Mpac Group plc (MPAC) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Mpac Group plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question it received during the meeting itself. However, the company can review your questions submitted today and publish responses whereas appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Adam Holland, CEO. Good afternoon, sir.

Hi, Charlie, thank you very much. So over the next 30 or 40 minutes or so, Duncan and I are going to tell you a little bit about Mpac. Duncan is going to talk you through the half 1 results. I'll give you an update on the progress we made on delivering our strategy in the first half of the year, and then we'll finish with an outlook and a look ahead. Look, that -- the last 18 months have been absolutely dominated by the impact of tariffs, geopolitical uncertainty, a slowdown in customer decision-making, and heightened margin pressure. You probably recall the work that we did last year to take costs out of our business. We delivered record gross margins last year. And this year, those cost-saving actions have contributed over GBP 2 million in reduction of administrative costs in the first half of this year. Those actions and the decisions that we've taken in the market this year have led to half 1 performance with the order intake up 43% on the same period last year. Order book up just under 6% on the same period last year. Revenues broadly flat, and underlying operating profits have fallen. However, we've worked very hard on our order book under real margin pressure. Now the other feature of the first half of this year, we announced back on the 8th of June that we took the decision to sell the Lambert business. Lambert was a bespoke automation business, really focused on product assembly. It's not core to our group's strategy. And we completed that sale in July. And after GBP 16 million of proceeds, our net debt at the end of August was GBP 43 million. For the bulk of the conversation today, we're going to focus on the continuing operations of the business, and we'll present any data on a like-for-like basis, except where we flag otherwise. So in summary, order intake up, revenue flat, the order book is stable. We're seeing margin pressure. We're responding with disciplined management actions on cost. The outlook for the full year is maintained under difficult market conditions. Next chart, please. We'll skip the photos. Very good. Okay. So, let's come on to talk a bit about Mpac. We'll start with the pie chart on the top right-hand corner of your screens now. About half of what we do in our business today supports customers in the food and beverage sector, about 1/3 supports customers in health care, and the remaining 20% supports other consumer packaged goods customers in a variety of other subsectors. The group comprises 4 businesses today: Boston Conveyors and Automation, providing robotic handling, washdown kind of raw food conveying, upstream of the Langen and the Switchback businesses, which offer secondary packaging machines out of the Mississauga and Wijchen businesses in Canada and the Netherlands, respectively. So those secondary packaging machines take the output of BCA's raw food handling involved in putting products into cartons, into cardboard cartons or taking those cartons and putting them into larger corrugated cardboard cases. And then we come to the CSi business, case conveying and palletising, taking those cases through a factory to palletisers that then stack those cases onto wooden pallets, wrap them, label them for onward distribution. The CSi business operates out of Raamsdonksveer in the Netherlands. We have 2 facilities in Romania, Mexico, and field service and sales teams around the world, including in Singapore. Now last year, we also opened an engineering center in KL in Malaysia. That team is building and supporting engineering activities across the rest of the group. Today, we're about 850 people, nearly 600 are engineers and designers supporting customers in those sectors we talked about earlier. And I'll bring to life the kinds of customers that we operate within in those sectors as we come through the remaining charts. Next chart, please. The way our group works, this is the cycle of business that we work through: consultation, design and build, installation, monitoring and optimizing. The bulk of our work, about 70 -- 75% of our revenues come from designing, building, and installing original equipment into our customers' factories for them to produce products and package them. The monitoring and optimizing, the service piece of our business, makes up about 25% to 30% of our business. Consultation, that tiny little wedge at the top right-hand corner of the chart here. It's a very, very small part of our revenue, almost negligible really, but it's a really important part of the sales cycle. It's where we win new customers. This is how we retain our existing customers, working with them ahead of decisions to place capital equipment out for tender to help them optimize not just the way that the machinery works, but often actually looking at the way their packaging is designed