Restore plc (RST) Earnings Call Transcript

Okay. Well, thank you for joining us. We're here this morning to hear from Restore plc, who announced their half year results earlier this week. If you haven't seen it already, you can find our research note on our website with updated forecasts. But the purpose of today is to hear from the team and take Q&A at the end. So for now, I will hand over to Charles Skinner, our CEO.

Great Thanks, Hannah. Good morning, everybody. Yes, the -- these are our half year results. I would say that the numbers are fine, not particularly spectacular. Having said that, I think as most people will be aware, it's not particularly easy out there and things like the increase in national insurance, minimum wage, et cetera, we've had numbers in the market before these came in and we've managed to achieve those. And it's also what you do when you get whacked with GBP 3 million of costs you weren't expecting as you remain very tight on costs, you look at opportunities to drive volumes, you try and push up prices. Funnily enough, on the latter 2 points, everybody else is looking to cut their costs as well. So it hasn't been particularly easy as you would have seen from many other companies reporting in different sectors. Having said that, we've also had specific headwinds in our business. Our office removal business, Harrow Green has been trading in what is the toughest market conditions I've seen in that sector since we bought the business 15 years ago or 13 years ago. There are very specific headwinds there, which we can touch on. And also, there are very specific things, particularly around our -- in our Information Division around our digital activities. That's the scanning side of it. We lost a major contract at the end of -- which stopped at the end 2024, we've replaced it with a much larger contract, but that contract doesn't kick in properly until Q4 of this year. So we had a loss of earnings from that contract, which haven't picked up. Having said that, I think, Dan, I, senior management team are feeling pretty good about life around Restore. Our Box business, which is part of the Information Management Division and Records Management continues to be extremely robust. The boxes don't really care whether Biden is President, whether Trump's President, where the economy is booming, whether it's busting, whether there's COVID or not. So that continues to drive strong cash flow, strong profits and really attractive margins. Also as part of the Information Management, I've touched on the issues on our digital side. That's really the scanning. And we feel that particularly with the large contract beginning to kick off now, which looks like it's going to go well. That's for the DWP, we believe it's the biggest electronic mailroom in Europe, combining that with what we've achieved on the cost base there, which we've taken out. We said last year, we expect to take out GBP 3 million of cost, which would cost us GBP 3 million. We spent about GBP 3 million. And currently, we've saved in excess of GBP 5 million of cost in that business. This is pretty chunky for a business turning over GBP 40 million. And we feel that there is an awful lot of -- we are very well positioned in that business. Now we've got the cost base right. We were very pleased to win, not a huge contract, a couple of million quid, but from the University of Oxford Hospitals. But that's an example of the fact that we're back in the game in our scanning activities. So we're very excited about that, and we see that the opportunity from coming through a very rough year which is reflected in these first half year results as the improvements which we've made come through that division, there is definitely the opportunity to drive for that to have a significant uplift for our group earnings. We're also very pleased and Dan did the deal and is working with Nigel and running the business, with our acquisition on Synertec, which Dan will describe in more detail, which has lived up to our high expectations when we acquired it. So that is -- and Dan will describe about that. That's basically an outbound mail operation which Dan will touch on later. We're also really pleased that our Shredding business, achieved double-digit margins. We are one of the 2 market leaders in this space. It's a very regular contributor in terms of its service fees, which account for about 75% of its revenues. This is a very sticky business. Customers tend to hang around, not quite as long as they do in the Box business where that's sort of 15-plus years, but they tend to be with us for 7 or 8 years. So it's very, very predictable earnings. And now we've hedged the paper price, which had added volatility to the earnings. We're not exposed to that volatility. In our IT -- in our business -- IT business, IT Recycling business called Technology, which is very similar to what we do in our other divisions. It's all about providing security, safety and assurance to our customers. That lost money in 2023. We broke even in the first half of 2024, First half of 2025, we achieved operating margins, 7-figure profits and operating margins of around 7%. And that business is continuing to progress very well. So we've also, and I'll touch on this in a couple of minutes, found that the current market, bearing in mind that it's tough for -- it's been okay but not easy for people like us. It's been very, very hard for smaller operators. And what this has enabled us to do is reach a point where bolt-on acquisitions are very sensibly priced for our purposes, and these bolt-on acquisitions not only increase our market position in our particular markets, it also increases earnings quite significantly when it's done correctly. So that's some big overview. I'll just flick through a couple of the -- some of the key points. Hannah, if you'd like to go to the next slide. So revenue, adjusted operating profit -- operating margin, profit before tax up. We set out the store about 18 months ago to say we wanted this group to achieve 20% operating margins. We're now at 17.7% in this first 6 months and bearing in mind that there