Carclo (LSE:CAR) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the CARCLO PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your questions at any time and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company review your questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to Frank

0:32 Dorienbusch, CEO. Good morning, sir. Good morning. Thank you very much for the introduction. Welcome everybody this morning in the half year presentation of CARCLO PLC. I'm Frank Gormos. I'm the new CEO. My background is around thirty three years in the plastics industry where I run

0:54 end of year. And done extensive experience in the plastics industry. And next to me is David Bedford. He's our new CEO. David?

1:07 Good morning, everyone. So I joined CARCLO in September as CFO of the CTP division, and then on November 14, stepped up into the group CFO role. I spent the vast majority of my career to date within manufacturing and engineering, formerly within Jaguar Land Rover, and also 15 of experience within IMI PLC, the FTSE two fifty engineering group, doing a numb number of different finance director roles, looking after sites and regions. Most recently, I was group FD of SYNNETICS PLC, the aim listed electronic security provider. Really pleased to be joining CARCLO at this stage of its development and working to to deliver on the on the operational improvements and and see better improved returns for all stakeholders.

2:07 Alright. Thank you, David.

2:09 So we'll go through the introduction of the company, the financial review David will do, and then we'll come back to me to do the CARCLO 2025 project and give you the outlook for the second half year. But first, for not if you're not so much aware of who CARCLO is, a few little slides on introduction. We are at 13 we've got 13 sites in The US, Europe, and Asia. We've got 1,200 dedicated employees, and we got £140,000,000 of sales worldwide. And you see on the charts that our blocks are very nice spread over the complete globe. CARCLO itself is a technology led position business with global integration capabilities and operations, and especially the element of the global integrated capabilities we're to exploit in the in the near term future.

3:00 CARCLO itself in its G2P business, which is the biggest part of CARCLO is doing the high precision molding. We deliver turnkey projects for our customers. We have clean room facilities throughout the world, and we do automated assembly from multipart products. The lion's share of our sales and production is in the life science solutions where we deliver diagnostic disposables, drug delivery systems, and medical applications. You have to put names in like Siemens, Abbott, Bosch, BD being delivering to the blue chip customers. The next part is our precision components where customers like NCR come in where we do money dispensing systems, especially also the polymer gears we do internally, also lighting solutions and safety.

3:51 Then we have two businesses, which are we call specialists like optics, which is light optics, fresnels, and the wipeout aftercare. And the one who we always already have split out is our specialty business, aerospace, which does cable solutions, rotary swag. We do our CNC machining of exotic materials, and they are very well placed in a niche part of the business, which will come out later on in the presentation. So this is the company CARCLO. I just want to talk first get to to my first impressions in the business. Think we've seen continued growth in challenging times. The first impressions we've seen, if you go to the market position of CARCLO, it's positioned well. It's got blue chip customers. It works in a market which is strong organic growth, especially on our Life Science segment. We see U. S. As strongest market, and we see highest growth expectations in the Asia Pacific.

4:49 I'll go back to you. If we look inside in the operational performance, the margins are under pressure as a result of the increasing input costs. We've got great guys, great teams. We've got a good technical operational skills, but the asset base we're having and we have invested in is currently underperforming and is underutilized. One of the elements is on the tightness of the labor market, which made the recruitment pressure and the retention pressure even higher. The situation in the business is a highly leveraged business with low cash generation, and you have to look at the backdrop of the increasing interest rates. Capital expenditures were mainly focused on growth.

5:29 We then go to how we have delivered in H1. We have delivered on the opportunity of sales. We had a strong top line growth supported by robust demand in the life science and the aerospace markets. The market pressure margin pressure, especially in the technical plastics, has come under pressure due to the cost inflation and the cost of new projects, which we are developing. The cash situation, we had a significant increase in net debt, mainly driven by working capital and in capital capacity related CapExes. As the team, we're now pivoting towards a different near term focus. It's going to be focused on operational excellence in manufacturing to deliver quality, flexibility and returns.

6:16 We're doing cash generation through optimizing our asset utilization, which we invested in heavily over the last years and focusing our current CapEx on continuous improvement, which gives us quicker and higher returns. The pricing has to reflect the new cost reality, both in materials, energy and inflationary costs. We see for this business a medium term target of through the cycle of a ROCE of 15%. And as we've made already above 10%, we see this as a very, very doable target, especially if we improve our balance sheet position. So I will hand over to David, who will bring you through the financial review. David? Thank you, Frank. Okay. So starting with our financial KPIs.

