Mpac Group (LSE:MPAC) — Interim results for the six months ended 30 June 2025

0:02 Good morning, ladies and gentlemen, and welcome to the MPAC GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just 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 will publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we would just like to submit the following poll. If you give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from MPAC GROUP PLC. Adam, good morning, sir. Good morning. Good morning, everyone. So I'm Adam Holland. I'm chief executive of the MPAC GROUP.

0:47 And over the course of the next thirty or forty minutes, Will and I will tell you a little bit about MPAC. In fact, we'll to the next slide, please, Will. I've got an agenda. We'll talk a bit about MPAC, the markets that we operate in. We will, of course, cover the impact of US tariffs and how we are responding to them. I'll hand over to Will who'll take you through the interim results for the first half, and I'll take you through the five pillars of our strategy, tell you a bit about the progress that we're making there, and then we'll summarize and confirm the outlook. And, yeah, of course, let me start with the end in mind. The outlook is that we're on track to meet the full year guidance that we issued back on the July 1. So let's get that out of way at the at the outset. So that's what we're gonna cover. Next chart, please, Will. Very good. Let's come on to the first substantive chart, think, is the next one.

1:38 Okay. Those of you that know MPAC well with this chart will be familiar. For those that don't, let me introduce the MPAC GROUP. We we design, build, install, and service the machines that millions of people around the world depend on. Our our customers are FMCG producers. Half of our customer base operates in the food and beverage market. That's customers like Nestle, Mars, Diageo, PepsiCo, Mondelez, and so on. And about 25, 30% of our customers operate in the health care sector. People like organizations like J and J, so Johnson and Johnson, Wreck It, Stryker, Quacko Smithline, AstraZeneca, and so on. If you don't know MPAC, you certainly know our customers. They are blue chip multinational companies, and they are household names.

2:27 Today, we operate six businesses from six manufacturing facilities in North America, UK, and Europe. And the capabilities that we provide to our customers, everything from raw food handling and hygienic conveying, machines that our customers use to assemble their products, anything from Lasagna through to contact lenses, so a whole variety of different kinds of end products that machines produce. We also make machines for the packaging, specifically secondary packaging machines. Those are the kinds of machines that might put, say, ice cream bars into the kind of carton that you'd stick in the freezer at home, but at very high speeds, 12 bars a second, those kinds of rates. So high speed cartoning, we produce machines for putting cartons into larger corrugated cases and trays, case conveying through factories, through to the palletizing systems that take those cases and then stack them onto pallets for on route distribution at the end of a factory line.

3:28 Today, the group is made up of about 1,100 people, half of whom are engineers and designers, and our customers are right across the world from Mexico to Malaysia. We support an installed base of about six and a half thousand machines worldwide, and so services are an important part of the way that we support our customers. Next chart, please, Will. We've also talked about the kind of five stage model, the way that we retain and win new customers, in fact. And it starts with consultation. It's a very small part of our revenue and profit in the in the group. So financially, perhaps, you know, not not the thing to to start with, but consultation is the way that we develop our customers' products and the packaging materials, packaging design, and help to automate the way that our customers' processes operate.

4:20 So it's a key part of winning new customers, then we move into design, build, and installation, which is our original equipment business, and then monitoring and optimize the services businesses for the MPAC GROUP. Next chart, please. Now the markets that we operate in, are attractive, and, they offer us very significant growth opportunities. They're attractive in four ways. Firstly, they are very large. You know, every year, more than 50,000,000,000 or around $50,000,000,000 worth of packaging machinery equipment is bought somewhere in the world, and our market share of the addressable part of that market is about 2%. We So have a 98% market share to go for, a very significant growth opportunity there. The competition that we face is fragmented. Very large number of competitors, some are much smaller than MPAC, might operate only in a niche machine type or perhaps within a single region in the world. Some are much larger, have global reach that MPAC does, right up to companies of of a few billion in revenue operating right around the world and and with a full line offering to customers.

5:26 And we're able to compete and win business even with with those very large competitors because our customers often make the decisions based on the the technical performance of a line that's being proposed. So it's the engineering capability of our teams to innovate and come up with creative ways to automate that are that make us successful in winning against those large competitors. Every chief exec will tell you people are the key to their business, but in MPAC, it is absolutely true. Next chart, please. So the investment proposition, if I think about think about MPAC from an investor perspective, there are four ways in which our group is an attractive investment proposition. First, we've covered the the growth opportunity, the market share already.

6:12 If I look to quality of earnings, over the last five years, we've seen a 12% compound annual growth rate in services. Our operating margins in the first half of this year were up to 8.9%, up from 7.5% same time prior year. And if I looked at it in terms of capital employed, you know, we talk about being a capital light business. Our return on capital employed was 14% in the first half of this year, up from 12% the prior year, and there's more still to go at in the second half of twenty twenty five. We've always excluded our the pension, The UK defined pension scheme, from our calculation of return on capital employed, but there was a very significant change in the first half of this year as we announced the buy in to The UK defined benefit pension scheme.

6:59 That announcement was back on the July 1, and Will is gonna cover that again today. Lastly, and perhaps most importantly, the barrier to entry. It is the expertise of our people that that is key to our customers. It's the insight that our people have into our customers' operations and the way that we do innovation both on and off project that makes us sticky with our customers, and that also creates a high barrier to entry to others trying to enter into our market space. So attractive in four ways, growth, quality of earnings, capital light, and and barriers to entry. Next chart, please. Over over many half year results announcement full year results announcements now, we've presented a chart very similar to this one. And the update today, 90 original equipment orders won in the first half of this year with 41 different customers.

