Restore plc ($RST)

Good afternoon, and thank you to those of you who are joining us today to hear from Restore plc, who announced their full year results last week. If you haven't seen this already, you can find a copy of our research on our website, which covers these full year numbers. But the purpose of today is to hear from the management team as they take us through the presentation with an opportunity for Q&A at the end. Feel free to submit questions as we go through the presentation. But for now, I will hand over to Charles Skinner, CEO.

Thanks, Hannah. Good. Yes. I mean those of us who know the business -- those of you who know the business a bit, Dan and I came in sort of last quarter of 2023 into what had become a slightly muddled business. And I think the first couple of months was working out what had gone wrong with what had been a very robust business. 2024 was about sorting it out, which there were some easy wins like head office had gone from 7 people when I was last involved in the business to 55, and then we took that back down to 10 very quickly. But really bottoming out what was going on in all the businesses and taking action. And so we took quite a lot of action in '24, started to see the benefits. But 2025 was really all about showing that we got it to work and the businesses were in great shape such as they were and what we wanted to do and what we wanted to get out of. And then really looking forward in this presentation, we think that 2026 and onwards is very much about growth. We haven't been focusing on growth previously. We wanted to get the margins to where we want them to be. And now we want to focus on how we grow this business. I won't bother to read out these numbers, just to say that all of our divisions were improved. We started -- we went back on the acquisition trail. We didn't do any acquisitions in '23 or '24, but we started looking at areas where we could expand. Synertec has been a very exciting acquisition we made, and we had a hole for a business which specialized in outbound communications, and we filled it and also several bolt-on acquisitions, particularly in the shredding business, and we've done a couple more in the shredding business so far this year. Dan will talk more about Synertec, but it's an extremely exciting business and fits very well with the rest of ours. We said a couple of years ago that we get all of our businesses in the best possible shape we thought they could be in and if they didn't fit, we'd get rid of them. And unfortunately, or we recognize that Harrow Green, which is our office removal business, really was too big an outlier, whereas all of our businesses have got incredibly strong recurring revenues, leading to very strong earnings visibility. Harrow Green didn't have that. All of our businesses across the group were trying to get the group to 20% margins. Harrow Green was very difficult to get the margins to 10%. So we took the view about last May that we should sell Harrow Green, and we did a successful disposal to a trade buyer, Pickfords. And we've also announced on Thursday, we will be undertaking a share buyback program, which again, Dan will go into in more detail. Just looking at the graphs on the next page, this is sort of management congratulating itself but all the patterns are exactly what we wanted to see. These figures are without Harrow Green, obviously, but we've seen operating profit growing at 18% a year. We've seen operating margins moving up from -- by 400 basis points, which is quite serious and EPS 23% compound, and we hope that we can keep the EPS compounding at that sort of rate for the next year or 2. Very strong cash flow in this business. We checked off GBP 120-odd million in the last 3 years, probably this year, probably head towards -- getting towards GBP 50 million of free cash flow. And so our job is to improve the operating margin, chuck off some cash, so everybody can see that. And then also to get the businesses to be in a prime position from which we can launch them. So you can see operating margins. So in our Information Management division have moved up from 24% to 28%. Datashred from 8.6% to 12.3%. This is over 2 years in technology, which is a sort of basket case in '23, losing -- lost operating margins of 5% is now firmly on track towards a 10% operating margin. So then looking at the acquisitions on the next page, there will always -- the box business, storing bits of paper and cardboard boxes, that opportunities when they turn up and then at the right price, we'll pick those off. Similarly, we're not mad keen on buying scanning businesses. It's not necessarily -- they're not really bolt-ons, but when NEC said that let us know that they had a business which didn't fit with them, we're very happy to buy that. Synertec has been a great deal, but that was very much Dan's deal. So I'll let him describe that and where that goes. And then Datashred, this is a very easy area for bolt-ons when you -- shredding businesses tend to have very secure revenue on the back of long-term contracts. So if you acquire a business, those contracts will continue to run. You can say you can pick up the revenue and then put that through your existing network, which we can do very easily. And we obviously, in the year disposed of Harrow Green. So we spent GBP 46 million, the bulk of which was on Harrow on Synterec in the year, bolt-on acquisitions. We've got a bit of money so far with more hopefully to come from the sale of Harrow Green. And we will continue to do bolt-on acquisitions such as -- and we've done another couple of those this year. So I've spoken at the top of this about how we're now focused on revenue growth. And on the next slide, we'll see that we've got sort of three growth areas. So if you view our box business as being a fantastic cash-generative machine and our shredding, we're taking that towards that. With the box business, it works increasingly closely when people talk about how they're going to digitize how they should be storing their data, is it in hard copy, is it in soft copy? Actually, people want those options. Our digital business, when Dan and I came into it was pretty chaotic. And so far, we've managed to take out over GBP 5 million of overhead from that business, which obviously drives up the margins. But where we are in this space is that in our boxes, we hold a lot of data, which is physical and a lot of our customers for AI reasons and things like that are asking us to digitize them into some format. What we're increasingly seeing, we do a lot of work in this space for government and government is very keen on digitization. The problem is you always run into the problems is when you've got a digital system, which encounters physical data. So for example, in our mail rooms, you'd imagine this is simple. We just get the mail, we turn it into -- we digitize it, we turn it into soft copy and everything is very easy. Not when you're getting people sending when you've got to get people sending immigration notices through the Department of Work and Pensions, claims for rental payments, et cetera, going in there in lots of different formats or when people are actually sending cash and checks to HMRC. So where we are sits at the heart of the most difficult area and the most important area in where -- when people are trying to sort of improve their internal systems because being able to manage the physical side as well as the digital is really where it's at. Dan, as I say, will talk about our Synertec business and also our IT recycling business, which where we're the U.K. market leader, again, that was a bit of a basket case a few years ago. And now we feel this is an exciting business with increasingly big value-added resellers looking to invite us to manage how their fleet of equipment is monitored, not just what happens with at the end of its life. So we see that over the coming years, whilst the box business has been the sort of core attraction of Restore for many years, actually, we see that, that and shredding really fueling, providing the cash and the background and the customer base, et cetera, for us to increasingly penetrate these 3 areas. So my job is to tell -- and my job is to tell you what we're going to do it and tell you we've done it. And what we told you we were going to sort out the business, and we have sorted out the businesses so they're in really good shape. And we've told you about that. And now we're telling you that we are going to grow the top line. And I hope in a year or 2's time, we'll be telling you that we have grown it and what we're going to do next. Thanks very much, Dan.

