Mpac Group plc (MPAC) Earnings Call Transcript & Summary

[Audio Gap] '24 results earlier this week. If you haven't seen it already, you can find a research note up on our website, which gives an outline of the year past and forecast for the future. But for today, we're going to have a walk through the presentation courtesy of Adam Holland, CEO; and Will Wilkins, CFO. So I will hand over to them now.

Thank you, Hannah. So next chart, please, I think we've got the agenda. Over the next 30 or 40 minutes, I'm going to talk a little bit about Mpac, Will is going to take us through the 2024 numbers and then I'll talk a little bit about our ambition for the future, the outlook for 2025 and the progress that we're making on our strategy. But perhaps just to set the scene, let me describe 2024 to you. It really was a transformational year for Mpac. Firstly, we broke through GBP 10 million underlying profit before tax for the first time, actually GBP 10.6 million last year, 49% up on the prior year and that's actually triple where we were the year before that. Operating margins improved 3 percentage points to 9.8%, just shy of the 10% target we set for our kind of longer-term plan. We almost got there in 2024. We restructured the leadership team around the 5 pillars of our strategy. The strategy has been stable for a long time and now our leadership team reflects that strategy right from the very top. And we made 3 acquisitions during the year that significantly advanced our growth objective. We actually brought forward our 5-year plan, which was to double the revenue of the business over 5 years. We brought forward that by 2 years and we're on track to complete that in 3 and that was made possible by a significant oversubscribed equity raise and new banking facilities. And then finally, last year after many, many years, we have seen the defined benefit U.K. pension scheme go into a surplus. So 5 significant events of 2024. Next chart, please, Chart 5. So that transformation of the group means that the shape of the group today is significantly different from this time last year. I'm going to start by thinking about the market. In the top right hand corner of this chart, you can see our focus on the food and beverage, health care sectors within FMCG. Actually our share of market, our focus on market hasn't changed, broadly the same. But if you were to look at the same data by region, you would see a significant difference today on a pro forma basis from this time last year. In previous years, 45%, 50% of our group has been focused on sales into the U.S. market. With the acquisitions that we've made last year, particularly CSi who have strong sales in Europe and South America, actually our exposure to the U.S. market is significantly reduced now, down to about probably 25%, 30% of group revenue going forwards. Installed base of machines in service, you can see on the bottom right hand part of this chart. Previous years you've seen that number hovering around 4,000 machines in service. Now with the acquisition, the installed base is up to 6,500 machines. So a substantial increase in our opportunity to go and support machines in the service part of our business. And our footprint has changed as well. A year ago we were a group of around 600 people. Today 1,100 people, of whom about half are engineers and designers. And we operate from 8 facilities around the world, including 3 in North America and with some substantial footprints in the U.K. and Europe too. Six businesses today with a much larger capability to offer to our customers including robotic handling and conveying, automation of the way that products are assembled, secondary packaging and end-of-line palletizing. So what does that mean in practice? Well, for example if you're looking at assembling lasagna on a meal line, we produce the machines that actually fundamentally assemble that raw lasagna product. Our machines right now today are assembling disposable razor blade cartridges. If you were using a disposable razor this morning to shave, more than likely the razor blade cartridge that you used was made on an Mpac machine. Our machines handle wet contact lenses being picked straight off the autoclave and put into their packaging. Our machines load ice cream bars into cartons at incredible speeds, put tissues into boxes. Further down the production line in a factory, our machines convey and stack large cardboard corrugated cases, for example snack food onto pallets for distribution. And right away across our factory production line, our vision systems are actively managing the quality and production output of lines for our customers. So that's the kind of stuff that we do today and the group is completely different really, very different from this time last year as a result of those acquisitions. Next chart, please. One thing that hasn't changed is the way in which we win and retain customers. So we start in consultation with customers looking at the design of their packaging, the design of their products and the way that that then feeds into the design of the assembly process on the production line. It's a very small part of our business today, contributes a negligible amount really to our revenue and profit. But of course it's key in the way that we win and retain customers. The bulk of our business is around the design, build and installation of equipment into our customers' factories and then of course monitoring and optimizing, providing service support throughout the life of those equipments. Next chart, please. Another piece that hasn't changed is the opportunity for growth. We operate in attractive markets, attractive in 4 ways. Firstly, they are very large. Every year around $50 billion worth of equipment is bought by customers [ Langens ] somewhere in the world and our market share of our addressable market is hovering around 3% at the end of last year. So we've got a significant opportunity to grow our business by growing our share of that market. And we compete with a very wide range of competitors. Some companies that are much smaller than Mpac operating perhaps with just a specialist type of machinery in a single part of a production line or in a particular region within the world right up to some organizations much, much larger than Mpac, several billion in revenue who might offer multiple pieces of equipment across a flow line in multiple regions and perhaps multiple sectors as well. And those larger businesses have grown to the scale that they are by buying some of the smaller businesses along the way and of course that's what we've been doing over the last few years as well. So that competition fragmentation gives us opportunities as well. The fourth way in which our markets are attractive is that despite those large companies that we compete with, we can still compete and win business against them with our customers every day because our customers make decisions not just on the basis of the price of a product, but actually the technology and the performance of the product that's being offered. Reliability and efficiency is absolutely key to our customers. And to the extent that our teams are able to find elegant ways to design new production lines in the future, we're able to compete and win. And of course that means that the people in our business are key. I know every chief exec says that, but in our case it is really true. The ability of our people to work with our customers and find solutions to those technical problems is absolutely