Renold plc (RNO) Earnings Call Transcript & Summary

Well, good afternoon, everybody. If you can just bear with us a few moments while everybody joins. I do recognize we're a couple of minutes late, but it's really a function of the number of people we've got with us this evening. But if you can bear with me 30 seconds, we'll get things started. I can still see we've got people joining. So just bear with me a moment longer. Well, the number seems to have slowed down the joiners. So we get things started. Well, good evening, and welcome to the Renold Interim Results Investor Webinar. With me, I've got Robert Purcell, CEO; and Jim Haughey, CFO. Robert is going to run you through a presentation. It's the same presentation that they've been using with institutional investors today, but we will start with a brief introduction of the Renold Group for those who are new to the story, we'll then go into the results presentation itself. Following the presentation, we do have the opportunity for a question-and-answer session. Given the number of people with us, unfortunately, I can't go to you individually, I ask you to unmute and put your questions to the team. But we do welcome questions. So anything you've got, please use the Q&A function at the bottom of your screen, type your questions in, and I will ask those at the end of the presentation. Okay. Well, without further ado, I'll hand over to Robert to start the presentation. Robert?

Thank you very much, Tim. Good evening, everyone. Welcome to the presentation of the Renold Interim Results for the half year period ending the 30th of September 2024. As Tim said, to make sure everyone is familiar with the basics, I've been asked to spend a minute on a short overview of the group. So this slide hopefully will help us. We are a GBP 240 million revenue, 150-year-old international precision engineering business, 80% of sales from industrial chains, 20% from Torque Transmission products, in particular, these are couplings, wind gears and gear spindles. We have our own presence in 20 countries and selling to over 100 countries, only about 8% of our sales are in the U.K. We have an international manufacturing footprint for both Chain and TT as shown on the map, providing the opportunity for customers and ourselves to derisk our supply chains. The size of the industrial chain market is at least GBP 3 billion a year, and we are #2 in this extremely fragmented sector. We're a very niche, even in the larger TT marketplace. We have no dependency on any one geography, product, customer or application. Approximately 75% of sales are for repair and maintenance. Generally, our products are relatively low cost, but a mission-critical component of the finished solution or product. This means they are very sticky in nature. We're renowned for our market-leading engineering. We produce premium high-performance, high-quality products that deliver value to the customer. So there is a very brief overview. I'm sure if there's any questions, we can deal with those later. Tim, go back up to the beginning of the proper presentation. And Tim, if we go on to that first highlight slide, thank you very much. Whilst the first half of financial year 2025 was another record period for Renold, the global environment is tough and geopolitics is not helping. At constant exchange rates, revenue was up 0.6%, and adjusted operating profit was up 4% at GBP 15.2 million. Return on sales moved forward again and increased by 30 basis points to 12.3% despite inflationary pressures and tough markets. The margin and absolute profit improvement are the outcome of a number of factors, including our business improvement projects, continued capital investment, successful acquisitions and the impact of passing through inflationary cost increases, reflecting our pricing power. Underlying net cash generation has grown and should strengthen even further in the coming years. Net debt was GBP 42.2 million at half year, that is after paying for the Mac Chain acquisition, making a final GBP 1.7 million deferred payment for the Spanish YUK acquisition and paying Renold's first dividend for 19 years. CapEx investments in the period were ahead of the prior year as we drive productivity and efficiency programs. EPS growth was strong, up 10.5% to 4.2p for the period. Order intake was strong in the period, up 11.5% compared to H1 in the prior year. This includes the latest military contract win for GBP 10.6 million for the Canadian Navy. Following on from our successful acquisitions of recent years, last September, we bought the Mac Chain business, which strengthens our position in the U.S. and Canadian markets. This not only strengthens our position geographically but also from a product point of view, it especially helps us bulk up our presence in the forestry sector. Post period end, our Valencia manufacturing site was directly hit by the recent flooding. I'm pleased to say that all our colleagues are safe. The Valencia Logistics Center, which is close to the factory, was completely untouched, and that accounts for 70% of our Spanish business. There is and will be some disruption, but we're working hard to see that this is minimized. There will be a short-term exceptional impact in the second half of this year, but we're fully insured, including business interruption minus a deductible. The disruption is likely to go into the first half of next year due to lead times on new equipment. The details are still being worked out, but the net cost to the group is expected to be circa GBP 1 million. Our Spanish team have done an outstanding job getting the business functioning again. Even without issues like the Valencia floods, industrial markets are not easy, and we carefully monitor the performance of our competitors. We believe we are growing our market share and that this will continue. The STEP2 strategy is delivering. And with an improving balance sheet, good internal improvement opportunities and excellent acquisition pipeline, we're looking to the future with some confidence. So that's my highlight slide. Jim, over to you. And Jim is going to take us through some detailed numbers.