7:04 This slide covering revenue, underlying operating profit, and underlying earnings per share. So revenue in h one at 72,200,000. So that was 23% up on the equivalent period last year. That did benefit from positive currency. So the constant currency growth was 14% with 5,200,000 of that growth relating to currency. So we've seen really strong demand in the period both from from our existing but also new customers. The underlying operating profit of 3,600,000, that's slightly behind the equivalent figure last year, although up compared to h two last year. The the operating performance is being impacted by by margin pressures due to input cost inflation, which hasn't yet been fully offset by pricing.

8:02 The underlying earnings per share at 1.5p compared to 2.5p in the prior period. So as well as the the operating performance in in h one, we have been impacted by higher interest costs. And also in the period, there's a tax charge where the prior period was was a credit, and I'll take you through that in more detail in a moment. Then moving on to the second set of KPIs. The return on capital employed at 7.1%, that's pretty stable on last year's performance. I'm expecting to be able to report ongoing improvements in return on capital employed in h two and beyond as we drive further efficiency improvements in the business and particularly tighter management of our working capital.

8:56 The the net debt at 36,800,000, that's up 4,400,000 since the end of last year, mainly supporting increases in working capital, further CapEx investment, and I'll I'll cover that in more detail again on the following slide. The underlying operating return on sales at 5%, so that's up on the the second half of last year. Obviously, still not where it needs to be.

9:28 We are gonna be targeting to drive further improvements in operating return on sales in H2 and beyond as we see the full impact of the price increases coming through in the second half together with the cost savings coming from the restructuring actions that have been taken. I'll then move on to the, the segmental performance. So starting with with CTP, which is the, the vast majority of the business. So strong story there on top line growth. The headline figure with revenues up 22% at 69,100,000. Adjusted for currency, that that growth was at 12.9%.

10:14 And as I've said, we've seen we've seen strong growth across the customer base. The underlying EBIT of 4,000,000, that that that's been impacted by those lower margins due to the due to cost inflation, yet fully recovered by the pricing. So do expect to see improvements as as we go forward. The the aerospace business has had another really strong trading performance. Revenues there at 3,000,000, up 44% on h one last year. Also good to see a very strong profit drop through on that increase in revenue. The underlying EBIT for aerospace at £700,000 that's up nearly 200% on on the equivalent period last year. The aerospace business is well protected from inflation because each order is individually priced. So that allows us to pass on the impact of inflation as as as each piece of business comes in, and we're we're in a really strong position in that niche aerospace business.

11:28 This next slide shows the summary income statement. I've already mentioned the movement, the growth there in the revenue. The underlying operating profit, 3,600,000, slightly behind the equivalent period in last year, reflecting those margin pressures as a result of the cost inflation. We did have some exceptional items in the half. That 332,000 is made up of 1,100,000 of restructuring costs. And Frank Frank in a moment will talk a bit about some of the the efficiency savings we're making in in the division. The also, we that shows the benefit coming through of the sale and leaseback of our Tucson site.

12:18 So following the increases we've seen in base rates, both both in in The UK, but also US and and in The Eurozone, we have got a higher interest expense coming through. And also, as I mentioned, there there is a a tax charge in the period of 983,000. The effective tax rate in the period is is high at 59 and a half percent, and that's high due to the proportion of profits currently being made in higher tax jurisdictions, but also combined with the fact that in the period, there were some UK losses on on which a, a deferred tax asset was not recognized.

13:04 Then move on to the to the balance sheet. Overall increase in net assets there from twenty four point four million at the end of last year to 29.7 at the end of h one. That mostly relates to retranslation of FX on the overseas subsidiaries. We have we have seen an increase in gearing in the period, 76% compared to 74% for last year. And in terms of net debt, 36,800,000. That's 4,400,000 higher than where we ended the year with the net debt to underlying EBITDA at at 2.5 times, in line with the prior period.

