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Good morning, ladies and gentlemen and welcome to the Carclo plc interim results investor presentation. [Operator Instructions] I'd now like to hand over to Frank Doorenbosch, 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 Doorenbosch, I'm the new CEO. My background is around 33 years in plastics industry, where I run manufacturing operations as the CEO of RPC bpi Group, and done the extensive experience in the plastics industry. And next to me is David Bedford, who's our new CFO, David.
Good morning, everyone. So I joined Carclo in September as CFO of the CTP division. And then on 14th of November stepped up into the Group CFO role. I've spent the vast majority of my career to date within manufacturing and engineering, formerly within Jaguar, Land Rover and also 15 years of experience within IMI plc, [indiscernible] engineering group doing a number of different finance director roles looking after sites and regions.
Most recently, I was group FD of Synectics plc, the AIM listed electronic security provider. Really pleased to be joining Carclo at this stage of its development and working to deliver on the operational improvements and see better improved returns for all stakeholders.
Thank you, David. So we'll go through the introduction of the company, the financial review David will do, and then will come back to me to do the Carclo 2025 project and give you the outlook for the second half year. But first, for you not very much aware of who Carclo is, a few little slides on introduction. We are at 13 -- we've got 13 sites in the U.S., Europe and Asia. We've got 1,200 dedicated employees, and we got GBP 140 million of sales worldwide. And you see on the chart that our blocks are very nice spread over the complete globe.
Carclo itself is a technology-led precision business with global integration capabilities and operations and especially the element of the global integrated capabilities we can exploit that in the near-term future. Carclo itself in its B2B business, which is the biggest part of Carclo is doing the high-precision molding. We deliver turn key projects for our customers. We have clean room facilities throughout the world, and we do automate assembly from multiplied 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.
And we have 2 businesses which are -- we call specialists like Optics, which are Light Optics, Fresnels, and Wipac Aftercare. And the one who we always already split out is our specialty business, Aerospace, which does Cable Solutions, Rotary Swag, we do our CNC machining of the software 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 my first impressions in the business. I 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 markets with strong organic growth especially in our Life Science segment, we see U.S. as the strongest market, and we see highest growth expectations in Asia Pacific.
I go back to -- if we look inside in the operating performance, the margins are under pressure as a result of the increasing input costs. We've got great teams. We've got good technical operational skills for the asset base we're having and we have invested in is currently underperforming and it's 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'll have to look at that backdrop of the increasing interest rates. Capital expenditures were mainly focused on growth.
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 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 capacity-related CapEx. 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. We're doing cash generation through optimizing our asset utilization, which we've 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. This slide covering revenue, underlying operating profit and underlying earnings per share. So revenue in H1 is GBP 72.2 million, 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 GBP 5.2 million of that growth relating to currency. So we've seen really strong demand in the period, both from our existing but also new customers. The underlying operating profit of GBP 3.6 million, that's slightly behind the equivalent figure last year, although up compared to H2 last year. The operating performance is being impacted by margin pressures due to input cost inflation, which hasn't yet been fully offset by pricing. The underlying earnings per share at 1.5p compared to 2.5p in the prior period.
So as well as the operating performance in H1, we have been impacted by higher interest costs. And also in the period, there's a tax charge, where the prior period 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 is 7.1%. That's pretty stable on last year's performance. I am expecting to be able to report ongoing improvements in return on capital employed in H2 and beyond as we drive further efficiency improvements in the business and particularly tighter management of our working capital. The net debt at GBP 36.8 million, that's up GBP 4.4 million since the end of last year, mainly supporting increases in working capital, further CapEx investment and I'll cover that in more detail again on the following slide. The underlying operating return on sales of 5%. So that's up on the second half of last year. Obviously, still not where it needs to be. We are going to 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 segmental performance. So starting with CTP, which is the vast majority of the business. So a strong story there on top line growth, the headline figure with revenues up 22% at GBP 69.1 million. Adjusted for currency, that growth was at 12.9%. And as I said, we've seen strong growth across the customer base, the underlying EBIT of GBP 4 million, that's been impacted by those low margins due to cost inflation, not yet fully recovered by the pricing. So do expect to see improvements as we go forward. The Aerospace business has had another really strong trading performance. Revenues there at GBP 3 million, up 44% on H1 last year. Also good to see a very strong profit drop-through on that increase in revenue. The underlying EBIT for Aerospace at GBP 0.7 million, that's up nearly 200% 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 each piece of business comes in, and we're in a really strong position in that niche Aerospace business. This next slide shows the summary income statement. I've already mentioned the movement, the growth there in the revenue. The underlying operating profit of GBP 3.6 million, that's 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 about GBP 332,000 made up of GBP 1.1 million of restructuring costs. And Frank, in a moment, will talk a bit about some of the efficiency savings we're making in the division. The -- also we -- that shows the benefit coming through of the sale and leaseback of our Tucson site. So following the increases we've seen in base rates, both in the U.K. but also U.S. and in the Eurozone. We have got higher interest expense coming through.