Thanks, Charles. So I'll have the usual slide an extra bit on share buyback towards the end as well. So just the highlights, quite an easy slide for a CFO to present essentially, everything is moving in the right direction. So -- revenues up 27% over GBP 300 million now. Operating profit up 18% and the margin, which we said we wanted to get to 20% in the medium term is now achieved. PBT up 22% and the other metrics following, including dividend. Cash flow is strong. So free cash flow in the year of just under GBP 43 million, over GBP 120 million over 3 years, which links the buyback, which I'll come back to in a second. Good cash conversion. Consistently, this business has achieved 82%. That's our bar, but I'm pleased to say we're well over that. And net debt just under GBP 124 million, that's excluding leases to give a leverage of 1.9. Just a reminder, our preferred range is 1.5 to 1.9 -- sorry, to 2. So we're in that range. And then just on the next slide, there's a whistle stop tour of the 3 divisions. So first off, Information Management. And just a reminder, there are 3 businesses within Information Management. There's the boxes business, what used to be called records management, effectively the physical storage business. There's the scanning business that we call digital, and there's the inbound communication -- sorry, there's outbound communications business, Synertec, which Charles touched on a number of times. Taking those 3 in turn, boxes, stable during the year. So we started the year with 22 million boxes. We finished the year with 22 million boxes. And we've talked before about how we've got those contracts now linked to RPR, CPI, so steady inflationary increases in the revenue on a stable number of boxes. So you see revenue growing there. We expect -- just looking forward, we expect that basically to continue as is. So in other words, a flat number of boxes. It's a really mature business. You have got public sector creating more paper than they're destroying and corporates creating -- or sorry, destroying more than they're creating. So a slight change in mix, but broadly the same number of boxes. Property consolidation. Some of you may have been to one of our site tours, so that's effectively coming out of smaller warehouses moving into larger out-of-town warehouses that are more efficient just in terms of number of boxes per square foot, but also pound per square foot. So that's in its final phase now. We said we'd move 4 million boxes. We've moved about 2.5 million. We found all the sites they're going to. So it's just a question of filling them up. Nigel was here, he'd probably tell me off making it sounds simple. It's not simple to move 4 million boxes, but they're doing a really good job of that and we'll probably be going another 18 months or so into 2027 to finish that. Integration of digital. So we announced that in middle way '23, 2024. We said there'd be GBP 3 million of annualized savings. We've actually done better than that. We hoped we would do better than that, but we've done even better than we hoped. So we've saved annualized GBP 5 million. And that, in turn, has enabled more wins coming through as we've got a fixed cost base. And then Synertec. So this is the business we bought almost exactly a year ago. It does outbound communications, which in simple terms means sending letters and e-mails and texts. Most of its work is for the NHS. So it did all of the vaccinations for COVID during the pandemic and is about to send out flu reminder letters for the spring campaign. Doing really well. The management team there, young and ambitious, and we -- they have very ambitious plans. In 2025, they were on plan. In 2026, they now look like they'll be ahead of plan. So ambitious plans being exceeded. So we're pleased with that business, and it's got double-digit growth for revenue and profit this year in 2026. So that's doing really well. We're pleased with it. And it creates now an end-to-end offering for communications for a store, which means we can both handle communications out be it physical or digital and communications in through our inbound mail rooms. So that, combined with our physical store boxes, we think creates a really powerful business within information management. Datashred, so that's our shredding business, good performance. We talked about last year hedging the paper price. So just as a reminder, that business that way it -- the way it works, we charge monthly fees to come and collect the bins. We shred that paper and then we sell that paper to the paper mills. The paper mills then recycle it and turn it into tissues or cardboard. We hedged, which means fixed price contract, 50% of the paper last year that we produced. This year, we're hedging over 2/3 of the paper. So we're stabilizing the paper price that we're seeing. Industry-leading KPIs. So a big thing in that business is route density, how many visits per day, how much volume per day, and we were industry-leading