13:56 So this this next slide shows the, progression of that 4.4 increase in net debt, starting with the underlying EBITDA 7,500,000 that was generated in the period. So the the uses of that go through to fund those working capital increases. I mentioned the the further growth CapEx that's been invested in and also the the pension contributions, which were in line with the agreed deficit reduction plan. So those are continuing to come through. Then moving on to the cash flow. So the overall free cash flow in the period was an outflow of GBP 3,100,000.

14:47 The underlying EBITDA for the period, 7,500,000 generated ahead of the same for last same point last year. And you can see there those movements in in the working capital and and pension payments, and and the CapEx being the main elements driving the cash flow.

15:08 And then finally, progress in terms of the pension scheme. So in in the last full year, there was a significant reduction in deficit from 37,300,000 to 26, main mainly coming from a reduction in the level of liabilities following increases in the discount rates

15:29 combined with ongoing company contributions. We've seen some further reduction in the pension deficit in in h '1 at 24,900,000 compared to 26,000,000, mainly coming from further net company contributions. We've also seen a further reduction in liabilities as discount rates have extended, but with an equivalent negative asset return linked to falls in LDI related investments.

16:03 If we look at the actuarial, the triennial valuation at March 31 was 82,800,000. That that's come down. The estimate at the September 30 is now at 73,100,000. I'll now hand back to Frank who'll take you through the business in in some more detail. Thank you, David. Thank you. So we go through the CARCLO 2025. And I think it's good to talk about the segments we were operating in. The lion's

16:32 share, as we talked about, is Life Science, which had a massive growth in first half year this year versus first half year twenty twenty two. And the growth was with new and existing customers. And the growth was even despite the fact that the full scale launch of new two product lines have been delayed and will start up later. So they were not included in the first half year sales. We in the position molding, we have been hit by the supply of the microprocessors, so our customers couldn't have the high end product lines in when we have more components in. The optics business was came from the the white pack business. We're now moving it in and expanding it into a in house range of high efficient LED lighting.

17:17 Those two precision components and optics are smaller parts of our Technical Plastics business, but

17:24 they have performed stable and the real growth come from the Life Sciences. The Aerospace itself, David alluded already to a good sales. We'll show you later on that, however, the sales has gone up by 44, that they're still not at the pre COVID level. So we think that the global strategic partnerships we have with major blue chip customers being in life science, as we mentioned, Siemens, Bosch, Abbott, MBD, in British components with clients like NCR. In aerospace, we talked to we have to think about Boeing and Airbus. We are have good strategic partnerships with them, and that allows us to deliver strong sustainable growth. We then go to the key input movements.

18:13 On the left hand side, you are seeing the raw material prices. And having lived my life in RPC grid, you can't have a plastic business without a graph on raw material prices. Especially when in the half year, we had as from April 2022 to September, you're seeing that both our engineering plastics and our polystyrene plastics, the orange and the lighter green ones, have still increased up. And we are seeing a time delay in passing on raw material prices due to the calculation matters,

18:43 and that has caused a headwind in the margin on the product lines. We're seeing polypropylene starting to ease down. We're also using a lot of special polypropylene where prices are still stable, but at least the growth has the growth in prices has stopped and the availability has become better. Then you see on the right hand side, the soaring cost of energy. We are a very energy intensive business. You have to do in the last year, we moved up from 100 pounds per megawatt hour to around 300 to 400 megawatts megawatt per This forces us to put a energy surcharge through with our customers. And as the whole industry and plastics industry is currently confronted with this electricity price increases, especially in Europe, we are successful in putting those prices on. So key focus is going to be operational excellence, back end automation to also battle off the inflation of the labor cost and to talk to customers and talk about the pricing to reflect the new cost reality.

19:49 We see in the near term that the margin pressure will be persistent.

19:56 So I understand that both David and myself are new for our investors, But the team which is delivering our our results are are not. They are it's it's a comp it's it's been consistent of a very engaged, diverse, and international and experienced team. And the amount of years was behind their name is the amount of years of their work in relevant industry. Around 80% of our colleagues have made that within CARCLO. We have changed the organization structure to make it simpler, to make it easier, and to minimize the amount of management layers we're having. Our specialized business aerospace and optics have to run general management. We have our governance and compliance and keeping us keeps and it keeps us on the straight. And then we moved into global leadership. We moved away from site oriented businesses to a global leadership.

