Macfarlane Group (LSE:MACF) — Interim results for the six months ended 30 June 2026

0:00 Good morning, and welcome to the MACFARLANE GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and will be submitted at any time via the q and a tab situated on the right hand 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 all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Peter Atkinson, CEO. Good morning, sir.

0:32 Good morning, everybody, and thank you for joining our meeting this morning. We're here to review the filing group's first half results for 2026. I'm Peter Atkinson, the group's CEO, and here with my colleague, Ida Gray, the group CFO. Let me begin by sharing the agenda.

0:51 What we'll do is I will start the meeting by talking about the key features of the H1 performance in terms of an executive summary. Either of them will take you through the numbers in terms of results, cash flow and review our capital allocation program. I'll then put a bit of color to the numbers by talking to the individual business unit performances. We'll then talk about sustainability and update you on where we are with pension scheme, and I'll make some concluding remarks before we turn over to questions. So before I summarize h one, let's just remind everybody. I know some of you are new to the business. Some of you know the business quite well, but just remind you what it is we do. Basically, MACFARLANE, through its various divisions, work with businesses cost cost effectively protect their products through the supply chain journey.

1:42 And we differentiate ourselves by the breadth and depth of our products and service range, the range of products and services that we supply, the depth of coverage that we have across both The UK and increasingly into Europe, and then the added value proposition that we offer our customers when we do more than just product and price. And the final things to comment on is our focus. I mean, unlike a number of our competitors, we're a pure protective packaging business. You know, we live, breathe, sleep, protect packaging, three sixty five days a year and twenty four hours a day. So That's the nature of our business. It operates through two divisions, a specialist distribution division where we're market leader in The UK and a fast growing specialist manufacturing business all in the world of protective packaging, protecting different different types of packaging, different types of products across various different market sectors.

2:36 Let me move on to our recent results announcement and just summarize the key messages. As you all are aware, we had a particularly challenging 2025 following fifteen years of consistent profit growth. And we entered 2026 with the main focus of business being on profit recovery, particularly in our distribution business and our treated business, and I'll come on and talk about those in a moment. So I think the results that we achieved in H1 reflect favorably on the progress we're making in implementing recovery actions in the two key businesses. In terms of distribution, and we'll put more color on this later on in the presentation, but we saw sales growth of just over a percentage point, more price than volume, but that's against the market background where we're seeing increasing headwinds with the environmental legislation, which, again, we'll touch on later on in the presentation.

3:34 We've seen good margin stability. In fact, our gross margin improved slightly during the period. Most encouraging for us was our new business momentum, almost 40% up on the previous year, and that was following a difficult year in 2025 where despite having lots of new business opportunities and strong new business pipelines, we weren't able to convert those opportunities into revenue. And we've now started to see that coming through in 2026. And we've also taken actions to reduce the headcount in distribution. We've reduced our headcount by around about 6%. Half of that was redundancy and half of that was natural wastage. In terms of Petrivi, you know, obviously, 2025 was an awful year for Petrivi for a whole range of different reasons. The key feature for us in terms of recovery was replacing the corrugated machine where the the tragic incident occurred, and that was identified, you know, resourced, purchased, commissioned, set up within the space of six months, which is quite spectacular, to be fair. And the good news is that the Trevy was profitable in q two. So as we go into the second half of the year, we're encouraged by the positive trends we're seeing in Trevy.

4:44 In terms of our specialist packaging distribution, our specialist protective packaging business, we saw good stability in that business. And as you know, that's the highest margin component of our overall business, and we're seeing good stability in that particular sector, helped by the tailwinds of our exposure to defense, space, and aerospace industry. And all this achieved has been achieved against the backdrop of very difficult Middle East conditions, which affected us in terms of input price increases. As you're probably aware, 30% of what we buy is probably linked to polymer pricing. And so we've seen material input price increase on a whole range of our polymer products, and we've been very effective in recovering those from our customers as reflected in our gross margin stability. We've also announced in our half year results the maintenance of the dividend, importance of a whole range of shareholders, and also the introduction of our second share buyback program.