and are maintaining. So that's really pleasing. And that's in a backdrop of bolt-on acquisitions. So that business, we had 7 acquisitions for the group last year, 4 or so of them, some of them did 2 things were in shredding, and we've completed 2 so far this year. So lots of bolt-on activity there and more to come. And then technology, so the asset -- the IT destruction business for asset life cycle management, winning some really good work through or doing some really good work through VAR, so value-added resellers. The largest for us is a company called CDW. And as Charles mentioned, we've -- that business is being run an awful lot better there. Ian and the team, the MD has done a fantastic job. So you're seeing margins moving in the right direction. Just on the next page, Hannah, we've got the bridge from last year's profit before tax to this year, so GBP 33 million to GBP 40 million or GBP 40.6 million. It goes through the 3 areas and group. I won't touch on all of those in the interest of time, but just pull a few out. You've got the digital integration in there and Information Management of GBP 4 million. That's the annualized savings of GBP 5 million, GBP 4 million of which was in last year. You've got contribution from acquisitions. You've got the property consolidation coming through. Set against that, 2 red bars there, you've got cost inflation a year ago or October 2024, we talked about the impact of the budget. Most of that is NII and national minimum wage. We've also got some headwinds in there this year around business rates. So that is offsetting some of the property consolidation. And we've also got the last block in there, activity. That's a bit of phasing effectively. So at the end of 2024, we lost a major contract within the scanning business. We won DWP, the mailroom for DWP, but that's only been fully operating during Q4 last year. So this year, that will swing back around the other way. And then that covers off Datashred, the next block. Acquisitions is the main contributor, biggest one being shred on site, which we did in April last year, end of March, early April last year. And then technology, that's the margin coming through. Then I'm conscious of time, so I won't talk through all of these pages, Hannah. I'll maybe just go to Slide 14, which is the cash conversion one. Sorry to make you set page down a few times -- that's it. Thank you. So free cash flow of GBP 43 million in the year, consistently high cash conversion. This is my third year-end now, and we've always been over 100%. So really pleased with maintaining that. In 2025, we started up what's been new for me at Restore, repeat of Charles' behavior when he was here, first time acquisitions. So GBP 46.3 million of acquisition spend in the year, which includes GBP 11 million of debt that we acquired through Synertec. You've got the Harrow Green disposal and then you've got finance costs. The leverage ended at 1.9x. We refinanced at the end of last year. So in October, we refinanced with the syndicate of banks. That gave us GBP 150 million facility and a GBP 50 million accordion and we've also got the U.S. private placement bond of GBP 25 million there. So plenty of facilities at a decent rate. So we've got room to keep doing the bolt-on M&A. Two more slides from me, and then I'll pass back to Charles. Next one is just on capital allocation. This is largely the same as it was last year, just a very slight tweak on the buybacks, and that's because we're now doing them. So just a reminder on this, first and foremost, we'll invest either in the business or through accretive M&A. We'll always do that first. That will be the first choice in capital, and that's because the returns are so good in those spaces. Then we'll maintain dividends on the shareholder returns. Previously, we talked about considering buybacks. We now decided to do that. That's reflective of the share price being low in our view. But we'll do that all within an underpin of the leverage range of 1.5 to 2x, and that's net debt, excluding leases to adjusted EBITDA. And then last page for me, Hannah, on the buyback, Slide 16. So last Thursday, we announced we did it. We've started today, and there was a further RNS coming out this morning. That's as effectively pressing go. So that's a GBP 20 million buyback over 12 months. We think it probably will take 12 months given our liquidity. It's in the context of over the last 3 years, us generating free cash flow of over GBP 120 million, GBP 43 million of which was last year, it'd be high 40s this year. So really cash-generative business. We've got a healthy acquisition pipeline. As I said, we've done 2 this year. We've got more pipeline with more. So it's as well as not instead of, and we'll do that within the leverage range. And that's in the context of the M&A pipeline that we see and we'll continue to pay the dividend, and we'll think about how that goes over the next 12 months and whether we do it again for 2027.