7:50 By value, 42% of those original equipment orders were with customers that were new to the MPAC group, and that's been a very deliberate focus to help broaden our customer base over many, many successive half year periods now. Of that 42%, 8,600,000, so about 13% of our original equipment orders in the first half, came from four global account customers who have the scale not just to place a single order with us in in a in a period, but many orders over many successive years. And those are really important when you think about why this strategy is so important to us in terms of growing our business in the future. Now I'd love to give you those four customer names and to talk in detail about specific projects, but nondisclosure agreements with our customers mean I I can't give you specifics about future FMCG launches and the and the particular companies that we work with. What I will do is is to give you some examples to give you color.

8:43 Of those four customers, one of them was a new win in the personal care sector. This is a global customer with more than €10,000,000,000 of revenue. Very, very pleased that our first project with them has been has been launched. It's a factory that we're building with them in Europe. Our machines will go into their factory in Europe, it's taken many years to get the relationship to the point where we've started on that first project. And it's really exciting what it could lead to. And I'm gonna describe what it could lead to by thinking of another new customer win, but this one from 2,023. That was a customer that we we won our first project in Singapore back in 2023. Right now today, that line is being installed and commissioned in Singapore. Earlier this year, 2025, we secured a second project with that customer.

9:32 This is for a new factory build in The UK. Why is it why is it notable? Does it always take two years to go from that first win to a second win? You know, what what's really the ramp up rate? Well, I think most importantly, we are bidding right now 10 other projects with that very same customer for facilities in The US, Europe, and Asia. So it really shows why we start that process of winning and broadening our customer base. The final example I'm gonna give from from this chart is a customer who is a a multinational global customer. We've done projects with them all over the world over many, many years. And earlier this year, we won a cartoning machine during a tender process for a new factory build in Mexico with that same customer. Why is it notable? Well, shortly after the tender was won for the cartoning machine, the next machine down the factory line is a is a cart is a case packing machine.

10:24 It takes those cartons and and puts them into corrugated cases. A few weeks after the the award of the cartoning tender, we tendered and won the case packing machine. And following that, we went into a direct negotiation with the same customer for the palletizing system that sits downstream of the case packer and successfully secured that contract as well. So we now have for the first time a Langan cartner, a Langan case packer, and a CSI palletizer from the the business that we acquired late last year going into the same factory in one of our customer bases. So notable, I think, for that reason. But the big story in the first half was all about US tariffs, and so we'll come on to that on the next chart. Please, Will. Now when when tariffs were first announced earlier this year in The US, our immediate concern was about the impact on projects that were already up and running in our business, existing orders.

11:21 And our concern was that customers might look at the increased cost as a result of those tariffs and look at cancellations. When we announced the impact of of our of tariffs on the business earlier this year, we briefed that there had been no cancellations of existing orders as a result of tariffs. That was true on the July 1, and it is still true today. There's been no impact on existing orders or indeed on our service business, which has also held up well. What has happened is that new capital expenditure decisions by our customers have been deferred, And and the impact on us was that our order intake in The US was very significantly down in the first half of this year as customers paused the launch of new projects rather than embarking on new investments.

12:08 I talked that through in numbers. At the first of January this year, our order book was a 118,000,000. By the July 1, our order book had declined £27,000,000 to 91,000,000. And if that trend had continued, we'd be in a very different position today. It has not continued. You know, roll on, two and a half months since the July 1. What have we seen? The order book today is £93,000,000. I'm gonna call that broadly flat. I guess it's marginally up, but let's call it flat. That decline in the order book has stabilized now, but we've seen an impact on half two revenue and cash, and that was the announcement that we made back on the July 1. What have we done about it? What can we control? Well, we've done quite a bit.

12:53 The first thing we we announced on the July 1 was that we were going to consolidate our US businesses and close the Cleveland facility that we've operated. The last Switchback machine has completed its factory acceptance test in Cleveland. We've moved a number of other in flight projects of other Switchback machines we're building for other customers to our other North American facilities. As we continue to take switchback orders in the future, we'll build those in our other North American facilities, not in Cleveland. We've also moved the spare parts fulfillment center to Boston, so we now have a single hub in Boston supplying spare parts to all of our customers across The US. All of that's been completed over the last ten weeks, since the announcement, July 1. We've taken all the kind of normal, cost and cash actions that you'd expect us to, removing contractors around the group, introducing discretionary spend restrictions, cutting back on capital investments and so on.

13:48 But we also have opportunities with the acquisitions that we completed last year to go even further and even faster. So I'm delighted that in the first half of this year, we've completed the first electrical panel builds in Romania, supplying from what was previously just a CSI business, now supporting, in this particular example, a Lambert project built in our UK facility with subassemblies from Romania. Langan electrical panels are currently in manufacture in Romania to support our business in The Netherlands, and later this year, we'll see the first full Langan Kartner and Austro machine built in the Romania facility as well to support European customers of the Langan business. So really substantial progress there. And then if I look beyond the acquisitions, we've also announced the opening of a new engineering hub in Malaysia, providing global design engineering support to all of our facilities worldwide, taking advantage of the incredible capability of Malaysian engineers in KL and the cost base of the region. So some substantial changes. We've been very, very fast to implement to address the market conditions that we see around us. And I must stress the acquisitions have really helped to make us a much more resilient group.