5:38 So we had our first share buyback program started in 2025. That will come to an end, September, that's this month effectively, and then we'll initiate a new buyback program of valued at 6,000,000, which will start in October and and run for twelve months. So as we look forward, there's little evidence of great catalysts for market improvement. We've got the environmental headwinds, which we'll talk about later on, which will always be affecting our revenue line, particularly in our retail on the retail sector. So the focus of all our activities is to execute an effective profit recovery program. I think what we're seeing in the first half of this year is the beginnings of that profit program beginning to come through. So let me pass over to Ivor, and I'll let him take you through the key metrics.

6:30 Thanks, Peter. I'll just cover off some of the key numbers from half one twenty twenty six. I mean, Peter touched on the revenue growth of 2% year on year growth, half one twenty five versus half one twenty six. And that splits down £1,300,000 of growth from distribution, just over 1%, 1,500,000 of growth from our manufacturing business excluding Petrivy, just over 5%, and the Petrivy business, which is 500,000 down year on year, which given that the the trials that business has been through is is a pretty strong performance. So overall, 2,300,000,000 of of revenue growth predominantly in our distribution and manufacturing business excluding TUVY. And that translated to a small reduction in adjusted operating profit of 300,000, Distribution moved forward 300,000.

7:19 Manufacturing stayed stable, and Patrivi, understandably, was 600,000 below last year. So Patrivi made a small loss in the first half of the year versus a a profit of about 500,000 in the first half last year. Distribution, the flavor of distribution is smaller sales growth, good stability in the margins, still some inflation inflation coming through on the cost base. The story of manufacturing, again, is good sales growth for some of the sector and the tailwinds that we have in that business, some margin pressure with some of the cost increases coming through and some of the materials and predominantly increased costs. They were probably the business most affected by the ANI and national minimum wage increases last year And the TV business, as you said, small sales decline, a significant margin decline because most of the products were in the first quarter, we're still outsourcing a lot of the manufacturing to suppliers, until the new machine commissioned and a stable cost base.

8:18 A 9% reduction in adjusted profitable tax, again, that that's a slight down from the 3% operating enough because of increased interest costs predominantly related to to leases. The most significant of that related to the the new East Midlands lease that we brought in last year. In terms of the balance sheet, bank debt position is still relatively low at 17,900,000, albeit an increase of 1,800,000 from the end of the year, and that's predominantly related to absorption of working capital and predominantly inventories, and I'll cover that in a minute. Still relatively low level of debt, as you can see, of 0.9 of EBITDA to net debt, and you can see the pension surplus remains in surplus following the the buy in transaction that was completed on the June 29.

9:07 And, again, I'll cover that in a a little more detail later on. Despite the reduction in EPS of 9%, we've maintained the dividend at 0.996p, so that's since last year, and we'll continue to do that as we see the business recovering and profits improving both through the back end this year and as we move forward into next year. Just covering off the income statement. Peter will cover off this off in a bit more detail when it comes to the the divisional performance. But overall, just touching on a couple of areas, you can see the gross margin stability, and that's really due to that enhancement smaller enhancement in the distribution gross margins, slight reduction in the manufacturing gross margins, and a more pronounced reduction in the gross margin in the Trevy, which is related to the that, what I described earlier about outsourcing activity to suppliers where we got the business back to operational capacity.

10:03 You can see operational cost expenses increased by about one point, 1,000,000, and that's predominantly employee related costs. So we have 3% less employees in the business than we did this time last year. However, that's been offset by inflation, the impact of a NI that came in from first of April last year, some redundancy costs in the first half of the year. Half of the reduction in staff has been done through a small redundancy program of just over 20 employees. And absolutely, some of our business units are performing quite nicely this year. So, again, we've got some increased bonus provisioning coming through this year. So 1,300,000 of that increase is related to employees, 300,000 related to increased incremental logistics costs and that's purely driven by the higher fuel costs and higher outside car carriage costs that we're seeing as a result of events in The Middle East and other costs are down 400,000.

10:59 So So again, trying to keep a tight control in the other costs within the business. Interest rates are up predominantly related to incremental cost of leases.

11:13 This slide just covers off that kind of reconciliation between the statutory measures and the alternative performance measures. So you can see that the kind of two key areas that we adjust for is amortization related to historic acquisitions and any any small, adjustments that we need to make related to any deferred contingent consideration. The small adjustments that have come through in 2026 are related to some time value of money adjustments related to the Polyform's deferred consent contingent consideration, which resulted we paid out in full in August this year. So that was 2,600,000 was paid out in full to the ex owners of Polyfarms because of the strong performance of that business, but that was paid in the second half of this year rather than the first half.