That's it for me. Back to Charles. Great. Thanks, Dan. And so what's the business outlook? I really like good operating margins. And certainly, we think we've reached a point where our operating margins exceed 20%. We feel we've got a very robust business model. We think we've got lots of opportunities for growth. So if we can put more revenues through the business at these operating margins, then we're going to see the earnings ramp up quite significantly over the next 2 or 3 years. Clearly, the storing bits of paper and cardboard box is not a very exciting activity, but it is very remunerative and we generate fantastic cash. And that is -- I don't -- if I go back several years, this was really what the business was about, and we were dabbling in other areas. Actually, I think now this is more background music in terms of underpinning our profits and generating cash for some other very, very exciting areas which we're in. So that box business used to be called Records Management. But now having put it together with our digital business and Synertec, these form the Information Management division. What that's enabled us to do is several things. Firstly, -- it's enabled us to save swinging amounts of cost by combining physical with digital. And I think that's in excess of over GBP 5 million of cost to come out of there where we have generally the same transport, the same sales, the same financial team, admin team, et cetera. But it also -- as the point I touched on earlier, increasingly, our customers expect and need us to help them with what should they turn into physical -- what physical documents should they turn into digital documents? How do they handle the fact that they're running both types. And this is a real killer for most businesses and for most people trying to digitize their life, working out and that's even on a personal basis, working out where the physical meets the digital is really, really complex. And we seem to sit at the heart of that these days. And a couple of arguments, a couple of things have come up in the last month. One is a very large government contract, which we would normally expect to. And in all of our businesses, I like to be at the bottom end of the value chain. I want us to be getting on with work which is considered hard and possibly tricky to deliver on, but it's certainly not particularly clever. In this particular space, what we found is that people are saying, actually, all of the tough stuff is around what you guys do. It's not around what the management consultants say is how we reorganize our digital journey. It's not actually even around what sort of software we buy. It's actually the nitty-gritty of how do you deal with physical documents at the same time as digital documents. And this -- and so we have been asked in this particular instance, not to be a subcontractor, but to actually be the Tier 1 person because the government believes that we are probably the people with most knowledge of the trickiest area. The other sort of thing which happened recently was one of our biggest customers, we run a digital mailroom for HMRC, and that's a difficult contract, and we had a few problems on it, partly us, partly the customer expecting more than we could do. And HMRC came to me personally and said, we want your attention, Charles Skinner, -- your business is incredibly important to HMRC, and you must make sure you deliver properly. Now there's a part of me which goes, we've sort of -- I'm getting -- I'm in trouble because we haven't done very well. But we did sort it out because another part of it tells me that we are absolutely integral to the government's drive towards digitization. So where I see we sit is a very exciting place. We're really good at what we do. We can see improved profitability, but we can also see significant growth. And this isn't something which is built into our numbers. This is just where we think our business sits very fortunately in terms of being critical to this -- to the digital world. And I think it's probably relevant that in a world where everybody is suggesting AI is absolutely -- is going to change everything. It probably will, but there's an awful lot of it, which -- of the data which they need, which is sitting in our warehouses, which will need to be digitized before some of this information can be in the public domain such it can be used by AI. So we feel pretty comfortable about that. As Dan has touched on, Synertec has been a fantastic acquisition, double-digit growth, absolutely critical to the NHS to the small parts of the NHS, which we work for, huge scope to do more work for the NHS, huge scope to do much more for many other companies. And because we're doing inbound mail, the capability of Synertec to do outbound communications, whether in by post or by text or by e-mail is really critical. And that will be -- we're very excited about that business. We will -- Datashred, good business. It's not going to be particularly dramatic. We will continue to acquire businesses there, which give us a significant return on investment because of our ability to take cost out of those acquisitions and also it boosts our market share. And our IT recycling business technology, we spent 2 years sorting it out. We now understand where we make money, where we don't make money. And the team there is focused on growth, which we think they're going to deliver in the coming year and beyond. So just finally, wrapping up on the group outlook. We're really comfortable with how our businesses are being run. We've got the right people in the right place in the right frame of mind. I think people are happy in the business. I think we're delivering for our customers. And I think these represent a really great opportunity for growth, both in terms of organic, but also in terms of through acquisition, and we will be pursuing that. We've hit all the sort of numbers which we want to. We can see in some of our businesses that they will only be growing in line with inflation. But we can see that in certain areas like where digitization is required, outbound communications, IT recycling, these are significant areas of growth for our business. So we feel that -- we've come through what hasn't been necessarily the easiest trading period of my working life with achieving operating margins where we wanted to be in excess of 20%. And we're feeling pretty good about life. And to the extent that we've -- year-to-date, we've then nudged up our forecast numbers in December. We've now -- we're now in March. We're comfortable enough to nudge them up again. So I suppose like many CEOs and actually many professional investors in small caps, you look at the valuations, and you can't really believe what is going on in a world where I like Jim Slater's old measure of price earnings divided by growth, and he was always keen unless anybody who was -- whose PE -- whose PEG was at less than 1, either had big problems, which the numbers weren't showing up or there was a great buy. I think we're on less than 0.5 now. And -- and I know there are similar great companies in U.K. small caps in the same position, but it is very frustrating. But hey, that's markets for you. If you've got more sellers than buyers, the share price doesn't go up, and there are structural issues in both the AIM market and the small cap market, which makes it very difficult for shares to be rewarded with the appropriate valuation as of today, but that changes very quickly. Great. Thanks, Hannah. Has anybody got any questions?