20:46 Number one, as always, is CARCLO PLC, our health and safety initiative, which is managed by Ricky. Then we're working on global technology, global sales, and a new function is called global procurement. As we see, if you buy around 90,000,000 pounds of products, we should see a massive improvement in that if we organize that more globally. The sites themselves are run by region. We have The Americas, EMEA, India, and China. They're run by a combination of three people. One person in charge for operations and one chair, one person in charge of finance. We do feel that finance should play a more important role on the operations and delivering the growth.

21:34 You will see, if you put the numbers together, that our working capital, where Dave already alluded to, in this half year has gone up by 4,700,000,000. If I look at the last eighteen months, it has gone up by 8,200,000. Something with our the focus of our finance team linked into our being linked directly to our operational teams will help us to improve. For CARCLOPS twenty twenty five, the focus the motto is focus and value. We want to focus on what we do and get the value out of it. We still follow the growth, but it had to be profitable and manageable growth. Mentable growth in our chosen segments and the massive segments we have the lion's share is the life sciences and in regions like Asia, as we said, where it serves a high growth. We're going to build a one core CARCLO business model, a simpler model model which is focused on collaboration, diversity, and entrepreneurialism.

22:29 We're going to we're going to, in the next slide, explain you why we're splitting design engineering manufacturing solutions because in our opinion, those are two different focus areas. Our specialist segments, as said earlier, talked to the team, aerospace and optics will be run will be run separately by our

22:45 general management in those segments. And then the key element is realizing the value which is currently in our asset base. We need to increase the asset utilization. We must improve the performance of our asset utilization and optimize cash generation of our business. We're sure with these actions, we can deliver midterm target for through the cycle of a ROCE of 15%.

23:08 In the next slide, there's a small explanation what we mean with one CARCLO. We mean that in our technical plastics, we have two distinct different operations: our design and engineering, primarily as sales mentioned as tooling, and manufacturing solution, mentioned in products. We see that the design engineering is a project organization, which is which is responsible for innovation, automation, and validation of tools. You see the sales and revenue development of that specific segment, which has steadily grown by gaining more project, and it is a precursor for manufacturing solutions to follow that trend. You also see the massive investment we have done and our customers done with us in the new product lines, which has not been gone on stream, but will be on stream in the very new term.

24:01 So we have also now set up a design engineering and training center, because it's very important that we we become the attraction of talents and people are developing the careers with us. And having a design engineering center and a training center especially dedicated to the technology quality of our business is very important. And as we see, the project business should be separated from the manufacturing operations, because manufacturing solutions is a process business. It's about having global standard and follow global standards, not site standards. We should work on operational excellence. We work on standardization to allow our asset utilization to go to go up. We do expect around 15% of asset utilization to be realizable in the next six months.

24:50 The growth is with our existing and new blue chip customers, and life science is the lion's share of this business. As we alluded to earlier, in the aerospace, which is specialty, you do see the sales is going up, but you can also see that pre COVID in H1, H2 twenty nineteen, 2020, levels were very close to GBP 4,000,000, and that was the level we see as achievable in the near term. We now see what we see as a strategic foundation. Like every company, I believe in Pickle, where it should be a human centric organization. Health health and safety and environment is the key driver for our value throughout the value chain. We're very proud that the team in the last twelve to eighteen months has made major strides in improving the health and safety in our organizations and drastically reducing the amount of incidents we're having with our respective colleagues.

25:42 But we should be galvanizing our one CARCLO. We should focus on the diversity. Being different together makes a better team, showing to entrepreneurialism and collaboration throughout throughout our sites. And we do see big evidence now in how people are operating because CARCLO has to become the destination of talent and careers because only with the best talents we we can make the results we need to do. But we need to make sure we need to first in the business with our talents in a safe way together, work on the insight and improve the operational excellence as a base of our business. We should harness technology to to make products in a smarter way, increase automation, both from back end, data gathering, etcetera, because CARCLO will be at the forefront of of our industry.

26:31 We cannot do that without our suppliers and our clients. So the focus is to do the strategic partnership and to create and capture the value together. So that was CARCLO twenty twenty five medium term ROCE of 15%. What do we think in the outlook for the H2? We also see here that the gross projection on the chosen markets is continuing to stay strong. The inflationary pressures will consist continue to persist and will bring the margin to the margins of this period. We do have to say that a big part of the margin reduction is also the time delay of putting prices up to clients versus at the moment that the costs are right in our business.

