DPC (DPC) Q2 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the DPC Holdings Reports Second Quarter 2026 Results. [Operator Instructions] I will now hand the conference over to Lucy Sharma, Head of Investor Relations. Please go ahead.

Thank you, Alexandra. Good morning, and welcome to DPC Holdings Second Quarter 2026 Results Conference Call. I'm Lucy Sharma, responsible for Investor Relations, and I'm joined by Mike Quinn, Chief Executive Officer; and David Egan, Chief Financial Officer. Mike and David will run through a short presentation outlining our results, strategic update and outlook. We will then open the call for questions. Before I hand over, I'd like to note that today's discussion will include forward-looking statements regarding our future performance, plans and expectations. Information about factors that could cause actual results to differ materially from these statements can be found in today's presentation, our earnings release and our SEC filings. During the presentation, we refer to certain non-GAAP financial measures with reconciliations to the most comparable GAAP measures available in the earnings release issued today as well as in the appendix to the presentation. Unless otherwise indicated, all performance comparisons are on a year-over-year basis, and all numbers will be in U.S. dollars. With that, I'd like to hand the call over to Mike on Slide 3.

Great. Thanks, Lucy, and good morning, everyone. Welcome to DPC Holdings Second Quarter 2026 Earnings Call. I'm delighted to be reporting our first set of results as a listed company and to welcome many new shareholders alongside our existing ones who are as excited as we are for the growth opportunities and potential to generate significant further value. The listing was a major achievement in Doncasters' history, but our priorities remain the same. And as our second quarter results show, we're continuing to deliver record profitable growth. Let's move on to the operational and strategic highlights of the second quarter ended June 28, 2026, on Slide 4. We have delivered record revenue and adjusted EBITDA. Revenue grew 34% year-on-year to $269 million. Engine Products increased 39%, growing 49% in Europe and 29% in North America. Adjusted EBITDA grew 33% to $48 million. Revenue and adjusted EBITDA in the quarter were ahead of expectations. Adjusted EBITDA margin was 17.8% in the quarter, broadly in line with last year, but well ahead from quarter 1. As you can see, we're flagging a 60 basis point dilution to the adjusted EBITDA margin due to metal inflation in the quarter. Metal elements as traded commodities see price fluctuations and so our commercial contracts are structured for metal pass-through protection. This is a normal practice for us, and we've always passed through inflation. Recently, we've seen some metals, especially hafnium experienced elevated cost increases, which have been more pronounced than normal, resulting in a higher-than-expected pass-through quantum. Hafnium is used largely within our IGT business. Passing this through to our customers meant there was no impact on our EBITDA, but it did slightly dilute the reported margin. EBITDA for our Engine Products segments, both Europe and North America grew 53% with the margin increasing 210 basis points to 23.5%, including the impact of metal cost inflation. We ended the quarter with a transaction adjusted net cash position of $118 million, reflecting the net proceeds from the IPO and private placement. During the quarter, we signed our fourth strategic customer partnership with an aerospace OEM, which underpins the building of a new greenfield superalloy site in Alabama. Lastly, we are initiating guidance for the 2026 full year. We are on track to deliver significant long-term value creation. On to Slide 5. For those of you who don't know us, Doncasters is a specialist manufacturer of precision castings and superalloys that are highly engineered used in mission-critical applications within the hot zone of aerospace engines and industrial gas turbines. We operate in substantial and growing markets of aerospace and IGT that are benefiting from long-term structural unprecedented demand. We have deep technical capabilities and proprietary metallurgy experience. We're vertically integrating, making our own superalloys, providing us with the supply, shorter lead times and internalizing margin. On the customer front, we are a trusted supplier of major Aero and IGT OEMs and have developed differentiated strategic customer partnerships, which I'll expand on in a minute. We are one of a small number of scale suppliers capable of meeting the technical qualification capacity requirements of major aerospace and IGT OEMs. Those requirements create significant barriers to entry and high switching costs. And now post the IPO, we have a strong balance sheet, which will support our investment in organic and inorganic growth and operational improvements. We have a long track record working with some of the leading names in both aerospace and IGT end markets, and you will recognize a lot of the customer logos on our site. To summarize, we are well positioned for future growth supported by strong OEM relationships. But don't just listen to me, look at our customer support for our strategic partnerships. Moving to Slide 6. These are long-term agreements that provide customers with dedicated production capacity while giving Doncasters enhanced commercial terms such as longer-dated LTAs, committed volumes, accretive margins and sometimes customer contributions towards capacity investments. In return, these partnerships enable us to secure larger portfolio level awards and strengthen long-term revenue visibility. These provide OEMs with access to their own capacity, which we believe is differentiated within the industry. During the second quarter, we signed our fourth partnership with an Aero OEM, which included long-dated multi-agreement LTAs of existing castings and superalloys and volume commitments that underpin the building of a new superalloy greenfield facility in Alabama. This is exciting news for the group and for the wider industry as this brings superalloy capacity into the casting supply chain. Today, we have 4 customer partnerships with 2 Aero and 2 IGT OEMs, ranging in duration from 5 to 15 years in terms of LTA length, and each of these partnerships are margin accretive to our group. Each partnership is bespoke in nature and has resulted in contributions from the OEMs, whether that be capital contributions or capacity reservation contributions. In total, we estimate these 4 partnerships represent in excess of $200 million of annual revenue with full rate revenue beginning -- being delivered in 2029. This is $200 million plus in additional revenue and accretive to our base business. We continue to have an active pipeline of potential additional partnerships. We're building stronger relationships with our customers, and I believe that these strategic partnerships illustrate the confidence and support we have from our Aero and IGT OEMs. Moving on to Slide 7. We expect to deliver material value creation through organic growth, operational improvements, long-term cash generation and investments. This is our long-term value creation model. We have many drivers of top line growth, market demand, aftermarket, our LTAs and order backlog, the revenue generated from growing our capacity and value-based pricing. Moving on to margin. Expansion is expected to come from volume, which drives operating leverage, value-based pricing and operational efficiencies. We expect to generate cash through profitable growth, capacity utilization and working capital efficiency. And lastly, we continue to invest in our capacity and our capital equipment. We expect to complement this with potential bolt-on acquisitions. Underpinning all of these drivers are our strategic customer partnerships, as we've talked about, which provide larger portfolio awards are margin accretive, sometimes have cash or capital contributions and support our capacity investment through volume commitments. This is our long-term value creation model. We are passionate about this across Doncasters. It is ingrained within our business model in every site and every function and every day. It is alive in our company and has become part of our DNA over the last 6 years. I'd like to pass you over to David now.