Just a few. That's the good news. Let's crack through them. Given the slight organic revenue decline in FY '25, can you elaborate what level of organic growth you're expecting in FY '26 and what drives that acceleration?

So almost all the growth last year was through acquisitions, which we've said in black and white, so we've been open about that. Actually, if you take acquisitions out and you normalize for the loss of that contract I mentioned, you have actually got some growth, but let's call it flat for the sake of argument. This year, 2026, we should have double-digit growth. Now some of that will just come through annualization of acquisitions and that contract. But you'd expect growth to continue certainly way above inflation on a run rate basis on the year after that. So you can see we're cost-cutting focus, which is why this slide keeps coming off. So yes, double-digit growth this year and high single digits we should get on a run rate thereafter. And that's coming from the 2 cash cows we talked about, so the boxes and the shredding business. The growth areas we're highlighting are the scanning opportunity, and that business is in a much better shape now than it was certainly when I joined, the Synertec business, which we talked about and technology. So that's what's going to be driving the growth.

Okay. Let's talk about the growth then. Is there an element of cannibalization of physical storage by the digital business? And how does the economics per box compare between the 2 businesses?

I think the -- for most finance directors, if you say it is going to cost you GBP 3 a year to store this box or you can scan it at a cost of GBP 150, you're going to get a pretty straightforward answer, which is keep storing it at GBP 3.50 a year. So generally, unless people want to know what's in the box, they're not going to -- or want to have access to it, they're not going to digitize it. What it is, is that there are very specific areas where people -- and I think somebody like the land registry has got the right approach. So we store most of their -- we have their records. And what they do is when somebody requests the records, at that point, they scan they digitize it, and then they hold on to the original copy for 6 months, and then they destroy at that point. So they're a very, very slow move towards that. And obviously, that is -- but it's pretty tiny as a percentage of our overall 22 million boxes. If you just scan 1 million of those, that would be GBP 150 million of revenue for our scanning division. So -- and our scanning division currently does about GBP 50 million. So we don't see it being cannibalized. We view it as a great opportunity as people come to us and say, well, what should I do? What do I need to look at? What do I not need to look at? And there are interesting areas about people say why do they bother to store this stuff after a certain amount of time. And these things can be military records, they can be building stuff, they can be wills, but they can be long-term social security insurance documents. But my favorite example recently was when Glaxo was sued in the U.S. for the fact that Zantac was killing people. And Zantac has been, I think, around for about 50 years, possibly a bit less. And if Zantac had said -- if Glaxo had said to the court, we tested it on everybody, we've done all of that work and the court said, show us your paperwork, show us your test, and they said, "Oh good, they were anxious, we chucked them out. I don't think they would have got away with $500 million in a spurious class action. So there's quite a lot of -- that would be a very good example. They didn't -- at that point, they needed -- when the court case came along, they needed to digitize all of that stuff, the court case. But there was no point digitizing all of that stuff in advance, nor could they throw it out. So that's a very typical example. So if a drug company says to us, should we digitize all of this, we will say, well, I think you might want to digitize these sections of this, but don't do the whole thing. But it will be interesting in the world of AI. I mean we did a digitization job for NHS for a big NHS trust. And I thought it's pretty stupid that they did all historic records. I think they had about 100 people on it for the best part of 3 years to back scan all of those records. And what's the point? That was -- we felt was rather foolish. But it might be that Google or somebody like that does decide that they should back scan all of the NHS records at a cost of GBP 20 billion because the quality of information would be amazing to be able to have all of that data. So we are really, really ambivalent about whether people store or they scan as long as they recognize that who are the people they need to talk to about what they should prioritize, how they should do it, et cetera. And we are the best people to talk to because we actually understand the ins and outs of how difficult this stuff can be.

Okay. Moving on to shredding. Is there competition for shredding bolt-ons? I noticed Shred Station also seems to be acquiring.

That's quite a specialist bit of knowledge there. The answer is no. And probably if you look at the relative profitability and access to capital of Restore Datashred and Shred Station, you'll find that one of them has got a business chucking off GBP 40-plus million of cash a year and the other one's debt climbs every year. No. So the only people at the races -- we are -- ourselves and Shred-it are the market leaders in this space. Shred-It do not acquire other businesses. They're not at the races. The third biggest player is Shred Station, and they haven't got any money. So that answers that. And it's a very good market to be buying businesses in.