12:00 In terms of cash flow, you can see that, the businesses consumed cash at 1,800,000 in the first part of the year. Probably the kind of three areas to pick out here are the working capital absorption and that's really where we had an incremental increase in our stock days of around 49 to 52, so a 2,400,000 increase in our inventory levels from the the end of last year and 1,700,000 compared to thirtieth of June last year. And that's predominantly related to us building some stocks to deal with some of the supply chain challenges that we're seeing coming through The Middle East and also some of the price increases that we've been pulling through really since April, May this year. So these are kind of elevated inventory levels that I would expect to see us start to bring down between now and the end of the year.

12:48 Same thing to pick out is, obviously, tax costs are a bit lower, and that's because last year, we quite a lot of overpayment of taxes, and that's we pay, obviously, tax in advance on a quarterly basis. And, obviously, the performance of the business in the first half of the year results relatively strong. Second half of the year declined quite significantly. So therefore, we quit a significant tax that we'd overpaid in the first part of last year, which was recovered in the first part of this year. And then the last thing to pick in, just some of the CapEx that we've had in the first part of this year, that 1,800,000. Some of the key features are we put solar panels into our polyforms manufacturing side, which is actually starting to generate some nice efficiencies in terms of energy usage. 400,000 was related to the final payments related to the machines coming into Patrivia, and we spent 400,000 fitting out a new distribution site that we've got in Ireland.

13:37 And so we had to move from an existing site South Of Dublin into a new site on the West Of Dublin at the middle part of this year, and we spent 400,000 setting up that new warehouse so that we've actually got room for growth, for the future of our business in Ireland. So the other kind of key feature, as I said earlier, net debt level is at 17,900,000, still relatively low, and we would plan to keep it that way in the short term. In terms of capital allocation, the features here really is clearly we're committed to continuing to invest in the business in terms of capital expenditure, whether that's essential replacement or for value added investment returns, and we allocate around 3.5 to 5,000,000 a year, to internal CapEx.

14:25 We've got a commitment to maintain our dividend levels. We know that the dividend is important to quite a number of our shareholders, and we're committed to maintain those dividend levels. And as the EPS starts to recover after the the reduction last year, the reduction in first part of this year, we see the profitability improving through the second half of this year and into the next two to three years and that it will continue to maintain that dividend until the the dividend cover restores to somewhere around two and a half times plus, against adjusted, EPS. Currently, we're running about 2.1 times. In terms of the remainder of the cash, then we'll allocate that primarily. Our focus in the short term is to allocate that to share buybacks, and you'll notice in the announcement that we'll complete the current share buyback of 4,000,000, by the end of September this year. So So that's about 900,000 of additional spend in the second half of this year, and we'll commence a new buyback program of £6,000,000 from the first of October this year, and that will be spent over the period of a year. So 1,500,000 quarterly tranches of £1,500,000 between October 1 this year and the end of September next year. So we've allocated that.

15:38 And then really the focus on share buybacks rather than m and a at the moment is really reflective of our view of the the current valuation of business and also the fact that the management team is focused on the profit recovery program. So as we see valuations improve and as we see the profit recovery advance more as we get through next year, then we'll look to get back on the front foot with the dynamic activity once we can demonstrate that we've got that recovery program more advanced and once we can start to see the the valuations improve in the market. So I'll hand back to Peter now who will go through the kind of performance of the individual divisions. Thanks, Ivan. Let's start with the distribution division.

16:24 So the key points to note from our first half performance is we've achieved sales growth and profit growth. The sales growth is primarily being price driven rather than volume. Although we have seen good new business performance, I mentioned they're on about 40% up. Why is our new business performing so strongly at the moment relative to the previous year? Firstly, we're finding customers looking in an uncertain world for suppliers who give them reliability and certainty. Clearly, we fill that gap nicely. We're also seeing now the benefits and investments we made in 2025, and we brought in some strong new business people during the year. We thought they'd impact the business in '25, and they're now coming to fruition in 2026.