And also as I mentioned, there is a tax charge in the period of GBP 983,000. The effective tax rate in the period is high 59.5%. 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 U.K. losses on which a deferred tax asset was not recognized.
We then move on to the balance sheet. Overall increase in net assets there from GBP 24.4 million at the end of last year to GBP 29.7 million at the end of H1. That mostly relates to retranslation of FX on the overseas subsidiaries. We have seen an increase in gearing in the period 76% compared to 74% for last year. And in terms of net debt, GBP 36.8 million, that's GBP 4.4 million higher than where we ended the year with the net debt to underlying EBITDA at 2.5x, in line with the prior period.
So this next slide shows the progression of that GBP 4.4 million increase in net debt, starting with the underlying EBITDA, GBP 7.5 million that was generated in the period. So the uses of that go through to fund those working capital increases, I mentioned the further growth CapEx that's been invested in and also the pension contributions, which are 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 3.1 million. The underlying EBITDA for the period, GBP 7.5 million generated ahead of the same -- for last -- same point last year. And you can see there those movements in the working capital and pension payments and the CapEx being the main element driving the cash flow.
And then finally, the progress in terms of the pension scheme. So in the last full year, there was a significant reduction in deficit from GBP 37.3 million to GBP 26 million mainly coming from a reduction in the level of liabilities following increases in the discount rates, combined with ongoing company contributions. We've seen some further reduction in the pension deficit in H1 at GBP 24.9 million compared to GBP 26 million, 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. If we look at the actuarial, the triennial valuation at 31st of March was GBP 82.8 million. That's come down the estimate at the 30th of September is now at GBP 73.1 million.
I'll now hand back to Frank who will take you through the business 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're operating in. The lion's share as we talked about, is Life Science, which had a massive growth in first half year this year versus the first half year 2022 and the growth was with new and existing customers. And the growth was even despite the fact that the full-scale launch of new 2 product lines has been delayed, and we'll start it later so that were not included in the first half year sales. We -- in a precision molding, we have been hedged by the supply of the microprocessors. So our customers couldn't have the high-end product lines in where we have more components in.
The Optics business was claimed from the Wipac business. We're now moving it in and expanding it into an in-house range of highly efficient LED lighting. Those precision components in Optics are smaller parts of our technical plastics business, but they have performed stable and the real growth come from the Life Sciences. Aerospace itself, David alluded already to, had good sales, we will show you later on that, however, the sales has gone up by 44%, that is 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 and BD in precision components with clients like NCR. In Aerospace, we talk 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.
On the left-hand side, you are seeing the raw material prices and having lived my life in RPC group, you can't have a plastic business without a graph on raw material prices, and especially in the half year, which we had as from April 2022 to September, you're seeing that both our engineering plastics and polystyrene plastics, the orange and the light green ones have still increased up. And we are seeing a time delay in passing on raw material prices due to the calculation matters and has, of course, a headwind in the margin on the product lines. We're seeing polypropylene starting to ease down. We also use 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, [ had to ] do in the last year, we moved up from GBP 100 per megawatt hour to around GBP 300 to GBP 400 per megawatt hour.
This forces us to put an energy surcharge through with our customers and as the whole industry in the 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. We see in the near term that the margin pressure will be persistent.