were some specific headwinds, which we feel are going to go away over the next -- which are going to turn into tailwinds over the next 6 to 18 months. We remain confident in that target of 20%. A big part of trying to drive down our costs in our Box business has been around relocating boxes from expensive locations to far cheaper locations. We've got 2 big sites; one in the Northeast, one in the East Midlands, which are far cheaper than where we have been storing things. So of the 4 million boxes, that's about 20% of our estate, which we've been planning to move, we have so far moved 2 million boxes and the remainder are on their way. As I say, digital massive change since we changed the management 15 months ago, [swinging] cost savings, and we're beginning to win new business as well. This is a high-quality business. We believe it's eminently -- it's clearly headed towards achieving 15% operating margins as part of the information -- as part of that section of the Information Management Division. I touched on Data Shredding and Technology, how their performance has been most rewarding and most encouraging. We're very keen on our ESG, not only because we want to be a responsible citizen, we think business needs to be a responsible citizen and business tends to be actually leading in these areas and the approval we got on our net zero target from SBTi is very valuable. It also helps us given the fact that we deal primarily with blue chips and with government. It's a key element of our being able to win large tenders because people understand that they're dealing with people who are with us who have got a significant social conscience, which we care about. As I say, Synertec, high growth, very exciting business for us. And we've added on. Apart from Synertec, we've done 4 other acquisitions in the period or since the beginning of the year. Next slide, please, Hannah. Thanks very much. So in terms of the divisions, as we say, Information Management, the storing of boxes is a terrific business, very stable, decent margins. Digital, that's our scanning activities. We're going -- we really are looking forward to the margins moving up significantly in there. And Synertec, the team there is strong where they have some ambitious targets, and we're running in line with those. Datashred, revenues were up 15%, but we almost doubled operating profit there. We have definitely -- and I've been able to check this as we've looked at potential acquisitions. We've seen that our average collections per vehicle per day are way ahead of our competition. And that is a key element in what is a route density-driven business where scale is everything. And we've done these 4 smaller deals. Harrow Green, the market has been really tough. A lot of people have been indecisive about their moves. We've got certain moves seem to be getting postponed on a regular basis. The order book is stronger. The second half is -- tends to be seasonally better. So we feel that's a reasonably run business. We've cut costs where we can, but there's no point cutting costs further because we'll be cutting into the muscle or having taken away any fat that was there. And Technology, as I say, we've now got to an operating margin of 7%. Increasingly, we have a very strong relationship with the value-added resellers as more people outsource their IT hardware management to the computer center, Softcat, CDL [indiscernible]. What these resellers need is they need support from businesses, which can look after that IT during its life cycle, which is not the core competence of the value-added resellers. And we're finding that they are increasingly looking to us to partner them during the life cycle. So that -- what that is, is that is loading up when -- once people have bought the hardware, we load it up. We track where the assets are. When people leave, we track -- we get their computers back, people spill coffee on their machine, we repair them or whatever, and then we recycle them at the end of life. So generally, with the one or 2 headwinds specific to us, but we believe that we've managed those through and are in a strong position looking forward. Just touching on acquisitions. I'll deal with the second -- first, and then I'll hand over to Dan who can talk about Synertec before he goes into his -- talking about the finance. I've been keen for over a decade that it is -- the shredding market is very fragmented, and it shouldn't be a fragmented market because the benefits of scale are very significant because it's all about re-density, it's all about pushing as much material through your big machines as you can. It's been curious because probably about 15 years ago, a business who we ultimately acquired, we spent a lot of time buying businesses at prices which I couldn't see where the returns were. Given how tough it is out there at the moment and the volatility that people have seen in the paper price, now the Venn diagrams in terms of what we're prepared to pay for businesses and what the vendors are prepared to accept are overlapping quite strongly. So you can see here there's 1, 2, 3 pure shredding acquisitions and Topwood was half Box business and half Shredding business. With these acquisitions, we need very little of the overhead sites, et cetera. Customers are contracted. So what tends to happen is we acquire the contracts and we can move them into our -- onto our routes, taking very little of the overhead. So these are very strong earnings-enhancing business -- acquisitions. For example, Shred First, for which we paid GBP 300,000 in Kent, we generated GBP 300 -- we picked up GBP 300,000 worth of revenue, which has all stayed. In terms of what we need to service that GBP 300,000 by the time we put it through our own routes, it's only 1 truck and 1 driver. So over GBP 300,000 of revenue, our associated cost is GBP 70,000 or GBP 80,000 which means our return on GBP 300,000 investment is about GBP 200,000 a year. And we believe there are further opportunities here. So that's all from me for the moment. Dan, do you want to talk about Synertec first or you would come on to it later, but over to you.