In the medium term, what percentage of revenue would you expect from the combined shredding technology divisions?

I don't think relative to the group that is going to move up significantly. Clearly, I think Synertec has got dramatic. I think Synertec and our -- and the digital element of the Information Management division will grow quite rapidly. The Box business won't will hardly won't grow. So I think technology will remain fairly constant and Datashred, it will only really be inorganic growth. And when we've done that, I expect Datashred will grow in terms of Restore Recycle where we're collecting things other than paper. So we're doing particularly well in textiles and secondhand IT equipment as we -- but I would think that if I take the 2026 numbers, I would expect Datashred to decline marginally as a percentage of group revenue and IT recycling, restore technology will probably remain about the same percentage.

Yes. I completely agree with that. Just to frame it in a different way, if you take -- we've got 2 businesses, which we would call cash cows, the physical storage business and Datashred. And we've got 3 areas that we're calling out now as growth areas, scanning, Synertec and technology, the revenue from those 3 growth areas will exceed the revenue from the 2 cash cows in the medium term. So that's probably a different way of answering that question.

Okay. Given the relatively high 1.9x leverage multiple and announced share buyback, would you expect a lower level of M&A than in this year in order to keep your leverage target?

So I'll take that one. Everyone we talk to, and it depends on whose shoes you're in, has a different view on what the right leverage is. When we go and talk to American investors or potential investors, they look at us as a U.K. company and can't understand why we haven't got significantly higher leverage. If you look at some of our peers, take Iron Mountain, I know Iron Mountain is a much bigger and a different company. It's global and it's U.S. listed and it's a REIT. Nonetheless, they have 5 or 6x leverage. The banks are really fond of this business. They see us as a very, very safe bet because of the boxes and the cash flows that are thrown off from the boxes. Our facility allows us to go up to 3x. When we refinanced, we refinanced on a better rate, which is indicative of how the banks view us. But we know that we're a U.K. owned company, who are cost conscious. And therefore, we know we have to stick within what most of our investors want, which is no more than 2x. So we'll stay on that 1.5 to 2x range. I'm perfectly happy being at the top of that range versus the bottom. If we find M&A that is too good to say no to, and we'll always do M&A as first priority, then we'll do it. And we wouldn't have a problem in tripping over to a little bit in the knowledge that we'll very quickly delever. The buyback isn't instead of M&A, it's as well as. So we've got a pipeline some of which we've already done and announced, some of which will come. We think we can have space for that to complete that pipeline and do the buyback and still stay in our preferred range.

Okay. And in terms of acquisitions then, what are your likely areas that you are looking at?

I think I'm very clear that you need to -- when you look at an acquisition, you say, what am I buying here? And what is quite nice is to buy contracts. So I've always enjoyed buying box businesses because the boxes don't care who the owner is and the customer doesn't really care too much as long as they get the same service and they probably don't know that anything has changed. Similarly, with the shredding business, these are contracts, the same person will probably come and pick up the bin from your office. They might be wearing a different shirt, you won't notice. So those 2 are clearly attractive businesses for that. I think there are probably similarities that there are certain printing businesses, possibly in Synertec's area, which -- where the customers will not mind who prints the stuff for them. And if they got the added bonus of having some -- the capability to e-mail and text as well in their communications, they would go for it. So those are areas which I like when buying contracts. It's difficult when you're buying some of our other activities are much more relationship driven that's -- and in those situations, you've got to be very wary as to what's going to happen. We are incredibly well invested in the U.K. So we're not really looking for additional facilities. Similarly, I think we're very comfortable with the -- with the intellectual property we've got. So we're not looking to acquire businesses that leads to. It's really about contractual revenue is very attractive to us to push through our highly profitable machine.

And then I guess, phrasing it a slightly different way. You've obviously listed the areas where you see the organic growth potential. Any one in particular or more than one where you can see double-digit growth in the medium term?

I would think that Synertec should achieve double-digit growth this year. I think we'll achieve it in scanning in our course -- in our main scanning activities. And I think possibly those can be sustained, probably more so the likelihood of winning larger, particularly mailroom contracts and more bulk scanning contracts, I think, is quite high. So possibly, if I had to say where can I most obviously see organic growth, I'd probably put scanning top of the pile than Synertec. And I think it would be nice to think that -- I think restore technology I think their run rate suggests double-digit growth certainly this year. I mean in that business, which was a bit of -- which was a shambles, we've done -- the management team has done a great job there of organizing it. We're now making decent -- we now have got a very coherent and well-run organization and now their task is to grow -- is to put more business through there. It's more of a relationship type thing with the customer there. So that means we've got to go out there and win business. And I'm very comfortable that the team there will win new business because we've got such a great offering in what is a pretty chaotic disorganized market.

Okay. Just another quick compare and contrast question. How do the 3 businesses compare as far as cash flow is concerned?