15:05 It's given us levers that we can pull in response to what we see around us today. And with that said, let's go on to the next chart and talk a little bit more about CSI specifically. Now if I go back to to to pre acquisition MPAC world, 50% of our order intake in a typical year came from The US. And if you look at the pie chart in the bottom right of this corner, in the first half of this year, that number has now declined from 50% to 10% in the first half of the year. By contrast, the CSI business is particularly strong with customers in EMEA, Central, And South America, and those regions have been performing well. So at the half year, if you look at the pie chart top right, CSI now represents just over half of the group order book, 51% of the order book.

15:54 The acquisition the impact of the acquisition on the group is very significant. You can see that from the data, and it's been made possible by our shareholders last year. Thank So you very much for your support to make that happen. The CSI doc team have done an outstanding job strategically as well. In the bottom left hand corner of the chart, you can see a a series of stacked bars, that show the progression in the concentration of customer orders for CSI over several years. If you go back to 2023 before the acquisition, customer one, their largest customer, made up 64% of CSI's original equipment orders that year. All other customers together made up 36%. And that level of customer concentration was seen by the team as a strategic imperative to address. The team went out to broaden their customer base and within a year, moved that 36% up to 77% of orders from all other customers at substantial movement from 2023 to 2024.

16:50 How have they done in the first half of this year? Well, that trend has continued. So up from 77% to 95% in the first half of this year as the the team continues to win orders for a much wider range of customers. That's important for the CSI performance. It's important for customer one as well. You know, I must stress this. No customer wants to know that a supplier is dependent on them, and it's really important that our engineers are engaged on interesting and challenging projects. And so introducing other customers to our customer base is always seen positively by existing customers. I must also say, although the chart is a stacked bar, if we looked at it in absolute value, the trend would be positive too. So we we're not trying to sort of hide away deterioration at absolute value quite the opposite. Next chart, please.

17:36 Okay. Turning away from numbers, I'd I'd like to talk a bit about the Horizon machine. It's a machine that we announced the the launch from our innovation team in in previous presentations. And innovation, the reason I stress it is that it's often the way that we win new customers. To the extent we can find solutions to customer problems in a way that's better than our competitors, it always gives us an advantage to win, business with new customers away from incumbents. We do that both on project, in that example, and off project as we develop new innovative projects and new innovative products. So I'm absolutely delighted to be able to announce that the Horizon machine has been awarded a Red Dot award and won. You might know Red Dot. Red Dot is a global award.

18:24 It's very prestigious in the world of industrial design. The MPAC GROUP have never won a Red Dot award before. Previous winners include companies like Apple, Ferrari, Google, Sony, and so you add MPAC to the list, and we're in very good company there. Why did the judges select MPAC for a Red Dot award this year? Well, they particularly liked the new Affinity operator interface that we prevent provided on the Horizon machine. It brings a kind of iPhone level ease of use to operators of that machine. And if you've ever worked in a factory and and come to a new machine and and try to operate it, you'll know that operations are often very complex to get the high performance and efficiency out of a production line. It takes a lot of experience and training to get there, and the affinity interface takes a lot of that experience requirements away and makes it much, much easier for a less experienced operator to quickly come up to speed and and get the best out of a production line.

19:18 The judges also like the sustainability credentials of of the machine. We've designed it to be pneumatic free. It has a much better energy consumption than any machine we produced in the MPAC range before. And I'm really excited about the award. I'm even more excited about the opportunity to now take those kinds of features and read them across the whole of the MPAC range, not just in the Langan range, but right across the group. So well done to the MPAC Innovations team. And at that point, I'm gonna hand over to Will to take you through the half year numbers. Okay. Thank you, Adam. So I'll start with the financial highlights for the first half and all things apparent. It's been a challenging commercial environment in The US, but with some real positives around gross margin and operating margins.

20:04 But if I start with order intake, so we report an order intake of 64,200,000, which is seven and a half percent above the prior half year. And that's, underpinned by a very strong performance from the CSI business that we acquired last year. On a like for like basis, we're showing order intake 37% below the prior half year, which demonstrates the extent of tariff disruption on customer decision making in The US and the importance of completing the acquisition back end of last year as we did. I think it's probably be helpful that we'll give some context, to consider The US market that was that was our largest market pre acquisitions, in the first half of this year, original equipment order intake from The US was less than 5,000,000. So it shows the extent of disruption that we've been, faced within the first half.

21:00 That said, we made really good progress on customer diversion diversification. Adam's mentioned that 42% of orders want new customers, and that's helped to mitigate the impact. And regionally, it's probably no surprise now that EMEA is by far our largest market. But move on to order book and revenue. We'll start with revenue, up 41% to 84,700,000. On a like for like basis, if we take away the acquisitions and one particular onerous contract in the clean energy sector. The like for like revenue is broadly flat against the prior year. And by sector, food and beverage now by far our largest sector with 44 almost 45,000,000 of our revenue coming from the food and beverage sector.