So, I understand that both David and myself are new for our investors. But the team which is delivering results are not they are -- it's a company -- it's been consistent over a very engaged, diverse and international and experienced team and the amount of years is behind their name. It's the amount of years of the work in their relevant industry. Around 80% of our colleagues have made that within corporate. We have changed the organization structure to make it simpler, to make it easier and to minimize the management layers for having our specialized business, Aerospace and Optics [indiscernible] general management, we have our Governance & Compliance and keeps -- Angie keeps us on the straight and then we moved into global leadership. We moved away from site-oriented businesses to a global leadership. Number one, as always, is Carclo Cares, 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 GBP 90 million 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 are run by a combination of 2 people, 1 person in charge for operations and 1 person in charge of finance. We do feel that finance should play a more important role on the operations and delivering the growth you will see, if you go to the number together that our working capital, where David already alluded to, in this half year has gone up by GBP 4.7 million. If I look at the last 18 months, it has gone up by GBP 8.2 million. Something with the focus of our finance team being linked directly to our operational teams will help us to improve.
The Carclo 2025 -- the focus -- the motto is focused on value. We want to focus on what we do and get the value out of it. We still follow the growth that have to be profitable and manageable growth. Manageable growth in our chosen segment and the massive segments we have the lion's share is the Life Sciences. And in regions like Asia Pacific [indiscernible] high growth. We're going to build a One Carclo business model, a simpler model, which is focused on collaboration, diversity and entrepreneurism.
We're going to the next slide explaining you why we're splitting design & engineering and manufacturing solutions, of course, in our opinion, those are 2 different focus areas. Our specialty segments, as said earlier, talked to the team, Aerospace and Optics will be run separately by our general managers in those segments. And then the key element is realizing the value which is currently in our asset base. We increased the asset utilization, we must improve the performance of asset utilization and optimize cash generation in our business. We're sure with these actions, we can deliver midterm target through the cycle of a ROCE of 15%.
In the next slide is a small explanation what we mean with One Carclo. We mean that in our technical plastics, we have to distinct different operations. Our design & engineering, [indiscernible] and manufacturing solution priorly mentioned products. We see that the design & engineering is the project organization, which is responsible for innovation, automation and validation of tools. You see the sales and revenue development of the 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 customer has done with us in the new product lines, which has not been going on stream but will be on stream in the very near term.
So we have also now set up a design & engineering and training center because it's very important that we become the attraction of talent 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 up. We do expect around 15% of asset utilization to be realizable in the next 6 months. 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 2019, 2020 levels were very close to GBP 4 million, and that is 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 people, where it should be a human-centric organization. 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 12 to 18 months has made major strides in improving the health and safety in our organization, and drastically reducing the amount of incidents we're having with our respected colleagues.
But we should be galvanising our One Carclo. We should focus on the diversity being different together, makes a better team showing entrepreneurialism and collaboration throughout our sites. And we do see big evidence now in how people are operating. Because Carclo has to be the destination of talent and careers because only with the best talent we can make the results we need today. But what we need to make sure we need to first in the business with our talent in a safe way together work on the insight and improve the operational excellence as the base of our business.
We should harness technology to make products in a smarter way, increase automation, both from back-end data gathering, et cetera because Carclo will be at the forefront of our industry. 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 2025 medium term ROCE at 15%. What do we think in the outlook for the H2. We also see here that the growth projections and 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. 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 we're implementing that 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 the second half to be a similar performance as we've done in the first half. We're very positive on the medium to long term because we're driven by the opportunity of sales, and we are driven by the opportunity to improve our business in general.
That concludes our presentation.
That's great. David, Frank, thank you very much indeed for updating investors this morning. [Operator Instructions] 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&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.
Okay. Okay. So a pre-submitted question, first of all, from Mark. I think this one is 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 2 to 3 years. I think our current focus is on utilizing the assets we have put into our factory, getting the utilization rate up and making sure that they are flexible and multi-use 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 have, and we still see around 15% asset utilization to go up. So for the midterm to field -- to support some growth and the growth potential, we will not be limited by machine capacity, where we also don't need to heavily invested anymore.
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 yes, we did see that increase in interest in the second half -- sorry, in H1 of GBP 1.7 million, and are expecting to see that increase somewhat in the second half depending on whether we see any further increases in interest rates, but going forward, with this pivot in terms of the strategy towards deleveraging, we're going to be seeking to bring down that overall level of debt. So for example, you'd have seen in the balance sheet, we're typically running around GBP 10 million or GBP 11 million of cash in the business. And at the moment, we have the revolving credit of GBP 3.5 million, which is fully drawn. So we see opportunities there in bringing that down reasonably quickly during the second half and then to continue generating cash to bring that level of leverage down, reflecting the new reality of the higher interest rates that we're facing.