I don't know about cash flow.

Look, the box is absolutely rock solid. So that will throw off cash, whether whatever is going on in the world. So that's highly cash generative. Shredding, the same. So shredding got -- it got a bad reputation when the paper price was volatile, and that's one of the reasons why we decided to enter into fixed price hedging on the contracts. It's a really repeatable business. So 75% of the revenue is from service fees. The customer churn is really low. 25% is from the sale of shredded paper and bales to the paper mills. Paper mills love the paper bales because it provides a really solid core that they can do their other blending on. So Datashred, although on a smaller scale, is just as cash generative. Technology hasn't been. And if you look at the technology revenues, they've actually been flat, but that's a tale of revenues to VARs going up, certainly and revenues on some of our smaller customers, so schools, hospitals, for instance, going down. And we've been making a lot of -- or Ian has been -- he's been doing all the hard work, a lot of operational improvements. So across the 3 businesses, they're all cash generative. Obviously, boxes is so dominant because of the size. Just touch on Synertec, that is in a period of growth. So that probably will consume a little bit of working capital as it's growing because of the relationship between us and the -- where we buy the postage from Weston Royal Mail. But overall, all businesses highly cash generative. And that's one of the things we like about our businesses.

Yes. I think the other point I'd make is we're really well invested. When I look at our fading sites, they're pretty state-of-the-art. There's probably some of our scanning equipment might need a bit of 1 or 2 machines, which aren't in the finest condition. But generally, across our estate and everywhere, it's not as though we've got to build a new facility because we haven't -- we're old fashioned. So the nature of our business can be capital intensive at certain points where we are now that there's very little need for -- our replacement CapEx is minimal.

Okay. I've got a couple of different questions here, all sort of looking at external impact to the business. higher energy prices, diesel prices. Do you want to pass some comment on what impact you'll see that having to the business over the next year?

Yes, I'll cover that. So fuel for the fleet, actually, it's bizarre. So we are -- for those of you that know us reasonably well, will know that we're converting much of our fleet on to HVO, vegetable oil. Vegetable oil clearly comes from vegetables, not -- and shouldn't really be linked to oil, but they take the price of that to diesel, which is rather frustrating. Charles shaking his head...

Certainly dim things about good environmental behavior anyway, keep going.

The annual cost of that is GBP 2.5 million. So to scale it, it's not really that sensitive Electricity, we've hedged a good deal of electricity anyway, certainly coming up this winter. That cost is a little bit more. It's about GBP 3 million or so. But again, it's that sort of scale. So call it GBP 5.5 million between electricity and diesel. So the exposure is relatively small.

Just trying to pick off a few Synertec questions. Scale of the exceptionals, can you explain them, please?

Yes. So I'm an accountant, but this is something that really annoys the accountant in make. So the Synertec deal has an earn-out, and it has an earn-out because we very much want to, a, keep the former owners aligned with us; and b, it's a way of derisking how much we pay because the earnout is linked to future profits. However, because they're continuing to be employed by us, the accounting rules say that we need to classify those as remuneration, i.e., payment. When I was learning my ACA, it would have gone on the balance sheet and you had goodwill, intangibles and so on. But now it needs to go through the P&L as remuneration. And therefore, there is a new item this year, and it's GBP 10 million plus GBP 1 million of interest, so GBP 11 million, which relates to the buildup of that provision through the P&L, and we've adjusted that as through the adjusting items. So if it looks odd, that's why. There is a strong argument to say that's actually good news because it means the business is tracking the forecast and then we will pay the earn-out and so the business is performing well.

Okay. And cross-selling success into the wider Restore Group or vice versa?

Yes. I think the -- it's ongoing. Our penetration of -- we do so much for FTSE 100 companies and accounts, big accounts, big lawyers, et cetera. There's no particular win at the moment that obviously, things like the Department of Work and Pensions, it -- it wasn't the fact that we recycle all of their IT, the fact that we've just become their electronic e-mail -- their digital mailroom, the fact that we've got all of their boxes and we help them manage that. And we -- so it's more -- it probably works it's probably more effective these days is the idea of endorsing the fact that if you're the DW, if you're trying to offload all the DWP secondhand laptops, if you see that actually the people you're giving them to also runs your mailroom and stores all your boxes, you're probably more inclined to go with them and to trust the fact they will wipe your machines correctly, et cetera. So it's ongoing the whole time, the sort of cross-selling thing. But I think it's as much about the sort of endorsement effect. It's a bit like with the NHS, you're working for certain trusts like Synertec is. When you turn up to do it for other trusts, they're pretty keen. And I think that if you're storing their boxes and then you're pitching for their comms, it all begins to hang together pretty well. And we've taken very much a top-down view of cross-selling these days that where a lot of -- all of our salespeople get the commission for introducing business to other parts, and that's been booming quite a lot. But probably the area where I get most involved is going, here is a very big customer. Why are we not doing this for them? Can you bang on their door a few more times. But it's particularly those larger customers, it tends to be this tender has come out, make sure we remind them that they're already a customer.