and sometimes even the product itself to make it easier to flow through factories. Next chart, please. Now we operate in an attractive market. It's attractive in 4 ways. First is it's large. It's a very large market. Every year, about $60 billion worth of packaging machinery is bought by our customers, somewhere on the planet. The competition that we come up against every day is fragmented. There are a large number of competitors. Some of them are much smaller than Mpac. Perhaps they are only operating 1 particular region in the world or with a particular specialist piece of machinery that just does one task. Some are very, very big, multibillion revenues, and some of those larger competitors have grown to the scale they are by acquiring some of the smaller businesses along the way, and we've done the same. And we've seen quite a lot of activity in M&A over the recent months. And given the market pressures that we can see, I think that's perhaps understandable. Now we're able to compete against even the largest of those competitors because our customers often make decisions on a technical basis. Reliability and the performance of equipment is absolutely key to customer decision-making. Pricing is always important, but we are able to compete with those large behemoths in the industry because of the capability of our people, frankly. And the people are everything. In Mpac, we often say Mpac is Mpac people. Our production lines keep operating 24 hours a day, 7 days a week, 365 days a year, and sometimes in factories where there are virtually no people present. In our business, when the people go home at the end of the day, we stop work. Our people designing, building, installing, and service support to our equipment in the field. It's our people that make our business. Next chart, please. So when I talk to investors and listen to why investors are interested in us, 4 things come out. We talked a bit about the growth opportunities, the scale of the market. We are typically in growing markets. Over the midterm, market growth is around about 4% year-on-year. Of course, it's been challenging over the last 18 months, and we'll talk about that as we get into half-year results. But over the midterm, it's a large and growing market. Our projects tend to have fairly long life cycles, and that gives us a relatively long revenue coverage. So coming into the second half of this year, you can see on the chart there, 78% revenue coverage from our order book over the second half revenues, and that's up on the prior year. And a good proportion of the book and bill will still to go this year will come from short-cycle service business, which we can rely on, and it's been a very resilient business come rain or shine. In the first half of this year, services made up about 23% of our total revenue. That's up a couple of percentage points on the first half last year. And I'm really pleased with the progress that particularly the acquired businesses have made, the businesses we bought in 2024 to drive service revenues. Our service revenues are demonstrably robust, and we continue to work towards a goal of 30% of our revenue coming from services in the future. Now return on capital employed, ROCE, took a hit in the first half of this year under really quite intense margin pressure, down a couple of percentage points from the same time last year. You can see on the chart, just under 12% there. But we've got our sights firmly set on getting back to better than 15% ROCE in years to come. So that's the midterm target. Next chart, please. I've presented a version of this chart multiple times now. I think in every half-year and full-year presentation, we've shown how we've gone -- got on with broadening our key accounts. And we continue to make good progress broadening our customer base within our target sectors in the first half of this year. Now that's really important for existing customers, not just those new customers that we win, but existing customers want access. So the same engineers that designed their equipment perhaps 10 years ago, they want to know that those designers are secure within our business, happy and thriving, and available to support them on the same machine in, you know, perhaps 10 years' time. And the best way of retaining engineers you is to keep them highly utilized on projects. So broadening out our customer base and working with the larger group of customers keeps our engineers happy, happy engineers are busy engineers. So we've worked very hard on that. In the first half of this year, I'm delighted that we secured 48 original equipment orders with 34 different customers. By value, 37% of those were new to the group. And of that 37%, GBP 7.9 million, nearly GBP 8 million were strategic customers. And what I mean by that is they are customers who have the scale to place multiple orders with us in the future. As long as we do a good job on those first orders, we'll come back time and time again as they expand their operations and build new plants in the future. And you can see from the scale of that how important it is to our group. Nearly 13% of our original equipment orders in