what sets us apart and our ability to retain those key people present a barrier to entry against our competitors and new entrants into the market. And of course I guess the bottom line, the world is becoming more automated. The increase in the cost of labor, competition for people is driving a need for more and more automation in the world. We're seeing that particularly right now as we look at some of the factors that are affecting macroeconomics around the world and we'll talk a bit more about that during the course of this conversation. Next chart, please. As an investment proposition, there are 4 things I'd really like to highlight. The first is in the top left hand corner of this chart, we talked about already the growth opportunity that the scale of our market presents. Quality of earnings I think is really important to talk about there as well. We started this year with a substantial order book. That gives us good order coverage over the revenues for this year. And if you combine that with a short cycle business that we see through our service organization, which we will see coming on during the course of this year, it gives us a really good visibility over the revenues for 2025 and that's true of every year in the past as well. So high quality of earnings. We've already talked about the high barriers to entry that our people bring to our organization. You can see the technical hours in 2024 up significantly from 2023. Some of that through the acquisition and the onboarding of new staff during the year as well. And lastly, we think of ourselves as a capital-light business. So we're very pleased with the operating profit performance of the group up to 9.8% in 2024. But really when you look at what our return on capital employed is capable of, 19.7% in 2025. That's where we're projecting 2025. Of course it will be a bit lower at the end of 2024 with the capital raise for those acquisitions at the very tail end of the year. But nevertheless, 20% ROCE is a good number in anyone's book. Next chart, please. Over the last few years, we've been really focused on broadening out our key account businesses, customers. And lastly, I'm really proud of the way the team have performed. We won original equipment orders with 73 different customers. By value, 37% of our original equipment orders were won with new customers to Mpac that we haven't worked with before. And of those, 6 of our new account customers have the scale and breadth in their businesses to place orders with us not just once, but we hope many, many years to come and perhaps in a single year more than just 1 factory order as well. Last year, just those 6 new strategic accounts contributed GBP 8 million of orders to the group performance. So it really does make a significant difference. We've been working on that not because we had a customer concentration issue. In fact we don't, no 1 customer makes up more than 10% of our group. But because it's a really good way of growing top line revenue and driving the profitability of the performance in a repeatable way for the future. An example of that I think is probably best given from the very bottom example on this chart, Johnson & Johnson. We've been working with Johnson & Johnson for many, many years now and they've been a customer of our Langen business providing cartoning machines to Johnson & Johnson for decades. For the first time last year, we took an order with Johnson & Johnson into our Lambert business and that cross-sell between 2 existing businesses within the group really tells you something about why we think this is important and of course plays into the acquisitions that we made in the course of last year too. Next chart, please. So I'd like to talk a little bit about the acquisitions. CSi Palletising is a significant acquisition for Mpac for a few reasons really. Firstly, the technology fit between the secondary packaging machines and the end of line palletizing machines and conveying that CSi offers to their customers was a really good fit for the rest of the Mpac Group companies. Secondly, the scale. CSi today employs 450 people and that represents about 40% of the total head count of the Mpac Group today. So it's a significant acquisition for Mpac. It changes the scale of our business. It also changes the customer base that we can sell into. I think I've already mentioned to you CSi has significant sales in South America, across Europe and Central America. The customer base lines up really, really well with the other Mpac Group companies and gives us a fantastic opportunity to cross-sell between the businesses in the Mpac Group and support customers in a more meaningful way. The operating footprint that CSi brings to the group is also really exciting. Headquartered in the Netherlands with manufacturing and assembly facilities in Romania, sales and service offices in Mexico and sales support across a very wide range of countries across the world; really exciting opportunities for Mpac in the future. And lastly, I really want to highlight the CSi team's ability to deliver strategy and strategic change in their business, it's absolutely outstanding. Last year in 2024, the team at CSi were very focused on improving their customer concentration. If you go back to previous years, they've done a fantastic job at building their business to a point where their first customer, customer 1 was placing multiple orders with them many, many years on the chart and actually grown to 64% of their business. So only 36% of their project and order book that year came from noncustomer 1. During 2024, the team at CSi did a fantastic job winning business with a whole wide range of other customers and drove that noncustomer 1 concentration from 36% to 77% last year and they're on track already in 2025 to repeat that. So a fantastic performance from the team there. Next chart, please. Let's come on to talk about another fantastic business BCA, Boston Conveyor & Automation, obviously based in Boston, Massachusetts in the U.S. The capability of the BCA team to provide equipment that handles raw naked food products in pick and place machines, in conveying, sanitary conveying, washdown conveying for food and beverage customers is absolutely incredible. Obviously located inside the U.S. with machining and assembly capability, we're really excited about the ability of the BCA team to attract outstanding engineers and operators, new people joining the Mpac Group from the Boston area close to MIT. It's a fantastic place to be recruiting. And the people in BCA are absolutely outstanding too, very, very strong customer relationships. Last year just after the acquisition was completed in September, by December the team had factory acceptance tested; the largest project that the BCA business has ever delivered in its own facilities, demonstrating a new lasagna line and the performance of that line. And then just in the last few weeks this year, in April the team has site acceptance tested. That same machine now installed, commissioned and up and running producing revenue for its customer in a lasagna factory in the U.S. It's an incredible achievement by the team, really, really proud of what they've achieved. And for us looking ahead, it demonstrates the kind of multimillion dollar line capability that BCA can achieve in their markets. So wonderful achievement. Next chart, please. I'm going to hand over to Will now and take you through a broad sweep of how we performed in 2024 and then we'll look ahead to 2025. Will?