Thanks, Charles. Good morning, everyone. Thanks for joining. Yes, I'll cover Synertec now. So Synertec is, as Charles alluded to, an outbound communications company, and it does a mixture of physical communications, so letters and electronic communication, so a text message or an e-mail. We acquired a business in mid-March that there's 3.5 months' worth of results in this half year. And it has all the things that we really like about businesses. So when you step back and you think about the themes that the stream the different Restore business together, there are benefits of scale where there are barriers to entry, predictable demand, strong margins, and what Synertec has is a really strong overlap with the services that we do within Information Management and a strong customer overlap. So let's flip on to the next couple of pages, Hannah, the next one please. I'll just take you through the numbers. So as Charles said right at the beginning, it's a tough market, but we're pleased to have some decent solid numbers for our first half. So revenue is up 15%, predominantly, thanks to acquisitions, so Synertec and some shredding sites. Profits, adjusted profits up 8%, operating margin up 17.7%, up 80 basis points on last year. Just a reminder, we've set ourselves a target -- medium-term target of getting to 20%. So not there yet but on the way. Adjusted profit before tax, up 10%, EPS up 11% and the dividend up 10%, tracking all of that. Again, strong cash conversion. We've always said we target at least 80%, little bit -- a lot better than that this period, but consistent strong cash generation. That's what you get with Restore. Net debt, we finished the period at GBP 120 million. That's made up with a revolving credit facility. That was GBP 100 million drawn down, GBP 25 million drawn on private placements, and we had GBP 5 million cash in the bank, that's how you get to GBP 120 million, and that gave us a leverage of 1.9x. That's EBITDA to net debt. Just a reminder, we've said we have a preferred range of 1.5 to 2x. So we're just under the top of our range, and that's predominantly because of the Synertec acquisition and also Shredding on site. Just on the next page. So this is a second time we've used this graph. We find it quite helpful way to talk through the businesses given our focus on margin. And I'll just start left to right. So Information Management is the first box there in green. So just a reminder, that business is physical record storage, so boxes, I'm sure many of you have been to some of our box sites, that's where that sits. Scanning or Digital as it needs to be called. So that's electronic -- turning physical communications into electronic communications and also Synertec is included in there. So just within that, we've got pricing and that price rise is on a stable number of boxes. So we've had 22 million boxes at the beginning of the period, same at the end of the period. So a stable number of boxes, and that's inflation-linked pricing. Digital integration. This is where we announced this integration 12 months ago. We said it will cost us GBP 3 million and save GBP 3 million. We pretty much spent the GBP 3 million cost, most of that is redundancy. And we've now achieved, as Charles said, GBP 5 million annualized savings. So the GBP 2.5 million is the contribution in this period. Then the acquisition, that's all Synertec, GBP 1.3 million, it's 3.5 months' worth of profits. Just to note that business is slightly seasonal. But one of the big things it does is do COVID vaccination campaign for NHS England. There's a spring company that's just happened. There's a large COVID and flu campaign that's happening in the autumn, so slightly second half weighted that business. In property consolidation, just a reminder on that, we said of our 22 million boxes, we've moved 4 million of them and that's essentially moving out of smaller properties where we've been in for some time where the efficiency of packing the boxes is great and the rent has gone up in that property. So that means the cost per box, which is a key metric for us, is much, much higher than we'd like it to be, trying to get that to as close [indiscernible] as we possibly can. And so what that is contribution for us moving out of warehouses in Surrey and Kent up to our facility in Markham Vale, which we announced in March 2024. That's got capacity about 1.4 million boxes. I was there the other week, largely full now. So that's contribution from that. We've also got the second warehouse we announced, which is in Durham. That's an 84,000 square foot warehouse. That's about half-full as of today. Probably one more to come, one more big property to come. And broadly, we exit 5 or so smaller properties and put them into one big one. So probably one more to come, so we expect to see that continue to feed through into profits over the next 18 months to 2 years. Then cost inflation, Charles alluded to this right at the beginning, 3/4 of that is NICs and National Minimum Wage. You'll see 1/4 worth of contribution because that came into effect in April, but that's the impact it's had on the half year. And then the big red bar there, that's the contract that we lost, the public sector scanning contract that we lost that we've raised previously -- not discussed previously finished at the end of December last year. The Department of Work and Pensions Mailroom is like-for-like similar sort of profit contribution, but that's ramping up during this year. In fact, it's ramping up during the second half. So during this year, we'll have a tailwind there, but -- sorry, headwind there, but it will turn into a tailwind for next year. So that's Information Management. I'll just quickly talk through the other 3. Datashred, a little bit of contribution. That business has been run really well, and did a fantastic job there, industry-leading KPIs, as Charles said. The