17:10 Also, the breadth of the product offer, we are doing more work combining our distribution offer and our manufacturing offer with certainly key customers in the industrial sector, and that's helping support our new business growth. And and finally, we were finding it more and more difficult as customers get tighter and tighter on their costs and control budgets of getting customers into our innovation labs, which is most of you all know is a key part of our sales proposition. And so we've done a lot more work in '26 in taking the innovation lab out to customers, and and that has helped in terms of our new business performance. I I guess the the the point to note, as I mentioned earlier on, is that despite the new business performance, we are seeing this headwind of environmental legislation, which is slowing down and getting customers to reduce the amount of packaging they're using, particularly in the retail space. And if you look at our major retail businesses in the first half of year, it's down by 6% versus the same period last year. And a key component of that is customers looking to buy less packaging in line with the environmental legislation that is penalizing them if they use too much packaging and the wrong type of packaging.

18:18 And that, as I repeat, will be a constant headwind going forward. We've done an effective management of the polymer based input price increases. We've seen certain polymer based products go up to 20, up to 40%, things like stretch, some take products, bubble wrap, and so on and so forth. But I think we've done a a pretty effective job so far in managing those with customers, and that's impacted with the stable gross margin during the period relative to last year. And I think we've touched on the headcount reductions. So we're squeezing the distribution business. We're taking heads out and realigning work. We are canceling projects or delaying projects to just get very, very tight on this profit recovery. The next slide just shows you our margin evolution over really the last sort of five or six years. And and a lot of information on this style. I'll just pick out a number of things for you. First thing to note is that in terms of the the first half, in terms of distribution, we have seen our net margin improved, which is positive versus the same period previous year.

19:25 We've not got polymer on this graph. We've seen explosion in polymer prices and corrugate is relatively stable. There's been a little bit of pushing upwards in the first half of the year. Our operating costs are broadly flat on last year if you take into account the redundancy

19:41 program initiation and redundancy cost as part of that. And as you can see, it reflects our stable our stable gross margin. And as you know, and I'll talk about this later on in the presentation, our objective here is to get our operating our our net margin back to 7% to 8%, which we were delivering on average in the period twenty one to 2024. If I move over the page, I've got a bit more detail here for you in terms of our cost breakdown. I just talked about the cost inflation that we got and how we're managing that. So we've instituted the redundancy program and distribution, which has taken a number of heads out of the business. The good news, I think is good news is that we've got a likely a bigger bonus payout this year because we have got a number of sites performing extremely well. And so part of the year on year difference is the bonus provision, continuing increase of national insurance costs.

20:38 Last, we've got some property cost reduction, but that's really the effect of the duplicated property costs we had in 2025. So underlying property costs still increase as landlords look to put up rents, and we get local authorities putting up rates. And then transport costs are slightly higher than last year, and that's predominantly related to fuel costs vis a vis The Middle East activities.

21:02 The next page details, and again, a lot of information on this chart details the elements of our profit recovery plan, getting this business from where we are today back to the 7% to 8% that we see as the base point at which we're delivering in twenty one to twenty twenty four. A number of things to pull out of this slide. Firstly, we are pivoting the business away from retail towards industrial. Industrial markets for us are more stable. The customers are less transient. And the margins we earn from industrial customers are at two to 3% higher than our retail customers. As I mentioned earlier on, retail is that market which is more affected by the environmental legislation in the current current situation than industrial is.

21:48 So the split currently is eightytwenty. It's not a handwritten, but our new business focus is very much around industrial, and we'll see that mix over time slowly begin to change. The other key part of our profit recovery plan is pricing disciplines. And within our local core customers, so we have major core local, different types of sizes and geography of customers. And particularly our local core customers across The UK, we have quite a band of different margins that we earn at a gross level. And so we're doing work at the moment to try and improve the margins we earn across all the bands, across all the sites to at least the average for the business as a whole. We've talked about the h one cost reduction, and we expect that to flow through during the remainder of 2026.

22:38 And we've got more cost reduction plans that we're working on as we speak. And then we have a program called RDC Best Practice. At the moment, we've got a number of sites performing extremely well with net returns above 10%. And we've got a number of sites performing not as well with net returns below 5%. And what we're working on at the moment is best practicing the sites, comparing the really good with the relatively weak and then working out what changes we need to make in terms of customer mix, terms of pricing, in terms of resourcing, in terms of geography of distribution.