Okay. Well, let's move on to the first slide, the profit and loss account. The numbers once again show the continuing strong performance of the group. Turnover is up 0.6% at constant exchange rates, but currency headwinds led to a reduction of 1.5% at reported rates. Adjusted operating profit increased once again to GBP 15.2 million. This represents an increase of 4% at constant exchange rates and 1.3% at reported rates. Return on sales rose by 30 basis points from 12% to 12.3%, a figure consistent with the prior year-end. Adjusted items comprised GBP 1.2 million of acquisition costs for the acquisition of the Mac Chain business. up from GBP 0.5 million seen in the Davidson acquisition we saw in the prior year and also GBP 0.6 million of amortization of acquired intangibles. The prior year also saw a GBP 2.2 million of additional profit from the assignment of the remaining lease on the closed Bredbury site in the U.K. to a third party. This year, as Robert has just mentioned, this year, we'll see an increase in adjusting items as we quantify the impact of the recent Valencia flood on the Valencia manufacturing business. The CVC manufacturing business was fully insured with the exception of the insurance deductible. Luckily, the main warehousing facility, which represents 70% of our Spanish business was unaffected by the floods. Adjusted EBITDA increased by 1.9% to GBP 21 million for the half year. Net debt at GBP 42.2 million increased due to the initial net cash consideration of GBP 21.2 million for the Mac Chain acquisition together with a final payment on the YUK acquisition for GBP 1.7 million and GBP 1 million payment for the reintroduction of the dividend. Excluding these payments, net debt would have been GBP 18.3 million, showing again strong cash generation. Net debt gearing, that's net debt to EBITDA stood at 1x EBITDA. After the Mac Chain acquisition, this still gives a group significant headroom to execute on an identified pipeline of further bolt-on opportunities. Adjusted earnings per share of 4.2p increased by 10.5% compared to the prior year. The above numbers again illustrate the results of the strategy over the past few years, which has delivered a more flexible business with a lower cost base. Moving on to the next slide, the divisional summary. So the Chain division's turnover increased by 0.5% at constant exchange rates with a reduction of 1.8% seen at reported exchange rates. Adjusted operating profit for the Chain division was GBP 15.5 million, an increase of 0.6% at constant exchange rates. Again, currency headwinds led to a fall in operating profit at reported rates of 1.9%. Return on sales for the division remained constant at 16%. Both recent acquisitions, which is the Davidson acquisition in Australia last year and the Mac Chain acquisition in North America, which we recently bought are performing in line with our expectations. As mentioned earlier, the prior year statutory operating profit was flattered by GBP 2.2 million from the assignment of the remaining lease on the closed Bredbury site to a third party, together with GBP 0.6 million of amortization of acquired intangibles. In the later cycle TT division, revenue increased by 1.4% and or 2.8% at constant exchange rates as we saw an increase in activity in the Couplings business from the impact of recent military orders. Operating profit in TT increased by GBP 0.5 million or 10.9% due in the main to the volume increases associated with the large military contracts in the Couplings business. Head office costs were constant, the same as last year. There were increases due to the impact of the inflation, but these were offset by movements in the level of provisions for variable elements of pay. Okay. Our next slide is our profit bridge. That basically tries to track the movements in profit from 1 year to the next. The first impact was the retranslation of results from foreign subsidiaries, which reduced operating profit by circa GBP 0.6 million. The impact of price, volume and mix but primarily volume and mix that has reduced operating profit by GBP 1.3 million. This reduction was offset by GBP 1.4 million, which is the impact of projects aimed at efficiency and productivity improvements including the impact of CapEx, buying productivity and standardization of products and components and processes. The Davidson and YUK acquisitions together added GBP 0.4 million to operating profit. Other costs, which include the impact of variable elements of pay, were a net benefit of GBP 0.3 million. Finally, the half year results show an operating profit of GBP 15.2 million with a return on sales of 12.3%. Moving on to cash flow. Adjusted EBITDA was again positive in the period, increasing to GBP 21 million. Working capital remained flat with a reduction of GBP 0.2 million. Net CapEx of GBP 5.1 million continued at a similar rate to last financial year. The latest analyst projections show a spend for the year of GBP 12.3 million. These have increased recently due to the impact of the Valencia flood, the cost of which is covered by an insurance claim. Pension cash costs returned to more normal levels expected at the half year. Last year, the group advanced contributions to the U.K. scheme basically advancing the H2 contributions into H1 in order to allow the scheme to benefit from various investment opportunities. But this has normalized during the current year. The payment