Macfarlane Group (LSE:MACF) — 2024 Final Results

0:01 Good morning, and welcome to the MACFARLANE GROUP PLC final results investor presentation. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated at the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Pete Atkinson. Good morning to you, sir.

0:33 Thank you, Alexandra. Good morning. I'm Peter Atkinson. I'm here with my colleague, Ivor Gray, to talk you through our 2024 results. Firstly, thank you for joining us. The agenda for the session this morning is as follows. Following a brief exact summary, we'll then talk through the financials and the cash flows for the year. We'll then get into a bit more detail and give you color around the business performances. That's our packaging distribution and our manufacturing business. And Ivo will then move to talk about the pension scheme update, and then we'll finish up with some conclusions and some summary remarks. The presentation that we're going to show you today will be on our website later this week for you to review review in a bit more detail. Before we talk about 2024, a quick reminder about the MACFARLANE business for those of you who are new to us. We're a specialist protective packaging distributor manufacturer.

1:28 We have two divisions. We have a specialist division representing about 20% of our revenue that supports customers in the medical diagnostics, aerospace, automotive fields. And then we have a distribution division representing about 80% of our revenue that supplies into the ecommerce sector and and, again, into industrial markets, predominantly b to b. The key benefits that we bring to customers is we are there to protect their products through the supply chain. We're there to ensure their products are effectively packed, stored, and also transported. And we also are there to reduce their working capital and the administration involved in the sourcing and the storing of packaging. And then finally, as you'll appreciate, we're there to help them with the environmental agenda in terms of making sure they're using the right sort of packaging in the right sort of volumes.

2:19 And how we differentiate ourselves from our competitors in the market, we've got now we're now in a business where we've got European coverage but with local service. We've got a very broad and wide products and service offer. We're not just products and price. We're an added value player in terms of the services we provide to our customers. We've got very long standing supplier partnerships going back twenty five, thirty years, and then we've got a degree of expertise and focus on protective packaging because we're a specialist in this particular field. So how do we perform in 2024? Our headline numbers show that our revenue was slightly down, 4% down versus 2023, but our profit's up, our PBT up by around about 3%. I think the market in 2024, as we flagged when we last sort of briefed people, we always knew the market was gonna be difficult, and we've seen very weak demand conditions, partly economy driven and partly down to the increasing environmental legislation, which is affecting anybody who is in the the in purpose of buying packaging.

3:26 And then during this period, we also saw sales price deflation of around about 3%. So in in a in a market with some quite strong headwinds, what we focused on was our self help program, as we call it, which is maximizing new business using our innovation labs and our packaging optimizer tools, and we've got a good story on new business, which we'll talk about later on. We've improved our gross margin through far more effective purchasing activities with key suppliers. And, obviously, we've continued our acquisition program, and during the year, we bought a business called Allpac Direct and a business in our manufacturing division called Polyforms. We'll talk about it later on. We've had good cost control during the period, and we've also got a very strong balance sheet. And, again, Ivor will touch on this, but we also, during the year, renegotiated our banking facilities.

4:16 As we exited 2024 and moved into 2025, we were pleased to be able to complete the acquisition of a company called Patrivi. And let me just talk about Patrivi as it's probably the latest piece of news in terms of the group.

4:30 Vitrigi is a well established business. It was established in twenty o five, so it's sort of 20 years old. Good good revenue in terms of 25,000,000 revenues, one of the largest acquisitions we've done in recent times, and a strong operating margin around about 10% of of revenue. The operating activities of Protrevy, they actually are a nice overlap with MACFARLANE. So they have a distribution business very similar to ours. Have They a TCP business very similar to ours, and they also have a specialist design and assembly business up in Aberdeen servicing the oil and gas industry very similar to ours. The one piece that they've got, which is slightly different, is they've got a a corrugated manufacturing facility, and we see that as a nice added value for our our ability to service customers within the the Scottish market.

5:18 The transaction details I've put out on the slide there for you, and as you can see, it's consistent with our normal multiples from a transaction point of view of around about five time five to six times EBITDA pre synergies, and and and the business is on a two year earn out program. How do we see the growth potential of Petrievy? As MACFARLANE, we're not particularly well embedded in the food and drink industry in Scotland, and it's probably one of the biggest industries in Scotland. So Petrieva will give us access to the food and drink sector, which is very positive. We also see the opportunity to use the corrugate facility in Petrieva for in house supply to our Scottish business and also to our business in the Northeast and potentially Northwest so we can actually hold margin within the business rather than give it to external suppliers.