27:16 But the supply chain will remain tight. We see easing up on freight. We see easing up on polypropylene. But in our engineering plastics and high quality metals, we do see that the supply chain is still very tight. Operational excellence projects are being implemented. We have insights being focused on what they should be doing, and and we're implementing that at this at this moment. We're investing currently only on continuous improvement projects and a which gives us higher and quicker returns, because that will create quicker cash, because we need to focus on cash management, especially at the backdrop of the increasing interest rates, because they are impacting our finance cost and our ability to move. We expect in second half to be a similar performance as we've done in the first half.

28:03 We're very positive on the medium to long term because we're driven by the opportunity of sales, and we all we are driven by the opportunity to improve our business on a internal. So that concludes our presentation. That's great. David, Frank, thank you very much indeed for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. Just But by Frank and David, take just a few moments to review those questions you submitted already. I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be available via your investor meet company dashboard. Frank, David, I haven't given you really much time at all. But firstly, if I can thank those attendees on the call for your engagement and for all your questions. If you'd be so kind as to open up the q and a tab, you'll see you've received a number of questions. And if I could just ask you to read out the questions and then give a response where it's appropriate to do so, and then I'll pick up from you guys at the end.

29:01 Okay. Okay. So the presubmitted question, first of all, from from from Mark. I think this one's for Frank. Could you give more color about the business plan and the planned investment in new equipment? Yes. We had a very healthy investment in new equipment over the last, I think, the last two to three years. I think our current focus is on utilizing the assets we have put into our factory, getting utilization rate up and making sure that they are flexible multiuse because we need that to be an agile and flexible company towards our clients. So our current focus is on continuous improvement and utilizing the assets we we have, and we still see around 15% asset utilization to go up. So for the midterm to feel to to support the growth and the growth potential, we will not be limited by machine capacity, where we also don't need to heavily invest it anymore.

30:01 Okay. This next question from Mark concerns interest. So asking around guidance in terms of expected interest payments given the position with net debt and increasing interest rates. So, yeah, we we did see we did see that increase in interest in the second half of sorry, in h one of 1,700,000. I'm expecting to see that increase somewhat in the second half depending on whether we see any further increases in interest rates. But but going forward, with with this pivot in terms of the strategy towards deleveraging, we're we're gonna be seeking to bring down that that overall level of debt.

30:46 So so for example, you'd have seen in the balance sheet, you know, we we're typically running around 10 or 11,000,000 of cash in the business. And at the moment, we we have the revolving credit of 3,500,000, which is fully drawn. So we see opportunities there in in bringing that down, you know, reasonably quickly during during the second half and and then to to continue, generating cash to bring that level of leverage down, you know, reflecting the the the new reality of the higher interest rates that that that we're facing. The the next question from Philip is asking if you could give an indication of the operating margin that we'd be looking at associated with 15% return on capital employed.

31:34 Yeah. I think the operating margin, you know, kind of business should be between eight and eight and ten percent. It all depends on where we are. Currently, we're at the perfect storm with delayed start of a project, with still high raw material costs, with high energy costs and inflation, and we're currently making 5%. So we're seeing around 8% to 10 operating margin as a basis of a 50% return on capital employed. I've got a further question here on the pension scheme. And obviously, what we've seen there is that significant fall in in both the the asset level and liability level as as a result of the sort of LDI investment strategy. So we we we've got a first meeting with the the what we we call call the the tripartite meeting with with the investment trustees along alongside the bank.

32:31 And and one of the things we will be getting into in more detail is that investment strategy and and the level to which the the liabilities are hedged should should rates should the discount rates increase further. So that that is something we will be getting getting into, and we'll be able to give you more information on that in further presentations. But certainly, the, you know, we are we are targeting to continue that progress in bringing down the pension deficit. This next question from Keith, is is around around the margins. So given given the FX and interest rate movements have had a big impact on margin, can we see some improvements, from from the FX and and five year UK gilt market reversals post period end. And are there any plans to manage this volatility volatility going forward?