paper price is something -- so in that business, 3/4 of the revenue is contracted, it's service fees where people pay for us to come collect the bins every couple of weeks or every month, 1/4 of the revenues down to the paper. So we shred that paper and then we sell the bales to paper mills and then use it in their process for manufacturing of tissue or cardboard. So it's fully recycled process. Historically, our paper price has been very stable. During COVID, like many things, it's somewhat volatile. It's stabilized again there, but we've got half-on-half benefit as it's now come to a more normal level. Just an additional point to note, those of you that are more familiar with us, we did hedge half of our paper this year. So we produce about 50,000 tonnes of paper each year. We entered into a fixed price contract with one paper mill for half our volume for 25,000 tonnes. As it happens, it hasn't really made much difference because the price has been stable, but we wanted to do that because it just shows the quality and predictability of that business. Then on to Harrow Green, obviously, a tough environment, as Charles said, really slow locations and relocations market. It's very heavily Southeast dominated business, particularly in London, so operating in a tough environment. We have saved costs where we can, and that's what that green block is. But again, it's a well-run business, impacted it by the market. There are green shoots, and I have said this before, so I'm not promising anything, but there are green shoots of recovering. We are seeing some fit-out companies doing better and the pipeline for next year is looking good with some reasonably sizable moves pencilled in. And Technology, so that's IT recycling. So it's end of life when people have laptops that they want wiping and then recycling, which recycling tends to mean selling the secondary market. Good cost savings there. So as Charles alluded to, that business is being run much, much better now. and we've got good cost savings there. When we get to a slide later on, you'll see that we actually processed half the number of volume of items in this period than we did last period. And you might think that's a bad thing, but actually, what we're processing is much better. So what we said we do in that business has come out of the lower, smaller quality customers and focus on big companies, blue chips and large public sector organizations, who have large fleets of laptops and hardware and they replace it more frequently, and they care about security and ESG more. And what that's doing is showing flowing through into the numbers that we're producing or processing less volume, everything that we are processing is worth a lot more. And then towards the end, we've got some net interest, it's largely interest and lease costs as we go through acquisitions. Thanks, I'll just quickly talk through the 4 divisions. I'm conscious of time and want to leave some time for questions. So Information Management, just an additional point to note here. In Synertec, over half of their revenue is postage costs, so the cost -- stamp cost basically sending the letters out, it's a pass-through cost. So pound for pound, we pass that cost on to the customers. And therefore, we see it as -- it's accounted as growth, but we see it as a pass-through cost and therefore, when we calculate our adjusted margin, we're taking that revenue out. So that's just something to be clear, and that's what that box in the middle does. As I said earlier, in the Boxes business, stable number of boxes, scan volume, so that's digital, that's down. So that's down to the lost contracts we mentioned. Outbound communications, that's a new KPI for this period. That's Synertec. And then you can see the other stats. So the next one, Hannah, please. So next one is Shredding. Again, really pleased with that business, margin moving in the right direction. If you remember, we said our target was 20% and the way we get there was by getting Data Shred technology to 15% and also digital to 15% operating margin. So Data Shred, we are not yet there, clearly, but well on the way and confident of achieving it with in the medium term. Our bolt-on acquisitions in the period, not much contribution, but you'll start to see those through and come through in the second half. Then on to the next one, Harrow Green. This is the relocations business, a worse picture on this slide, margin down significantly. We've cut costs, as I said, but there's only so low you can go. We still need the bench strength and the muscle to respond when people want to move them. It's a really strong brand, well respected, does a quality job, and we want to make sure that, that is kept. So we have cut costs, but there is some drop-through on the lost profit clearly. Technology, I'm really pleased with this. We've got 2 years on here. Had we had half year 2023 on there, it shows it was making a loss. So loss-making in 2023, breakeven in the first half of last year, now a profit. So a low base, true, but we are absolutely making good headway there and increasingly confident that we can achieve the margin target. That's probably going to be a little longer than Data Shred, but we're confident that the nature of that business is such that it should get that margin target, and it's been much, much better run now. So we are increasingly confident there. Again, not promising and not wanting to have a hospice opportune, but there are signs that the wave of hardware where people renewed during COVID when everyone started working from home is now starting to kind of come back around again. So there are signs that there may be some market tailwinds there as well. So let's see how that plays out. And then Hannah, I'll probably skip through these. We can come back for questions, and I'll pass back to Charles. So Slide 15, if that's okay, please, Hannah.