Thank you, Adam. As Adam has already said, a transformational year for Mpac and I'm going to run through what we think is a really strong set of financial results and KPIs for the year. So if I start with order intake, up a modest 1% to GBP 119.7 million. For some context here, the prior year order intake was up 43%. So a year of consolidating what was really strong prior growth and we were pleased with being able to consolidate on that strong prior year and show some further development. To break that down a little bit, to give a bit more context. EMEA performed really well in 2024, was up 28% to EUR 56 million. So very strong performance in EMEA last year. On to revenue, we're reporting 7.2% growth in revenue to GBP 122 million. Our original equipment business was the main driver to that strong revenue growth last year. I'll just probably take this opportunity to draw your eye down to the graph at the bottom there, which shows revenue development over the last 5 years where we're pleased to be able to show continued steady growth in revenue over that longer term. In respect of order intake, the order intake and the order book at the end of '24 now includes the order book from the acquired businesses CSi and BCA. So with those overlaid into the order book from the pre-acquisition businesses, we show GBP 118.5 million. That's 63% up on the prior year. The important point for us is that gives us 55% coverage over 2025 forecast revenue and that's really in the sweet spot of where we'd like to be, around 55% gives us a good level of coverage. When you overlay the short cycle recurring service revenue over the course of 2025, it gives us a good position where lead times are not too long, but we've got high degree of certainty over the revenue for the year. Moving on to profit margins. So gross profit margin, a strong year up 2.4 percentage points to 30.1% where again original equipment performance has been really driving that and especially in half 2. And again the bar chart at the bottom of the page there shows strong half 2 '24 gross margin up to 33% and again a trend of continuing improvements in gross margins over the recent years. How have we delivered that? What's been the driver to that? It's original equipment, but it comes down to the basics of good project execution. So delivering projects on time, on budget, at the cost that we expect to driving that profit margin. So we're really pleased that we are able to be able to report that strong development. So the increase in margin and the increase in revenue clearly drops through to good underlying operating profit in PBT. Again bar chart on the bottom right hand side, we're reporting underlying operating profit in the year GBP 12 million. That's the largest profit that we've reported on an underlying operating profit basis in the history of Mpac. It's 9.8% for the year. So we're making really good progress towards our stated strategic intent to hit 10% operating returns. After the cost of financing, the underlying PBT again really strong year GBP 10.6 million, up 49% from GBP 7.1 million in the previous year and that equates to an underlying EPS of 35.2p, up 35%. Touching on working capital and I'll come to the last part on this slide. So working capital is GBP 0.4 million, fairly balanced position in the year. Working capital down from GBP 13.2 million in the prior year. The main driver for that has been the additional deposits and milestone payments within our contract liabilities associated with that larger order book that's helped to reduce the working capital position. Net debt at the end of the year was GBP 37.5 million, that's from a net cash position in the previous year, really related to the acquisition of the 2 businesses in the year partially funded by debt. If we can move on, please. So on this chart, give an overview of the transition on underlying PBT in the year from the prior year GBP 7.1 million to GBP 10.6 million for the full year. So the first part of the driver to that increased profitability is the revenue increase, GBP 3.6 million attributed to revenue on a consistent margin basis and the margin increase on that additional revenue at a higher 2.4 percentage points equates to the GBP 2.9 million. The really pleasing part here is that we've been able to demonstrate again that we can grow revenue at the same time as growing margins. We're not chasing revenue at the expense of margins. We've been able to deliver both and that really contributes towards that strong performance in the year. In terms of revenue, you can see on the right hand side the source of revenue from our segmental reporting between original equipment and service. Original equipment continues to show steady progress. Service was down slightly on the prior year, but you'll note that the prior year 2023 was really a breakout year for service. So we're pleased to be able to say we've consolidated that really strong performance in the prior year down slightly, but the trend over that 5-year period is still very progressive. In terms of the cost changes in the year compared to the prior year. Administrative costs up slightly. Sales, marketing and distribution costs are up by GBP 1.7 million. An element of that distribution costs, which are variable so attributed to the higher revenue. And then there's additional sales