Thank you, Mike, and good morning, everyone. Moving to Slide 8. This was a record quarter for Doncasters. Revenue grew 34% year-on-year to $269 million with strong growth in Aerospace and IGT. The second quarter revenue growth included approximately 4 percentage points of growth from metal cost inflation pass-through year-on-year. Metal cost inflation, as Mike mentioned, is the normal course of our industry, so our LTAs include metal cost inflation pass-through clauses and our purchase order or spot business uses spot metal prices. The metal cost inflation is passed through to our customers. In the second quarter, this led to 4 percentage points of sales benefit and the dollar increase was passed through to cost of goods sold. There is no impact on adjusted EBITDA, but it did dilute the EBITDA margin by 60 basis points in the second quarter. Adjusted EBITDA grew 33% to $48 million. Revenue and adjusted EBITDA in the quarter were ahead of expectations. Adjusted EBITDA margin in the quarter was 17.8%, broadly in line with last year, but well ahead from quarter 1. Engine Products, both Europe and North America, grew revenue by 39% and EBITDA by 53%, a 210 basis point improvement in margin to 23.5%, and this was due to higher volumes and value-based pricing. Adjusted net income moved into profit with $5.6 million during the second quarter against the $10.8 million loss in the prior year second quarter, giving adjusted EPS of $0.05. We ended the quarter with a transaction-adjusted net cash position of $118 million due to the IPO and private placement proceeds. Working capital increased in the quarter due to growth investment to support demand and the higher metal cost inflation pass-through that I mentioned just previously. And we continued to invest in expanding our capacity and capabilities through capital expenditure programs. Moving to Slide 9 to look at our end market growth in the second quarter. Aerospace grew by 47% due to demand from engine structural castings and components from global passenger travel growth, aircraft backlogs and aging global fleet driving aftermarket revenue. IGT grew 42%, reflecting global electricity demand growth with gas turbines critical for supporting energy needs and ensuring grid reliability for the integration of renewables. The transportation end market was flat. Moving on to our divisions. Slide 10 reports our Engine Products business in Europe. Gross segment revenue grew 49%, driven by strong growth in the IGT end market, which accounts for approximately 75% of the division's revenue, including OEM build rates. EBITDA increased by 54% with the margin improving 80 basis points to 24.2%, reflecting a drop-through rate of nearly 26%. We are continuing to invest across both our U.K. and German sites in support of our capacity expansion to accommodate increased customer demand. This includes the delivery of 2 strategic IGT customer partnerships. As a result, we expect CapEx to remain at elevated levels during this investment phase. On to Slide 11 and our Engine Products North America division. Gross segment revenue grew by 29% to $97 million, with strong growth in the aerospace end market, which accounts for 88% of the divisional revenue. This reflects increased output following capacity investments. The EBITDA margin grew 340 basis points to 22.6%, reflecting the operational leverage impact of the revenue increase, delivering a drop-through rate of 28%. We are continuing to invest across our sites in North America and Mexico in support of our capacity expansion to accommodate increased customer demand. This includes the delivery of 2 strategic aerospace customer partnerships. As a result, we expect CapEx to remain at an elevated level during this investment phase, which includes the building of a new greenfield superalloy facility in Alabama. Moving on to Slide 12, our Turbo Wheels business, which accounts for 19% of revenue and 3% of EBITDA. The division was negatively affected by poor performance from Ivostud, our business marketed for sale. Gross segment revenue increased by 2%, but excluding Ivostud, increased by 8% due to market share gains in a flat market and favorable mix. Adjusted EBITDA fell to $2 million, largely due to Ivostud. Excluding Ivostud, EBITDA fell $0.6 million with an EBITDA margin of 8%. And with that, I'll now hand you back to Mike to cover guidance.