the first half came from those new strategic customers. So it gives you a sense of how important this activity is. In fact, we've got a case study of one of our original equipment projects on the next slide. So perhaps we'll go to that now. So, I'm going to be a bit techy on you for a moment and humor me, I get very excited by the capability of our equipment. In May this year, the CSi business was selected by one of the world's largest snack food producers for a large project that they are working on to automate on a new greenfield site in a development in Mexico. That facility will take 7 bakery lines through a total of 1 kilometer of case conveyors and buffer decks that the CSi business will provide into 4 high-speed C5000 layer palletisers. Now those palletisers take those cases, those corrugated cases, and stack them onto pallets up to a height of 2.3 meters. You imagine how large that is and the weight of that equipment. The palletisers then pass them on to wrappers, which wrap them, label them, and deliver out of that facility a pallet loaded with cases every 15 seconds. And we'll do that 24 hours a day, 7 days a week, 365 days a year with all the service support to achieve that in that critical performance. I think it's incredible. Now the customer selected CSi because of the innovative design, easy for me to say. Those 7 production lines, they feed those 4 central palletisers. And actually, we then go through 3 wrappers. Any pallets can go to any 1 of 3 wrappers. And that really clever design means a much, much smaller footprint within the factory than other layouts could have achieved. And there's a real operational logic to the way the design has been set out with empty pallets in one area of the factory, full pallet located in a different part of the facility, really easy for operators to understand how the system is performing. And not least, we have installed more than $250 million of equipment in factories across Mexico alone. So we've got an absolutely superb parts and service team operating out of Queretaro. It's a really exciting project for us. We'll continue to work on this and on the pipeline of future projects with the same customer that we're looking to secure in the future. And of course, that is really interesting to all of us. But before I look, get too far into the future, perhaps we should deal with the recent past. I'm going to hand over to Duncan to the first half results.

Thank you, Adam, and good afternoon, everybody. I'm really pleased to be presenting the H1 2026 financial results, and this is my first results presentation as CFO of the group. As Adam has already covered, the trading environment in the first half of the year was challenging with global geopolitical and macroeconomic headwinds impacting on the timing and the levels of demand from customers. We took further mitigating actions at the beginning of H1 to reduce the cost base on the back of similar measures taken in the middle part of 2025 to consolidate our U.S. footprint. We also successfully exited the lease of the facility we had in Cleveland, Ohio, avoiding the remaining lease obligation of approximately GBP 1 million and also improved liquidity through the agreement to sell the Lambert business, which we announced in early June this year. So I'll now turn to the financial highlights, which are presented on a continuing basis and therefore, exclude the Lambert business. Order intake was GBP 78 million in the first half of the year, 43% up on the same period 2025. It's worth referencing that, that 2025 period was impacted by early pronouncements on U.S. tariffs. Revenue in the period was GBP 71 million, a couple of percent lower than H1 2025. It's worth also referencing that the order book coming into 2026 was approximately GBP 20 million lower than we entered 2025. So lower order book partly compensated by the strong order intake in the period. The order book at the end of June is GBP 80.5 million. So further stabilization of that order book, but slightly up on the same point in 2025 and up slightly from the position at the start of 2026. And as Adam has already mentioned, it provides good coverage, 78% coverage on our H2 revenues. That's a further level of coverage and comfort that we would have had at the same point in 2025. We have an order book where we understand the margins and we look forward to delivering that in the second half of the year. Probably the main story of the first half is that we did see a drop in gross profit margins, 30% versus 37% in the prior period. 