and marketing costs partially attributed to the 2 acquired businesses and some controlled costs expansion from the existing businesses, pre-acquisition businesses. And then financing expenses related to the additional debt to acquire the 2 businesses. In terms of nonunderlying items, there's a table on the right hand side, which reconciles underlying PBT to statutory PBT. GBP 3.5 million of acquisition costs in 2024. There were no restructuring costs in 2024. So those costs are wholly attributed to the 2 acquisitions in the year. There's pension related items, amortization of acquired intangibles and then there are closeout costs relating to the Freyr contract, which we now completed in the year and have no balances left on either the balance sheet or the order book. We can move on, please, Hannah. So here we show the balance sheet for '24 versus '23 and obviously we're a completely different group now with the 2 acquisitions in the year; especially the acquisition of CSi, which is a material acquisition for us. So the comparable balance sheets are a little bit more difficult to explain. So I'll go through the individual positions there and explain the movements. If we start with noncurrent assets. So having acquired CSi and BCA; there's additional goodwill, acquired intangibles and an increase in the IAS 19 pension assets and that explains the increase over the prior year. Inventories are up, but actually inventory turns down. So that's a position we're happy with and is well under control. Trade and other receivables and trade and other payables, they are the other 2 larger movements. So just explain what's included within there. Within trade and other receivables, the majority of the balance in there are the trade debtors. We have a very clean trade receivables position. We operate with blue chip customers and minimal overdue debt. And then there are contract assets and the contract assets associated with unbilled revenues so that's projects as they progress before they hit bidding milestones and then materials purchased in advance of that stage of completion. So it's all attributed to contract execution, original equipment execution. The contract liabilities within trade and other payables, the position there are deposits, spoke previously about being the driver to the reduced level of working capital at the end of the year. And then contracts trading in advance of materials purchased. So they are the main movements in that respect. We move on to another slide, please, Hannah. So the cash bridge so this is here to show the transition in gross cash at the end of '23 to gross cash at the end of '24. So that transition from GBP 11 million to the reported GBP 18 million. And obviously in a year such as 2024 for Mpac, the vast majority of the changes in the year are going to be attributed to the 2 acquisitions. So if I start on the left hand side. So EBITDA, we've covered that. It was a strong EBITDA in the year driven by higher volumes, better margins, good cost control. The movement in working capital, increase in working capital of GBP 7.4 million. That's different to the overall working capital position of GBP 0.4 million at the end of the year because this is a movement in the year excluding the take on of the acquired businesses balance sheets. And then we have proceeds from borrowings of GBP 38.5 million, the net funds from the equity raise of GBP 28.4 million and then the cash on acquisition of the acquired businesses of GBP 54.8 million. GBP 2.3 million was paid with our ongoing contributions to the defined benefit pension scheme in the U.K. and in the U.S. and we don't have a slide on that, but it's probably worth touching on that for a moment because Adam mentioned it previously. We completed on the June 2024 valuation and communicated in January of this year that the scheme is now in surplus and quite a healthy surplus that's funded on an actuarial basis at 108%. So we are now working with the trustees on the next stage and there's an active process to conclude on the pension scheme and hopefully reach the final goal of decoupling, derisking association of the pension scheme from the company. I'm sure there will be more news on that at some point in the future. Capital additions in the year of GBP 4.7 million. This is associated mainly with new product development and there were 2 flagship projects that were completed in 2024. Adam will touch on those later. They were new products which we launched to the market. Overall as a group, last year we spent 3.8% of revenue on innovation and R&D. That's broadly consistent with the prior year and we have an objective within our business to continue to invest to keep vitality in our product range and bring new products to our customers. And then finally, we have lease payments and tax acquisition costs. Really the main item in there is interest, which takes us to the closing gross cash position of GBP 18.2 million. Finally, I'll touch on the borrowing facility. So to support the acquisition of the businesses last year, we entered into a new committed borrowing facility that lasts with a commitment until September '27 and it leaves us with sufficient capital to continue to invest in the business and continue the positive trajectory that we've been able to report on this year. So I'll pass back to Adam.