21:47 Health care is our second largest at 22,500,000. And then we sweep up in others, all other consumer products. I think in terms of other graphs on here, looking at the order book, 91,700,000 at the half year. That's down significantly reflecting the the lower order intake in The US especially. But that order book gives us good coverage against forecast half to revenue for 2025. And indeed, we consider revenue profile on a on a rolling twelve month basis, and that order book at the end of June gives us approximately 60% of revenue cover for the twelve months to the end of the first half twenty twenty six. And historically, 60% of future twelve months revenue cover is a healthy position for MPAC to be. So, yeah, once we've we've upgraded or downgraded, sorry, guidance for the for the full year 2025, we're now left with a high degree of revenue cover to achieve the full year guidance.

22:46 We wanna talk about margins and profitability. And as I mentioned earlier, that's really one of the highlights for the first half. We've shown very strong gross margin development, up nearly 8% percentage points to 36%. So what's the the driver to that improvement? Well, the the first and most significant contributor to that improvement is the margin performance from the CSI business business we acquired last year. They performed really well, high degree of loading and utilization, and they're they're they're been very successful in utilizing the low cost manufacturing assembly capacity that they have in Romania. Alongside that, our service business margins have been strong, and the comparator included the dilution effect of one large project within the clean energy sector. So those three factors are the main drivers to the good margin developments over the previous half year.

23:46 And as you'd expect, that strong margin in the revenue growth is dropping through to an increase in underlying operating profit to 7,500,000 compared to 4,500,000 in the previous half years. It's up 67%. In terms of EPS, that equates to an EPS of 12.1 p, and that's after the impact of the, issue of nearly 10,000,000 shares last year to fund the CSI and BCA acquisitions. In terms of working capital and balance sheet related items, so net debt at the half year is 43,300,000. That includes, vendor loans and deferred consideration, which was, associated with the CSI acquisition. Working capital was shown an increase from point 4 to 6,900,000.

24:35 There's a there's a slide on the balance sheet in a couple slides time, but but, fundamentally, that comes down to missing deposits from the lower order book. We'll move on to the next slide which shows a bridge of profit before underlying PBT from the first half of last year to first half of this year. So from 4,000,000 to 5,000,000. Main contributing factors on the left hand side. Okay. On a like for like basis, revenues increases contributed another 7,000,000 of underlying PBT, and the increase in margin that referred to, a very positive 6,600,000 coming from the higher gross gross margin percentage. Offsetting that, there's the administrative and s g and a costs of the two acquired businesses and, additional debt financing costs associated with the borrowings. That brings it down to 5,000,000 for the full year.

25:34 On the right hand side, I think it's worth commenting on the split of OE and service revenue. So we see a very strong performance from original equipment revenue in the first half. And as I said, that's that's, underpinned by a strong performance from CSI. And then in relation to non underlying items, the table on the right hand side is probably worth just running through those positions because there's some large items in there. So the first noncash item was an 8,500,000 impairment of the goodwill of the 2020 acquisition switchback. In relation to site consolidation in The US, there was the impairment of the lease and some leasehold improvements, which is another 3,000,000 noncash items. And then amortization of acquired intangibles, 3,000,000 as well. So that's associated with the CSI, BCA, and Lambert acquisitions.

26:32 And the final items relates to pension related positions. In terms of balance sheet, I won't go through every position on here, but I'll talk about the main movements compared to the closing position at the end of twenty twenty four. But starting with noncurrent assets, the most significant change there is in respect of our UK pension scheme. So the accounting, on a buy in basis means we've seen a 30,000,000 reduction in the noncurrent asset to the previous IS 19 valuation. Alongside that, there is the write down of the, goodwill associated with the previous acquisition of Switchback. Inventories and trade receivables, they're fairly steady. Not a huge amount of change there. The only other position with a significant change is trade and other payables. And within trade and other payables, there's the position associated with customer deposits.

27:30 So the lower order book at the half year is reflected here in lower customer deposits. Then the next slide, it shows a cash bridge. So this is the opening gross cash of 18,200,000 at the start of the year to the closing gross cash of 8,600,000 and the waterfall between those two. So EBITDA, we've spoken about that contributed 9,700,000 of cash. That's offset by the 6,500,000 of additional working capital and 3,200,000 of repayment of borrowings. The ongoing pension contributions commitment is shown as 1,400,000. Albeit it's worth saying that contribution has almost entirely gone to escrow, and I'll pick up the impact of that on the, on the following slide where we talk about the status of the pension scheme.

28:23 And then alongside that, some capital additions and lease payments. The other large block in the pillar, tax, FX, interest, and non underlying items. The largest positions in there are interest and some tax, and then there is the costs from the twenty twenty four acquisitions of CSI and BCA that have fallen through cash flow perspective into 2025. Also, we're saying at this stage, we've got a commission facility with HSBC through until 2027. The company continues to trade with significant headroom above the covenants associated with that facility, and we have a very supportive relationship with HSBC. The last slide I'll go through is the status of pension scheme, and, yeah, I'll probably take a step back. Many may know that the history of the the scheme.

29:17 It's mainly associated with members and deferred members from what was the MOLIN's PLC days of the group. The scheme closed a long time ago. It's a large scheme relative to the size of the company. At one point, liabilities were close to 500,000,000, and we were running with a deficit of around $6,070,000,000. But we've worked hard over various triennial valuations. We've brought that back down to a surplus now. And in July 2025, we were able to announce that we reached an agreement with Amiva. We purchased a bulk annuity for 249,000,000 covering known future liabilities associated with the scheme. So that was the point we achieved to buy in.

