Macfarlane Group (LSE:MACF) — Results for the year ended 31 December 2025

0:01 Good morning, and welcome to the MACFARLANE GROUP PLC twenty twenty five Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Peter Atkinson. Good morning to you, sir.

0:28 Good morning, everybody. I'm Peter Atkinson. I'm the MACFARLANE GROUP PLC, and I'm here today with my colleague, Ida Bray, our CFO. We announced our 2025 results last week, and the objective today is to review those results with you and bring out some key points to give color on the numbers. And also, obviously, want to respond to any questions that you want to raise during the meeting. If we take a look at the agenda, following some brief introductory remarks from myself, Ivor will take you through the detailed numbers in terms of the P and L and cash flow. And then I'll talk through the two divisions, packaging distribution and the manufacturing operations. Ivor will then update you on where we are with the pension scheme, and I'll conclude with some final remarks, and then we'll pick up and respond to any questions.

1:17 Let me begin just as a refresh to some of you and for those of you new to MACFARLANE, a little bit of detail about the business. We're a protective packaging specialist. We both distribute, design and assemble protective packaging products. 75% of our sales are through our distribution division and then 25% of our sales are through our manufacturing division. Our customer base is split 80% industrial and 20% retail, with the majority of our retail business with e commerce clients. We've got strong market positions in each of the businesses. We deliver added value for customers, as you can see on the chart, and we've got clear differentiation from our competition. So if we move on to the results.

2:04 During 2025, we saw good sales growth. Marginal sales growth in the distribution division, just about 0.2% despite very difficult market conditions there. We saw very good growth in our design and manufacturing division, 12% up versus the previous year. Partly Partly that that was was through through the Polyforms acquisition, but we also saw good organic growth, particularly in the aerospace, space and defense sectors. And then obviously, we had, during the year, the benefit of the Protriga acquisition that we acquired in January 2025. Despite the good sales growth, we saw a reduction in profits in the year. There's a mixture of features in there that we'll go through during the presentation. But partly, particularly distribution, we actually saw quite soft demand, partly due to the weak UK economy and also due to the impact of EPR with our retail customers as they look to find a way of reducing EPR fees by reducing the amount of packaging they use.

2:59 The industry in 2025 was extremely intense in terms of the competitive environment, and there was a lot of pricing pressure for us to have to retain market share against. And as a result of that, we as you have seen in presentation, we experienced lower margins in our Distribution division. We also saw increased costs, primarily labor and property. And again, we've got detail later on the breakdown of those cost increases. Clearly, a key feature of 2025 was the emotional, operational and financial impact of the tragic accident at Petrieve. And again, we'll provide you with an update on where we are with that the Petrieve business later on in the presentation.

3:41 The key issue for the management team is to how we address the challenges that we experienced in 2025, and we'll talk you through a profit recovery plan that we're currently working on. The balance sheet remains strong. We've got good cash generation, and we're operating well within our banking facilities. And I think as a demonstration of the confidence in how we now execute the recovery, the Board is proposing the dividend to be maintained at 2024 levels. So let me hand over to Ivan, who will take through the detailed financials, and then I'll come back on and we'll put some color to the numbers through the individual divisions. Good morning, everyone. Just to take you through some of the kind of key financial performance measures for last year. As you can see in the top left hand, we grew revenue by 11%.

4:29 10% of that growth was driven by acquisitions with 28,100,000 of the 30,400,000 growth in revenue was down to the acquisition of Petrivia beginning of last year and Polyforms, which is acquired in July 2024. And 2,300,000 of the growth was organic. So around 1% of that 11% is organic. And when I look at the organic growth, it's primarily volume driven with prices on average being relatively flat year on year. And, again, the split down of the growth is about 400,000 distribution, 6,400,000 of growth within manufacturing, excluding Petrivi, and 23,600,000, of growth from the Petrivi business. In terms of adjusted operating profit, 28% down on the previous year. A large proportion of that is down to the distribution business, 8,800,000 down, on last year, and that's primarily down to even though we had flat sales year on year, we had pressures on our gross margins, so lower gross margin, and as Peter described, higher operating costs. And Peter will describe that a bit more detail later. The manufacturing business excluding Petrivia had a had a strong year, both the the full year benefit of the Polyforms acquisition and, again, good underlying organic growth from some of the sectors that they supply into. And as Peter described, the Petrivia business had a a tough year. We we acquired that business at the beginning of last year. We anticipated that business, contributing a profitability of just under 2,000,000 this