23:14 And all those things will help to improving the operating margin of the operating margin of the business and get us back to the 7.5% to 8%. Why is that a realistic number? It's because we've achieved it in the past. Why is it a realistic number? Because we've got some of our sites that are performing well way beyond that number already. So when we get all our sites performing to the average, then we should be on track to get back to that 7.5%, 8%. Let me move on to our manufacturing operations, and I'll talk firstly about our specialist operations, which don't include Petrini. A good progress during the period, slightly missing gross margin. Profits are broadly flat, but we're happy with the way this business is performing. It's got a little bit of tailwind from our exposure to defense, the aerospace, the electronics industry, and a little bit also into the space industry.

24:06 But nevertheless, it's still dealing with the same conditions that we got within within our distribution business, but they've got more of a of a of a tailwind than a headwind at the moment. So we're pretty happy with that the way that business is performing, and we expect that sort of level of margin that we deliver to the business to be sustainable in the medium term. And then moving over to Petrini, and you're very aware of what happened in 2025, very difficult for for everybody involved and, obviously, a tragedy for the family involved in in that particular incident. So we're managing through that as we speak. We've got the replacement machine in. We've had a lot of customer visits during q one to see the machine as it starts up and more during q two as we see the machine perform against all these expectations.

24:52 Although the business, yeah, was was unprofitable in the whole of h one, it was profitable in q two of h one. So we're exiting h one with the business profitable, having got the machine up and running. We've done a really good job in retaining customer loyalty during the period despite the fact we're outsourcing work and using external suppliers to keep customers running. And those customers have now come back to us, and there's no major or even medium sized customer that we've lost during this period. So I think we've got some good recovery actions in place in terms of Petrivy. And I've obviously got the benefits of the knowing what my July and August numbers look like, and Petrivia is continuing to come through in terms of delivery profitability during those months as well as the q two in h one.

25:44 Let me touch on the health and safety investigation in relating relation to the incidents. So you're aware that health and safety have been, you know, obviously reviewing what happened. They've not yet fully started their investigation, so we're waiting for them to confirm when that investigation will start. And so we have no more information that we can communicate at the moment on any possible fine. Obviously, we we obviously want wanna keep you brief at the moment. There's just no information that that's available to share with you, but, obviously, we will keep you brief as more inflation starts to flow. In terms of the retrieve recovery plan, again, relatively busy chart, a number of points to pull out. Firstly is getting the machine up to its optimum level of throughput.

26:29 So we're currently running just under 80,000.

26:33 It's 80,000 per day in terms of the corrugate throughput. Our objective is to increase that to 100,000 square meters we're talking about, and we're on track to do that as we come through into Q3. And that will give us the security of being able to ensure that all our customers are supported in service during that period and give us the potential for for growth also.

26:56 Second point in terms of recovery plan is as we service effectively our external customers, then we'll switch into using some of that capacity to service in house MACFARLANE sites to provide security of supply on corrugate. We started that activity, and we bought the business. We obviously have to put it on hold as the business went through its difficulties. But as we come through into, hopefully, the fourth quarter and the third fourth quarter, we'll start to look at using Privy to supply corrugate to in house and phone operations. And then the the third point is, as I've touched on, the end of outsourcing to third parties, that is now almost completed. It certainly will be completed as

27:40 we are now into Q3. So our medium term objective for Trillium is to get it back to the £2,000,000 of operating profit that we effectively acquired when we bought the business. And then that gives us the benchmark to start growing the business beyond the 2,000,000, which from our point of view is a starting line. Let me move over to we talked about environment quite a bit in terms of the headwind it's it's delivering, particularly in the distribution business. Let me pass over to Igor, and he can touch on, you know, what's happening in the world of environments and how it's impacting the business and how we're addressing it. Thanks, Peter. I mean, Peter's covered quite a lot of the, you know, customer challenges with sustainability, and this slide covers quite a lot of stuff that we've maybe already covered in the full year results. But just want to pick out one or two features on this slide.

28:31 One, we've we've invested in the solar panels at the Polyphoros business. And as I said earlier, that's quite a nice investment. They're quite high consumer of energy, so therefore that gives us quite a bit of energy efficiency, but also quick takes quite a bit of carbon out of our our footprint. The other thing to do is you've noted that we have invested in electric vehicles over the last number of years, And I think to be fair, we've probably been at the front end of that investment relative to the industry, and and clearly, these trucks have been coming in at a more expensive cost than than the diesel trucks but we felt it was the right thing to do to move forward so we could trial these vehicles out, see the levels of efficiency, see the levels of range, see the challenges we have with infrastructure.