Great. Am I muted? No, I'm not. Good. So just very quickly, this is really just a summary. So in terms of our business outlook, the physical record storage business continues to be very strong. It's a wonderful thing to own. And our focus is very much on driving up the margins further there, partly through the property moves. We've cut a lot of costs within our digital element of Information Management. We're winning new business. The new contract is kicking in. This -- we are very confident that we will significantly improve profitability in this business, and it has strong growth prospects, and we expect it if we can -- although it's part of the Information Management division on looking at its internal numbers, we think we can get to 15% operating margins next year. We're very pleased with Synertec. This is a high-growth business with significant prospects and delivering exactly what we were hoping it was going to. Data Shred is trading well, and we believe on the benefit of the bolt-on acquisitions, which we're making, we can drive this towards 15% operating margins in the quite near future. And Technology is now profitable. There's considerable scope to improve performance further. And we hope in due course that this is a mid-teen adjusted operating margin business. As we've noted, Harrow Green, the market is tough. It's been tougher than I've ever seen, but the outlook is improving. And so just looking at the group outlook on the next slide, we've made good progress. It's -- as I said at the top of the show, it's not a remarkable performance. It's just been robust in quite tough times, and we feel that a lot of things are falling into place now, and we're beginning to pick up some tailwinds. We've set out the store 18 months ago to target 20% adjusted operating margins for the group, and we feel we're heading comfortably in that direction. Cash generation is strong. There's opportunity. We've started to undertake value-accretive acquisitions and obviously something like primarily in our core business, but also with Synertec in areas which are very closely related, and we expect this to continue over the coming year. We're increasing -- and I feel now that I came back to run the business about 20 months ago. Dan joined shortly after that. I think we're both getting to the point where we feel we're actually getting our businesses to hum and that they have the opportunity both for growth, both in terms of organic but also growth through acquisition. And just to reiterate that our numbers which were in the market, we're sticking with them for the rest of the year. So Hannah, that's Dan and my spillover. We look forward to some questions.