Great. Thanks, David. Moving to Slide 13. So looking forward, we expect ongoing end market growth given the strong structural long-term demand drivers and significant supply backlogs in the 2 major end markets we serve. In the Aerospace end market, global air travel is forecast to rise between 3% to 4% per annum for the next 2 decades, fuel efficiency prioritization and record airline backlogs with Boeing and Airbus sitting in over 15,000 aircraft orders. There's an aging global fleet, which is driving multiyear demand for replacement engine components and engine programs that last between 20 and 30 years. On the IGT side, electricity demand is growing globally, which the current grid infrastructure cannot accommodate. This enhanced demand for gas turbines to support power needs and is also critical for providing 24/7 baseload power generation for the integration of renewables. Looking at aftermarket demand, there is over 2 terawatts of industrial gas turbines installed globally that require maintenance and service. These are long-term structural growth drivers. Our growth assumptions are based on the fundamental increase in energy demand globally, together with the move away from oil and coal power generation. AI-driven demand is incremental. Moving to the outlook. Within this backdrop and looking at our growth and margin drivers, we are initiating guidance for our full year 2026 as follows: revenue between $1 billion and $1.04 billion and adjusted EBITDA in the range of $182 million and $187 million. Our guidance includes the impact of metal cost inflation pass-through on revenue. There is no impact on EBITDA, but as discussed, it does dilute the EBITDA margin. Stripping out year-on-year metal cost inflation pass-through would deliver an adjusted EBITDA margin of around 19% for both the lower and upper end of our adjusted EBITDA guidance. We have provided some key assumptions on the bottom of the slide to help with financial modeling. In summary, our growth rate continues to exceed the wider market, driven by our specialist manufacturing capabilities and strong customer focus, driving larger portfolio level awards, extended contracts with improved commercial terms and our strategic customer partnerships. We are delivering margin improvement through operating leverage and higher volumes of value-based pricing. These trends position DPC Holdings to deliver profitable growth, expand margins and significant long-term value creation. We have a long growth runway ahead of us, and we are very excited about the opportunities in front of us. Our second quarter results show that we're on track to deliver our aspirations as we continue to ramp up capacity and drive growth supported by our customers. Thank you for your interest in Doncasters. We will now turn the meeting over to questions.

[Operator Instructions] Your first question comes from the line of Ken Herbert with RBC Capital Markets.

Mike, David and Lucy, congratulations on the nice results and the successful IPO. Maybe just to start, Mike or David, as we look at the incremental margins between the 2 respective segments, North America and Europe, can you just walk through the differences there, better drop-through, obviously, in North America, I'm guessing better aerospace exposure there. But maybe just help with the nuances between the respective segments on the drop-through and how we think about the drop-through and incrementals in the second half of this year on a segment basis, if possible?