6:02 year in 2025, and and it ended up making a loss of just under 200,000. And that was really down to a combination of the trading conditions that business faced through the year, but a large proportion of that was the impact of the incident that Peter referred to earlier. And if you move over to the adjusted profit before tax, we had higher interest cost from our bank bought with from higher average bank borrowings through the year and also higher IFRS 16 lease interest. And that that's primarily due to lease renewals on both property and commercial vehicles and the new property in East Midlands. If you move down, bank debt, 16,200,000 at the end of twenty twenty five compared to 1,900,000 at the end of twenty twenty four. So an increase in our bank debt, but as Peter described earlier, well within our 40,000,000, bank facilities and, just under one times net debt to EBITDA. So still relatively low level of a bank debt, and I'll come on to the cash flows in a bit more detail in a minute. The pension surplus, we continue to be in surplus, albeit lower than last last year at 6,000,000, perhaps it's 9,600,000 last year.

7:15 We're very much in the process of preparing the scheme for buy in. As part of that process, we've taken an adjustment to reflect a change in the methodology to estimate a historic equalization of pensions, which will need to be corrected. But, thankfully, the goal and aim remains the same as what we've discussed before, albeit we're closer to that decision. So then then go with the the pension scheme is to move towards a buy in. Clearly, a buy in priced at a level that the company doesn't have to put any further cash contributions or very limited cash contributions. Should that not be the case and pricing not be right in the marketplace, then we would continue to run the scheme on. In terms of dividends, Peter described, we've maintained the dividend, albeit at a lower cover than we've historically seen previously.

8:04 Part of that is primarily because we've got the cash flows to support it, and we have confidence in the business going forward. Clearly, if you look at dividend cover on adjusted earnings per share, basis, it's just over two times. And and clearly, the elements between the nonadjusted and adjusted are broadly noncash adjustments. And so, yes, the the dividend cover is lower than historic levels, but given that confidence in our in in the profitability is going forward and the fact that we can support it with the current cash flows and net debt position of the business, we've decided to maintain the dividend at its current levels.

8:43 Moving on to the income statement. Just a couple of things I want to pull out here. Peter will pick up some of the detail when he goes through the various segmentations. But clearly, as you can see, gross margins, as I described, are lower level where they were last year, and that's primarily within our distribution business where the gross margin has gone down from 37.2 to 35.3 just related to kind of competitive pressures in the marketplace. The manufacturing business, excluding Petrievia, has held up well, with actually gross margins slightly improving year on year. And the Petrievia business had had lower gross margins than we'd anticipate, and that's primarily due to the fact that in the final quarter of the year, the busiest part of the year for we had to outsource quite a proportion of work due to the to the instant.

9:28 In terms of operating expenses, quite an increase in operating expenses of 14,500,000. 9,600,000 of that is related to the acquisitions we've brought in, as I said, the full year impact of Polyforms and the Protivi business. 3,600,000 of that is increases in employee cost, of which 1,100,000 is is the they can enforced NI increases and the balance down to kind of inflationary challenges within employee costs. And 1,300,000 is related to kind of property and logistics costs, primarily due to increases, in our rental cost for for property and some of the renewal of our commercial vehicle fleet. Just drawing your attention to the interest costs higher last year, 1,000,000 of 800,000 of that increase is due to bank interest costs due to the higher average borrowings through the year, and 1,000,000 is due to IFRS 16 interest related to property renewals and commercial vehicle renewals.

10:29 Sorry.

10:34 The next slide just gives you a kind of feel for the the adjustments that have been made between kind of statutory measures and alternative profit measures. Really, the key things to draw out here, the things that we're adjusting for are amortization related to intangibles related to acquisitions. The goodwill impairment, as you'd expect, is related to the Pachivi business reflecting the kind of gradual recovery of that business as we see going forward. The 1,500,000 benefit you see in deferred continued acceleration is also primarily related to Precivi because that business is going to have zero earn out, whereas we anticipated around 1,600,000 of earn out payments in the Precivi business. Of course, given the performance of the business, we won't be paying any earn outs in that business. And 1,900,000 is related to that, pension adjustment that reflected there earlier related to the the equalization of pensions going back to, you know, a historic change in methodology.