of the dividend, which we paid in H1, resulted in an increase in pension cash contributions of GBP 0.25 million, which was seen in the half year. Restructuring spend was zero in both this and prior years. Interest costs increased primarily due to the increase in interest rates during the year. These will increase going forward due to the impact of the Mac Chain acquisition, but will be slightly offset by a lower base rates. Finally, the impact of acquisitions in the period includes payment of the Mac Chain of GBP 21.2 million. Costs paid to date of GBP 0.4 million. Now for a total expected cost of GBP 1.2 million, and the final payment on the YUK acquisition of GBP 1.7 million. Our next slide is our cash flow bridge, which tries to break the cash flow down into 3 areas: the cash flow that comes from trading; there's cash flow that comes from our necessary spend such as pensions, tax interest and those that come from discretionary spends, which are essentially up to the group to decide what level of spend that we will decide on. So this slide illustrates the use of cash flow over the past 6 months. Cash generated from trading activities represents GBP 21.2 million, with the GBP 21 million of EBITDA generated supplemented by a small reduction in working capital of GBP 0.2 million. Required cash spends covering pension scheme contributions, tax and interest, et cetera, represents a further GBP 9.1 million of expenditure. Drawing a line at this point before discretionary spend, would have resulted in a cash generation of GBP 12.1 million and a net debt position of GBP 12.8 million or 0.3x EBITDA. However, the group went on to further invest in the developments of the business by spending a further GBP 29.4 million of discretionary spend, primarily on acquisitions and capital investment. Okay. Moving on to the next slide, which is pensions. This is slightly different from what I've shown in previous periods. And what it's trying to do is try to identify the impact of the pension contributions and the total cash generation of the group. The group's IAS 19 deficit is GBP 52.2 million, a reduction of GBP 4.9 million or 8.6% in the half year. U.K. pension deficit was GBP 35.1 million, and this is reduced by GBP 4.8 million during the year. The main driver in the reduction is a 25 basis points increase in discount rates seen during the half year to 5.25% for the U.K. scheme and a 10 basis point reduction in the long-term inflation estimates. Cash contributions to the pension scheme, which are the bars on the bottom of this chart, are projected to be GBP 7.5 million in this financial year, of which foreign contributions are GBP 1.4 million, mostly in Germany. U.K. current contributions are GBP 4.2 million. Deferred contributions relating to the COVID payment holiday that the group took during payment at GBP 0.6 million, they will end in a further 2 years and additional variable contribution for either dividend or profit growth of GBP 1.3 million. Finally, the results of recent strategic initiatives in the long-term future of the group through bolt-on acquisitions in the Chain business has led to the relative size of the pension payments reducing significantly over recent years. In 2018, pension payments represented 27% of group EBITDA. While going forward, our broker forecast suggests that by 2028, without any further acquisitions than the ones that we've done, pension payments will represent only 14% of group EBITDA. And that, as I said, was prior to any further acquisitions, of which we do have plans to make more. Current pension payments represent 17% of group EBITDA with the variable amounts within those payments represented 2% of that 17%. In summary, despite potentially large swings in the IAS 19 pension deficit, pension cash flows are manageable, predictable and sustainable over the longer term and are becoming an increasingly small proportion of the group's cash flows. Moving on to the next slide. We are -- obviously, we need to talk about the impact of our post-balance sheet event, which was the impact of the Valencia flood. At the close of the half year, there was severe flooding in Valencia, home of our Spanish business. While the main logistics warehouse, which represents 70% of the sales of our Spanish business was unaffected, the CVC manufacturing facility was severely flooded. Fortunately, no employees were injured, but the majority of the factory equipment and inventory was impacted. The business is fully insured, both from a business interruption perspective and from a property damage perspective. The trading impact is limited as we have plans to maintain the final product assembly, even though this will be brought about using [indiscernible] components from either other parts of the group or from external local suppliers rather than the lower cost components, which are manufactured in turn. The impact is likely to result in an exceptional loss of GBP 4.8 million in this financial year with an exceptional -- significant exceptional gain in the following financial period. The net cost in terms of cash flow over the 2 years, which will primarily represent the insurance deductible, will be in the region of GBP 1 million over that 2-year period. So the impact of this flood after the insurance is likely to be a net impact of around about GBP 1 million. Now I'd like to hand back to Robert, who will take you through the rest of the business.

