecast orders for 2023, so that we are doing what we can to mitigate against a similar impact from supply chain disruption as we had in prior years. So that increase in inventories, it's a conscious decision. It's higher than it's been historically. We feel that we've got -- we've taken every reasonable step to mitigate the impact of further supply chain disruption. And the excess stock that we have to cover 2023 requirements, it takes us through -- certainly across the majority of the year. And we look at it constantly to see how lead times are. And as lead times reduce, we can start to take them back. But for the moment, that's a lot of inventory, which we're broadly happy that we need to carry. Then the other significant increase in the year was in respect to trade and other receivables. So this is broadly split -- the increase is broadly split between trade debtors and contract assets. So this is a factor of having more individual projects like, during the second half of the year, pending receipt of these critical control systems, which arrived late quarter 3, early quarter 4. As they arrive, we can kick on those projects and get them completed. They still do take some time to complete them. Over the course of quarter 4, a reasonable chunk of those were completed with factory acceptance testing, getting through bidding milestones, which converted the contract asset to trade debtors, not early enough for a significant amount of a trade debtor balance to be converted to cash. And then in addition, there was still [indiscernible] wave of projects pending, reaching that bidding milestone. So on the positive side, we see the project status moving forward with the receipt of those control systems to a state -- a further stage of completion and getting closer to key bidding milestones or tripping into trade debtors. In reality, funding that increase was required from a drawdown against our RCF. As you can see, we drew down GBP 8 million in the second half of last year. Since the turn of the year, as you would expect, those trade debtors have converted to cash flows. Contract assets have started to convert to trade debtors and partially to cash. So we now, as of today, in the position where we're back to a net cash position as that buildup of contract assets and trade debt is unwind, so we expect that unwind to continue over 2023. We're guiding through to something in the region of GBP 6 million to GBP 8 million of net cash by the end of the year. And so far in quarter 1, it's on track to reach that threshold. And if you go back for 10 years prior to 2022, Mpac has operated with a broadly balanced level of working capital. Fundamentally, the project of FREYR aside, nothing has really changed within our structure of how we contract with our customers. So again, clean energy projects aside, which we think we need to look at in a slightly different light, there's no reason why we shouldn't be able to trade and unwind this level of working capital and get back to a more balanced position by the end of the year. Yes. Probably next slide, please, Hannah. So here, the cash bridge, it pretty much gives a visual overlay of what I have just spoken about there. We started the year with GBP 14.5 million of cash. There was an EBITDA number impacted by first half margins and profitability. Working on a larger portfolio of projects, which were incomplete by the end of the year, all within trade debtors has increased working capital that was funded with a drawdown of the GBP 8 million. We have some commitments to our pension schemes, GBP 2.1 million cash commitments in the year and CapEx was GBP 2.4 million. That left us with GBP 4.2 million as a closing gross cash, as I say, on a net basis, as of today, we're now back to a positive net cash position. So in all, I think, if you summarize it, so we feel there's a strong rebound in the second half of the year. Margins in the second half improved. We've seen that those margins have been relatively consistent into the first quarter of this year as well, it gives us confidence for 2023 overall. We've got a good level of coverage over our revenue from the opening order book and order intake in the first quarter has been in line with expectations. The peak in working capital was at the end of the year, that was perhaps somewhat unfortunate but there's been a strong rebound in the first quarter, which we expect to continue. So we started the year on track and we're confident in our forecast to the market for the rest of the year. So I'd like to now pass back to Tony.

Thank you, Will. I'll be very brief because I know there will be a few further elaboration questions coming in. So just to remind ourselves that Mpac's end markets are large, they're growing and they're resilient. We've seen now over the last few years, the One Mpac impact strategy is really delivering benefits. You can see that with the service revenue, not least the innovation, the new product pipeline that we continually sort of fill and deliver new products to the marketplace, the people strategy. And the order book, the prospects are robust, as Will has just explained and we've got a good start to the year. So we're confident with the forecast and we can be because of the actions that we put in place last year on the supply chain side of things. And it's not just supply chain, it's engineering, it's making sure that we have alternatives and making sure that we -- on the planning side of the business, we're on the front foot, which we've done and we've put in place. The CQP line, the focus this year is on the battery qualification. We don't really have a slide about CQP and FREYR but if there are questions and Adam can fully answer those. But that qualification of the battery is the stage gates will open up further market opportunities once people can see the machine actually working. So lastly from me is, to thank you all for your continued support and to reiterate that I really do believe Mpac is in great hands with Adam joining the business, getting his feet under the table now and really starting to form his views on where the business can go in the future. So back to you, Hannah, for some Q&A.

Thank you very much. And I have one here from Chris regarding the battery plants. Tony, is the battery plant is using the 24M technology, is Mpac better placed than competitors to win contracts?