Excellent, and we have some. Good to see that you are still guiding to a 20% margin in the medium term. Can you offer any guidance on when that might be and how you will get there and what will the split be between cost savings and growth?

I think that we are very confident that we can get there. We feel that having gone through these numbers, you can see where it's going to come from with the improving margins slightly in the Box business, significantly in the Digital business, in the Shredding business and also in the Technology business, all of those margins are moving forward, and we expect that to continue. If you look at a quick analysis of what's happened in these first 6 months, we have been very tight on cost. There's a lot of costs which we have taken out of the business, and that drives margins. I'm not somebody who ever wants to shrink to greatness, but we're getting these businesses to be -- achieve market-leading margins. And so cost cutting is something which there is more to be done, particularly in the next 6 months. But thereafter, I think we'll be well set up in the right position to drive the business forward. The key thing, particularly last year was to focus on the operating margins. You don't tend to sell yourself out of a problem. You're better to set up your model correctly, which I feel it is now set up, and then you're in a good position to win new business at attractive margins. So that's where we see us coming from. We do see organic growth, although the focus has really been over the last 18 months of getting the business model right.

Okay. Three questions in a row on Harrow Green, sort of a focus between what do you do if it remains persistently depressed? And what are you doing to help grow it in the longer term?

That's a good question. When we set out our store 18, 20 months ago, we said the first -- our first job was to make sure that all our businesses were being run as well as possible. And at that point, we'd review what was quarter's business and et cetera. So that process will be undertaken over the next year. With Harrow Green, it has -- we originally bought it in 2012, primarily for its Box business. But since then, it has had some very good years, it's achieved double-digit margins which is pretty difficult in this space. So it's done a lot for us. And it's been very helpful and things like when we move to the BDC with our heritage work, things like that, being able to do that in-house has been very helpful, particularly when we do a lot of clearances, that generates a lot of IT equipment for our IT recycling. So Harrow Green has been a very useful part of our group. Specifically, the area where -- the 2 areas where we are niche operators, that's life sciences and heritage, particularly in life sciences, we moved the biggest laboratories in the U.K. to Cambridge a couple of years -- 18 months ago, we just moved the [indiscernible], which is the Nobel Prize winners were in Cambridge. That's now part of the Ray Dolby Centre. So we have areas which are particularly attractive for us to expand into. Historically, we've always been strongest in complex large office moves. And there aren't a lot of those around at the moment. And those that are there, we've got -- we're moving a very big operator out of Canary Wharf next year, very big legal firm is moving. We're doing that. So those large complex moves is what we're about. What we've seen over the last year is not only the delay people not making decisions quickly, but also such moves as there have been, there have been more commoditized moves. And there's an element that in some office structures these days, I mean, I think people are familiar that with people working from home or hot desking actually that the building layouts are much simpler than they have been. And that doesn't necessarily play to our strength. They've become more commoditized on price. So in that environment, we can have slight difficulties. I think apart from the fact we've got a decent pipeline of large jobs, I think the other thing is that the sort of key lead indicators for us are building completions and then more importantly, the fit-out market. And I don't know whether anybody listening has invested in Morgan Sindall, but from their results earlier this week, their fit-out business is clearly booming. That's a very good sign for us because once an office is fitted out, that's the point in which people move in. It's the point they move out of their old sites. So we believe strongly that Harrow Green is a well-run business. It's delivered decent operating margins in the past. It's a very tough market at the moment, but there are straws in the wind that there will be organic growth in that business. It's pretty nasty when your revenues are 20% below budget. And that's probably -- unlike which is where Harrow Green is slightly different from our other businesses where Dan and I can probably tell you what the other business is, what their turnover is going to be next year, whereas Harrow Green starts the year without knowing that it's got quite a lot of business to win.