Thank you very much. In light of what I consider a very resilient performance in uncertain economic conditions, I thought it might be helpful to recap some of the strong drivers that exist for the Renold business to help explain why Renold has performed as it has. Our markets are growing. Our products are far more complex than they are perceived to be, and our engineering is very highly regarded as we deliver tangible real value to our customers. Our market position is excellent. We are a market leader, selling premium products that are differentiated in high specification. Our high-performance products offer excellent value to our customers, particularly in terms of product life and low total cost of ownership. Market trends are a tailwind for us. We offer products that are responsibly manufactured and that in their own right, have excellent sustainable credentials. Automation requirements are growing and our products facilitate this, in particular, as businesses move from islands of automation to fully integrated automated systems. High-performance, reliable products become increasingly important, and this is what we deliver. We have 3 ways of growing our business. Personally, we are technically stretching the envelope upwards, producing products that fundamentally deliver ever better performance. Secondly, we can increase market penetration through either in-house development or acquisition. And thirdly, we can extend our range into closely adjacent markets, usually by acquisition. Our markets are global, highly fragmented with many small private geographically or product-specific competitors. The universe of possible acquisition targets in the industrial chain market, which is our area of interest for acquisitions, is considerable. As we've shown, we have the cash generation management and a growing track record of delivering. So we turn the page again, please, too. This is the Renold strategy slide. The Renold STEP2 strategy is unchanged. And as you can see from the [ RAG ] rating on the right-hand side, it's delivering. Our strategy seem quite simple, but it's more complex than it initially appears. There are 2 sections: growth and business improvement. Growth is split into organic and inorganic. Whilst markets have been tougher in recent times, we continue to grow whilst expanding our margins. We also continue to grow our EPS. The business improvement part of our strategy consistently develops and generates good returns, as you saw on Jim's waterfall slide of profit improvement. Our capital investments are helping us to reduce costs but also to debottleneck our factories, improve efficiency and grow productivity. The work streams that revolve around standardization, particularly of components and processes are key drivers. Acquisitions provide more fuel to the business improvement engine. And as we get larger, there's even greater scope to improve. Over the page again, please, Tim. There are a number of points that could be drawn from this divisional slide. Yes, sales per employee or productivity is steadily improving in both divisions. Yes, adjusted operating profits continue to develop in both divisions, Chain having delivered compound average growth of 18% and TT 11% over the last 5 years. And we're growing our return on capital despite continuing investment. However, I'd like to draw out one fact. We're making a return on sales of either 16% or 17.5% in the 2 divisions, well above the 12.3% for the group. The difference is the central costs. While central costs may rise broadly with inflation, we can run a substantially larger business with broadly the same central costs. Where the growth comes from acquisitions organically, as we get bigger, the mathematics drives you towards the margin target of mid-teens, regardless of further business improvement activities. However, there will be further margin expansion from business activity improvement projects. Therefore, in simple terms, we're confident that the mid-teens margin is an achievable midterm objective. Over the page again, please, Tim. I won't labor this slide, but it shows 3 new capital investments in the period. The top left picture is the Morristown robo, drill robot system. The top right picture is the new Einbeck automated extended pen assembly line, and the bottom picture is a robot-minder on a CNC machine in our Melbourne factory in Australia, and that's where we're consolidating last year's Davidson Chain acquisition. So what are the common themes across these investments. Robotics and automation are increasingly important to us. They help us the way they help our customers. They reduce labor costs, but also remove the need for people. And in today's world, where employing people in factories is difficult, it means that we can increase output as well as reduce costs. Other common themes amongst our investments, increased flexibility and capability is definitely part of the story. We, as a business, are able to make a wider range of products. Whilst each piece of equipment is able