Sure, Ken. David here. So as we said in the past, Europe is more predominantly IGT. The Americas is more predominantly aerospace. We have seen in Europe, a number of our LTA agreements in terms of pricing, they were renegotiated. We've got several aerospace ones that will be renegotiated over the coming number of months and into next year. We see both segments having fairly equal opportunity, both in terms of volume and also pricing and also efficiency gains, which will then continue to drive the margin improvement going forward. So there isn't really anything fundamentally different between the 2 segments. Both of them have equal opportunity for margin growth.

And maybe just as a follow-up, you've talked through the process about adding incremental partnership agreements. Can you just give us an update on when the fifth or other agreements could potentially get announced or get put into place?

Yes. Sure, Ken. Look, as we did the roadshows, we talked about this engine, this strategic partnership engine or gate process that we put in place. If you can recall the 3 steps. So that first 6 to 12 months were in relation to negotiating the contract. Then we had a sort of 2-year time frame to build and operationalize it, and then you go into your ramp phase after that. Our goal was as each one of our strategic projects moves from one gate to the next, we would add one into the preceding gate. So we've just signed our fourth, which is driving the superalloy facility. We're very active on other strategic project discussions. We've got a strong pipeline. I mean you guys monitor what's happened in the recent earnings from both the Aerospace and the IGT guys. There's no slowdown in demand. We'd be pretty confident that we'll continue to progress our strategic projects. And the drumbeat we want to move to is, as we've talked about in the roadshows that we could do one of these every year. That's about the rate at which we can ingest them because of the scale of them, right? So I see a bright future on the strategic project side.

Your next question comes from the line of Kristine Liwag with Morgan Stanley.

Echoing what Ken said, congrats on the successful IPO. I guess I wanted to ask you guys about long-term agreements. In the past few years, yourself and I think also your competitors have been getting pretty good pricing increases as some of these LTAs expire. I was wondering, can you give some color regarding the magnitude of the pricing increases you've been able to get the past few years? And then also looking forward, can you give us a sense of the size of LTAs that are expiring this year and the next few years and how we should think about that in terms of the potential growth?

Yes. Thanks, Kristine. It's Mike. Look, we talked about this a little bit again on the roadshow. So obviously, when we signed our LTAs back in sort of 2021, a very different backdrop. Doncasters was starting the journey that we're on at the moment. Our pricing power is pretty poor. You fast forward that to when these LTAs are rolling off '25, '26, '27. And the world has changed for us. We've got these 2 segments that are -- have long-term structural demand. It's a very constrained supply chain, and we're able to command market pricing now from our LTAs. So we've been pretty successful. We've got double-digit price increases on all our LTAs. As I said before, I'm not going to say which double digit between 10 and 99, but we've been pretty successful. The next round of LTAs, David mentioned in the last conversation, we've completed all of our IGT ones. Two of our larger aerospace ones will come up for renewal in the next sort of 12 to 18 months. And again, I don't see anything changing with the supply constraint scenario at the moment. So we'd be pretty hopeful that we'll continue on that trend.

And just to follow up, about 70% of our business is LTA, 30% is through spot pricing. So again, the 30% gives us opportunities on a regular basis to make sure that we can continue to move things forward where appropriate.

Super helpful. And then can you quantify the size of LTAs that are expiring in the next few years annually, if possible?

So as we've said, the majority of the IGT LTAs have been renewed over the last little while. We've got aerospace coming through a couple sort of in the latter half over the next 12 months or so. And that will continue to drive opportunities. We don't quantify the opportunity because, again, we are in active discussions and negotiation as we go through those. And as we can update you, we'll update you accordingly.

I think, Kristine, it's Mike again. Just to be clear on this, right? We have contracts that renew all the time every year, right? So our contracts -- we've given a range of durations on our contracts, 5, 6, 7 years in duration. I think David talks about this cliff edge. There are no cliff edges in our LTA renewals. There'll be a constant stream of 1 or 2 of these large LTAs coming up for renewal every year going forward. We just haven't completed our IGT ones the way they fell in '25 and in Q1 '26. And it just turns out that our aerospace ones were a little bit longer, and they'll be in '27 and '28. And then the cycle just repeats.

Your next question comes from the line of Maggie Schooley with Rothschild.