Okay. Thank you. You spoke about M&A and your Venn diagram was improving. What competition are you seeing for assets?

Very little. In our 2 largest areas, we are competing against subsidiaries of U.S. multinationals. We understand the U.K. market really well. We understand pricing. We understand the mentality of the vendors, the local tax implications for them at various stages, et cetera. There aren't people in our main areas of operation who are acquisitive. And to me, I've started focusing on the acquisition trail about a year ago because I felt that valuations were going to come down and opportunities are going to go up. And I feel there are a lot of good small businesses who's just getting too tough for, but they're too small to attract private equity interest and also the synergies that we can generate which what drove this business' share price from 15p to GBP 6 in the previous decade was about taking advantage of the benefits of scale, buying businesses at what was a half decent price for the vendors, but which made perfect sense to us, the synergies that we could generate out of it. And I feel we're back in that market at the moment. And we need to -- this is a good time. Now we've got our own businesses in shape. It's an excellent time for a business like us, which is borrowing money at 6% and can generate 15% plus returns on these acquisitions. So it's -- there is very little competition to buy businesses. There are plenty of vendors who feel that -- who haven't -- the market has been a bit static certainly in shredding for the last 10 or 15 years, people are 10 or 15 years older. It's a grind. So we view this as -- and I've done it in several businesses. This is easy earnings accretion. And the key thing is in businesses like shredding and boxes, always the biggest risk when you're acquiring a business is that you lose revenue in both of those sectors, it's contractual revenue. It's not relationship driven. So you know that when you acquire a business, almost all of the revenue is going to be there, and then you can apply your model to it and generate far higher margins.

Okay. Your decision to hedge the paper contracts at Datashred looks the right one. Will you look to repeat this and is 50% the right level?

Well, I'll do this one. Yes, we will look to repeat it. So it's a calendar year contract that expires this December. We've got good relations with the million question, and there are other mills that are interested as well. But yes, we'll look to repeat that and discussions are starting for next year, so for 2026. Is 50% the right level? Charles and I had a good debate about this. I'm not sure what the right answer is. 50% gives us some variability. The risk is if we hedge all of it and the paper price goes up, then we might be less competitive in the market because other shedding companies have come in and basically collect for free. So we don't want to do that. So we feel 50% is about right, and we'll look to do the same again next year.

Well, I have you, Dan, then on Synertec? How is the business delivering? And are you ahead of where you expected? What synergies are you seeing in both cost and revenues? Just to finish off -- and also mentioned the NHS and the cross-selling, is that materializing?

Okay. I'll try it and I hardly remember all those questions.

I'll remind you.

So yes, it's delivering as we hoped it would do. Really pleased with that business. If you exclude -- if you look at their history, they did tremendously well during COVID because of the vaccination campaign that they run. But if you exclude COVID, they've still been growing at a CAGR of 15%. That's revenue growth over, I think, the last 5 years. So there is lots of opportunity for them to continue to do that. Just pick up -- are we seeing it materializing? The NHS is quite a difficult nut to crack. So we're having lots of good discussions, but it tends to be sort of step change. So you win a work and then you sort of step up. So it will tend to be bigger things that come through over time. The opportunity is definitely there. And it's one of those things where the NHS and the government are looking to save money. The default for our hospital and departments is that they do all of the communications themselves. When you see the Synertec operating, which only has about 25% of the market, the other 75 hospitals are doing themselves, when you see Synertec operating and how efficient and slick it is, how much money it can save for the departments, to me, and I'm a CFO, so I look at things differently, but to me, it's a no-brainer that they should outsource that. So we're sure and confident it will come, but it just takes time to deliver. In terms of other revenue synergies, if you think about what other organizations like to send letters and communications in general, it's the public sector. So there are other relations that we have outside the NHS within the broader public sector that we think could be good opportunities to Synertec. So we're working on it and watch this space. In terms of cost synergies, there's some things that they get from just being part of a wider group. So for instance, insurances, property, things like that. But by and large, we don't want to break the -- they've got a really good business, so we're going to keep them intact and encourage them to really grow their business.