Thank you, Will. So I'd like to spend a few minutes about ambition and strategy and as with anything in Mpac, we're going to start that by talking about people. For many, many years now the Mpac Group has operated around 5 pillars of our strategy: going for growth, operational excellence, outstanding customer service, innovation and people; and the previous leadership structure wasn't aligned with that and now it is. That change has brought Mike Brown into a new role as Chief Commercial Officer leading our original equipment marketing and sales. Mark has been with the Mpac Group for quite a while now. He's a very, very seasoned marketing and sales campaigner. And alongside him, David Taylor joins the leadership team now as Group Services Director. David was previously the Managing Director of the Lambert business based in the U.K. and he now steps up to lead the global service teams across the Mpac Group. Steve Blair joins Mpac as Chief Operating Officer, a new role, and Steve heads up the team of Managing Directors across the Mpac Group. He has a strong background in leading global businesses, organizations of several thousand people and really sets the benchmark for Mpac's scale and ambition of where we are going in the future. So next chart, please, and we'll talk a bit about scale and ambition. So the previous 5-year plan we set out a couple of years ago was to double the group over a 5-year period and with the acquisitions last year, we're on track now to do that in 3 years not 5. So it's time for a new 5-year plan and the new 5-year plan will sound very much like the old 5-year plan. We are going to double the group over 5 years, but it's now from an enlarged baseline. So 5 years from 2025 to 2030, doubling over that period and achieving better than 10% operating returns. We're going to do that by driving our organic growth, double-digit organic growth every year. We're going to be looking at commercial synergies from the businesses that we have already acquired. And of course in due course, we will look to continue to expand the group through further acquisitions to offer an increasingly full line to our customers. I must stress that right now in 2025, our focus is on driving the businesses that we've already acquired in 2024, integrating those and seeing the synergies from those investments last year. Next chart, please. So let's just touch a little bit on progress on group strategy in the organic part of our business in 2024. I think under going for growth, we've already talked a little bit about the broadening of our customer base, the driving of the pipeline of new prospects have come up if you think through the financial summary from Will. So I'll move on to talk about outstanding customer service. I'm going to pick out just 1 item to focus on here. The team have made really good progress in moving our spare parts fulfillment from Canada into the U.S. 80% of our parts are now already complete in that move from Canada to the U.S. and we're on track to complete that in the course of 2025. So a significant change for the team there, very important for the U.S. market. If I look at innovation, I'm really pleased with the product launches that the team have achieved last year, new products entering the market. To talk about just 1 of them. The Ostro is our new mid-range cartoner. We've already taken 4 orders for that machine since its launch, which is a really fast uptake in the market. Perhaps most importantly, 1 of those new orders came from a new customer to Mpac. On 1 of the previous charts, you might be able to pick them out. They are a customer who has chosen the Ostro for 1 of their bakery sector products and it demonstrates how important innovation is to winning new customers. The reason that that customer selected the Ostro is it solves a problem that they needed solved and they couldn't find any machine from anybody else in the world that could do it and Mpac could. So that was the reason that we were able to successfully get into that new customer. You might have seen on social media last week on Friday that we also launched a new range of pizza cartoning machines, frozen pizza cartoning machines; the BRISA Pizza, the MAESTRO Pizza and the MAESTRO Pizza XL. So we're continuing to innovate and there's more to come in 2025. We've touched quite a bit on people. So I'm going to move on to operational excellence in the interest of time. I really want to emphasize 2.5 percentage points improvement in gross margin is really hard to do and the team have done a great job driving that. Consistent revenue growth over 5 years, also hard to do, and 49% increase in operating profit. If you go back to 2022, GBP 4 million of operating profit; in 2023, GBP 8 million of operating profit; and in 2024, GBP 12 million of operating profit. GBP 4 million, GBP 8 million, GBP 12 million in 3 consecutive years. That improvement in project execution margins is absolutely outstanding and well done to the teams that made that possible. Next chart, please. So I'm going to come on to summarize 2024, we'll talk a bit about the '25 outlook and then Will and I will pause to take questions from you. 2024 then what are the highlights? Well, for me 3 things. It was a transformational year; it was transformational in terms of scale, it was transformational for the group in terms of performance and it was transformational in the leadership team that we take forward into 2025. And the 2025 outlook, we started the year, as Will said, with a record opening order book; the strongest order book that we've ever had in the group. Quarter 1 order intake has been broadly in line with expectations. With that change of regional splits with CSi coming into the organization, we've seen strong performance in the rest of the world, perhaps a little bit slower inside the U.S. for reasons that I'm sure are apparent to all of you. And we've got a really strong pipeline of prospects going into quarter 2 of this year and looking ahead to the balance of the year. So I'm encouraged by the outlook on order intake. We are closely monitoring the global economic position. But at this time, we are on track to achieve the full year expectations in 2025 in line with market guidance. Thank you.