2 factors really at play in that reduction in margin. The first one is that the lower levels of activity in the marketplace have translated through into greater pricing pressure. We're having to fight harder to win orders from customers. But also the fact that our order intake is lower than we perhaps would ordinarily have expected. The timing of orders means that we are not seeing quite the level of balanced level of loading we would like to see across our facilities, and that's weighed heavily on the margin in the first half of the year. We took action, as Adam already mentioned, to reduce the cost base. That hasn't translated through all the way through to the bottom line. So we still see the headwinds from the gross margin deterioration, and we're reporting underlying PBT of GBP 2.1 million in the first half of the year. Underlying EPS is 5.7p. I'll touch on net debt and working capital in a subsequent slide. Next chart, please. Touching briefly on sales in the period, GBP 54.5 million came from original equipment, GBP 16.5 million from our services business. Services business showed really good positive momentum in the sec -- in the first half of the year, and the businesses we acquired in 2024, CSi and BCA, made really good positive progress. And as Adam has already touched on, that's moved our group service revenues as a percentage of sales from, yes, from 21% up to near 23% in this first half of the year, moving towards our medium-range target of 30% for the group. Touching on a few items in the bridge -- the underlying PBT bridge. You'll notice a GBP 4.7 million deterioration, which is from the 6.6 percentage points reduction in gross margin. We've managed to mitigate some of that through nearly GBP 2 million of overhead cost savings. So significant management action in 2025 and the start of 2026 to try and mitigate some of that reduction in margin. And it's important that we're clear that we have ensured those actions that we maintain the core operational capability of the group so that when markets recover, we do think they will recover, that we can respond to that increased demand as a group. Touching on a couple of the non-underlying items. As in previous periods, you'll notice that we have the amortization of acquired intangible fixed assets and then some pension-related items, admin costs on the pension scheme and income on the pension surplus. There is a reorganization-related credit, GBP 0.9 million, and that relates primarily to us -- primarily to us exiting early the lease in Cleveland and saving the ongoing lease obligations. And then finally, you'll notice that we are reporting a GBP 7.2 million loss associated with the sale of the Lambert business, that obviously didn't complete until after the period end, but we'd committed to that transaction. And therefore, we recognize the GBP 7.2 million in the first half of the year. Next chart, please. Just briefly touching on some of the key balance sheet items. Before I do so, it's worth just stating that the balance sheet items related to the Lambert business are held as 2 separate line items in the balance sheet, both assets held for sale and liabilities held for sale. That's how we are required to account for the business, having made the decision and entered into the transaction before the period end. Also worth noting that the FY '25 balance sheet is as we originally reported it's not been restated. Touching on the noncurrent asset line item, you'll notice quite a significant reduction that's associated with removing the goodwill and other intangible assets that we'd originally recognized on the acquisition of the Lambert business. They get removed. What remains is GBP 96 million of intangible assets associated with the BCA and CSi acquisitions. Also worth remembering that there's a GBP 7.6 million pension surplus associated with the U.K. defined benefit scheme that is currently going through the buyout process. Inventories have reduced. Some of that reduction is associated with the sale of the Lambert business, but we have taken steps to reduce inventories in the continuing business by GBP 1.5 million. Net working capital at the end of the period was GBP 6.9 million. That's quite a significant reduction from the GBP 13.5 million at the end of 2025. A significant proportion of that reduction is associated with the Lambert business, which had quite high levels of net working capital at the end of 2025. And finally, I'll just touch on net debt, which was GBP 54 million at the end of June. That does not include the cash received from the sale of the Lambert business, which we received in the latter part of July to the position at the end of July and as we've reported at the end of August is a lower net debt position. And that net debt number of GBP 54 million includes both our term loan, RCF, and vendor loans and deferred consideration associated with the CSi business we bought in 2024. Next chart, please. So talking, moving on to cash. The first half of the year has been characterized by strong cash conversion in the ongoing business, 100% cash conversion off the back of EBITDA of GBP 6 million, but offset by quite a significant cash outflow, nearly GBP 4 million from the Lambert business. That's a cash outflow that is mirrored by a similar cash outflow in 2025. We repaid GBP 3.5 million of borrowings in the period. That's split GBP 2 million of term loan and GBP 1.5 million of deferred consideration, which was related to the CSi acquisition. We have a further GBP 1.5 million that will be paid in early January 2027. Pension contributions are at the same level as H1 2025, and that's where we continue to pay into the escrow account. The predominant amount of that is in relation to the U.K. defined benefit pension