30:06 The timeline here on in is conservatively estimated to be two years to go from buy in to buy out, in which time we'll work with Aviva and the trustees and the ministers of the scheme to to make sure we've got transparency on data that we're handing over to Aviva. And, yeah, the goal remains to complete buyout and wind up as swiftly as possible with as minimal professional fees as possible, and we're anticipating the announcement in that we would expect the value of the escrow account where we'd be making contributions to be returned to the company at the point we reach buyout. So that's estimated at 5,000,000, so we're working to bring that timeline in as efficiently as possible and achieve that buyout. At which point, we will turn the focus to the smaller US schemes around 8,000,000 in liabilities of those schemes and and mature schemes.

31:00 And we'll work to do a similar exercise with them. It's a real success for the company. It derisks what was a very large scheme to us, and it will crystallize any future contributions that we need to make once we achieve buyout. And with that, I'll hand back over to Adela. Thank you, Will. Over the the next couple of minutes, I'm just gonna touch on the the five pillars of our group strategy, which have been stable now for quite some time. And those five themes are going for growth, outstanding customer service, innovation, people, and operational excellence. I I won't get through every point on the chart here, but just pick out some highlights. Under going for growth, I think probably the the place to start, we think about our sales pipeline as a pipe. And in in at the top of the pipe, what we see coming in are new projects that our customers are thinking about launching in the future, you know, prospective new projects.

32:01 The value of new prospective projects going into the pipeline has been higher this year in the first half than than previous years. It varies around the group from business to business and region to region, but the lowest increase has been 2% and the largest 14% year on year on a like for like basis. So, you know, put simply, we're seeing more ideas going into the pipeline of new projects than ever before. The pipe is not leaking, so we're not seeing projects that have been conceived of being shelved forever. What we're seeing is customers saying, we're gonna push back the launch of that until next month, next quarter, you know, next year.

32:47 We're gonna delay the launch. We're gonna pause on the launch. So there's no nothing leaking out the sides of our pipe, but it's as if there is a cork in the bottom of the pipe in The US particularly where customers are not then following through to actually place purchase orders with suppliers and launch those new capital investment projects. If you imagine a pipe with a cork in the bottom, it's not leaking and that you continue to fill it at an increasing rate, what's gonna happen is the pipe pipe is gonna bulge. And at some point, something has to give. We don't know when. I'm not gonna give you a a kind of crystal ball gazing view today on when that will change, but something has to give. And we've seen that kind of cycle before if you go back to two thousand and eight, nine, the financial crisis, the COVID the impact of COVID on capital markets around the world, we've seen these kinds of behaviors before. So we know we know what is likely to happen in the future.

33:40 Second thing I'll highlight on the customer service, again, is a sort of see the things to come is the progress that we've made with digital and vision. In the first half of this year, we've secured nine orders in the digital services space. That's quite a small number if you think about the six and a half thousand machines that we have installed around the world today, but it's definitely a sign of things to come. And I'm really excited about the progress the team have made there with with nine customers placing their commitment in us in the digital space in h one. Under innovation, we've already talked quite a bit about Horizon. Last year, we also launched a new machine, the Austro machine, just to update you on that. We've now secured more than 3,000,000 pounds of orders for the Austro machine, and that's continuing to rise. It's going very well. And earlier this year, we announced the launch of the Brisa cartoning machine and the Maestro XL, two machines specifically designed around the pizza market.

34:35 And the reason we've done that earlier it was probably best exemplified earlier earlier this month. I I visited a a pizza producer who we've been building a relationship with for four or five years now. The facility, they operate a number of facilities, but the particular one I visited earlier this month produces about a million pizzas every single day, so high volume from from that particular facility. And it's the BRISA that's really piques their interest. They're considering a new line in the future to expand their capacity, and the BRISA can do can do meet the customer's needs in a way that nothing else on the market can. It So really shows the power of innovation to open a door to a new customer, and these things take time. Under operating operational excellence, I'm really pleased with the the progress the team have made. You know, Will talked about the improvement in gross margin percentage and return on sales. I'm delighted with the progress in Romania around panel building and the Austro launch. Very good work from the team. There's more still to come. Next chart, please, Will, and we'll talk a bit about people.

35:36 Also, today, as well as the half year results, we announced a number of of board changes, and I'd like to take this moment to thank Sarah Fowler and Doug Robertson, for their support of MPAC GROUP over many, many years as nonexec directors. We've been working for quite some time now on succession planning, and today, we're announcing expansion of our board with three new appointments. I'm absolutely delighted to to say that Simon Kesterton joins us as a nonexec director and chair of the audit committee. Simon's currently CFO at Kia PLC. David Squires joins us as nonexec director. David is currently chief executive of senior PLC, and Clive Wiley joins us as nonexec director. Clive is currently the chair of Mothercare PLC, senior independent director at Griffin Mining, and until July, was the chair of Della Rue PLC as well.