to do a wider range of tasks and consequently make a wider range of products in one operation. This gives many benefits and adds to levels of utilization. And in turn, this aids payback. Turning over again, please, Tim. The top section of this slide shows the breakdown of sales by market sector. This analysis is based on our sales that don't go through third-party distribution. As usual, I've added some photos to try and bring some of our end markets and applications to life. I believe the key takeaways are the sheer breadth of our markets and the fact that many applications are based around modern market developments. In the period, we saw absolute revenue growth in construction, forestry and agriculture, whilst energy and transportation were softer. The pie chart at the bottom of the slide shows external sales by geography. Revenue in the Americas has risen slightly to 42% of total external revenue. With the acquisition of Mac Chain, this is a 47% number on a pro forma basis. Mac Chain has brought Renold a third U.S. manufacturing site, that's the second U.S. chain and manufacturing site, positioning us well in a market which has a large deficit of industrial chain making capacity possibly in an era of international tariffs. Whilst it's not shown in this pie chart, U.K. external sales revenue is just 8% of group revenue. We're a slight net exporter from the U.K. To maybe get ahead of questions at the end of this session, we have just 260 U.K. employees, 259 to be precise, about 14% of our global workforce. The recently announced U.K. changes in national insurance contributions will have a small hundreds of thousands of pounds impact on us, but these costs will be passed on directly to our customers. It is still very much my belief that reshoring and derisking of supply chains is a top priority for many industrial groups, and we remain optimistic that we are well placed to benefit from these trends with a wide geographic supply and manufacturing base and growing U.S. presence. Over the page, please, again, Page 17. Thank you. As you can see, I'm going to -- this is a slide on Mac Chain. As you can see, across the bottom of the slide, the acquisition of Mac Chain is the latest in a line of successful acquisitions. Acquisitions enhance our geographic coverage, they enlarge our product range, bring sticky customers to us and generate synergies in a number of ways. As I said earlier, scale will move us towards the mid-teens return on sales target and acquisitions help us do this. You will notice that the last 3 deals had a wide geographic spread with purchase in Spain, Australia and now the U.S. and Canada. This is no accident. Whilst many people have focused on our financial capability to buy businesses, the other part of the equation that we are also concerned with is management capacity and bandwidth. And by spreading the acquisitions geographically, we make sure that our local teams have the ability to integrate properly and generate the synergies promised. Mac Chain is based in Vancouver, British Columbia, but also has a substantial manufacturing site outside Portland, Oregon. There's a small satellite warehouse and sales office in Quebec. Revenue is a little under $26 million. MAC produces high-quality conveyor chains, and its largest market is forestry, an area Renold is underweight in, and a market that holds considerable interest for us. The business brings a good management team with considerable market sector knowledge. I've spoken before about Renold being underrepresented in the west of the U.S. and this is also true in Canada. Mac solves that issue and also gives us a full Canadian manufacturing site, which we didn't have before. The Mac Chain locations are particularly suited to the forestry sector, but will also serve as Renold's service centers in due course. The deal enhances Renold earnings from day 1, but also brings the opportunity for future synergies, whether that be cross-selling of products, in-sourcing currently purchased products or using their volume to further drive our standardization and automation investments. We have a detailed integration plan, which we're working our way through. The business is currently performing in line with expectations. We paid GBP 23.8 million for Mac Chain, which is circa 7.5x the trailing 12-month EBITDA. With synergy, this multiple will reduce, our return on invested capital is above our WACC in the first year, and its earnings enhancing from day 1. Mac is an excellent business, and we are delighted to have their management team onboard. At the half year, despite just having done the Mac deal, our net debt-to-EBITDA ratio stood at just 1x, meaning that we have continued to enhance our cash flow, but also that we retain balance sheet flexibility to continue with our acquisition strategy. And speaking of that, if we go to the next page. We're very actively working on a good pipeline of acquisition opportunities. Each potential acquisition has its own set of benefits, synergies and strategic rationale. Our