6:07 And then we see quite significant cost synergy and sales synergy opportunities. So from our point of view, a really good start to the year, a really good quality acquisition, and just continues the track record of identifying and executing high quality acquisitions. Let me pause there and pass over to Ivor, who will take you through the 2024 financials in a bit more detail. Thank you, Peter, and good morning, everyone. Just to give you a quick run through of the financial metrics for 2024. For revenue and profit, we were down 4%, as Peter said earlier, and that's analyzed by a positive 4% from the acquisitions that we did in 2023 and 2024. So that's Gottlieb, Suttons, and BND in 2023, and the more recent acquisitions in '24, Allpac and Polyfarms, and minus 8% organic decline.

6:59 And that broadly splits, and that that's down to the reasons that Peter described earlier, weak demand within our customer base and some price deflation. So there's a mixture of price and volume within that minus 8%. That translates to an adjusted profit before tax of minus 3% year on year. And, again, the acquisitions contributed a plus 5%, minus 6% from organic. And so we've managed to offset some of the the weakness in the sales line through stronger gross margins and good control over the cost. So the impact on organic profitability is slightly less than it was in sales, and we've got an increase in financing cost, which impacted profitability by minus 2%. Translating that to, kind of, PBT, profit before tax, then with amortization and adjustments to deferred consideration, so acquisition related costs, then our PBT actually moved forward by 3%.

7:51 Moving on to the balance sheet. Again, very low net debt at the end of the year of 1,900,000. That compared to us being in funds of 500,000 at the end of twenty twenty three, So a net cash outflow of 2,400,000 in the year, and that's after funding acquisitions, CapEx, and dividends through the year. As Peter mentioned, we we, renewed our our refinanced our bank facility during 2024. So we now have a 40,000,000 revolving credit facility, which commit is committed for three years to November 2027 with the opportunity to extend that a further two years to November 2029, and we actually have the opportunity to extend that facility by a further 20,000,000. So it's an accordion facility over and above the 40,000,000, and that facility is now split between Lloyds Bank and HSBC.

8:40 As you notice, the right hand side of pension surplus moved moved slightly down. It was 9,900,000 last year, 9,600,000. So again, positive that the the pension scheme continues to be in significant surplus. It continues to be well funded. Company is not putting any further cash contributions into the scheme, and and we're working towards buy out over the next two years. In terms of the the bottom part, like, an EPS and dividend, EPS moved positively 4%. Strong dividend covered at 2.7, which is consistent with our historic position and a notch forward in the dividend of of plus 2%. So, again, confidence in our our business going forward.

9:21 This slide just gives you a kind of a view of kind of the historic, profit before tax and basic earnings per share. And, again, we're pleased to say that we've continued that progress that we've seen over the last fourteen years. So that's now fifteen years of positive PPT growth. And, again, you know, another year of kind of improvement on the the earnings per share.

9:43 Just covering off the the income statement in a bit more detail. Peter will discover you know, discuss the revenue line in a bit more detail, and it covers off the the review of the distribution business and manufacturing business. But I'm pleased to say that the gross margin has improved again this year from 37.6 to 39%, and that's an improvement in the distribution business from 35.7 to 37.1 and a slight reduction in manufacturing from 44.5 to 43.2. So it's, again, pleasing to see that we've managed the flow through of input prices, and managed that effectively. Albeit, I would caveat that the margin as we exited the year was slightly lower, so it peaked round about half one this year. We exited the the margin at 38.3% as we exited the year, albeit what we're seeing is the revenue line starting to strengthen as we move through the back end of the year. And again, we hope to see that improve as we go into 2025.

10:41 Again, would pick up the you know, we've managed the the operating expenses pretty well given the the sales decline. So just to give you an idea of the movements on on the the operating expenses. So we added about 2,900,000 of additional cost through the the acquisitions that have come in that I mentioned earlier, and with about a 3,000,000 reduction in the core operating expenses, predominantly in labor and in utilities. I'm pleased to say that we've improved the adjusted operating profit as a percentage of sales from 9.8% up to 10.1%. As I said, operating profit has improved over the year once you take in extra amortization and deferred consideration adjustments. And our financing costs have increased year on year, and that's predominantly related to an increase of about 500,000 on our IFRS interest costs, and that relates to a new lease that we took on in the year for our East Midlands business, which, we're actually consolidating four operations into one. So we've taken a long term lease on our new facility in East Midlands, and Peter will cover that off in a bit more detail when he talks about distribution.

11:45 And about 300,000 of that increase is related to unwinding of the discounting on deferred consideration. Just moving on to the cash flows. So, again, you know, a strong year in terms of the the operating cash flows. I just want to pick out one or two items here. Clearly, from a a working capital point of view, last year, we had a very strong cash inflow from working capital. As I've described last year, some of that was really related to difficulties we had in the supply chain in the back end of 2022, which meant we had quite a significant amount more invested in stock. And we've see we saw quite an unwinding of that through 2023 with lower volumes and also the unwinding of the stock. We've actually seen a a much more stable position this year with a small absorption in working capital of 1,400,000.