The next question from Phillip is asking if you can give an indication of the operating margin that we'll be looking at associated with a 15% return on capital employed.
Yes. I think the operating margin in our business should be between 8% and 10%, it all depends on where we are. Currently, we're at the perfect storm with delayed start of a project with still higher 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 15% return on capital employed.
I've got a further question here on the pension scheme. Obviously, what we've seen there is that significant fall in both the asset level and liability level as a result of the sort of LDI investment strategy. So we've got a first meeting with the -- what we call the tripartite meeting with the investment trustees alongside the bank. And one of the things we will be getting into in more detail is that investment strategy and the level to which the liabilities are hedged, should rates -- should the discount rates increase further. So that's something we will be getting into, and we got to give you more information on that in further presentations. But certainly, we are targeting to continue that progress in bringing down the pension deficit.
This next question from Keith is around the margins. So given the FX and interest rate movements have had a big impact on margin, can we see some improvements from the FX and 5-year U.K. gilt market reversals post period end, and any plans to manage this volatility going forward. So one thing we've really talked about is we need more focus on cash management and treasury within the group. So one thing we will be looking at is whether we can derisk some of our foreign currency exposures using more hedging than we've done previously. So that's something I will be working on as a priority going forward. So the business is because a lot of our business is in overseas markets, we are very much subject to FX movements.
There's a question that did the pension fund hold any LDIs or face any LDI related issues.
The answer to that is yes, and that was reflected in the numbers for H1 with those large swings in both the asset performance and the liability, both moving in opposite directions. But yes, that is where that sort of liability-driven investment strategy with all the turmoil in the market, as you've seen those 2 large swings but with an overall reduction in the pension deficit.
Yes. We'll see a question why is the management changed. It's a fair question. I think we have to focus on what we're going to do for the future. I think the focus on more operational management is something which I bring to the party. We've done that for over 30 years in the RPC group. And yes, I understand, I am only 2 years within Carclo, but I do know over 30 years of operations in plastics. I think we're very well put forward to have the sales in, to have positions in and to have to grace, we just now have to turn into operational excellence and asset utilization and that's why we currently have done the changes in the team and make the organization structure with 1 day or less.
Okay. A question here from Sanjay. What is your plan to improve pricing power over and above recovering inflation? And maybe sort of touching on the surcharges that are coming through.
Yes. So we're currently -- I think Carclo was not really -- of course, 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 big part of our customer base. And what we're trying to see is now getting -- trying to get to the operational excellence in and make sure that those advantages will stay into our organization. On electricity prices, we're going to work with surcharge and that surcharge will be -- has already been implemented in Europe, has been implemented in our Optics business which is in the U.K., which we mainly see in Europe, and we're now implementing it in from our plastics operations in the U.K., and we're running it as a surcharge.
If the energy prices go down, the customers will be corrected for that in the future, but we are a very energy-intensive organization, and it's impossible for any plastics organization to have this massive increase from GBP 100 per megawatt hour to GBP 350 to GBP 400 per megawatts to absorb that on your bottom line. So your pricing power has also have -- do you do something unique? We're doing something that the whole industry is doing even on raw material supplies. I'm talking about energy surcharges. And so we've been successful in our in April and November and we're successful in the energy surcharges in Continental Europe and we're now implementing it into the U.K.
Okay. There's also a question as to whether we could give a bit more information in terms of the split of that cost base and how much labor and energy is within that?
Yes. I think if you talk about energy, energy in plastics business in general and Carclo, the difference is between 3% and 5% cost of your sales base. So if that triples you know that's going to be a 10% hit on that individual site. Hence we need to work with those surcharges.
Okay. There's a few questions coming through around pension. I think this one sums it up. So how are you going to escape from the pension problem and heavy debt burden?