So Adam, do you want to take that one?

Yes and absolutely. And -- I think Tony talked about the work we've done to get to a point where the CQP line has now been delivered to Norway. Next week, FREYR  will open that facility on the 28th of March. And there then starts a several month long activity to commission that facility up to the point, where in July, where we're intending to demonstrate -- it's a battery production -- in-spec batteries being produced at that CQP line in the middle of this year. All of that done with Mpac equipment, fundamentally manufacturing the cell to 24M's IP. That is a fantastic achievement for us to go for this year. And we are 100% focused on doing that, supporting FREYR, supporting 24M and the other partners, of course, who put in place the other machines across the FREYR plant to get to that point. Getting to that milestone will absolutely position Mpac for the future for clean energy and for batteries. So I think the answer is yes. It puts us in a very good place. But our focus right now has got to be that immediate activity of closing out the actions to commission and get to a [ in-spec ] battery in the middle of this year.

A couple of questions for you, Tony. Why are you departing at this juncture? It's such a pity to see you going after the fantastic progress.

I'm sorry, kind of you to say. These things have a natural process, down here we still here have a Board. We obviously look at succession planning very carefully and we started the process a couple of years ago talking about who would be the next CEO. We went out then to a reputable headhunter and started to have those conversations. And that time line was a couple of years ahead and it's amazing how time changes so quickly. For me personally, it's all about, you make yourself some promises in your life that you want to do other things, you want to explore other opportunities. So I don't see it as retirement as such but I do see it as a move away from the sort of whole on CEO or executive role into more support and advisory roles. So it's just the natural period, I feel, in my life where I need to move into that position. We have gone through a very rigorous process. And as I've said a couple of times, I really do believe that Adam is the right person to lead the business in that next phase.

Thank you. Well, Adam there's one here for you. Will Adam as CEO-designate continue the stated policy of actively pursuing acquisition targets or will focus be on normalizing the balance sheet first?

And -- so [indiscernible] overall question because the answer is probably both. Listen, I've had 5 months now in the business to reflect and really think deeply about the strategy that Tony put together 6 years ago. We talked a bit about that as we went through the presentation, service-as-a-business, going for growth and so on. My take on the strategy that Tony put together is it's about right. It's doing the right kinds of things. And I think if Tony was staying on as chief exec, I'm sure he'd say the same things that I'm about to say. My challenge is to, is to do it better and faster in the years ahead. And that strategy is always a mixture of organic growth and acquisition. And I certainly see acquisition as part of our strategy for the years ahead. However, I think, however asked the question, you're absolutely spot on, the buildup of working capital and the consumption of cash last year, as I mentioned, that was our priority in the second half of last year. Will, talked about the fact we've got to net cash so far in the first quarter of this year, which is tremendous progress, but we've got work still ahead of us to unwind the rest of our working capital or make significant progress in that through the rest of this year. And so I think the answer is, yes, acquisition will continue to be a part of our strategy going forward. And yes, our immediate priority is on normalizing the balance sheet first.

Well, you've obviously read the other questions up there, Adam, and I think will you'd rather cover this off in the presentation, but perhaps worth reiterating and the plan for unworking -- unwinding that working capital position over the rest of the year?

Call it the winding capital -- unworking the winding capital, Will.

Easy for you to say. So as you would expect, this has been a absolute focus of the management, of the business to ensure we optimize, the unwind of working capital. We're going to close quarter 1 in, I think, a much improved position to a net cash balance coming into the range of GBP 1 million to GBP 2 million net cash. Today is not -- nothing like the position we've been in the past but it's a lot of progress made in just 3 months. There is -- fully expect that, that will -- that progress will continue during quarter 2 and we will close the half year still with a net cash position. And we feel comfortable with the guidance we put out in the closing balance sheet for 2023 of [indiscernible] million of cash for the full year. So I think there's a clear trajectory, you can see it based on that feedback of where we are on that journey and how that will progress through the half year to the full year.

Thank you. Let me toss over to the subject of supply chain issues now and perhaps reiterate some of the points you were making in terms of what you've seen, from them easing and what measures you've put in place to resolve these issues?