I think one for me. David, it's probably for you and Mike. The IPO proceeds were quite a bit more than what the group was originally seeking. Can you review for us how you're planning to deploy that further capital, particularly in organic investment or other project work that we can be thinking about over the next 12 to 18 months that could potentially move margins on quicker?

Sure. So from a capital allocation, we're very focused on growth. As Mike called out in the presentation, we have that growth cycle, which also includes margin expansion, cash generation and investment. So we'll continue to invest organically into the business. That will be through CapEx capacity and working capital to build that growth cycle. Equally, we see inorganic or digestive sized bolt-on acquisition opportunities as part of our path for further growth as well. So they will be sort of the key levers of the capital deployment as we go forward.

Yes. I think, Maggie, just to add to that, in terms of inorganic growth, our focus would be on these tuck-in acquisitions, $50 million to $100 million revenue size and then anything that will strengthen our supply chain. We have very strong vertical integration on our superalloys, but there are other areas that we'd like to strengthen. And they're the 2 buckets that we'll evaluate. So -- and again, not back to the old Doncasters, which manufactured everything. It's very much in our sweet spot of castings and superalloy in terms of buying businesses and then anything that strengthens the supply chain after that.

Excellent. And if I can, just one more. Also, during the IPO process, you talked a lot about the focus of this business was on execution, and you do have a lot of capacity coming on board, in particular, the aerospace blades and vanes capacity in Oxford. Can you explain to us or help us understand how you're derisking that move into aftermarket aerospace blades and vanes either by who you hired or what are you doing? What should we be expecting over -- through 2027 as you put that equipment in to help us understand how that process is going and derisking that whole entry?

Yes. So there's really 2 parts to that question, Maggie, right? So the first one is the actual construction of the facility and the installation of the equipment. So our Doncasters model is to separate out the capital projects away from the -- what I call the operating engine of the business. So we don't really involve -- apart from the initial start-up on process design, we don't involve the operating teams, the construction of this new capacity or the installation of this equipment. We have what's called a PMO office, project management office, which is headed up by one of my executives, Steve Pistono. So that organization has project managers, engineers, facilities folks, professional procurement guys who negotiate for the purchase of the CapEx and also the contracts. And their role, that PMO organization, their role is to complete a factory extension, build a new factory once the process has been designed by the operating guys, take that process, buy the equipment, negotiate the contracts, install the contract -- sorry, install the equipment and commission the equipment. And then only when it's finished, it's handed back to the operating teams to start qualifying the parts. And that's been a hugely successful model for us over the last couple of years. And all of the things we talk about, the superalloy facility, the expansions in our IGT business, this particular expansion that's happened in Oxford is led by Steve's team. And that's a great operating model for us. So that's the first thing. The second thing on the team for the blades and vanes, we've gone out into the industry 18 months ago, and we've hired sort of 2 industry leaders who've been doing sort of blades and vanes manufacturing for aerospace pretty much all their careers. They've been training other engineers that we've hired to be able to do this. So those engineers have come in even before the equipment arrived in the factory, have been training and are doing the development work. So we've derisked it. As I said before, we probably overpaid for them at the time, but these are A players in the industry. So we have them on board. We've had them on board for 18 months now. Our team is ready. And as equipment is getting installed, we've got a head start on the equiaxed side of that already with -- because we're able to do that on our existing equipment in Oxford. So we've been developing this capability for the last 18 months. And I think we said this that some of the revenue starts to ramp equipment installation will be finished in 2027. You'll see some of it in '27, more of it in '28 and then full raising from 2029.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

Congratulations on the IPO. A few questions, if that's okay. Maybe I'll start off with just the guidance first half growth was pretty strong, up 30%. Second half implies a decel to 15%. But how do we think about margins, high 18% implied versus the 17.4% in H1? I guess how are you thinking about the puts and takes on the volume incremental? What drives upside to both the top line and profit as we think about the short and medium term?

Yes, sure. So our guidance is, as stipulated on the margin, we said stripping out the year-on-year impact of what we see as metal and around the 19% mark on the EBITDA. We would see that, that margin progression in the second half is going to be delivered through a combination of volume and capacity, further price being delivered on an annualized basis and then a little bit more coming through on the operational efficiency. So we don't see any change. It's more just a continuation of the path that we've laid out is really going to drive that going forward. And then as we move into beyond, again, it's those 3 buckets that will continue to drive the margin expansion further to the right-hand side.