29:16 And it's pleasing to see that some of the the latest developments in electric vehicles are seeing one, the range extension now in some of these vehicles is actually getting quite significant. So some of the technology improvements have been made. And also, actually, a cost point of

29:33 view, some electric vehicles are now coming in very cost effectively against diesel diesel vehicles. So hopefully, over the next few years, you'll gradually see that transition from diesel to electric start to accelerate, and clearly that there was advancements in technology and advancements in range. The only kind of caveat there is infrastructure is still a challenge because obviously, every site, you don't necessarily have the the the input of electricity to be able to charge up the vehicles, that remains a bit of a challenge for us as as it does for many companies. And the only other thing I just want to pick up here, which I'm covering off in the next slide in more detail, is basically from a regulation point of view, clearly, there's some developments there and the the most recent regulation that comes in affects a number of our customers is PPWR, which is a kind of new legislation. I'll just cover that off here.

30:26 You can see on the left hand side some of the regulation is already going through, and I think we've covered extended producer responsibility in quite a lot of detail in prior presentations. But the one in the middle there is probably the most important one. So this is a new piece of legislation, EU legislation, and that's really all encompassing, and that's gonna come in in phases over a number of years. But the ultimate aim is really across EU is to have a standard, which is looking at ultimately reducing unnecessary packaging, increasing recyclability rates, and improving traceability, and actually looking to eliminate some forms of packaging that are considered not environmentally friendly. So this this doesn't just impact retail, like the extended producer responsibility that came in in The UK last year.

31:13 This impacts all packaging. And it impacts us because we get quite a number of customers that actually are packaging that then goes into the EU market, actually quite a number of our customers are multinational com customers. So and they want to standardize their packaging, so they don't want our packaging that they use the EU market, fact, they use The UK market. So I know it and of course, you know, eight to 10% of our business is actually in the EU with our operations in Germany, Netherlands, and Ireland. So I think this this legislation, just given the the kind of all encompassing aspect of it, will have quite a significant impact on the business over the next few years and certainly have significant impact on quite a number of our customers who either have businesses in the EU or have quite a lot of cross border transactions between the EU and The UK.

32:06 So that will develop quite nicely, but the ultimate aim is the use to try driving down the use of packaging, driving down the, I suppose, unnecessary packaging, so I. E. Too much void in the pack and also drop in moving to more environmentally friendly packaging. So more to come, but that's probably the biggest piece of legislation, and that that that started off in in August this year.

32:33 In terms of pensions, I'm just touching that. I mean, clearly, the the kind of biggest change in pension this year is we completed a buy in transaction on the June 29, where all the assets were effectively bought over by Royal London. I suppose in essence what that means for members, it gives members much more security, and the benefits remain the same, so the benefits are totally unchanged. But instead of relying on MACFARLANE GROUP as a covenant, they're now relying on Royal London as a covenant. Now other than the McFarlane Group's a good covenant, Royal London clearly is a very strong covenant. So it gives members a lot more security in terms of going forward. There is some excess assets you can see, you know, post that buy in. So effectively what happens is the insured assets now effectively manage all pensions and payments and any deferred pensions that are due to be paid.

33:27 So any volatility related to those pensions are now covered by those insured assets. It takes a lot of volatility in terms of the discount rate, in terms of inflation, in terms of mortality assumptions, then it takes a lot of volatility out for the group. The only things that they could know that the pension now has to deal with over the next two years is dealing with a lot equalization adjustments related to guaranteed minimum pension and some barbit historic barbit equalization adjustments. So these need to be dealt with over the next two years, and we've made provisions for those, within our assumptions and also the fees that are required to be paid to to correct those pensions. So that £5,500,000 of cash that you see, that's there to cover those adjustments and the fees related to managing a pension scheme over the next two years between buy in and buy out. And what we are kinda predicting at the moment is between now and buy out, we should be in a position to exit the scheme completely either within a range of plus 1,000,000 to minus 1,000,000 in terms of potential cash that we might either recover or cash that we might have to pay into the scheme. That's the kind of range we are working with between now and buyer. So good good good progress, more security for members, and less volatility for for the group with the ultimate within two years is to get the pension scheme completely off the balance sheet.