33:29 So so one one thing we we've already talked about is we need more focus on on cash management and and treasury within the group. So one one thing we will be looking at is whether we can de derisk some of our foreign currency exposures use using more hedging than we've done previously. So that that's something I will be working on as a priority going forward. So the the business is because a lot a lot of our business is in overseas markets, we are very much subject to FX FX movements. There's there's a question there. Did the pension fund hold any LDIs or face any LDI related issues? The the answer to that is is yes, and that was reflected in the numbers for h one with that those large swings in both the asset performance and and the liability, both move moving in opposite directions.

34:37 But, yeah, that that is where the the the the, you know, that sort of liability driven investment strategy with all the turmoil in market as as you've seen those two large swings, but with an overall reduction in in the pension deficit. Yeah. We'll see a question why is the the management change. It's a fair question. I think we have to focus on what we're going to do for the future. I think the the focus on more operational management is something which I bring to the party. Done that for over thirty years in the office group. And yes, I understand I'm only two years within CARCLO PLC, but I do know thirty over thirty years of operations in plastics.

35:24 I think we're very well put forward to have the sales in, to have our positions in and to have the growth. And we just now have to have to turn into operational excellence and asset utilization. And that's why we currently have done the the changes in the team and make the make the organization structure with with one layer less. Okay. There's a question here from Sanjay. What what is your plan to improve pricing power over and above recovering inflation? And maybe it's worth touching on the the surcharges that come through. Yeah. So we've we're currently I think CARCLO was not really because we were in a very low inflationary environment in the last years despite with the exception of the raw materials. We are now really going out into the market, and we have tested both in April and November the prices and the price increases, which we have been successfully passed through to a a big part of our customer base.

36:23 And what we're trying to to see is now getting trying to get to the operational excellence in and make sure that those advances will stay into our same to our organization. On the electricity prices, we're going to work with surcharge, and that surcharge will be it has already been implemented in Europe, has been implemented in our optics business, which is in the in The UK, which we mainly see in Europe. And we're now implementing it in from our plastics operations in The UK. And we're running it as a surcharge if the MSC prices go down, the customers will be corrected for that in the future. But we are a very energy intensive organization, and it is it's impossible for any process organization to have this massive increase from a 100 pounds per megawatt hour to 304 350 to 400 megawatt pounds per megawatt hour to absorb that on your on your bottom line.

37:15 So your pricing power is also how do you do something unique? We're doing something that the whole industry is doing, even on raw material suppliers, and I'm talking about energy surcharges. And so we've been successful in our ape as I in our April and November end, successful in the energy surcharges in Continental Europe, and we're now implementing it into The UK. There's also a question as to whether we could get a bit more information in terms of the split of that cost base and how much labor and energy is within that? Yeah. I think if you talk about energy energy in a plastics business in general and CARCLO PLC differences between 35% of your of your your cost of your sales base. So that triples, you know that's going to be a 10% hit on that individual site. Hence, we need to work with those surcharges.

38:13 There's a few questions coming through around pension. I think this one sums it up. So how are you gonna escape from the pension problem and and heavy debt burden? So we we we have an an established deficit reduction plan in in place, and the the the business is is meeting those those payments to bring down the the level of deficit. And as you saw from the slide, we've we've seen some significant progress both both in terms of the the accounting deficit, but also the act actuarial valuation. So the the plan the plan is to to continue that as we go through. In in terms of deleveraging, in terms of the level of bank debt, the the the chain the change in focus around profitable growth, but also very much focusing on continuous improvement.

39:10 We're gonna use that to generate higher levels of cash that that will provide returns to to to all to all the stakeholders. That that's very much the priority going going forward from the from this point. Yeah. So a question on do also our competitors struggle with the supply chain challenges and the and the energy increases. As I said, all plastics converters use a lot of energy. We take a pallet. We heat it up, form it, and cool it down. And that's energy intensive in in any of the plastic conversion businesses. So anyone in plastic conversion is currently is currently confronted with this massive increase in in MSC, and we are all in the market having to ask it back from a customer. We we're we're doing it in an open way.

40:02 We're taking you the gov.uk price level as that's the price level where you also buy upon, and and we then charge that to our customers. If the price go down, price the customer understands that also the surcharge will go down, and so it doesn't take we go we have to price us up indefinitely, but it is really to cover the The UK prices. And if other peoples are struggling, I think they have the same challenges as we have in in our input costs. As we said on the supply chain, it's just easing out a little bit. So availability gets in there gets in there now, and it just allows us to get the product, which is also a problem, say, a year ago. But the high prices are still need to be reflected. And we talked about the timely time delay of passing the raw material prices on, which has caused a headwind.