I'll start the answer, and then I will pass you across to Adam because he's really been focused on this in the last couple of months. Just to reiterate to people, the issue is silicon chips. When COVID kicked off, the silicon chip factories and there's not that many of them, South Korea and Taiwan basically stopped production. And at the same time, there's a meteoric rise in people working from home and needing computing equipment of all sorts and chips are embedded in many things. Sorry to sound a little bit preachy here. But it's a world dynamic that went off and the industrial electronics that we use have got embedded chips in them. So they were the least priority to the chip manufacturers when they started up, because consumer electronics, automotive and markets like that have a much bigger demand. So even for people like Siemens and Rockwell, they are the poor relatives and in fact, found it difficult to get chip allocations. So that's what caused the problem. So now where is it going forward? Well, the chip -- demand of chip -- production has increased but it can't increase dramatically because these factories cost literally tens of billions and takes 2 or 3 years to build. So what they've been doing is reengineering their products to go for more readily available chips embedded in. So we're having to live with that. So the unreliable delivery schedules have stopped but the lead times continue. But we've worked hard on reengineering our products, using alternative supplies, making sure we use our planning data to ensure we have good coverage. We placed some good stock orders for this year and into next year. So that whole supply issue, hopefully, that gives people a little bit of color. And it's an industry-wide thing. It's not just Mpac. It's -- key industrial electronics has been a challenge. Is there anything you want to add to that, Adam?

I think probably just to say that I think the progress that I saw had been completed, by the time I joined the business was remarkable. When I joined in November, many of the things that Tony has described just now had already been completed. And actually, when I think about the issues that our project managers deal with day to day that I've personally seen through November, December, Jan, Feb, March, it hasn't been about significant chip shortages. There's issues in every project. There's opportunities in every project. Our project managers work hard to address those challenges every day. And it has not been dominated by chip shortages over -- in my recent experience. Despite the fact that the macroeconomics haven't changed, that supply issue has not gone away in the outside world. So I do think the mitigations that the team had put in place are robust. That's not to say that we won't be hit by something from left field that we don't know anything about today. And so our confidence in delivery is all about confidence in our team's ability to respond to those unexpected challenges and deal with them when they arrive. So that's how I see it.

Thank you. I think we can accept that there is some frustration from some shareholders on here in the direction of the share price and over recent periods. But perhaps one way to help return some momentum to it might be dividends. So do you have any plans to return to a dividend payment?

Well, the base answer is, not in the immediate or in the short term. We review all the time as a Board. Every half year, we're reviewing that and we have a very intense conversation about it but we still maintain that we are a growth stock. We have a strategic one. It's been tested severely over the last couple of years with COVID and the aftermath of that with the supply chain disruption. But our full focus is to get on with our strategic journey to grow the business and grow scale. And with scale brings a lot of other benefits in terms of covering the fixed costs. So I hope our shareholders understand that. We're about growing the business. We're about getting scale and the kind of cash needs to stay in the business at this moment in time to keep driving them.

Does the pension scheme contain any gearing in conjunction with the LDI exposure? And was the pension scheme a sell-out of assets?

Will?

Yes. Okay, I'll take that one. So yes, it does. We have 100% -- above 98% of the interest and inflation risk. But whilst on the allocation, I think it's about 1/3 of the assets in the scheme to LDIs. And clearly, there was volatility in the market in the second half of last year combined with increased lateral requirements, cost of hedging increased and that had an impact on the surplus that's reported on an accounting basis for the full year compared to the half year. But because of that hedging, the funding level on a technical provision basis remained consistent throughout and that was in a very healthy position.

I think a couple of salient questions here around the order book and the outlook for the business. So consensus forecast put it at GBP 106 million, which someone comments is high. Are you comfortable with it? And perhaps a little bit more broadly, can you break down the order -- the makeup of the order book a little bit more, what's been brought forward, elements such as food and beverage market?

Yes. Can I pass the first half of that question to Will to talk about the order book? And then maybe he can pass to Adam to talk about what he sees because Adam just spent the last 2 months going around customers. So I think they can, the 2 of them will handle that one by one. So Will, do you want to talk about the order book structure first?

Well, yes, the order book structure, the split of the GBP 67 million, I'll break it down to the market sectors. There isn't a huge amount of order book left associated with the Clean Energy CQP line for FREYR and circa GBP 4 million of the order book related to that particular project. And then the remaining balance on the book is broadly split 50-50 of the balance between food and beverage and healthcare. So it's quite an even split. And with that, I think the second part of the question over to you, Adam, I think do you want to?

Yes. It's -- it's a great question to ask and it's one of the questions that was very clearly in my mind, joining the company and thinking about the business I was taking on this year. For me, it comes down to a handful of numbers and some anecdotes. So I'm going to try and get through that and answer the question for you. On January 1 this year, we started 2023 with 65%-ish order coverage. And when I look at the company in previous years, a typical January 1 position of 50% would be a decent place to start the year. So we're going into 2023 with a good order book as a starting point. I think the other piece is that last year, services, which is a short-cycle business, made up 25% of our business. So if you've got those 2 numbers in the back of your mind, 65% order book at the start of the year, 25% last year of our business came from services. And we're trying to drive that faster in the future to take it up north of 25% with a target of 30% in the years ahead. We won't get all the way there in 2023. But you haven't got a lot left to close out the order intake for 2023's revenue to be secured. So I think it's the first part of it. And the second part of it is around order intake this year. And the way our business works, we have some fairly long cycle customers who look an awfully long way ahead in their planning for their capital programs. And our CRM system gives us some pretty good visibility of that discounted forecast of order intake. And the fact is order forecast for 2023 actually extends all the way out, it goes 15 months into the future. So well into 2024 now. And it absolutely supports the forecast that we've put together and issued for 2023. So I think the short answer to the question, Hannah, is yes.