34:53 So with that, I'll pass back to Peter for just doing a a quick summary and conclusions. Thanks, Ivo. One more slide, and then we'll move on to questions. Three key final messages. Firstly, not easy out there at the moment. Market conditions are weak in The UK, but the impacts of The Middle East, they're slowing down further slowing down demand and obviously affecting our input pricing. So we work hard with customers to get recovery on those. And we've got the headwind of the environmental regulation, which will cause people to use less packaging going forward, particularly in that retail sector. I think when we look at what we've achieved in H1, we've made some progress, Middle East impact largely being offset by managing those price increases.

35:41 Packaging distribution, we're seeing performance improvement. The tree will go back into profitability and manufacturing operations are performing in a stable fashion. So the focus for us continues to be our profit recovery. Had a number of people asking us last week when we were talking with them about what's the plan in terms of acquisitions. And just to clarify that, clearly, acquisitions has been a key part of our strategy up to date in terms of consolidating and widening the offer to customers. At the moment, we've got all acquisition activity on hold. Those target acquisitions that we've got in the pipeline, we're talking with the owners of those businesses. And in the main, they're agreeing to different timings and managing delays. And where acquisitions come to us at the moment, unless they are absolutely must do acquisitions, then we're effectively saying, now is not the right time. So I think from an acquisition point of view, not a priority at this point in time.

36:40 Expect us to be back on the acquisition trail early twenty twenty eight is what we're scheduling as we focus management time on the profit recovery. And in terms of that profit recovery, just as a reminder of the things that we're doing. So focusing on sales development in industrial markets, particularly in distribution, reducing our cost base, and we started that program as we described it, increasing the performance of the lower return on sales, RVCs, and distribution through the best practice program, improve the input prices that we're achieving despite The Middle East thing. We're refining our sourcing program and trying to find ways of getting better input prices, particularly on corrugated products. And then clearly, getting the Petrieve business back to the £2,000,000 of operating profit that we had when we acquired the business.

37:28 And then in terms of capital allocation, just to repeat what I just said, maintenance of the dividend, instituting a new share buyback program, and continuing that net debt level at a relatively low one times EBITDA. So in terms of the presentation, the presentation is not ready already up on the website. It will be up on the website later on today, so you can delve into it in a bit more detail. We've got I recognize we've gone through that at quite a pace. But we will now move on to questions. That's great. Thanks, Peter. Thank you very much for the presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions 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 by our investor dashboard.

38:18 As you can see, we have received a number of questions throughout today's presentation. Now please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. K. Thanks. The first question was one really and I think we kinda covered it off in the slide around the profit recovery program around distribution, which was really how do we get the business from 4.6, seven and a half percent in the medium term. So I think Peter covered the actions, but I suppose ultimately, we can get the business growing roughly about 3% per annum, which is where we're targeting to get to and we can maintain the gross margins at the current level. Really, if we can hold the cost basis, which the the is the the kind of challenge for us, hold the cost base at the current levels, then within a kind of three year program, we should see the the the bottom line operating margin improve to that kind of seven seven to 8% level. So just that natural flow through of organic growth, maintain a gross margin, and holding a you know, stopping that kind of inflationary pressure on on the cost increases. And we appreciate there'll be continued to be inflationary pressure there, but we will be taking active actions to try and reduce our cost base, whether that's, say, looking at kind of site consolidations as leases come up to an end, looking at, you know, software technology investments as we go forward to try and reduce some of the kind of processing streams on the business. But ultimately, that's how

39:50 that we get the business from 4.6% to seven and a half percent. It's that natural flow through of the growth holding the operating costs where the company are and maintaining the margins roughly where the company are at the moment. One of the questions probably for you, Peter, just in terms of the The Middle East. What extent have we been able to recover the costs that will come through as a result of The Middle East? And do you see some maybe potential margin pressure coming through in the second half of the year? Yeah. It's a good question. I mean, so far, we've managed to do an effective job in recovering those price increases, and you can see that in the way our gross margin has performed in the first half of the year. We probably see, as we go into the second half of the year, a slight weakening of that gross margin, but that will be offset by the fact that because we'll be implementing these price increases as a result of the the flow through, we'll see our revenue line strengthen.

40:54 So if you look to the second half of the year, expect expect a year on year stronger sales line versus 2025, but probably a slight weaker margin. Not materially, so still within that that that type range that we operate. And so far, we're doing a good job, and the key thing one of the key things is obviously security of supply because, you know, you do not wanna let down any customers in the current market. Because if you let down a customer, it just opens the door for a new entrant. And and so far, we've been able to manage the supply chain particularly effectively. Next question is around m and a. So it's really maybe I'll pick this one up as to when do we see m and a feature again, and is it likely to be focused on Europe versus The UK?