Right. We have a number of questions from the audience. So let's make a start. As a relatively recent share owner, I have seen my paper losses rise as high as 40% this year and currently stand in the 20%. What should give me the confidence this turnaround will change in the future by the end of this year?

Okay. So Hannah, I think the first thing to say is that I'm very clear on the role of a Chief Executive and Will is very clear on the role of a CFO. Our job is to focus on driving performance of the business and we'll leave it up to our investors and the markets to set the share price. So we're going to focus on doing exactly what we need to do in our roles. We will drive the performance of the group to deliver the market guidance and the market will look after itself and I think that's the right focus.

How do you intend to achieve falls in debt levels into '25 and '26 as forecast?

Yes. Will, can I turn to you?

Yes, sure. So clearly we're modeling the forecasting on a high degree of granularity our financial performance over '25 and '26. We've got a great order book going into the year. We've demonstrated the ability to be able to deliver projects at high margin. We've got a good margin recurring service business. All of that will drive cash profits and control working capital, especially in the second half of '25 and into '26. They are the main drivers; control of working capital, good cash profit generation delivered from the opening order book and the healthy and vibrant pipeline that we have for new opportunities in the year. So our modeling supports the deleveraging and reduction in debt and we're confident we're standing behind that position.

How many of your strategic key accounts currently take more than the 1 Mpac service?

That's a great question. I'll pick that one up. I want to give you an example. So we completed the acquisition of BCA in September and we completed the acquisition of CSi in December last year. So it's early days, but I'm really pleased that we've already won an order in 2025 that combines a pre-acquisition business working with an acquired business on the same contract and actually it was the other way around. It was an opportunity that we were working on with a pre-acquisition business and now it's both a pre and a post-acquisition business combining their skills to deliver. So this kind of ability to support across the group and cross-sell is already very significant. What we've done as a team is to look at every customer opportunity that we've secured over the last 5 years, both in the pre-acquisition businesses and in the acquired businesses and to look at opportunities where we sold into the same customer or haven't. The sales team have now been through that list to identify target customers where we think there are cross-sell opportunities that could add value to those customers. They've written a short list of 20 that we're focusing on. I don't think we'll achieve all 20 in the first year, of course we'll wait. But we're very clear on where we think the opportunities for customers are and we're going after that list of 20 in a really coordinated way and you can see it from the performance so far that it is working. So I'm really excited about the opportunity we're describing as turning customers [ slightly ]. We've got a chart of sales by business into customers and the stronger it gets, the more the cross-sell is working.

I like that analogy. Will, 1 for you. Can you give us a bit more detail on the cost of your new borrowings?

Our forecast for this year, cost of borrowings is approximately GBP 3 million, reducing significantly in 2026.

Is the clean energy space still of interest to Mpac?

So the short answer is yes. We continue to work in clean energy. We have contracts right now today with a number of clean energy and battery businesses that we're reporting as part of the other category. So we're focused on food and beverage, on health care and other. If you go back in time in the past, clean energy was a small part of the group, but with some real potential. With the acquisitions that we've made last year, clean energy is now a very small part of the group. And I think my view on what's happening in the sort of wider economic political climate is I think focus on development in the clean energy space is perhaps going a little slower than we might have thought a year ago. Our reflection on that is we still think it's an opportunity for the future, but it's a small part of the group and we're not going to break it out and spend investor time focused on it in these conversations going forward. But we are going to continue to support customers in that space.

Well, perhaps then to finish with a last question before we draw a line under it. Why did so much of the closed down cost of Freyr fall on Mpac?

Yes. Freyr was a real story last year, wasn't it? In the middle of the year we celebrated with the Freyr team the success of the Mpac and Freyr project team working on the first fully automated production cell off their battery assembly line in Norway. We took photographs and bought pizzas and made a big social media splash and we were very pleased with the progress. And Freyr had gone in a different direction in the second half of last year. We understand the reasons for that. And the process of closing out that contract with Freyr wasn't easy for us. We've ended the year with a completely clean position. That involved us taking impairments of investments that we've made back in 2022. So those are in our 2024 numbers. You can see those there and also demobilizing quite a substantial project team that we had working on it in the run-up of that media activity. Those costs fall with Mpac. The cost of pro forma work under the contract itself lay with Freyr and were part of the settlement that brought us to that final position. So I think we reached a very sensible and fair position with Freyr and we've got a clean balance sheet, a clean order book going forward with no exposure remaining.