36:27 All three appointments bring very significant experience and breadth to the MPAC group, and the appointments position MPAC with a really, really strong board now. I'm I'm delighted to welcome Simon, David, and Clive to the team. Next chart, please. And next chart again. So we're we're almost drawing to a close. In a minute, we'll turn over to to q and a. If you have questions that you'd still like to answer, please enter them into the the chat function, and we'll pick those up. There are really three things I'm going to highlight off this chart, three key takeaways from first half. The first thing is the acquired businesses are performing really well. The second thing is that the team have responded incredibly well and at great pace to some very challenging market conditions arising from US tariffs, and they've made strategic changes that position MPAC well for the future as markets recover, and they will recover.

37:26 And the third thing is the decline in the order book that we saw from the January 1 through to the July 1 has flattened out over the last two and a half months since then. So not a 118, 91, now 93, in line with our expectations. And as a result, we can say that the group is on track to meet the full year guidance that we issued on the July 1. And with that, I'm gonna turn to some of the questions that come through. So the the first question that has come through is what barriers to to entry does MPAC enjoy, and are these barriers increasing or being eroded? So this harks back to the the kind of one of the early charts in the pack where we talked about the barriers to entry that we enjoy.

38:14 The the key here is our people. Okay? Our people have real depth of experience to be able to give insight to our customers in the ways to automate their processes and the ways that machines can be adapted and and developed to meet a particular production line needs. So that's an overlap of two two kind of circles on the Venn diagram. That's deep understanding of of machine automation and a really strong relationship with customers. And that's really important when you think about the changes we made last year, bringing together the CSI, BCA, SagaVision businesses with the rest of the group, the pre acquisition group. That gives us an enormous opportunity now to cross sell between the businesses to customers that that each of the group companies know very well. The And best example I can give you to answer that question is a popcorn factory that I visited last year.

39:09 I went because we'd sold, I think it was a dozen cartoning machines over many years to this popcorn factory. The factory actually produces more than a billion bags of microwave popcorn every year, so it's a very significant operation, almost lights off, almost nobody on the factory floor. And we'd heard that they were looking to expand production. So I visited with the sales team. I was keen to to get to know the customer a bit better, and our interest was Langham cartoners. When we got there, what we found was that the Langham carton machines that we'd already provided were actually not being used to their maximum capacity. It was absolutely possible for us to increase the rating of those existing machines and produce more popcorn bags from the same Lang and Cartlers. So, you know, was it a wasted visit? No. The reason the Cartlers were not being stressed to their maximum limit was that further downstream in the factory, the palletizing machines were the bottleneck for that production facility. They simply couldn't load cases onto pallets fast enough to keep the rest of the factory fully utilized.

40:10 And so the customer was thinking about changing the palletizing machines. It was a great moment because we could we could describe to that customer the acquisition of the CSI business, the range of palletizing machines and and case conveying systems that CSI offered. And, you know, all of a sudden, we we had an opportunity for a CSI sale that come from a Langan sales visit. So a real cross sell in action. We almost got back in the car and and headed back up the road to the to the airport to fly on to the next city. When the the factory owner or factory manager just remarked, you know, that would make a big difference to us, and then the only remaining people on the shop floor will be those doing the quality inspection of popcorn kernels. So what what do you mean? Well, we we have a large number of people who on any given day spend the whole shift simply watching the line to see popcorn kernels and pick out bad quality popcorn before it goes into the bag. We do it manually, visual inspection.

41:07 And we were able to describe the psychovision team. We explained that we were doing a a project, a very similar project for an onion ring producer, not very many miles away from that popcorn factory, and we were using AI to help train the machine to detect what a bad onion ring looks like compared with a good onion ring. We suggested why don't we take the same machine and adapt it to look for bad popcorn kernels instead. So, you know, it it's a it's the best example I can think of of of how that kind of customer intimacy and deep insight into how machines can support a customer's operations really creates those barriers and and gives us an advantage in the market. Okay. The the next question we'll pick up is, do, do your prospective US customers for UK manufacturing machines expect you to share the additional cost of tariffs, or do you insist that they shoulder, the whole burden?

42:11 Okay. Well, I'm I'm gonna answer I'm gonna answer the question in two ways. I'll answer the question as written, and then I'm going to also give you a different way of thinking about the the same question. The the the question as written, the answer is that we're always in competition to win business. There are very few companies in the world who can do what we do, but almost in every case, in the final round of tendering for a project, we find we're up against two or three other competitors to win the project, and it's a different competitor list on different projects, but they're always very capable. So it's a competitive position, and and therefore, we're not we're not in a place where we can just simply pass tariffs on or and so on. But our our customers do absolutely understand the impact of tariffs. They can see the headlines the same as we can.

43:01 What's the solution there? Well, in many cases, what we've offered to US customers who are concerned about tariffs on UK UK exports to The US, imports into The US, we've offered to complete the build in our Boston facility. You know, absolutely no problem for us to design and build it sorry. Design in in our UK facility and build in our Boston facility. That addresses the problem to some extent. Of course, our Boston facility is still exposed to tariffs on steel that's brought into The US for machining in in The US. So it doesn't entirely eliminate the problem, but it changes the nature of it. And those tariffs are changing day by day. So it's quite a complex answer to a very straightforward question. I'm gonna answer a different way. I actually don't think it matters. If I think about what's happening in The US, it's not that our US customers are placing orders at an increasing rate with US companies or UK companies or in fact country companies in any other country. We're simply not seeing US customers come to a point of decision on launching new projects at all.