41:42 I suppose in direct answer to that, we're not putting a timescale on it. Clearly, at the moment, our focus given, as I said, the current valuations that we've got at the moment, both of acquiring businesses relative to a known valuation. We see allocating capital to the buyback as a more efficient way, to manage our capital in the short term. And as Peter described earlier, the management resources are really focused on the profit recovery program. But as we as we we hope to develop that profit recovery program over the next eighteen months and hopefully, start to improve, those features start to move in a positive direction, then clearly, timing of that means that we'll get on the front foot with with M and A activity. And and and, actually, we're focused on both continuing to do some buy and build within The UK, and we continue to look for strategic opportunities in Europe. So I don't if you want to add to that, Peter? No, no. Think that's a fair summary. And the only other thing I'd add to it is that the acquisition opportunities are there for us. I mean, we're probably seeing a couple of acquisition opportunities a week come through at the moment.

42:49 And as we've said, I mean, we only buy quality businesses against an agreed strategy and against an agreed profile. And there's nothing we've seen so far that fits those criteria. So, you know, so more more to come in acquisitions, but management time at the moment is focused on proper recovery. And in terms of the the wider protective packaging market, where do you see the kind of opportunities and threats currently? And how do you see it following delivering against the the wider market? Yeah. I mean, I think the the the wider market, if if you if you look at it, you know, people are trying to find ways of using less packaging. People are trying to find ways of using packaging more effectively.

43:34 People are trying to find ways of using packaging in a way that reduces our operating costs. So we're still very confident that our the MACFARLANE proposition around adding value to people's protective packaging requirements is still relevant, and that's reflected in our new business performance in the first half of this year. I think in terms of the the the segments of the market, we see defense, aerospace, space and tech for the reasons that we all understand will continue to be pretty robust and potentially, as they are doing at the moment, give us sustainable tailwinds. And we see the retail space is probably the space that's going to be most difficult, most challenging, primarily because all the legislation that's currently in play and the legislation that I've touched on, which is coming into play, all has a really material effect on that retail space. So hence, the pivot that we're making at the moment to really focus our business around industrial.

44:39 And the industrial customers, the final point, is is good for us because it allows us to blend our distribution business and our specialist manufacturing activity together so we can deal with our customers' sort of more simple protective packaging needs. And also their very sophisticated packaging needs and genuinely become a one stop supplier to those industrial clients. A question on sourcing, Peter. How how do we define, our sourcing strategy or and and and the financial benefits that we could get from that? So in in round terms, 50% of what we buy, we buy centrally through a central team. That's where we buy bubble wrap and tape on a central basis, agreed terms, and all our our business units buy from that centrally agreed contract. Then 50%, we tend to deal with local and regional suppliers, and that's managed by our local sites and our our and our regional operations.

45:43 The plan going forward is to bring more of our regional purchasing into a centralized fashion so that we can, you know, get a better bang for our buck and and and spread our resources more effectively and also create stronger strategic supplier relationships that as you're all aware, the product industry is going through a period of consolidation and rationalization. And so what we're doing at the moment is building and strengthening our relationships with key corrugate suppliers. So from sustainability going forward, we've got long term relationships and long term partnerships, which will work well for them and for ourselves. Kipit, I think that's all the questions.

46:30 Yes. So I think Yep. So I mean, thank you, everybody, for your time today and your your questions. As I say, the presentation will be up on our website. So you'll get a chance to look at it in bit more detail. And, clearly, if there's anything that comes out from that, you can you can contact us directly or through Shore Capital. Yeah. The the summary of the of the first half year is, look. We had a really difficult 2025 after, you know, fifteen years of consecutive profit growth. The focus is on profit recovery, and we're beginning to demonstrate those profit recovery actions are coming through, and that's reflected in the performance that we've seen in the first half of the year. And that will only strengthen as we go into the second half of the year. And we've got clear recovery targets for each of the key businesses that are not performing to plan at the moment in terms of distribution and retrieving, which will see us through the next two, that's a really twelve to twenty four months.

47:27 So, again, thank you for your time. That's great. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete and I'm sure be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.