11:27 So those are the kind of key features in terms of reconciling our statutory measures to our term to profit measures. In terms of cash flows, as Peter described, the operating cash flows were very strong, twenty four point seven million compared to 27,000,000, and that's because of good working capital management, where you can see a positive inflow in working capital and also the noncash impact of the the pension, adjustment that I referred to earlier. And that cash has been utilized in the year to, continue the acquisitions that we did, 17,300,000 in terms of acquisition activity, 13,900,000 of that related to Patrivi, and the balance related to earn out payments for OPEC, Gottlieb, and Polyfarms, all of which are performing well.

12:16 4,500,000 on capital expenditure, 1,800,000 of that was on the Patrivi business. The majority of that related to the new machine that we announced in the November update that we're bringing in to restore the capacity at that site following the incident.

12:32 We also invested in improving the capacity and design capability of our business in Grantham. We had the fit out of our new site in East Midlands, and also we had a an investment in a water treatment facility, our g GWP business in Swindon. We also had the we started the the buyback program, the share buyback program that we announced in June last year. So that's a commitment to buy back to spend 4,000,000 on buying back our shares over a twelve month period, of which 2,100,000 of that's we spent, up to December 2025. And as Peter mentioned earlier, we've maintained the dividend. So we spent 5,800,000 on dividends through the course of 2025. And as we said, we're looking to maintain that as we go into 2026.

13:19 So, again, although the we've consumed cash in the year, we exit the year at 16,200,000 of net debt. As I said, still a relatively low level of net debt compared to our facilities and also relative to the EBITDA of the business. So I'll pass over to Peter now to go through the kind of individual performing services of each of the divisions. Thanks, Ivan. So begin with the Packaging Distribution division. This represents 75% of the group's revenue. And as you as you know, we're the market leader in The UK and a new entrant into Europe within this particular business. So during the year, very difficult market conditions. I mentioned earlier on the impact of EPR on our retail customer base and just generally weak conditions through the macroeconomics and uncertainty around what's happening in world economics generally.

14:09 So to deliver a marginal increase in revenue from our point of view was encouraging and gives us momentum as we go into 2020, 2026.

14:22 The pressure that we've seen in terms of the revenue line has been impacted by customers just delaying decisions, and that's impacted our new business revenue. So our new business revenue was 20% down versus the previous year. And that's not because we've not got strong pipelines. We have rebuilt the sales team and strengthened the sales team. So we're very optimistic as we go into 2026 that we can execute against that new business pipeline and add momentum into our sales line. And probably the most important figure from a distribution point of view in the year was the gross margin. And the gross margin fell back from the heights of the previous year. And that's mainly been down to a lot of very aggressive price competition. We've had to work really, really hard in defending customers from competitors where they've been using price as their major tool to win business. And we decided to make the decision that we'll retain market share and protect and defend those customers and then look to build the margins back over time.

15:23 I'll talk more about operating expenses on one of the later lines, but we have seen an increase in operating expenses. And within that, you've got the increase in national insurance costs and the minimum wage. You've got property rental increases coming through. And then we have East Midlands consolidation during 2025, where we had some run on costs in terms of both property and in terms of labor as part of that. If I move over to the next page, mentioned gross margin. This gives you a flavor of how our gross margin has evolved over the last four or five years. And as you see, coming out of COVID, we had a very strong gross margin, probably a gross margin that was unsustainable going forward. So what we're now into is a gross margin level around about 35% that we believe is sustainable.

16:14 And that's part of our forward forecast. That's our assumption that we can retain that gross margin at 35%. One of the reasons, a small part of the reason that our gross margin declined in 2025 was we had a particular supplier in the corrugate industry that unfortunately went into administration, and they were in a very effective low cost supplier. We had to replace that supplier with a higher cost source. So that did have some impact on gross margin. But going forward, we can see that 35% is a gross margin that we can sustain. I mentioned costs and the schedule just describes for you the major cost change in the year. And in reality, it's broken into 3,100,000 increase in labor costs and just under £1,000,000,000 in property costs.

16:59 If I take the labor costs first, around about three quarters of a million of that £3,000,000 is the NII increase. And that's only eight months, so we've got twelve month impact of that in 2026. We've got inflation in salary costs. Although we had a salary freeze during 2025 for part of our employee base, there was inflation in another part of our employee base to retain loyalty, etcetera. And then we have made some significant new investments in people, particularly in the sales team, which gives me the confidence why that sales pipeline that we've got will come to fruition in 2026. And then there was some carryover costs as a result in property and in sorry, in labor as a result of East Midlands transition, where we had to use quite a lot of temporary labor to help us transfer from four sites down to one site to a new site in Nottingham.