Confidence abounds, fantastic. I think that has covered most of the questions that we have -- or, in general, how close would you say is the group to having completed the One Mpac process of integration?

Again, I'll start and then I can pass you across to Adam because he's got a good perspective. Adam just came to the company. The integration, I would say, technically, we've been integrating for some time. We work on our common ERP systems, common engineering systems. We've got common CRM. We work as a global service operation. The business is working as One Mpac and that delivers benefits. There is always work to do and the work in the next 12 months is to bring our Cleveland facility onto those common platforms as well. But then you're going through a lot of other conversations about the hearts and minds and the culture of the business, are they really working as one? And I think that's the point to turn over to Adam and say maybe share your early reflections on what your key points will be going forward.

Yes. Well, I think you said it really well, Tony. There's a bit more to do in Cleveland around our [indiscernible] systems. And that's absolutely the focus of our teams in the sort of infrastructure part of our business this year to get the Cleveland business [indiscernible]. The reason it's so important is the kind of operational flexibility that it brings. So we want to operate in a system where any of our engineers, anywhere in the world can support any of our projects. That gives us enormous flexibility. And we're pretty close to that now. If you look at our engineering teams, for example, and do that as a percentage split, the Cleveland team aside, the majority of our engineers are already in a place where that is possible. So I think we've made some tremendous progress. I would caveat, though, that with the cultural piece that Tony touched on. So as I joined the business in November, I had the opportunity to spend much of that month visiting each of our manufacturing site in turn. And of course, that contrast, as you go from one to the other, gives you an instant sense of how aligned the cultures are. And 2 of our sites have been acquired since 2019, one of them in the middle of our -- of the 2020 kind of COVID crisis as well. So I think it's probably fair to say there's more to go on cultural integration for the company for the years ahead. But in terms of the kind of fundamental systems that allow us to then work collaboratively, much of that is already in place. And also the governance is absolutely rock solid. The same governance processes are in place right all the way across the company. So I think Tony and the team have done a very good job on that.

We have a question here asking the Board if we see a return to profit, why are we just direct that, invest it towards our research, where we've included all our forecasts, reports and you can see to and full -- to full year '24 is detailed in there. A bit of a left field one, have you been in touch with Interpac for the cracked -- cold corrugated technology?

And when I first saw -- when I saw Interpac, is the big exhibition that we've got going on in May in Germany but I guess Interpac as a company, I personally haven't heard of them. But I'll pass that across to Adam or Will, will you go to that company?

I'm writing it down as an action now. Thank you very much for the suggestion. We will.

Excellent, excellent. Well, I think that really and it leaves one more question, which is perhaps a nice way for you to sign off from around, Adam. But what are your focal points as you've joined the business strategically and operationally and your view for the future?

It's a nice summary question. Brilliant. Well, I think I'm going to reiterate something I said earlier, which is I think Tony and the team have put together a really good strategy. I think the strategy is about right. So we're not about to do a radical change of direction and go off down a completely different path. There's always a risk when a new chief exec comes in and I know many investors are concerned about that. That is not what I see ahead for the company. I do see a need to make sure that the focus and the emphasis within that strategy is on the right areas. And for me, the 3 things that are most important right now, #1, is our customers. We're working really hard with them, the sales teams to make sure that we look after our existing customers and continue to broaden out the range of customers that we support, so that -- the reasons for that are obvious. So #1 is customers. The #2 piece I want to talk about is operational delivery. So part of the profitability challenge we saw last year was all around supply chain and the way that our operations managed delivery of the projects. For me, that has to be in my top 3 priorities and for my leadership team and for the whole company. And then the third piece is people. I think it's absolutely essential. The anecdotes of labor shortages and across our customer base, actually, for us are very positive. Labor shortages cause a need for automation. They cause customers to want to automate. But that also places pressure on any high-technology company right now. And attracting the right people, putting the right people in the right jobs, that absolutely is the way for us to succeed. So for me, that's my third priority, it's customers, it's the operational delivery piece and it's people.

Well, thank you, Tony, for all your hard work over the years. Adam, we look forward to hearing from you in the months and years ahead. And thank you for everyone joining us today. Goodbye.

Thank you.

Thank you.