Great. Adam, as you say, 20% return on capital is far from shabby, but we are keen to raise it further. What do you think might be achievable in the medium term?

Yes. Well, I think you've got me on record last year talking about mid-20s ROCE being possible for the group and I think this was a pre-acquisition statement and of course it goes backwards a bit as you raise equity to complete acquisitions. So at the end of last year, it was a little bit behind. But I certainly still see a route for us to get to mid-20s ROCE in the future and that is absolutely our objective.

Excellent. And do you see Mpac as a potential beneficiary of U.S. tariffs from reshoring prospects given the geographic nature of the business?

Yes. I'm learning from Will to answer questions succinctly. Let me expand on that a little bit. One of the things that we think a lot about is the long-term effect of what Trump is trying to achieve in the U.S. and his stated objective is to drive an increase in domestic production within the U.S. Our FMCG customers are responding to that. And we already have examples of customers who are reshoring, who are building new factories in the U.S. to replace factories that they used outside of the U.S. previously. So it is already happening. If customers build factories inside the U.S, of course that is great news for companies like ours. Anyone who's involved in the business of building factories is going to benefit from that. If you're building a factory in the U.S. rather than anywhere else in the world, the relatively high cost of labor in the U.S. means you need more automation to make the business case to get the return on investment. And that's sort of doubly good news if you're in the business of automating the factory production and that is what we do. And I guess the icing on the cake would be if you happen to have facilities inside the U.S. yourselves from which to support those customers on that factory automation activity and we do. We have 2 facilities inside the U.S. today and we're very pleased with the timing of the BCA acquisition giving us that footprint in Boston. So yes, I absolutely see an opportunity for Mpac over the mid- to long term as Trump's stated policy objectives start to take effect. We are absolutely clear in our own minds that the short-term impact of uncertainty in the U.S. market is slower customer decision-making. So there's a balance of short-term impact and long-term impact and we have to keep both in mind.

Acquisitions, obviously 3 key ones have materially boosted your top line. How important do you think M&A will continue to be in realizing growth ambitions?

Yes. Look, over the long run, I think acquisitions are really important to the Mpac Group. That's why they feature so highly in our strategy. The strategy that we set for the group was to continue to broaden out the kind of full line offering to customers so that if a customer wants to build a factory in the future, they put the walls up. Mpac machines might one day complete the entire production facility inside those new walls. That's where we'd like to get to and that remains the objective. We are very clear that it's a technology-based acquisition strategy, therefore, and what it is not is a strategy around broadening out our kind of operating footprint into countries that we don't know how to operate in. We weren't looking to accidentally acquire a business with footprints in Brazil or China or something, an operating business that we wouldn't know how to operate today. And it's not about moving into new sectors. We've got a huge market share opportunity in food and beverage and health care without straying accidentally through acquisition into sectors that we don't know how to support customers in today. So we're really clear about what it is and what it isn't. The other piece I'd like to really emphasize is that we made a substantial change last year. And completing the integration of those businesses and really driving the synergies from those businesses takes time. And the entire focus of our leadership team is on achieving that in 2025. We're very, very clear. We don't want to run faster than we should be in our acquisitions. Our immediate focus in 2025 is integrating and driving the synergies from the businesses that we've acquired in 2024. In the background, we'll continue to work with the owners of other businesses to keep the pipeline warm. And 1 day in the future when we're ready, we'll be ready to make those future acquisitions, but 2025 is a focus year.

A couple of questions here actually on the same theme, which is around the order intake for the business and specifically on the book-to-bill figure of 0.41 that was in this week's results. Could you give investors a little bit more of an understanding of that number and any concerns or opportunities that come from it?

Yes. Will, shall I hand over to you?

Okay. So order intake profile typically for Mpac is slightly seasonal. We usually see a slow quarter 1 in any year. Customers go through a cycle to consume their investments budgets typically annually. So a slow quarter 1 is normal in our profile and I think that's where we started this year. If you break that down by region; EMEA and the rest of the world has been reasonably strong, we have seen a downturn or slower decision-making from customers in the U.S. But the real significant periods for order intake for Mpac ramp up during quarter 2 and especially in quarter 3 and quarter 4. So as at today, we are broadly on track to where we'd expect to be for order intake year-to-date and more importantly, our pipeline of new opportunities remains vibrant and strong. Now there's enough in there to give us confidence on order intake for the year and revenue and continuing to develop our order book, but we are clearly in a period of uncertainty specifically in the U.S. market. So we are working hard with customers to move the opportunity pipeline through down the funnel to convert to orders and at the moment, the metrics will support our guidance and our ability to do that this year. And directly to the question, the position of book to bill at the end of quarter 1 does not give us concerns where we'd expect to be.