17:52 In terms of property costs, that's broadly half of that property cost increase is just the normal rent renewal rates cost increases that we incurred during the period. And then about half that number was the additional property cost that are dual running of property cost as part of the East Midlands transition. We feel the step changing costs we've seen in 2025 will not repeat in 2026. We've got programs in place, I'll talk to you about later on, which will allow us to stabilize our cost base going forward and give us a good degree of more certainty of the cost base. If we look at the priorities now, obviously, we've got to start the packaging distribution business recovering.

18:38 And there's a number of things that we're doing. I won't go through all of these points, but one of the key things is that, as I mentioned, the retail sector, which within distribution represents about 25% of our revenue, is under a lot of stress at the moment. It's just very, very competitive. Prices are eroding. Margins are eroding. And the impacts of all the hedging legislation, EPR with more to come, is going to put extra stress on that sector. So as part of our medium term plan, we're looking to refocus our business against the industrial markets. Doesn't mean we're walking away from retail, but we're reallocating resources towards growing in the industrial markets, which for us are higher margins, more sustainable business and not quite the same pressure from the environmental legislation.

19:27 We're also pulling together and creating a more connected customer proposition where we are combining the benefits of our distribution, our design and manufacture and our European capabilities for key strategic accounts. And we've identified six key strategic accounts across both The U. K. And Europe, who will fully benefit from the combination of those businesses with a new strategic account team, which is up and running and is now operational. In terms of operating cost reduction, we've seen the step change in 2025. We've got efficiency programs that we're implementing as we speak, both in terms of sales, in logistics and administration. As I say, we expect our costs in 2026 to be flat and only marginally ahead of 2025 despite the fact we've got things like NI, which will still be an increased cost during the period.

20:26 We're also looking as part of the gross margin sustainability to review our sourcing model. At the moment, around about 60% of our sourcing is done with major national suppliers and 40% is done with local and regional suppliers. And we're looking to actually adjust that balance and we'll believe deep in a time when the supply chain and the suppliers we're dealing with are going through complete changes themselves and also give us an opportunity to reduce import prices. In terms of acquisitions, we've indicated that we don't plan to do any more acquisitions in 2026. As you know, acquisition has been a key part of our growth platform. But with the Petrivy story, which I can't talk about, we feel we've got enough we need to allocate management bandwidth to actually developing what we've got. And we're putting acquisitions on hold certainly on the back end of 2027, 2028.

21:22 But we still work on warming up opportunities. The gestation period between contact and execution can be three to five years. So while we won't execute anything in the near term, we have to need to work on opportunities to make sure the pipeline is strong. And then we'll continue to work on working capital management, and we've done a pretty good job this year, and we'll continue to do that despite the weak environment. Going forward, one of the just one slide back on. Going forward, one of the cost opportunities that give us give us confidence in being able to reduce our cost base is we've a number of property leases that come up for renewal in '27 and '28. And we've got capacity available in the new Nottingham sites and the site in the Northwest Of England that we moved two, three years ago now.

22:10 And as some of the leases come up in other sites, that gives us the opportunity to fully utilize the new sites that we've developed. So moving on to our manufacturing division, our design and manufacturing division, and I've taken Patrijia out of this for the moment. Good sales growth of 12%. That's a mixture of the full benefits of the Polyforms acquisition and organic growth of around about just over 3%. And despite weakness in certain markets like automotive, we've seen good growth, particularly in the aerospace, space and defense markets for reasons which will be apparent to you all. And that gives us extremely good momentum going into 2026. And we see this business now being a key contributor to profits in 2026 as well, so representing now around about 40% of group profits. So really good performance in this division, and we expect that to continue.

23:07 If we move on to Petrivi,

23:11 I think most of you are aware of the Petrivi story. We acquired Petrivi in January 2025. And then in October 2025, we had a tragic incident causing one of our colleagues to the death of one of our colleagues. Clearly, that's taken an emotional sort of burden of the business as well as the operational financial burden, which we've been working through both with our employees and with the family that was affected. Where are we in terms of the numbers? So we expected Petrivy in its first year of ownership to make just under $2,000,000 operating profit. And obviously, because of the Petrivy incident, it fell into a loss. What we were doing post the incident as as well as all the emotional support, we were actually ensuring that we could retain customer loyalty by using external suppliers to supply customers because the machine where the incident occurred, we had to take that out the business. So we've retained high degree of customer loyalty, which is really, really positive.