12:33 Clearly, with that strong operating cash flow, we've been able to invest in acquisitions. We made two acquisitions in year, Polyforms, and all pack at the beginning of twenty twenty four. So in the year of that 12,100,000, 9,100,000 is the initial consideration that we paid for all pack and Polyforms and a further 3,000,000 that we paid on earn outs related to Pacman, Sutton's, and Gottleads as all these businesses performed well within their their earn out period. In terms of CapEx, we spent the 2,900,000 on CapEx. The main features of that was the fitting out of the new East Midlands operation, as I described earlier, 1,400,000, and we invested in solar panels within our manufacturing site at GWP. So they were the kind of main main issue and main investments we've made within the capital expenditure.

13:26 Just touching on capital allocation. I know that's very important for all shareholders. Clearly, we set up our priorities in terms of investing in the business, both from a working capital and a capital expenditure point of view, continue to support organic growth. We have been very successful with acquisitions. We've done now 21 acquisitions in the last eleven years, and they've been a big feature in terms of the growth of the business over that time. And so we continue to allocate capital to acquisitions. Our third kind of priority is investment in dividends, and and the final kind priority at the moment is is where we've got excess cash and unallocated capital. And above those priorities, then we would look to share buybacks or enhanced dividends. I think we recognize that the the share price has not been particularly strong over a consistent period now, and it's certainly something we are reviewing is whether actually we should be allocating some capital towards share buybacks so that that works in combination with our acquisitions.

14:26 But that's something that currently we we can we we consistently look as a board and consider, you know, given where the share price is at the moment, whether allocating some capital to share buybacks would make sense. But, currently, certainly, we've allocated historically our capital towards acquisition as opposed to share buybacks, but it's something the board keeps under review at all times. So I'll pass back to Peter now to kind of discuss the the packaging distribution business and manufacturing operations in a bit more detail. Thanks, Ivan. So as you all know, I think the group is made up of two divisions, our packaging distribution division and our design and manufacture division. I'll firstly talk about the packaging distribution division.

15:08 The division represents about 83% of our group revenues. It's obviously a significant part of our activity. And what we're doing here is a classic distribution business where we are sourcing products from the major manufacturers of protective packaging and then providing a just in time added value service for our customers. Our customer base here is 20% e commerce retailers and 80% general industrial. So in the year, as we've already touched on, we've seen weak demand, so we've seen a slight revenue decline in the period, and that's 5% volume and 3% price from an organic point of view, offset by the acquisition of Allpank in 2024 and the flow through of the Gottlieb acquisition that we made in 2023.

15:54 Despite the weakness in the underlying revenue line, we've seen good progress in new business. So our packaging optimizer tool, our innovation labs are really helping customers manage the EPR legislation, which we'll talk about later on, which is one of the headwinds the industry is facing. So we're making really good progress on new business. We've also done a good job in in moving our gross margin forward again through better sourcing and better product mix. And as you can see, in terms of net profit, we've pushed our net profit up, from 8.6 to 8.8. We use net promoter score as a measure of sort of customer satisfaction, and it's encouraging to see our net promoter scores increased again in 2024 versus 2023. And just to give you some context for that, the average for b two b business from net promoter score is around about 35.

16:43 The next chart shows the sort of revenue bridge, and then we probably covered off most of the points here. But in the year, what you've got effectively is a 5% volume decline, the, you know, the weakness of the economy and the beginnings of packaging legislation starting to find ways of encouraging people to actually reduce reduce the amount of packaging they use, 3% price deflation, and then the benefits of acquisitions, which represent about 1.6 of the of the revenue change. If we move on to material prices, obviously, a fundamental feature of our business, our ability to translate changing material prices into selling prices. And inherently, we've seen during 2024 weak prices and, hence, the sales price deflation. But as we exited the year, we started to see price inflation coming into the business. So we'd expect 2025 certainly to be in an environment where there's more likely to be price inflation than price deflation in terms of our selling prices.

17:44 Let me just touch on costs.

17:47 Next schedule, pretty detailed, but just pull out a a few key features for you. Our total operating costs in '24 were lower than 2023, and that's despite the increasing costs that we've inherited through the acquisitions and the dual property costs that I just mentioned. And we've managed to offset those by by lower labor costs. So I think in tight market conditions with numerous headwinds that we've talked about, we've done a pretty effective job in managing our operating operating expenditure. Acquisitions, as you know, is a key part of our growth strategy. And on the next page, you've just got a brief history of the acquisition program that we've been implementing. We're averaging two acquisitions per annum. As you know, we do consistent multiples of five to six times EBITDA, and that's reflected in the chart.