scheme. CapEx is GBP 1.4 million. It's worth just noting that, that investment in CapEx is actually 36% lower than it was on a reported basis in H1 2025. And the reduction is a result of the fact that the balance was related to the investment in the Lambert business in CapEx in 2025. Lease payments are as in previous years, and we've incurred GBP 3.3 million in respect to tax, FX, and interest. The group utilizes a term loan and RCF from HSBC. We have a very strong relationship with HSBC. They've been very supportive and encouraging of the group, and we have committed facilities with them through to the end of September 2027. We continue to operate within interest and leverage covenant levels. Next chart, please. Finally, I wanted to touch on the sale of the Lambert business. We announced it in early June, and the transaction completed towards the end of July with receipt of gross proceeds of GBP 16 million. The sale, which was the result of a strategic review of the latter part of 2025, means the group is now aligned around more scalable, fully aligned packaging machinery solutions. Since the acquisition, the Lambert business has been cash consuming through necessary investment in R&D and also working capital to the tune of over GBP 15 million since acquisition, including, was just previously discussed, almost GBP 4 million in the first half of 2026 alone. That significant capital investment has resulted in the one-off noncash loss on sale of the business of GBP 7.2 million. The balance sheet has been strengthened by the sale of the Lambert business. We've improved liquidity, and we've reduced the working capital burden on the remainder of the group. I now hand back to Adam, who will take us through an update on strategy and the outlook.

Thank you, Duncan. I'm going to start by giving you a couple of examples of progress that we've made on strategy in the first half of this year. And I said before that we were working very hard to move production into Romania, those 2 sites in Romania that we acquired as part of the CSi acquisition in 2024. Now since January this year, all electrical cabinet builds are now centralized in Romania for customers in EMEA and APAC, so flowing into other factories around the Mpac Group for assembly for those customers around the Europe, Middle East and Africa, and the Asia Pacific regions. So that's a very significant change effective from January. Since April, all coated steel frames are now sourced or made by our business in Romania. And in May this year, at the global interpack trade show in Germany, we showed the world our first Langen Ostro cartoner built in by the Romania team at CSi as well. We have also now built the first of a new generation of B1-M Langen cartoning machines in Romania, too, for the U.S. market. I think the team have made absolutely outstanding progress on standing up that capability in Romania. We're really excited about what's still to come, but more of that next time we speak. Next chart, please. The second case study is an example of customer-focused innovation and the impact that it can have on market access. In February, our BCA team in Boston was selected by one of the world's largest producers of protein foods to develop a new case conveyor and a new case package, the first time we've ever won an order with this strategic customer. And we won because of the incredible Affinity operator interface. You can see it on your screen on the right-hand side. We developed it last year as part of our Horizon new product development. And the customer saw it when we demonstrated it at the PACK EXPO trade show in the U.S. last year, and they loved it. It's designed around ease of use. The innovative screen is designed so you navigate it just like you would a big -- a big iPhone or an iPad. It doesn't take any training for an operator to get familiar with the screen and understand how to navigate through and operate the machine. And it can be used with a variety of different controllers as well. So whatever the control system is in the background running the machine, we can still use the Affinity interface for those customers despite the customer's preference on control system. So for customers who are looking to minimize training for new operators, that's really important. And why might that be something that customers want? Well, perhaps a customer is dealing with high labor turnover in their factory and they have to train new operators every Monday morning, or perhaps they have an aggressive growth plan and trying to ramp up production, they're recruiting rapidly into their organization and new people are joining the team all the time. These factors matter enormously to our customers, and this was a key part of the decision-making in our selection for that project. But the customer also really appreciated our localized U.S. assembly in Boston, Massachusetts for this U.S. application. Now the scale of engineering and service support that the rest of the group could offer even to the smallest business in our -- in our group was something the customer highlighted. And if you're -- if you're one of the world's largest protein