Great. And then if I could ask on Aerospace versus IGT. If you think about Aerospace growing 46% in the first half, 35% for IGT, I guess 2 parts. First, how do you think about -- some of that included the metal pass-through, so I understand that. But how do you think about the outperformance of Aerospace in the short term? Maybe if you could just give us an update on what drove that timing of your facilities ramping, improving yields? And then second, how do you think about the medium-term trajectories of both these end markets?

Yes. So look, aerospace, definitely, we've got -- we're starting to see the benefit of some of the capital we invested. I know, Sheila, you've been to our Groton facility. You saw the new shell line that went in. That's now running at -- that's actually running better than the pace we had expected. So we're getting better throughput from the Groton facility. We've got other CapEx that we put into Oxford that again is coming on stream now. And we did have some, as David said, some contracts that kicked in, in sort of Q2 and again into Q3 on the aerospace side where we're going to get some price. So again, we see more capacity coming on stream, more equipment coming on stream in both of those factories, and we feel pretty comfortable with the ramp on the aerospace side on an ongoing basis. On the IGT side, we've got 2 strategic projects there. If you were to visit our site in Germany, it's cranes, diggers, it's a fully-fledged construction site at the moment because we're doubling the size of that facility. No slowdown at all in demand. If you look at our customers in the last quarter, the gigawatts that they've added, the backlog that they've added is incredible, right? So again, I think there's more to come in the IGT sector. The demand is accelerating. We are seeing forecast change regularly now and none of it downwards. So every time we talk to these IGT OEMs, they're looking for us to ramp up, produce more. And I've said this before, Sheila, we're in what I call allocation mode at the moment until this capacity comes on stream. So we don't have enough installed capacity today to satisfy the market demand on IGT, but it's coming, right? So again, a bit like the aerospace one in Oxford, you'll see more capacity coming on stream for our second half of next year. And then you'll see a fairly significant increase in '28 and then full production in '29 on this -- we announced this doubling of the facility there. So all of that will be at full rate in 2029. And I think there's more to come on IGT. I think there's more opportunity for further growth across all our facilities. David talked about an expansion in the U.K. We're going to be building some new buildings there to take more capacity. So I think over the next 2 or 3 years, I feel really strong about IGT. I think it's an equal opportunity to the aerospace side.

[Operator Instructions] Your next question comes again from Kristine Liwag with Morgan Stanley.

I wanted to ask, Mike, you had talked a lot about metal pass-through costs, and it's pretty impressive to see that you were able to expand margin in the quarter despite the pass-through pressures, which dilute margins. Can you give us any information on how we should think about metal pass-throughs, what you've seen in the quarter? Is that similar to other environments? And then when we look at what you're expecting for the year, are there a potential like how do we think about margin movements as these things go through? I mean, pass-through should not be affecting EBITDA, but I just want to understand a little bit better the puts and takes and how you see this?

Yes. I think I'll tag team with David on this one, Kristine. But look, the big material pass-through movement for us at the moment is hafnium, right? So any of you folks on the call follow what's happened with hafnium. There's been just an unprecedented ramp in the cost per kg of hafnium. It was sort of trading at around, say, $5,000 back in November last year, whereas today, it's somewhere between $12,500 and $13,000 per kilogram. So unprecedented ramps. We're not as an industry used to that, right? And that's primarily that use for hafnium is driven by demand for AI advanced chips. It's obviously turbine castings for Aerospace and IGT, it's used in nuclear, high-temperature applications. And the problem with hafnium is it's a byproduct of zirconium, right? So it's not manufactured as a primary element. So it's not as if we can just switch on more refining capacity. So -- it's readily available. It's just that the price has gone through the roof, right? So all of our contracts have material pass-through clauses. It's a very well-defined process in our industry. So it's a timing thing. So we buy hafnium. We manufacture it into our superalloy. We then ship that superalloy to our factory. It then goes through a lead time of somewhere between 18 and 24 weeks where we make the parts. And then obviously, we have to recover the -- what we call a material surcharge then. So that's the payment terms that are in the contract. So you can see the working capital cycle is actually quite long, right? But that's an industry standard. It applies to nickel; it applies to every element we use in our process. So just what's in the number for the second half of the year? I mean I'll hand over to David for that.