18:36 And also within the chart, you can see our first acquisitions in Europe, Pac Man, that we did around about three years ago. So from our point of view, we're making good progress in acquisitions. We've got a strong acquisition pipeline both in The UK and in Europe, and we'll touch on those later on when I conclude. In terms of the the go forward priorities for distribution, again, a busy chart, let me pull out a few things for you. We're very confident in the benefit of the added value program we bring to our customers using the Innovation Labs and the Significant Six. We've also introduced a world class sales program to really step up the quality of our salespeople during 2024, so we see those will benefit us materially in 2025. You've seen it partly in 2024 with our new business figures, and we expect to grow

19:25 new business even faster in 2025. In '2 in terms of sourcing across the top layer there, we mentioned with Petrivi, we've got the opportunity to improve margins by doing more in house sourcing, and we'll see that as part of our program during 2025. In terms of bottom left, we talked about this for, I think, the last the last six months, the fact that we've recognized our online capability is not where it needs to be. So in the past two weeks, we've relaunched our website with a new online offering and a new trading platform, and and the early feedback on that is very positive and very encouraging. In terms of Europe, Europe has been made good progress in 2024, both for FARLANE customer program, both for Pac Man business and also our business in Ireland, and we expect that progress to continue in 2025.

20:18 And we're working also in Europe on acquisitions at the moment, and very hopeful that we'll build another acquisition in the in the near future to to to complement the Pacman acquisition. And then I just mentioned these Midlands consolidate property consolidation. So we're working on further opportunities to reduce the the property portfolio as leases come up, and we'll keep you updated on both how those are progressing. And we'll have completed the East Midlands consolidation by around April, May of this year. Let me turn to the manufacturing division, which represents about 17% of group sales and about 25% of group profits. And this is where we are designing and assembling a highly engineered packaging solutions, particularly for the medical, aerospace, and defense markets.

21:07 And everything we do here is bespoke. So a customer comes to us with a particular piece of kit or component, and then our our engineers and our designers together with their engineers and their designers create a unique piece of packaging to protect that product component,

21:25 whatever it might be, in its journey through the supply chain. So a good performance from the business in 2024. We benefited from the Polyforms Polyforms acquisition, which is a big part of the revenue increase, and there's been some sort of slow organic revenue growth during the period as well, offset slightly by the MOD spending slowdown during the year, which it obviously is likely to pick up as we as we know what's happening in the world at the moment. The partnership with distribution continues to work well. Currently, distribution is a key customer of our manufacturing division, and it represents about 12% of the manufacturing division sales. And the operating profit margins remain strong. You can see a different profile here to the distribution business, high gross margins and a high net margins, which reflects the value that we bring to customers in terms of the the design and the the engineering content of the products that we supply.

22:19 If we look at the acquisition profile for MDM,

22:24 recently, we've we've done sort of three acquisitions, and Petrivia also adds to this division as well. And we've, again, operated to the consistent five to six times multiples, and we've now, market it's very difficult to define this market and analyze it, but we we probably would estimate now that we're probably the leader in The UK in this specialist niche of The UK protected packaging market. Looking at the key priorities for the the design and manufacture business, again, a busy slide. In house supply, on on the top level, we've talked about that, and we'll continue to strengthen the in house supply. It's currently around about 12%, as you're on the slide. We believe we can get that up to 20% as the as the two divisions work more closely together.

23:11 Having made the acquisitions, we're now working on integrating the various components of the acquisitions. The B and D business, we bought about two years just over two two years ago. We've now actually integrated that into our Westby operation, but there are further integration opportunities that we're gonna work on during the period. And then we've also got a pipeline of additional acquisitions in this space as well, particularly from a UK point of view. And we are getting a little bit of feedback from customers about how they would like us to extend the reach of this business into Europe. So we're doing work this year to evaluate whether we can do a follow-up customer type program as we've done with our distribution division to give this this business greater scope to access European clients.

23:57 So as we come to the close of the presentation, I'll ask Ivan just to touch on RESG program in 2024 and the, the pension deficit, and then I'll conclude with some remarks, and we will pick up your, your questions. Thanks, Peter. I mean, there's a lot of information in this slide, but, really, this just kinda covers the progress we're making across our environmental, social, and and and governance objectives. Just picking out a few kinda key points. In terms of our own carbon footprint, we continue the progress in terms of electrification of our our vehicle fleet. We now have nine vehicles that are now operating that are fully electric. We, as I said, mentioned earlier in terms of talking of the cap expenditure, we invested in solar panels at our manufacture manufacturing site at GWP, and that's certainly helping the business both commercially because it's reducing our our cost in terms of utilities, but environmentally because most likely, we were using less of the the grids in terms of requirements.

24:55 We overall, we have had a 10 32% reduction in our carbon emissions since then since our baseline year.

25:04 And and we completed our scope three mapping. We recognize that one of the biggest impacts we have in environment is the supply base that we use. And clearly now that we've mapped our scope three emissions, we'll now be working actively with our suppliers and and continue to support them with their programs to try and introduce their their carbon emissions going forward.