interest is only in acquiring industrial chain businesses. We believe that there are clear, deliverable synergies and benefits from these deals, and when conservatively financed and carefully integrated, they're a source of value creation for Renold. I'm often asked about how many opportunities there are to acquire companies in the industrial chain market. The answer is very many indeed, and I can't overstress how many opportunities exist in this very fragmented market. Typically, they're family owned, usually second or third generation. On the bottom section of the slide, we've laid out the number of businesses that are now a long shortlist of potential targets in North America and Europe. In the top left-hand box, we've identified 4 short-term opportunities that we are currently working on. As always, we don't think all these short-term opportunities will complete, but we remain confident of maintaining the cadence of our inorganic growth strategy. Our acquisition criteria due diligence and integration processes are well established and have been delivering. There is a lot of opportunity and benefits, which acquisitions bring. And these will bring considerable benefit in the future as indeed we are demonstrating. Maybe this is a good time maybe to flip on to the next slide. This slide shows our medium-term growth framework, i.e., what will Renold look like in the medium term. The model assumes one GBP 15 million to GBP 25 million revenue acquisition per year financed by debt. Base organic growth and business improvement activity is assumed to continue as per the STEP2 strategy. The medium-term framework keeps net debt comfortably below 2x EBITDA, whilst working capital and levels of CapEx expenditure as a percentage of sales stay as they currently are. As you can see, this scenario suggests the combination of these factors should deliver revenue of GBP 350 million, and the operating profit margin will continue to improve, and it will get to our next milestone of mid-teens. I'll leave you to do the arithmetic based on these numbers, but the profitability of the business grows considerably. Renold is in a key moment in its strategy where we can now accelerate a number of our activities driven by the strengthening balance sheet, cash generation and proven track record. Over on to the last summary slide, please, Tim. I am very pleased with the group's performance in what are difficult and erratic markets. It's clear to me that we continue to grow our market share by outperforming a number of others in the sector. Profits, return on sales, EPS and cash generation have all remained on an improving trend despite inflation and currency headwinds. Our growing cash flow has enabled us to make the Mac Chain acquisition, which will bolster our North American business. We retain a good amount of balance sheet capacity to make further acquisitions and to keep investing in capital projects. Post period end, our Valencia manufacturing site was hit by the recent flooding. The net impact is likely to be circa GBP 1 million and will be an exceptional cost. We're fully insured, including business interruption, but minus a deductible. The Valencia Logistics Center, which is close to the factory, was completely untouched, and that accounts for 70% of our Spanish business. There is and will be some disruption, but we're working hard to see that this is minimized. The Renold team around the world have delivered good results in a difficult environment. And in the last few weeks, the Valencia team have been through a very trying period, but nevertheless, worked tirelessly to get our Spanish operations up and working again. We're cognizant there are still considerable economic challenges in many parts of the world, many economies are subdued, while some components of inflation remain high, particularly for labor. Our very clear strategy and Renold's excellent business fundamentals continue to deliver results. Renold has again demonstrated its strength and resilience of its business, its market position and its business model. Whilst we see no signs of the global economic conditions improving in the second half, the resilience of the group gives the Board confidence in delivering underlying full year results in line with market expectations. Thank you very much. I think it's back to Tim for any questions.

Well, thank you very much, Robert. Thank you very much, Jim. Thank you, indeed, to those who submitted questions and comments ahead of the webinar and those who've submitted them during. We'll do our best to go through the questions. I will group some because there are some common topics there. One or two people have made comments, they will absolutely be considered and passed on. But the first area is really the U.S. Obviously, we've had the recent election, Trump, a number of questions about the dynamics of the Renold business in the U.S. How much product broadly is manufactured domestically and how much is imported? And how does Renold sit vis-a-vis the competitors there?