44:06 And so, you know, it's it's not really a case of saying, you know, what the impact of tariffs are on on who wins the order. Customers are delaying those capital investments until a future period. So that's we that's the reason why we've seen a decline in in our order book in the first half. It's not a loss of market share. It's a it's a change in the way that the market has been performing. And I believe it's a pause. You know, I I don't believe that investment in FMCG goods in The US is finished. You know, I think that demand is still there. It's a pause. It will unblock at some point. And, you know, when is a is a question for another day. Okay. I can have a question here for for Will. I've got a question here. How long is a typical sales cycle? Okay. So, obviously, different for our recurring service business to our original equipment division equipment business, but let's stick with original equipments.

44:59 So, typically, let's take it presale. From the point we first have a request for a quotation or inquiry through to when we typically would take a purchase order, it can be up to nine months of consultation and working with the customer to absolutely define what they're looking for. From the point we receive a PO through till getting factory acceptance sign off on the equipment meeting performance criteria, There's quite a lot of variability there, but we see typically between nine and eighteen months depending on the size and complexity of the project. So really not uncommon for projects to be within our order book. We'll be reducing in value for up to eighteen months from the period from when we take the purchase order.

45:46 Very good. Okay. The next one is is phrasing some observation rather than question, but I think it's it's excellent. So I'm gonna read it out. Part of the reason for tariffs is to encourage more manufacturing in The USA. So surely, that will mean greater demand for your products in The US. Also, in The US, the crackdown on immigration will surely lead to an increasing need for automation as there are less people available to do manual jobs, another positive for you. I I I think it's a a really good insight and and absolutely correct. We have seen some US FMCG producers already shift production into The US from imports from other countries, you know, taking really proactive steps in exactly the the way that I think the US administration intended the tariffs to to stimulate growth in domestic production in The US. And and the reason we know this is that that customer had asked us to automate their new factory builds in The US for them. Of course, US labor tends to be more expensive, but than than labor from some of the lower cost regions that US imports have come from. And so, you know, that same factory in The US needs to be even more highly automated than the same factory in the in the low cost economy elsewhere.

46:53 So increased demand for the the kinds of things that that we do. And you're absolutely right as well to point out that, overall, you know, the demand for automation comes as a result of of increasing cost pressure on producers and and looking at how to how to reduce labor cost is one of the things that that automation does very well. So there are lots of positive drivers there that we believe in the long run will be very, very good for MPAC and for companies like MPAC, particularly those that already have a manufacturing footprint in The US to support US companies, US customers, and we do in Boston. So, you know, I think there are some really good long term trends there, long term drivers. But in the very short term, in the immediate here and now, what we're seeing is a slowdown in customer decision maker making. We have to get through that pause and into those kind of long term drivers, and then, you know, the the point is exactly right.

47:40 Okay. A question here for Will. For large capital orders, what is your margin profile compared to smaller orders or recurring service business? Are there risks in large projects from overruns, warranty, and performance guarantees? Okay. So larger order probably the answer is it's not dependent on the size of the order. The risk profile and therefore the margin risk profile is more closely aligned to the complexity and the number of engineering hours associated with it. So where we see a different dynamic in terms of risk and and margin profile, if there's heavy body of engineering that inherently has some more risk in the project, Quite often, what we see is project number one, we're proving the process and proving the principle with the customer, and then there's repeat lines that follow. And you would expect the repeat lines typically come with a higher margin than the first line because the the the main body of engineering is associated with the first PO. So I'll answer the question slightly differently where there's repeat orders related to previous order where we've proven the principal and completed the engineering, we see a better margin profile there.

48:54 So it's not only aligned with value. And the other part of the answer is tied into the question regarding the the current service business margins compared to original equipment. Yes. We absolutely do generate a better margin on service business. We won't go through the exact values because for commercial sensitivities, but, yeah, the margin profile would improve for the group as we grow and develop our service business. Very good. And, Will, any any comment on everyone's warranty performance guarantees that you want to make? Okay. The yeah. I'll I'll touch on that. So we we offer a warranty. We'll start with that on pretty much every project. Again, it's part of the commercial negotiation. We we don't typically have a profile where we have projects in the field that are distressed and carry a high value of warranty costs.

49:43 So our reputation is good in the market, and we typically we are completing projects for either factory or site acceptance testing that aligns with the contractual commitments. And all other aspects are part of a commercial negotiation that we go into on a case by case basis. K. Thank you, Will. So next question is around r and d. The question is, do you spend your own money or do customers pay for it? And the answer is both. The the examples I gave earlier of the the Horizon machine, the Austro development, the BRISA, Those are all new products that we we invested our own r and d money into, capital capital investments in in prior quarters, and and then we launched those new products for for customers.

50:29 But that's not the only way in which we do innovation. We do a lot of innovation on on each particular project. Almost every project we do carries some form of development in it. You know, the core of a I don't know, a cartoning machine, the way you you erect and and push products into a carton or load from the top is often standard. But but the product that we're loading into that carton varies. If we're handling a razor blade cartridge or a contact lens, blister pack, or a, you know, a, you know, confectionery item, whatever it might be, The the way that we manage the infeed of those prop of those products into our carton machine very significantly.