40:50 And if after the meeting, you go back to base number 25, you do see that we're constantly behind the curve if the raw material prices keep rising consistently. And we are not the only one that's in the whole industry as I I've got my experience in that industry. It hasn't never been different, and I don't think the future will be different. This move will have to be done. If it goes down, you get a tailwind. And that's it. And just just one more there around the the launch of the new product lines in in terms of the expected impact they're gonna have in terms of our sales growth and margins. Yeah. So if you do a a new product line in in in the life science and medical business, there was a big validation process before we can run the process because products we make are essential for for the lives and health and safety of of the customers of our of our customers.

41:44 That means that you have to be very vigilant about what you do. You can't say, I'm going to put it on the market because I've got it ready. We're taking our validation process very seriously. I think that's one of the strength we have as an organization. We do expect in h two, this project to run, but at the end of the day, it all runs from that validation. But there is a lot of money invested, even more by our clients than by ourselves in these new product lines, and we are confident that those product lines will get to the market. The margins of those products will the margins in life sciences are strong. They're they're stable, and we're now seeing with having to put prices on, we also have some pricing power in that market that the margins will be positively influenced by that project.

42:33 Okay. One just one further question about the under underutilized capacity and whether that's the case across the industry. And I I think, Frank, in in terms of the the utilization of machine, the the machines aren't being utilized. They're not being utilized enough hours in the day. Yeah. So what we do, we we track now we track now the utilization of our machines, which is we take our worldwide global capacity and at the moment, they'll have demand for it. We run around fifteen to sixteen hours a day. Right? And the if we the run long run business, which we're doing, a eighteen hours is not an abnormal norm to get to. So if we can get from fifteen, sixteen fifteen to sixteen hours a day, we can get to the eighteen hours a day. That was the 15% of capacity which is inherent in our organization, which we can still use.

43:30 Then we also, on the two product lines, we are we talked about earlier in the prior questions, those machines are still are there, are idle, and waiting for that project to start so that those two massive projects have their own machines which have already been invested. But it is the struggle of every business to utilize and swap the assets as it is very important for your your return on capital employed and your return on sales to have good utilization from them. It all depends which type of product line you run. If you run a lot of different type of products, you have to change your mold very quickly and very often may and you have to color a few times a day, maybe twelve to fifteen hours is acceptable. In the long run business we are in, we have to get to eighteen hours.

44:18 Yep. Okay. That's great. Thank you. I think you've probably taken all the questions there from investors. I know there are a number of a a certain theme, so I hope that that's covered that off. If there are any other further questions, obviously, we'll make those available to the company. And obviously, we'll publish any responses should that be appropriate to do so. Frank, David, I know investor feedback will be important to you and to the company. And I wondered before redirect investors to give you their thoughts and expectations, whether I could just ask you for a few closing comments. And then as I say, I'll redirect investors to give you their feedback. For for for me, I I think a a lot a lot of the opportunity in terms of driving the the the financial performance are are things that we we control within the business.

45:07 From from what I've seen so far, I I think there's an extensive scope to to improve the the level of sort of financial management with within the manufacturing operations to to drive that better working capital management, better management of our of our cash and treasury operations, and and, you know, drive the performance to generate the cash to to bring that level of leverage down. So I'm I'm really optimistic about the the opportunities that we've got within our control within the business. Yep. As I said, we we're very positive to the medium to medium to long term outlook. And we're currently going through a phase where we have we have growth in our business, which we have to which we and there is a tightness on the labor market. There is inflation. There's energy cost increases, and there is raw material price increases. So if you could say, are we in a perfect storm?

46:03 Yes. We are in a very, very challenging situation. So I think the results which the team has has created is is is commendable. And for medium to long term, we have a very positive outlook. And as David said, a lot of the things we need to improve are in our own hands. That's great. Frank, David, thank you once again for your time this morning and for updating investors. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of CARCLO PLC, we'd like to thank you for attending today's presentation. May I wish you all a very pleasant morning. Thank you. Thank you.