Super. Do the economics of CSi's production facility in Romania apply just to CSi or are there wider potential group applications or benefits?

Yes. It's a great question. We have already started right now in May the assembly of our first non-CSi product in the CSi facilities in Romania. It's early days and we're not about to see a sort of material change in the outlook -- the guidance that was produced earlier this week for 2025. But it's really important, I think that we get going with those activities and see what's possible in Romania and we have already started. So I think the short answer is yes.

Another theme in a couple of questions I guess leading on perhaps from that order book is how exposed do you feel with an unpredictable Trump marauding around in the White House and other macro headwinds? How exposed do you feel as you are 5 months into this year?

Yes. Will's talked a little bit about the balance of order intake so far this year and yes, the U.S. has been slow and the rest of the world has been broadly in line with where we thought we'd be. So there's definitely short-term impact here. I spent quite a lot of time in the U.S. talking with customers there and the most important theme that comes out is one of concern about uncertainty. And actually it's not a tariff conversation so much when I speak to customers as a conversation about concerns about moving into a recession in the U.S. and perhaps even a recession that affects countries outside the U.S. as well. When I think about what that means for Mpac, I think it's really important we start with the markets that we operate in. The health care market tends not to be impacted significantly by recession and neither by boom either. If you were buying an asthma inhaler yesterday, you're likely to buy an asthma inhaler today regardless of what's happening in the economy. So our health care market really is a defensive market. It's resilient and robust and we expect that to persist during a downturn. On the food and beverage market, we do see changes. If you were planning to build a champagne bottling factory tomorrow, maybe you'd revisit that decision. If you're thinking about whether to invest in a new lasagna or frozen pizza factory tomorrow, that starts to look quite attractive during a recession. We see consumer focus shift towards convenience and value-based products. And our business is absolutely about supporting those kinds of food and beverage production lines just as much as it is high-end champagne bottling lines as well. So food and beverage for us is a defensive market as well. The change from one to another, that transition takes time and that I think is part of the reason we've seen a slowdown in the first quarter of this year in the U.S. But entering a recession in the long run, I think we're well positioned to work through that.

That's really a full answer. During the COVID supply chain period, you experienced shortages of key components. Do you envisage any similar disruptions arising from the current tariff situation?

No. The microchip shortages that affected all sorts of products back just after the COVID crisis is not really a feature of today. We've seen price rises from some of our suppliers already in response to tariffs. In fact we've seen them in response to the first round of tariffs that were then rolled back by Trump. So that's a feature of the market I'm afraid. The good news for Mpac is that we are affected in the same way as all of our competitors. So it doesn't affect us in terms of advantage or disadvantage. For example many of the price rises were that we've seen have been global price rises not country-specific price rises in response to tariffs. So yes, we're not being complacent about it. We're monitoring it very closely, but that isn't the biggest concern that I have around tariffs. It's around how the market reacts to uncertainty and when we shift from that slowdown in the U.S. into what I suspect will be an uptick to come.

Perhaps 1 for you, Will. Volatility in bond markets and these wider market movements, will it impact progress in pension provisions?

Thankfully not. We've got 100% of our exposure hedged. So the position that we've got to and achieved with funding level is now secure and assuming the hedge works, it's protected against volatility to discount rates.

And given the 30% gross margin achieved this year, can we take this as a benchmark going forward?

Shall I carry on?

Absolutely.

Well, you probably won't be surprised that we set targets internally, which are a stretch for our businesses to achieve. But look, in the second half of last year, we achieved more than 30% gross margin. So as a management team, we should be looking to kick on and continue to improve. And some of that scale and volume base is also about doing our work well and progressing projects and executing projects to plan. So yes.

And the last question here, do your contracts allow for you to pass price rises through?

We sell to our customers on a fixed price. At the point we enter into a contract, we're committed at that price. So the short answer is no, but a bit of context here. We are pricing and costing our projects in the dynamic costing model. So we are securing prices from our suppliers at the point where we are agreeing prices to our customers. So we're exposed in the short window between receiving an order from a customer and then fixing the prices with our supply chain, but the window is short. And broadly speaking, we're able to capture any price changes and inflationary cost pressures into the price that we quote to our customers.

Well, super. That is it for the questions today. So just moving to thank our listeners for joining us and to you both for some really full and helpful answers today. We look forward to an update in another 6 months' time.

Very good. Thank you, Hannah.

Thank you, Hannah.