Okay. This question is probably of interest to most of our listeners. You mentioned the buyback will take 12 months given the liquidity of the shares. Will the buyback make the stock even more illiquid? And what are the capital return options did you consider?

Other capital options, we looked at special dividend. We just through -- we thought about it quite hardly, but through -- we think buyback is the most sensible answer. And we're not alone in thinking that every time I look at the business pages, there are more buybacks announced through much better known names than us. Will it make us more illiquid? Challenge at the moment is finding sellers. Actually, there's not enough sellers out there. So I think that's our biggest challenge. I'm not sure. Maybe it will make it more illiquid because it will tease sell it out.

Yes. It's difficult. A special dividend is a difficult piece because at least for the share buyback, investors can choose what they want to do according to their tax position according to their individual status, whereas we lump everybody -- I mean, I because 45% taxpayer hate being given a special dividend. So yes, it's clearly in principle, I'm not in favor of share buybacks because I want companies to grow and have lots of money to do it. But we're also in the business of if you can turn a buck, turn it. So if you can see something incredibly cheap like your own shares, buy them.

A couple for you, Dan. Just a few technical ones. GBP 33 million of profit adjustment this year, what do you expect next year?

So of the GBP 33 million, GBP 11 million is the Synertec deal, so that will continue. So that will be the same for this year and the year after and a little bit the year after that because it's a 4-year earnout. There's a little bit more on the move to come. The bulk of the work is done, but there's another year or maybe 18 months of the move. So that's probably GBP 2 million, maybe GBP 3 million. Restructuring redundancy is done. So that's digital, that's finished and the IT stuff was done last year. So it will be finished the moves in property and the Synertec earnout.

And tax rate in the next couple of years?

The same. So our tax is boringly simple, so it took 25%, same.

Okay. Are you aware of any sellers in the market Octopus have been reducing anymore?

I think we've spoken to Octopus about this. I mean, Octopus clearly, the change in the IHT relief on AIM has been very difficult particularly on our current going around other investors, they're having a really hard time. They're seeing a lot of redemptions. We think that there's a belief that for AIM, it will be -- it's shared by lots of people that actually AIM -- a lot of people are organizing their affairs ahead of the tax year-end. They're working out what they're doing with their AIM stocks. Clearly, AIM stocks tend to have performed even worse than other small cap, a lot of other companies, so people are taking their losses. There have been a lot of redemptions from our core base of investors. And what quite often happens, which they very much is actually there better holdings are the ones they have to sell because that's the ones that they've got liquidity in -- but I know the Octopus team restore incredibly highly and are extremely sad that they've had to let a few shares go just because that's where redemptions are.

An acquisition opportunity, have you looked at Oasis in the past? Do you see a strategic logic there?

Yes, Oasis is for those who aren't familiar, Oasis is a European records management business, which has got operations in the U.K., Ireland, Benelux and Poland. It's one which if that came up, we look at quite hard, whether we take the whole thing in one go. I don't know. I think the Polish business has got quite a lot of digitization in it. Yes, we're familiar with it, and it's the sort of thing which we track we track the universe, even in the shredding market, even in the box business, we track every single company in these spaces. That's the only way, and we're in contact with them. Somebody is talking about getting -- we talk about people respond much better to post. I'm afraid everybody in our industry regularly probably gets a less for me about once every 6 months or every year saying, I think you should sell to us.

I'm conscious of time. So we'll just wrap up on this final thought, given your comments on the end market already this afternoon, would you consider a move to the main market?

The answer to that is not at the moment. We've always said if we qualify for the FTSE 250, then that would be the point at which we would consider it. And the AIM market has been very helpful for us over the years. And when we look at the valuation, there are still some advantages in being on AIM, not as great as they used to be now that the IHT rules have changed and also that the main market listings have become less -- have become more flexible. But actually, I see when I do my screening of attractive small caps, there doesn't seem to be any differentiation between whether in terms of the valuation, whether they're on AIM or whether on the full market. So I can't see the point of doing that. The point at which I would do it would be when we qualify for the FTSE 250, so you enable the IHT funds to swap out because the bankers would come in and buy it then. But if you move up, we've seen some disastrous moves up where you thought people, a lot of the IHC funds been forced to sell, and that's been deleterious for the share price. So we have no immediate plans to move up to the main market.

Super. Well, really comprehensive answers. A lot of questions. So thank you for getting through most of them. If we didn't cover you off, I will send them on to management and hopefully come back to you. But that just leaves thank you to you both. Thank you to our audience. Let's hope the next 3 months because I think we hear from you again in the summer and provide a little bit more of a tailwind.

Brilliant. Thanks, Hannah. Thanks everybody. Thanks for listening.

Thanks. Bye.

Thanks.