51:16 And it's the ability of our teams to take that kind of chaotic in feed of product coming down the line at us often at very, very high speed. You know, we we our our pizza machines are running at, you know, a 150, a 180 pizzas a minute, and we consider that a mid range, mid speed machine. You know, three pizzas a second is mid speed for us. And the spacing of those pizzas and the positioning on the conveyor belt is never absolutely perfect. So the ability to kinda take that chaos and turn it into something that we can then carve at that speed of of, you know, three or four second, That takes real ingenuity, and and a lot of that innovation is done on a project. And we do, you know, as you saw, ninety ninety project wins in the first half of this year. So it's it's not something that we see as sort of an unusual risk to take on. It's something our teams are very, very well practiced at and get better and better at doing it. You know, there's so there's a real skill in being able to innovate on a project. And our team are very good at being able to judge the risk in that, you know, what needs to be done on project and what what is done off project. So the answer to your question is both. We often spend our own money, but our customers also invest in innovation for particular applications that they might need.

52:26 I think my next question is for Will. It's the question is, given global trade uncertainty, how are you balancing exposure across geographies to mitigate reliance on The Americas? Well, I I think the first half of the year has probably demonstrated the the outcome or or the measures that have been implemented. Take a step back. The acquisition of CSI was strategic in many ways, but part of that the the the key value they brought to the group was it gave us a additional exposure to the EMEA market whereas previously we had a higher percentage of orders coming from customers in The US market. So there's a natural rebalance from the acquisition CSI in terms of geographic geographical exposure.

53:15 Yeah. The The US market has been tough for the in the first half, but The Americas overall is still trading. So Canada and LatAm is still trading in line with expectations, and the order intake that we are reporting in The Americas is weighted towards those two other jurisdictions as opposed to The US. And we are focusing our efforts and our sales teams and our capital in maximizing the opportunities from those other markets and from EMEA. Very good. Thank you, Will. So next question is, how much customization of MPAC's equipment is required for each order? I think you probably both have a go at this one. I'll I'll describe it in qualitative ways, and then you can you can think about how we'd quantify how much.

54:06 I I'm gonna give give a couple of examples, I think. We've talked quite a lot about cartoning and and and case packing, but that's not everything we do in the group. You know, if I think about the the BCA business that we acquired in in Boston last year, last year, that that business produced a a machine for a a meal line that makes lasagna and literally makes lasagna. So the machine that the BCA team have designed, built, installed, commissioned, and is now running and and we're servicing and supporting in in the field today takes sheets of pasta and layers those sheets of pasta into a tray as part of building up a lasagna, you know, in that that can then be taken home and baked for home use. So a lasagna assembly machine. I mean, there's an incredible amount of customization that goes into designing and building a machine like that. I don't know the world I've ever seen one like the machine that BCA put together. But does that mean we started from a from a blank sheet and and, you know, everything was was invented? No. What the team have done is to take building blocks that we understand very well and put them together in a very novel way in order to to do that job for for that customer.

55:13 And that same theme actually carries across to many of the projects that that CSI do in in designing a palletizing system. You know, the system for taking a a corrugated case and and moving it around the factory and stacking it onto pallets, you know, that that takes fairly standard building blocks of how you convey a case and how you divert channels, how you manage the data flows to track exactly where a particular case is in that conveying system, how you then plan the balancing of of loading a particular palletizing machines at the end of a line. And some of these can be a single robotic cell or or a really complicated inline palletizing system that's running at, you know, many, many well, very, very high rates. Let's leave it with that before I'm giving specific numbers.

55:59 That takes some fairly standard building blocks and configures them in a completely unique way for that customer and their particular facility and their particular product need. So that's an enormous amount of customization, but a big of standard building blocks. So it's quite hard to give you a kind of qualitative answer in in a sound bite that answers the question. What I will say is it's very unusual for us to see a project with with, you know, almost zero engineering hours where we're just building something that's exactly the same as the line before. You know, it does happen, but it's it's very rare. And it's very, very rare for us to to find a project that's so innovative. We're spending, you know, hundreds of thousands of engineering hours. Will, can you help us with a kind of way of qualifying or quantifying that perhaps for the question? Sure. So whilst there's never one typical project, but if you looked at all of MPAC's OE projects, we see typically a a sixty forty split between costs associated with labor and costs associated with parts materials.

56:58 So 40% being cost of our people. That's split between engineers, project management, assembly. That gives a context for the overall project. About 40% of our cost of sales is relating to people. And that's not all associated with customization, but it's the engineering element, which is where there's always something new on a project. Very good. Okay. Well, thank you. I think we'll mark that as our final question. We're just coming up to the hour now. So thank you to all the all the those that have post Q and A. If anyone had a question that we haven't answered, we will do our best to pick this up. Perfect. Adam, well, if I may just jump back in there. Thank you for your presentation and for being so generous of your time in addressing all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But, Adam, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. Thank you. I'm gonna turn back to the the the kind of outlook comments.

58:04 Three things to take away. The acquired businesses are performing really, really well. I think the team have responded well and at pace to some very challenging market conditions, positioning us much better for the future as markets recover, and they will. And the last piece is that the decline in the order book that we've reported back in July has now flattened out in the two and a half months since. And as a result, the group is on track to meet full year guidance. Thank you very much for your time today. Perfect, Adam. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of MPAC GROUP PLC, we would like to thank you for attending today's presentation.

58:54 That now concludes today's session, so good morning to you all.