24:11 And what we also did was very quickly turn around an order and a program to acquire a new replacement machine. And the visual you have on display is the new machine out of China, which is now up and running, not quite it's up. It's not quite running in the treaty facility income at all. We expect it to be operational at the end of this month, which is going through commissioning and training and so on and so forth the staff. And we expect it to be fully operational in Q2 of this year. So I think we can see the Petrieve business recovering.

24:47 The fact that we've got significant customer loyalty and no customers exited, No customers have talked about dual sourcing going on. And the new machine gives also gives increased capacity. So as we start moving customers back into the facility from being outsourced, Once we've settled those customers down, then we'll be looking to utilize that capacity to win new customers in the Scottish market.

25:15 In terms of the priorities going forward for manufacturing, clearly, the recovery of Patrivia is critical. We expect to get the sort of $2,000,000 operating profit that we were expecting to achieve through the acquisition. We expect to deliver that in 2027 when we've got a full year. For the year 2026, we're going have a part year with the new equipment. But we certainly expect the business to get back to the underlying profitability we inherited through the acquisition in 2027. And as I mentioned, in terms of our core manufacturing operations, we've got some good opportunities around defense, aerospace and space, which is giving us momentum gave us good momentum in 2025 and will continue to give us good momentum in 2026. So once we should get the Trevy where it needs to be, we're pretty happy this division has got a very good medium term outlook in terms of both growth and profitability.

26:14 Just moving on from the financials and picking up on ESG matters. In terms of the MACFARLANE business, we've done well in terms of adding accreditations, which are important, certain customers who need the accreditations for you to be part of their supplier base. In terms of our own impact on the environment, we continue to roll out more electric trucks. As And you know, electric trucks work in our industry because the things we ship are light and the distances we travel are relatively short distances. So we continue to roll out the electric truck program. And we're now close to 100% of our electricity we use in the facilities is now coming from renewable resources. So good progress there.

27:00 And in terms of supporting our customers, our innovation labs are increasingly busy as we help customers through the EPR legislation by finding ways of supporting them on reducing their packaging use while still protecting their products and the packaging they use being made of sustainable materials, so obviously, helping from an environmental point of view. In terms of legislation, I've mentioned EPR a number of times. I'm sure you'll be familiar with the challenge of EPR in that retail space. But I think going forward, there is more regulation coming down the pipe. You've got the deforestation regulations and you've got the void fill regulations coming through, all of which are going to put extra stress and strain, particularly in that retail space, and hence the point I made earlier on about how we begin to start pivoting more towards industrial markets where there's not the same stress and strain that's coming through in terms of the sustainability legislation driven by the government and by the European authorities.

28:03 So I'll pause there and, and move on to the pension scheme. I'll ask Nigel to touch on that. Yeah. I think I covered most of this earlier, but, I think the key thing to note with the pension scheme, although the surplus has come down principally due to the adjustment that I referred to earlier,

28:20 The scheme is not drawing any cash from from the group currently. And as I said, we've got a decision that we'll be making over the next few months in terms of whether we'd progress the scheme to buyout, and that decision will be based on the favorability of pricing in the market at that point. As I said, our goal and aim is to exit in the scheme through a buy in, without drawing further cash from the group. If it required us to put a small amount of cash, into the to the bit into the scheme, then we would probably still proceed. Beyond that, then we can continue to run the scheme on, and at this point, we'd not draw any further cash from the group. In terms of the capital allocation, as you can see, this slide describes the kind of outcomes from the capital allocation for 2025, which I really covered within the kind of cash flow earlier.

29:13 I think the key thing to to to mention here is a better reprioritization of our capital allocation. So, obviously, clearly, we'll continue to invest in the business. I suppose as number two, we've made a commitment to maintain the dividend. So this year, we will be looking to spend about 5,800,000 on dividends in terms of maintaining it. The kind of third priority would be completing the the buyback program of which 1,900,000 is still to be spent this year, and then the kind of final element as acquisition. So as Peter described, we're not planning and doing any acquisitions, in 2020 set. However, we do have an outstanding year out payment for Polyforms of about 2,600,000, and that business has performed well. So we would fully expect to make that payment, round about July, August this year. But other than that, I wouldn't expect any further, movements in terms of acquisition activity this year.