Right. That's -- there's many parts to this. Obviously, it depends a little bit what President Trump does as to what the consequences will be and what our actions would be in response. As far as we can tell, America does not have enough manufacturing capacity in the country to supply all its industrial chain needs by a long way. So we believe they will have to continue to import chain for some time, regardless of what tariffs are put on by the President Trump. Depends whether he puts differential tariffs on different parts of the world. So there are 25% tariffs on chain out of China into America already exist. But for instance, the tariffs out of India into China are zero. So it does depend a little bit what he does. We believe we are well placed, if not better placed, than most people. We have manufacturing of chain and TT products in the U.S. We now have a second U.S. chain manufacturing site through the acquisition of Mac Chain. We have land, we have facilities. And if necessary, we will build or expand our manufacturing in the U.S. to make more product in-house. We're not sure that's going to be necessary. We think when we look at the likely outcome that the tariffs, as they will be, I think the lower level on European, higher level on Chinese product probably, maybe it will impact other places like Taiwan, Vietnam, et cetera. When you work all those scenarios through, we don't think that's detrimental to us in the short term. We think it might even offer some opportunities in various ways. We'll have to wait and see. About half of what we sell in the U.S. is imported, most of that from Europe, a low percentage -- I'm trying to do the maths in my head, a low percentage of that is coming from China. I think our sales from China into the U.S. is something like GBP 2 million a year, that sort of area. So it's a small number. But we do import from other countries, but Europe is the biggest of those by a considerable way. So we'll have to wait and see. We've got a number of options in front of us. We can help our customers in a number of ways, broad manufacturing base and an opportunity to make more product in-house in the U.S., should I say, if that proves to be the right way forward as well.

Thanks, Robert. And just the supplementary question there. Does that therefore make U.S. acquisitions more attractive and potentially more expensive than they were previously...

We haven't seen any sign that's going to be more expensive. I think there are reasons. And one of the reasons I liked the Mac acquisition is thinking about tariffs going forward. So I think that does help us, gives us more options. But I'm not -- I don't think we're going to go out and purposely buy things just because of tariffs. It would be part of the mix in terms of reasons that we might do a transaction.

And that moves me swiftly on to acquisitions. There has been a number of questions around that. First one is really capacity for acquisitions. Can you talk a little bit more about the capacity you've got? And in particular, what sort of maximum net debt-to-EBITDA you would be comfortable with as a Board?

Right. So there's really 2 things in terms of capacity. One is around debt and the other is around management bandwidth to do the acquisition, do the due diligence and integrate it properly. We've done 3 acquisitions in the last 3 years, one in Australia, one in Spain, one in America. That's no accident. We do like to spread it out so that local management teams have the capacity to integrate properly and the time to do it. Therefore, what's the next acquisition we're going to do probably back to Europe in terms of the next acquisition because it's 3 years since we've done one in Europe. So that's where we are with management capacity to do the right, we're doing, which is one acquisition a year. That's what we've laid out in our model. We think we've got the management capacity to do it. We have been doing it. We think we can continue to do it. In terms of net debt, after the Mac acquisition, we're still only at 1x EBITDA. Our banking covenants are 3x EBITDA. Informally, the Board worked to say they don't want us to go above 2x EBITDA. If you take that medium-term model that we laid out on one of the slides, that gets us to GBP 350 million. When you work that model through, we stay comfortably under 2x. Frankly, it stays around the 1.5x or under. We're comfortable at those levels. And we think that's a very sensible and prudent place for us to be. So the model, as we've laid it out at the moment, we think is perfectly sensible. At some point, we might have to go and expand our banking facilities because the covenants, the multiples are one thing, but the absolute level of facility is another. Our current facility is GBP 85 million, with a GBP 20 million accordion on top. We haven't used that accordion. So we have some room under the current facilities if we need to. But currently, net debt, GBP 42.2 million is not stretching for us at all. I don't know if you want to add anything to that, Jim?

No, no. I think you really covered it there, Rob. We negotiated the last banking covenants back in a year last May, actually, it was at which time we expanded the number of banks in the syndicate. The banks that we've got are very, very, very supportive of the strategy. And our lead bank, especially, has made it clear to me personally that stay would extend the facilities if we found the right opportunities. They really do believe in the strategy that we've laid out and are very, very supportive. We've got the facilities for 2.5x EBITDA if we needed it. So with the facility at GBP 85 million plus the GBP 20 million accordion. As I said, if we thought that we needed to expand that in the short term, certainly, the banks will be very responsive, and they certainly want to get onboard with us.