25:23 In terms of supporting our customers, clearly, a big part of what we do through our value proposition is actually to look at how we use packaging and to minimize the impact packaging has in the environment. So we had 250 customers through our innovation last this year. And, again, part of that is looking at commercially how we can improve the volume of patching brings to the organization, but also to reduce that environment to impact reducing our carbon emissions. We also ran 19 education workdays on sustainability headed up by David Patten, who's our head of sustainability in the group. And these were well received and well attended by customers through the year. And clearly, we see a big part of and we'll go into this in the next slide. But clearly, there's a lot of environmental regulations start to come through both in The UK and EU, and we see a big part of what we do is educating and supporting customers to manage through that regulation.

26:17 Big regulation coming in in 2024 is extended producer responsibility, and the fees on that start to take effect in in October this year. In terms of our own people and the impact we have in the community, again, health and safety is a huge part of what we do and I'm pleased to say we continue to make progress in that. We continue to invest in the training of our workforce And, again, we continue to encourage our teams just to use the opportunity to volunteer in the community, and we had four hundred and ten hours of volunteering with our charity partners across The UK. And, again, you know, an important thing is, you know, we can demonstrate to our customers that we're making progress. So, you know, EcoVadis is a very, very important kind of assessment of our business that's done, and we we are a we are a company in the top 10% of businesses globally in terms of eco pack viruses assessment and farming from an environmental perspective and doing businesses the right way. So that's very, very important to our customers, particularly some of our multinational customers in Europe.

27:20 I'm pleased to see that we actually were awarded Cyber Essentials. Again, that demonstrates our commitment to invest in the cyber protection of the business, which is becoming an increasing risk for not just our business, but all businesses. In terms of moving on, I think I just wanted we just wanted to give this slide more, not so much to go through in detail, but just to give you a sense of the kind of regulation that's already impacting the packaging industry, but all the regulation is pending. And and I think safe to say we've we've managed effectively and managed with our customers and supporting our customers through the plastics tax that came in two years ago. And when you look at EPR that's gonna come in this year, we're actively working with our customers to try and minimize

28:05 the impact that they have and and and also impact the impact it has on our business. So we we see ourselves as being a key part of not just minimizing the impact it has on the business, MACFARLANE GROUP as a whole, but also, supporting our customers through that regulation. And you can see, you know, both in The EU and The UK, there's a significant amount of regulation coming through over the next five years. Just moving on to the pension scheme. I touched on this earlier. Nothing more to report other than this scheme continues to be well managed. The assets and the liabilities are well hedged. The movements in the liabilities are hedged in terms of our asset base. As of last year, the company is no longer making any cash contributions into the scheme because of its funding position, and we are working with the trustees and advisers towards a position where we can get the scheme to buy in, stock buyout over the next two years. I did mention the Virgin Media case is a potential issue, when we discussed the interim results, you know, after doing some internal review and taking some legal advice on that. Then at this stage, certainly, the the issue seems to be less than we originally, envisaged, and we don't believe there's any further action to be required at this stage.

29:21 So I'll pass over to Peter now to do some kind of final conclusions. Thanks, Ivan. So just some concluding remarks, and then we're going to answer the questions that have come through. Play 2024, there were some quite strong headwinds impacting the business. So I think the performance in the year despite weaker sales to grow up grow up profitability was a solid result, and and also we made good strategic progress during the period. I think as we look out to 2025, we're not expecting any material market improvement. We've got the challenge of EPR legislation that Taeva has touched on, which will have an effect on demand in that 20% of our business, which is retail. And also, we've got the impacts of labor cost increases from the from national insurance levy and the the minimum wage, and the value of that, cost of that in 2025 is gonna be about 1,700,000.

30:14 So, you know, we're we we recognize there are headwinds in 2025 as well as it has been in 2024. However, we've got really good new business momentum, and we see that already continuing as we open up in 2025. We're very, very confident in our added value proposition. We have reemphasized that, made that point a number of times, and we believe that will be a fundamental benefit to help customers through the EPR challenge and we'll win market share as a result of that. We've launched our new trading website, which will help us in the small customer end of our business. And we've also made a number of key new hires to strengthen the team, a new k a a new MD for Europe, and some, some significantly, experienced and, successful salespeople joined us at the back end of the year.