30:07 So a bit of a refocusing in terms of our capital allocation, focusing on maintaining the dividend, then the the buyback program for shareholders, returning cash to shareholders, and then, obviously, acquisitions at the bottom of the kind of priorities at the moment. So I'll pass back to Peter to kind of summarize the presentation, and then we'll move on to q and a. Thanks, Isaac. So just some concluding remarks before we move on to q and a. It's been a tough 2025 for the business. And we're not expecting 2026 for the market conditions to be any different. We see the markets continuing to be challenging. And you could probably see at the moment, the industry is at the bottom of the cycle.

30:54 And it's not necessary that the next move is going to be upwards. We could see a twelve to eighteen month period where the industry continues to run the bottom of the cycle. So for us, it's all about actually the priorities to recover the business, to recover the distribution business and get it back to the 7.5%, 8% return on sales that is our mid term target. And obviously, to get the Petrini business to perform at the level that we expect it to do when it was

31:22 acquired. So from our point of view, 2026 is year one of the recovery program. We're well into implementing a lot of the things that we've discussed already. I think the balance of the year is going to be biased very much towards H2 because, obviously, Petrivy in H1 will still lose money because we'll have a quarter where we're still working with outsourced suppliers. But we should see and expect to see a step change in performance in the second half of the year in terms of like for like versus the first half year, and we'll see 2026 showing profit growth versus 2025. So the medium term the short term view back into profit growth and the medium things that we have got planned and the opportunities to improve performance of the business, the medium term from our point of view continues to look very positive.

32:11 So I will pause there and

32:14 pick up on some of the questions that we can see coming through. Can I have a follow-up host? Yeah. So just some of the questions coming through. First question, Peter, is on distribution business. Clearly, the the distribution business kinda dropped its operating margin to 5% this year. What are the kind of actions you see getting the business back to 8%, and and what kind of time lines are you looking at? Yeah. I think, know, distribution clearly has had a difficult year. We described the reasons behind that. You know, sales has been relatively robust despite all difficulties. It's really the gross margin reduction and the increasing costs. So our objective is to get it back to 7.5 to 8%, and that will be a mixture of holding the gross margin line around that 35%, developing the pipeline of opportunities that we are very confident that we can execute this year despite the difficulties in 2025 to give ourselves around about 2% to 3% sales growth this year.

33:15 And then holding the operational cost line to say we saw a significant step change in 'twenty five and 'twenty four. But we with the programs we've got in terms of cost reductions, in terms of

33:26 the squeeze on property, we believe we can actually hold our cost flat in 2026 and then it start to reduce as a percentage of sales in 'twenty seven, eight. So certainly, we expect a two to three year this is year one, a year two, year three time line to get ourselves back to around that 7.5% to 8% return on sales. A question here on new business. Obviously, we reflected the fact that new business was down year on year.

33:58 Given that the pipelines have seen things improve two main reasons why the new business pipeline didn't convert. One is the program we have to win new business is offering customers sort of medium term cost savings. And the priority for customers, whatever that's going on in their businesses at the moment, is jam today, save me money today. And the only way you can do that is by reducing prices. And so we weren't we didn't go down that route in terms of our new business program. We still believe our medium term benefit is the way to go in terms of giving customers opportunities going forward. The pipeline is extremely strong.

34:57 And the other thing that caused customers to not make positive decisions is just uncertainty. So we had a lot of customers where they're very close to the finishing line. But with everything in the world changing on a pretty frequent basis at the moment, we find customers just not prepared to actually press the button and go ahead with us. So we're confident these customers will come on stream, and we have seen some early interesting new wins as we go into 2026. So the pipeline is strong, difficult in 2025, but we expect it to come through in 2026 for us. There's a question on a buyback, clearly, covering capital allocations. Is just not trying to be more aggressive in the buyback, given the weakness in the share price. So maybe if I answer that one, I mean, this year, clearly, our net debt level moved to higher levels than it's been, in prior years, albeit still relatively low at 16,200,000.

36:00 I mean, in terms of how we see the cash flows for this year, we see them broadly neutral. We see you know, clearly, there's some recovery that needs to be done within distribution business in Patrivia, so there's a lot of work that's got to go into those businesses. So that recovery pass will generate, you know, operating cash flows, which will then be consumed in, I suppose, four different areas, really. We've got the capital expenditure we have to invest in the business. So we have about 4,500,000 allocated for capital expenditure this year, to re to reinvest both in distribution and the manufacturing business, to support some of the capacity and growth that we're seeing. We've got 5,800,000, which is, as I said earlier, is to maintain the dividend. And and the dividend, I know it's not it's not important to some shareholders, but clearly a large proportion of our shareholders.