producers, it's really important that we've got the scale of service support and engineering support to keep pace. So that combination led to the win. As I say, it's the first order with this customer. It's really exciting. If I look ahead, the opportunities ahead that are really exciting for us as well. And again, I'm looking forward to giving you an update on that in future. Next chart, please. So the pillars of our strategy for the group, these 5 pillars around going for growth, outstanding customer service, innovation, people, and operational excellence. We've had those stable group strategy now since 2018. Under customer growth, we've touched on a few things that we also launched new websites for all of our brands during the first half of this year. We have a new corporate website, too, and a common lead generation platform. I'm really pleased with how the acquired businesses are performing on order intake in the first half of this year. We've talked enough about that already. So I won't repeat myself. Under innovation, we've already covered Affinity. I'm not going to present to you the other launch of a major new product in the first half of this year, the Taros 4 layer palletiser. There were new i-Pal launches in the first half of this year, too. We saw the first subscription renewals from customers using our digital service solutions, things like the Mpac Replay and CubeConnect systems. So a lot under innovation. There's too much for us to cover in the time we have available today. We also went live in June with our group ERP platform, at BCA. If you thought Duncan sounded pleased to be presenting his first report as CFO, imagine how pleased he was with the visual launch in Boston earlier this year. We also wrapped up obligations under the lease of the Cleveland facility. So you might remember, we consolidated operations in the Americas last year. We completed that consolidation with the exit of that lease in the first half of this year, and that was the positive on the non-underlying exceptional items that Duncan referred to. And perhaps I should finish by focusing on people. People remain absolutely key to Mpac. And we've been investing in cross-training, not just increasing flexibility within each of our businesses within each facility, but really importantly, increasing the flexibility between our facilities. And I'm sure we're going to touch on that as we get into some of the Q&A later because it's central to how we've been able to perform in the first half of this year and what we see ahead. Okay. I think it's probably enough on updates of strategy. We'll move to a kind of summary and outlook, and then I'm going to hand over to questions. If there are questions that you still want to ask, put them into the chat box, and we'll do our best to answer them either immediately on the chat or after the call. So look, to summarize, I am delighted to have seen the completion of the sale of the Lambert business. Really good to have got that across the line in the first half of the year. But for me, the first half was characterized by 5 things: better order intake, up 43%, a stable order book, up just under 6%, actually another 2.5% up since the end of June, a resilient service business, really proving to be so, but we are seeing margin pressure. And the last piece, the impact of those cost-saving actions that we've taken. Duncan talked about GBP 2 million realized on the P&L in the first half of this year. That takes some doing and well done to the team on achieving that. Now looking ahead, the full-year outlook unchanged. The pipeline of future projects continues to grow. It's larger now than ever before. It's filling faster than ever before. And that's really encouraging when we look ahead. But I have to say the timing of a full market recovery is still not clear. We do not yet know the full impact of the recent tariffs between the U.S. and Canada, the 50% tariffs announced in May and enacted in quarter 3. But I am really pleased with the way that the leadership team at Mpac are responding to those conditions and making really good decisions under challenging market conditions. So I'll pause there for questions. Thank you.

Thank you very much, Adam and Duncan, for the presentation. We've got a few pre-submitted questions that we'll start with whilst people continue to submit their questions. So Duncan, one of the questions is around the deferral of the pension and whether that's a concern, a deferral pension next year and whether it's a concern.

Thanks, Katie. I mean the straightforward answer is there is no concern. I think the trustee continues to work with Aviva on the buyout process that requires significant resource, effort, and diligence on the part of the trustee. That process will not be completed this year, which is the reason the escrow isn't returned to the company this year. The company and the trustees continue to collaborate well as they always have done, but it is clear that the escrow will come back to the company during 2027.

Thank you, Duncan. And Adam, if you could give some color on what has the change in your customer base been post Lambert sale?