31:01 We've got a well developed acquisition pipeline and a good program of identifying and executing acquisitions. So we've already done Patrivi as our first acquisition in 2025, and we'd expect to do at least one, if not two more acquisitions during the year. And as Ivan touched on, we remain with a strong balance sheet and a really good bank facility, which has been strengthened as well. So we are well set for another year of progress in 2025. So I will close off there, and then we will come back to your questions. Perfect. Peter, Ivor, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do so just by using the q and a tab that's situated on the top right hand corner of your screen. Just while the company take a few moments through the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

31:54 As you can see, we have received a number of questions throughout today's presentation. And, Peter, Ivor, if I could just hand back to you to read out those questions, that'd be great, and I'll pick up from you at the end. Yeah. Thanks very much. Yeah. Well, I've gone through the questions. I've tried to kinda summarize some questions together since there's clearly some questions here that, you know, have come through from a few participants where I've tried to kinda cap those. If I don't read out word for word questions, please, hopefully, I do we do cover them off, over the next, ten, fifteen minutes. I mean, clearly, of the big things that seems to be going through, Peter, is is is this kind of increasing pressure towards ship doing share buybacks around doing acquisitions, and I think that's reflected off the fact that we have the current share prices at the moment and the multiple it's trading at relative to the acquisitions we do.

32:40 I mean, clearly, I touched on that earlier. Is there anything you can kind want to add on that? Yeah. No. It's a really good point, and we're we're we're taking very seriously. We as Ivan touched on earlier on, we, we did about a year ago, we did a review with majority of our major shareholders to evaluate where they were positioned on the the share buyback argument. And the balance of opinion at that stage was that we our capital allocation strategy was correct, and they were happy to support us with the capital allocation that we had. And we should only do share backs if we had actually excess cash. And we've used we've been using excess cash obviously to invest in acquisitions, quality acquisitions to grow the business. I think as the share price has obviously not performed as we would have liked it to have done, the argument for share buyback becomes a bit stronger.

33:31 And what we're we're doing as part of this round of investor meetings is, again, taking the temperature of investors, and then we will make a decision about whether how we can proceed with share buybacks following the input we get from investors on this round. I think you're probably aware at the AGM, we we we did all the paperwork to get the authority to do share buybacks. So we we've we've done the administration that allows us to do it. We just wanna do a final test of investor sentiment, and then we'll make some make some decisions. I think the in the ideal world, what we're do is get a nice balance between continuing to grow through acquisition with the quality acquisitions that we have got in the the pipeline, and that pipeline's only strengthened in the early early weeks of 2025.

34:17 But at the same time, we recognize that the the value of share buybacks in terms of earnings per share, etcetera. So, yeah, it's it's it's fully on our agenda. I just want one of the questions similar to that was the kind of synergies that we expect to get from acquisitions, Peter, clearly, because we are allocating capital to acquisitions. And when we disclose our numbers, we talk about the historic earnings of the business. If you can maybe just touch on the types of synergies that we anticipate from the acquisitions. Yeah. So as you know, we with pricing acquisitions, our track record is about five to six time five to six times EBITDA pre synergies. Typically, the synergies that we get from buying distribution well, buying both distribution and manufacturing businesses, we tend to be able to improve gross margin by about one or 2% through purchasing synergies.

35:12 If there is an opportunity to co locate the business without losing any customers or staff by relocating too far, then we obviously get property synergies. And and in some of the acquisitions, we've been able to get small back office synergies through IT and finance. But but the small, well run, privately owned businesses don't tend to have significant back office expense, but there is a small amount of synergy there. I think what the likes of Petrivi brings to us is those synergies together with with this ability to use their corrugated manufacturing facility to provide in house supply to a number of our distribution sites in Scotland and North Of England. And that's a sort of a relatively new synergy opportunity.

35:58 We we benefited from that with GWP, and that's the synergy benefits of, obviously, margin that we would give to an external supplier. We keep that margin in house. So the synergies aren't built into our pricing, but there are, as I say, quite a number of areas where we drive and we've got a successful track record of executing against synergies. I just I just I can comment just finally the last kind of question on capital allocation is we've kind of had a disciplined capital allocation strategy previously. And I suppose one of the questions was, is that something we expect to continue going forward? And I suppose the straight answer to that question, the answer is yes. Mean, we we have had a disciplined approach to capital allocation. Peter has mentioned that share buybacks is something we consider, on an ongoing basis, and it's something we'll review as part of this round with with shareholders.

36:49 But there's certainly no plans to change the discipline that we've applied to capital allocation historically going forward. And I think we're you know, just to add to that, I think we're characterized as a a very conservative management team. I mean, clearly, we've got a successful track record of allocating capital for acquisitions. But, you know, 2024, we did two. We probably turned down about 24. So we while we're while we are acquiring businesses to grow both operationally and strategically, we're not just buying acquisitions. For the sake of buying acquisitions, we're only focusing on good quality businesses that we can which will add to the overall MACFARLANE proposition. Moving on more to the kind of operational side of the business. So a couple of things that that have been clear over the last couple of years is improvements that we've made in our gross margin.