So we have an established deficit reduction plan in place, and the business is meeting those payments to bring down the level of deficit. And as you saw from the slide, we've seen some significant progress, both in terms of the accounting deficit, but also the actuarial valuation. So the plan is to continue that as we go through. In terms of deleveraging, in terms of the level of bank debt, the change in focus around profitable growth but also very much focusing on continuous improvement. We're going to use that to generate higher levels of cash that will provide returns to all the stakeholders. That's very much the priority going forward from this point.
So a question on also our competitive struggle with the supply chain challenges and the energy increases. As I said, all plastics contractors use a lot of energy. We take a pallet, we heat it up, form it and cool it down and as energy intensive -- in any of the plastic conversion businesses. So anyone in plastic conversion is currently confronted with this massive increase in energy and we are all in the market having to ask it back from the customer. We are doing it in an open way. We're taking the [indiscernible] U.K. price level as that's the price level we also buy upon. And we then charge that to our customers. If the price go down, price -- the customer understand that also the surcharge will go down. And so it doesn't take -- we have to price this up indefinitely, but it is really to cover the U.K. prices. And if other people are struggling, I think they have the same challenges as we have in our input costs.
As we said on the supply chain, it is easing out a little bit, so availability gets in there now and just allows us to get the product, which is also a problem to say, a year ago, but the high prices are still need to be reflected, and we talked about the time delay of passing the raw material prices on, of course the [indiscernible]. And if after the meeting you go back to page number 25, you do see that we're constantly behind the curve if the raw material prices keep rising consistently. And we're not the only one passing the whole industry as 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 just one more there around the launch of the new product lines in terms of the expected impact they're going to have in terms of the sales growth and margins.
Yes. So if you do a new product line in the Life Science and Medical business, there is a big validation process before we can run the process because products we make are essential for the lives and health and safety of our customers. 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 strengths we have as an organization. We do expect in H2, these projects 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 stable. And we're now seeing with having to put the prices on, we also have some pricing power in that market that the markets will be positively influenced by that project.
Okay. One -- just one further question about the underutilized capacity and whether that's the case across the industry. And I think, Frank, in terms of the utilization of machines, the machines are being utilized, they're not being utilized enough hours in the day.
Yes. So what we do, we track now the utilization of our machines where it is -- we take our worldwide global capacity and at the moment, we have demand for it, we run around 15 to 16 hours a day. If we run -- long-run business, which we're doing, 18 hours is not an abnormal [ mode ] to get to. So if we can get from our 15 to 16 hours a day, we can get to the 18 hours a day that was the 15% of capacity, which is inherent in our organization, which we can still use. Then we also on the 2 product lines, we are -- we talked about earlier in the prior questions, those machines are still -- are there, are idle and way to put a project to start.
So that -- those 2 massive projects have their own machines which have already been invested. But it is the [indiscernible] of every business to utilize and sweat the assets. Asset is very important for your return on capital employed and your return on sales to have good utilization from them. It all depends on which type of product lines you run. If you run a lot of different type of products, you have to change your mode very quickly and very often, and you have to call a few times today, maybe 12 to 15 hours is acceptable in the long run business we are in, we have to get to 18 hours.
Yes. Okay.
That's great. I think you've probably taken all the questions there from investors. I know there are a number of a certain themes. So I hope that covered that off. [Operator Instructions] Frank, David, I know investor feedback will be important to you and to the company. And I wondered before redirecting investors to give you their thoughts and expectations, whether I could just ask you for a few closing comments. And then as I say, our redirect investors to give you their feedback.
David.
For me, I think a lot of the opportunity in terms of driving the financial performance are things that we control within the business. From what I've seen so far, I think there's an extensive scope to improve the level of sort of financial management within the manufacturing operations to drive that better working capital management, better management of our cash and treasury operations and drive the performance to generate the cash to bring that level of leverage down. So I'm really optimistic about the opportunities that we've got within our control within the business.
As we said, we're very positive to the medium- to long-term outlook. And we're currently going through a phase where we have growth in our business, which we have to -- which we -- and there is a tightness in the labor market. There is inflation, there is energy cost increases and there is raw material price increases. So if you could say, are we in a perfect storm? Yes, we are in a very, very challenged situation. So I think the results, which the team has created is commendable. And we look for the 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. Could I please ask investors on the call not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can really better understand your views and expectations. This only take a few moments to complete, but I'm sure it'll 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. I May wish you all a very pleasant morning. Thank you.
Thank you.