Yes. There's probably a couple of things I want to say. So the first is around the Lambert customer base and the rest of the group. Lambert's focus on bespoke automation of a customer's assembly process. If you go to a factory and you walk the line from assembly through packaging and end of line and out to trucks, taking product to a port or an airport or whatever it might be -- you might think that, that's one joined-up line. But often, that is not the case. There's often an air gap. And sometimes that air gap might be thousands of kilometers, literally product being produced in one factory in one part of the world and then packaged in a completely different factory in the different part of the world. So a very significant air gap. And that is apparent to, you know, probably anyone who's been inside a factory and walked around. Now it's not true of every factory in the world, but often true. And for us, what we found is in the years that we've been operating the Lambert business alongside other businesses within the group, on average, one customer per year had any overlap between Lambert and the other businesses in our group. And very, very few of those projects ever actually involved working in the same -- under the same roof. So very, very little synergy. And for that reason, I'm not particularly concerned about dissynergies in the divestment. And probably the other piece I want to touch on there is a more significant change in the customer base, which is we're continuing to broaden our customer base. You'll have seen the chart we presented earlier just a few minutes ago, the whole range of different customers listed there. Some you'll certainly recognize blue-chip multinational companies with mega revenue turnovers and phenomenal history, and some businesses that you might not recognize, but actually in their own right are very large customers with significant revenues of their own. And we've been working really, really hard to broaden out our customer base. I think that's really important. We're going to continue to do so, and that theme is going to continue.

Thank you, Adam. Another question is on how are you managing tariffs, if you could touch on that.

Yes. And perhaps I'm going to use this as an opportunity to talk about U.S. and Canada. I think that's probably what this question had in mind. The first thing is we -- last year, we moved the parts -- spare parts facility from various businesses around the Americas into 1 location at Boston in Boston, Massachusetts inside the U.S. And that obviously helps enormously when it comes to serving customers in the U.S. We moved many of our supply chains from Canada to the U.S. for those spare parts supply, not all of them, and we're working hard on those remaining supply chains for spare parts now to make sure that those are not exposed to tariffs if we can possibly avoid them. Duncan talked about the way that we're utilizing our teams around the world. And I mentioned about flexibility between our operations. Well, let me put that all together for you. In the last few weeks, we have taken orders for customers in Europe that we will design and build in our facility in Canada and export from Canada into Europe. It's a way of ensuring that our Canadian expertise is highly utilized on projects where it's really applicable. And we have won projects in the U.S. that we will build in European factories and in Boston. And so that flexibility of being able to use different teams around the world on different projects in response to what is still a highly volatile tariff situation. It's changing all the time. I think it's really important. If you'd asked me the weekend before tariffs came in, the 50% tariff came in, what I thought was going to happen, I would probably have echoed the lines that I was hearing in the press from Mark Carney and from Trump. I don't think either of them expected at the start of that weekend that tariffs were going to happen. They thought they had a deal, they didn't and here we are with 50% tariffs. So we're responding to that and working our way through the implications. I also think I would say, if we look ahead, we are conscious of one thing for the future, and that is you cannot predict it. Will tariffs still be in place at 50% levels in a year's time, in 5 years' time, in 10 years' time, in a week's time? I don't know. So we are planning scenarios to respond to those as they might emerge.

Thank you, Adam. There's a question whether Lambert was a strategic sale or a fire sale.

Okay. There's a very clear answer. It was a strategic decision. We did a review of the Lambert business. We thought very carefully about how it fits. And I described that kind of air gap between assembly of our products inside a customer's factory and the packaging and end-of-line processes. That's really important. And we, once we'd made that strategic decision. Let me say, you don't have, not every business has to fit perfectly within the group. It's okay to have a business in the group if it's generating staggering amounts of cash and profit every year. But as you heard from Duncan, for us, our experience of the Lambert business over many highs and lows in the cycle in the market was that wasn't the case. So we've made the strategic decision. We knew exactly what we wanted to do with that business. It was really important to us. We found a really good home for it. The customers of the Lambert business deserve a good future. The team in the Lambert business deserve a good future. I'm delighted with where the Lambert business has landed in the world. But the timing of that sale absolutely it was a response to the conditions that we found ourselves in. So a strategic decision, the timing, no accident.

Thank you, Adam. Duncan, is this a structural change in the market? Or do you expect margins to recover?