37:45 And one of the questions is is that a new high, or do you see a reversion back to the norms that we maybe saw back in two thousand eighteen, nineteen, twenty? And I suppose as as an add on, the organic growth has been weaker, while gross margin has been stronger in that period. Do you see us kinda coming through the the trough of that, and do you see 2025 any signs of recovery as we go into 2025? So if I take the organic growth one first, you know, we talked about the organic growth number in 2024 at about 88% organic decline, sorry, 88%. The the the trend of that was as we exited the year, the second half of the year, that was down to just over 3%.

38:32 And and in the early trading weeks of 2025, our like for likes are sort of on a par with 2024. So we do feel that in terms of organic, we're probably past the worst. That doesn't mean to say the economic conditions aren't getting any better, but I think we're just doing a better job in managing them. And, that new business momentum we're getting is is clearly offsetting some of the weakness in demand that we've been experiencing over the last last couple of years. So organic trends, I think, are moving to a into a more favorable cycle as we as we sit here today. In terms of gross margin improvement, as you know, fundamental to a distribution business is actually managing the difference between your buying price and your selling prices. So we have a heavily focused program to ensure that whatever the movements in raw material prices, we recover those through from customers.

39:26 And we've done that consistently over a long period of time. If you look at our gross margin back in the last ten, fifteen years, it it varies within sort of one to 1.5% depending on the cycle of raw material pricing inputs. I think the big change occurred in gross margin during the COVID period, and there was a step up in gross margin during that period for basically MACFARLANE and all companies successful companies operating in this business because there was a demand supply imbalance and also you saw significant corrugate price inflation. And as we came out of COVID with those higher gross margins, we were able to retain those margins because we're able to sort of persuade customers that while our gross margin is slightly higher, we've obviously got all the operating cost pressures, if you remember, of of energy, of labor cost increases, of transport cost increases.

40:20 So recognizing we're a relatively low net margin business, I think where the gross margin is at the moment, don't expect it to improve dramatically in the way it has been over the past three or four years. But, certainly, we've got to a level now which we feel is the right norm for for this business relative to the added value we bring to customers. And when when I'll pick up here, in terms of manufacturing versus distribution, I think the question was does return on invested capital compare between the two businesses? An interesting answer, they're actually broadly similar, albeit manufacturing's got higher investment in fixed assets or fixed capital. The distribution business get a higher investment in working capital. So when you actually compare the two, actually, our return on invested capital, they're actually broadly similar.

41:08 And as a continuation of that question, the question the was, is the distribution effectively subsidizing the manufacturing business? Really to answer that question is we we very much operate the manufacturing distribution business separately. Both businesses have to stand on their own two feet. Both of these business has to kind of justify the investments they make. So while we encourage the businesses to work together, we don't force that position. So, clearly, there's a degree of encouragement, but, certainly, there's no subsidization and there's no forcing of the distribution business to buy from the manufacturing business, and there's no requirement for the business, the manufacturing business to sell into distribution. So I think because over the years that we've because we've encouraged that, the distribution buys for the manufacturing business, the types of products they are best at producing, and the distribution business is still allowed to trade effectively between suppliers in the marketplace.

42:08 So, hopefully, that answers that question. Just to add to that. Yeah. Yeah. I mean, just for those who are relatively new to the following story, we we call it the manufacturing division. In reality, it's design and assembly. So, you know, we're not trying to compete with Smiths and Smurfit's, the big corrugated manufacturers. This is a business that's doing bespoke packaging, low volumes, high value, very sophisticated packs using timber, using foam, using corrugate to actually provide the ultimate in product protection for these very high value and fragile items. And in terms of the returns piece, the subsidization piece, Ivers answered that really well. I mentioned that manufacturing is around about about 17% of our revenue, but it's at 25% of our profitability.

42:57 So in reality, relative to each pound of revenue we get from it, it's actually contributing more in terms of profit than the distribution business relative to its the sales difference. So it's an important part of the group. And and despite the fact we've got it manufacturing, it's protective packaging for high end, high value, very fragile items. It's a protected packaging business. And in terms of our exposure to the defense market within manufacturing, can you can you describe that, Peter? Yeah. It's it's not a high degree of exposure, to be fair. So across the whole of the group, both distribution and manufacturing, we've got business there which is probably less than 3% of our revenue.

43:43 So and that's one of the attractions of our business in general is the fact that we are, as you know, broadly spread across a whole range of sectors. And I did mention that we suffered a bit in 2024 because our our our MOD contracts got got sort of put on hold as the new government came into place and so on and so forth. That has actually kicked in a, you know, a big time as we've started 2025. And, obviously, what's what's happening in the world, we we expect to be a beneficiary of that, but it's not a material part of the group. It's an important part of the group, but it's not material. And in terms of European expansion, one of the questions was the margin profile between distribution businesses, particularly, for example, in Germany versus The U M UK market.