36:52 Clearly, the dividend is very, very important. So we believe that that investment in maintaining that dividend is important for those shareholders and the confidence that we see in the business going forward. So that kinda leaves us maintaining our net debt level at 16.2 leaves us something in the order of about £4,000,000 to decide our spend on acquisitions or buybacks. At the moment, we've got 2,600,000 that we have to allocate to the earning payment for Polyforms. And, clearly, we are looking to to complete the buyout program that we've got in play at the moment of 1,900,000. As we go through into next year, then we can start to be a bit more aggressive in the buyback program because, clearly, we don't have any acquisition payments in 2027. So depending on where we are strategically from acquisition point of view, we can if the share price remains where it is and the the low levels as as described by the the the person who raised the question, then we can start to be a bit more aggressive.

37:50 But we don't intend, I suppose, this stage, leveraging up the balance sheet, to do buyback at this point. So, hopefully, that answers the the question on buyback for now. In terms of the priorities, Peter, you described the priorities around distribution. I suppose I could probably answer this one as well. You know, what the success look like in 2026 for packs and distribution. And I think Peter described the action plans for us. I think success comes in a number of different ways. One, success is getting growth back into the business. And we're not looking for spectacular growth, but we are looking for growth around two to three percent this year in terms of distribution. That would be success, and part of that's gonna be the success in converting the new business pipeline.

38:40 Maintaining the gross margins at the level we exit that in 2025, that would be success. And, clearly, there's work to to be done on that because the competitive intensity doesn't change as we go into 2026. And then the third element is kind of there's clearly still inflation coming through in 2026 related to the full year impact of NI and, obviously, continuing impacts within inflation on on employee costs. So we would still see the operating cost base not going down in 2026, but we want to try and keep it as flat as possible. So I I think as we exit this year, a nudge up in the operating profit margins from 5% to somewhere between 56% is where we go for 2025, albeit that enhanced by that 2% to 3% organic growth in sales.

39:33 Yeah. And thanks, I. The only thing I would add to that is, as we've touched on in one the earlier questions, is demonstrating that new business pipeline can be executed against, so getting the new business momentum back into the business that we haven't had in 2025. Good question here, clearly, on very current events. How do you see the likely impact of the the recent oil price spike? Yeah. It's it's very difficult, and it's probably too early to make any key judgments, but, around about 20% of our revenue is polymer related in distribution. So there may be issues around that. The team are working at the moment to understand what the implications are. So I think probably the the most obvious implication is gonna be potential price pressure on polymer products and potentially supply restrictions on polymer products.

40:32 So that's where the the sourcing team are focusing their time at the moment to ensure that we can ensure a clear supply line of those products. I mean, we buy those products, some from the Middle East, some from Turkey and some from the Far East. But at the end of the day, it it's polymer, and clearly, that's exposed at the moment in terms of Middle East. So that that's the most immediate effect we're seeing. Or not seeing, but we expect to see. And just to add to that, I mean, clearly, that's the products we buy. I mean, clearly, as if you look at fuel costs and our kind of outside carriage costs, that represents round about two and a half percent of our sales. So it's a it's a significant cost, but not a cost that if it went up by 30% would cause a significant problem. I think the main challenge will be the impact on our input pricing on the materials that we buy and how we translate that through to through to customers and and and to what extent it's it's a short term spike versus a long term change.

41:34 Yeah. That's great. I will Peter, if I may just jump back in there, and thank you for addressing all those questions from investors today. Peter, before we direct investors to provide you with a feedback, which one is particularly important to you, could I please just ask you for a few closing comments? Yes. So thank you, everyone, for your time this morning. Appreciate you giving up your time for the MACFARLANE GROUP. Tough 'twenty five, I think we explained the reasoning behind it. The most important thing now is we get our way and get ahead with implementing the recovery plan. Hopefully, we described that to you. And we're confident the business will start the recovery in 2026, and then we see medium term outlook extremely positive. So that would be the key messages from my company to take away from today's session.

42:20 Peter, I will thank you once again for updating investors today. You please ask investors not to close the session as you will now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good morning to you all.