44:31 I mean, I think you can straight answer that. I'll probably answer that question really. But if you look at the kind of net margins that businesses make in Germany and UK is broadly similar, and and the structure of the market is quite similar as well. So you have a number of larger players similar to ourselves and a number of other large our our larger competitors in The UK. And if you go to the German market, for example, again, there's a number of larger players. There's no dominant player, but there's a number of larger players. Again, the the the market starts to fragment quite quickly down into kind of local and regional players. So in terms of the scale of the market in Germany is bigger, about double the size of The UK in terms of packaging distribution. But in terms of the structure of the market and the margins, the net margin profile is broadly similar. And the final question I think we've got today is on the one of the questions is on retail businesses.

45:23 Clearly, in the short term, that has been quite weak over the last two years, both for MACFARLANE and and in the general marketplace. Are we seeing any kind of signs of packaging volumes recover in that market? Yeah. So our retail exposure is predominantly ecommerce retail, and not across all the sectors, across some very specific sectors of ecommerce retail. And and it's from our point of view, it's just beginning to normalize. So we had this huge spike during COVID where where we say say we all, certainly my household, we had nothing better to do than press buttons on computers and buy stuff online. So, you know, there's a huge uplift in in protective packaging sold to ecommerce retailers as they closed their stores and pivoted to online activity. You then, as you came out of COVID, you you see you saw a re a return back to the high street and an overbalance the other way. So I think as we've exited 2024 and started 2025, we're just beginning to see some signs that the commerce marketplace from our point of view is beginning to sort of nudge in a more positive direction following the the spike of COVID and then the the sort of steep decline following COVID.

46:33 Clearly, it's the you know, part of the challenge for ecommerce businesses is gonna be the the the new legislation, the e car legislation. So that will be a headwind for some of those businesses. But as we've already said, we are very well positioned to help them through the EPR legislation with our innovation labs and packaging optimizer. And certainly, the early back end of twenty four and early part of twenty five, our renovation labs were absolutely full of people wanting to work with us to help them manage through the legislation and optimize their packaging and avoid the taxation impact. So so, yes, retail ecommerce retail from our point of view beginning to sort of get back to something like normality. Challenge of EPR, but we are getting really good feedback from customers as to how we can help them through that, and we believe that will give us an opportunity to win market share in that particular segment.

47:26 So just a couple of other questions that have come in, Peter. Do you think we're gaining market share? And I suppose an add on to that, who are our major competitors in The UK? Yeah. So, this market is is is not analyzed in any detail by any third party. So, you know, it's it's really a judgment call based on our knowledge and, you know, broadly what we think we believe our competitors are doing. But in broad terms, we would probably argue that in the major corporate customers, we're winning market share because our Significant Six proposition, our innovation labs, that's where we really bring value to customers, and and they're looking for added value beyond just the products and price of of the packaging they buy. So winning market share there.

48:14 Probably the the negative there is in the smaller customer segment, which represents about 10% of our revenue. We're probably not being as effective in that sec segment, and that's partly why we've relaunched our website because we've recognized that we're we're underperforming in terms of our website proposition. So we hope to start improving in in the local customer sector. And then there's a segment of core customers which sort of fit between the two, and in that in that segment, we we probably see ourselves as as as flat. And major competitors? Yeah. Major competitors. So our analysis of the market shows, you know, MACFARLANE is the is The UK market leader, and we then got a a range of of significant high quality competitors in terms of Antalis, in terms of Rajapak, in terms of Kite Packaging.

49:06 And then quite quickly, you move into a range of good local and regional privately owned businesses who aren't operating nationally but operating locally and regionally, and that's the feedstock for our acquisition program. In terms of Europe, again, you've got some very strong country based businesses, particularly in Germany, Netherlands, and Scandinavia, privately owned businesses. And then you've got Roger who are very strong in in France and and Hispanic countries. And then you've got Antalyze who are very strong in Germany and and so and and Northern Europe. So those would be the the two major players that we're competing with from a European perspective in terms of corporates. And again, some very strong independent family owned businesses that we're competing with as well. And also, they are the feedstock for our acquisition programs.

49:55 Okay. I think that's it. Perfect. Peter, Ivor, thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish the responses out on the Investor Me company platform. Just before redirecting investors to provide you with their feedback, which I is particularly important to you both, Peter, can I just ask you for a few closing comments? Yes. Thank you. So to reiterate, a pretty solid performance in 2024 against quite difficult challenging market conditions. We don't expect the market conditions to improve in 2025, but we've got a a good program with good momentum in terms of new business, good momentum in terms of margin, good control of costs, and we've got a strong acquisition pipeline. So we certainly would expect 2025 to be another year of good operational and strategic progress for the group.

50:48 Peter, Iba, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback, and all the management team can better understand your views and expectations. This will only take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of MACFARLANE GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.