Yes. So Kristine, we had 60 basis points of impact on the margin in Q2. For the full year, our guidance is stripping that out, the year-on-year impact is going to deliver a margin of around that 19%. So slightly elevated above the 60 in the second half, but still confident of delivering that 19%.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

Sorry for double dipping on the questions here. I guess 2 quick ones. Mike, you commented on proceeds potentially for inorganic opportunities. I guess, can you comment on the health of the supply chain and what you're seeing in terms of vertical integration opportunities?

Yes. So I mean, Sheila, look, if you look at our vertical integration, we have pretty much all of the processes in-house. We do outsource some processes today. I won't go into the specifics. But we want to be in control of our own destiny, right? So we want to be able to go from the manufacturer of that superalloy all the way to putting the casting into the box and shipping it out the back door without having third-party dependencies. And while we don't have any dependencies today 100%, we definitely have shared dependencies and we just want to remove that. So -- and that can -- as I said, that's across our entire production process. So I think that's one of the 2 buckets that I mentioned earlier on. So I think it's -- for example, tooling, we don't manufacture our own tooling today. That's definitely something we would look at in the future. I think you all know tooling lead times have gone up considerably to what they were 18 months ago. So again, that would be a great capability to have within our portfolio as an example.

Understood. And then maybe in your prepared remarks, you talked about 2 industry leaders coming over 18 months ago on the blades and vanes side. If you could provide an update on what you're doing in Aerospace blades and vanes versus IGT?

Yes. Look, we -- IGT, we talked a little bit about this before. The 2 strategic partnerships we have, strategic partnerships 2 and 3 on that slide are for large blade manufacturing. We've become really good at that. We went through a very painful NPI process from sort of 2017 to 2022. And we've developed a core capability of manufacturing very large blades. And because of that capability and our delivery performance, we've been able to work with our OEMs to expand that capability. So I think we're in a really good place on the IGT side. And look, on the airfoils discussion, the blades and vanes on aerospace, our primary business at the moment and has been for a long time has been structural castings. We've targeted blades and vanes. We've talked about it since I joined about getting into that. And the opportunity came up several years ago to partner with an OEM to kick start that process. That's strategic partnership number one. You guys follow the sector, right? There's a structural demand shortfall in airfoil supply right now. And that presents a great opportunity for Doncasters to enter into that segment and start to produce at volume, right? Because I think most of the OEMs don't have a supply chain that can deliver what their forecasts are going forward. And it's -- I think there's more than enough growth in the sector to satisfy everybody's growth outlook. And I think this could become a major segment for Doncasters.

I will now turn it back to the management team to address any webcast questions.

Thank you, Alexandra. We have a few from investors. So let me just start. First one was, can you expand on the latest strategic partnership? How -- taking together, how do we think about all of the partnerships contributing revenue, EBITDA '27, '28 -- sorry, 2027, 2028 and also the fact you talked about $200 million of revenue in 2029. Basically trying to understand the phasing of the partnerships, please.

Yes. Great question. So partnership #4 is with a large aerospace OEM. It's expanding our existing casting relationship. So we -- it's been a great contract for us. It gives us a significant volume increase. We've added some new part numbers, and that's locked in now for the next 5 years. So that goes into one of our existing facilities. The second part of that contract or that discussion is another long-term agreement for superalloy, -- nickel-based superalloy supply at a quite significant volume. That volume will underpin the new greenfield facility in Alabama. So -- and that's a 10-year contract with volume commitments. So we felt comfortable as a company when we signed that contract because of the volume commitment element to go ahead with that greenfield expansion. David can comment on the revenue split for '27, '28, '29.

Yes. So from an overall perspective, full run rate, as we've indicated [ is lots ] of revenue that's incremental to our current position. We'd see a small element of that flowing through in '27, a larger element in '28 and then full run rate from the second half of 2029. Margin accretion across the 4 from the group perspective and a combination of contributions from the OEMs depending on whether it's capital or capacity reservation. So each of the 4 are very bespoke in nature. But overall very much margin and value enhancing for Doncasters over the medium term.

Someone has just ask to clarify, is that current group margins that's accretive to or future expected margins in 2028?

It's a combination of both. But overall, they are accretive to the margin and continue to permit us to move the margin further to the right-hand side based on those 3 categories of volume, price and operational efficiencies with the partnerships contributing in all 3 of those categories.

There's a question about net cash, which I think you've already covered, David. So I'll move on to the next one. Actually, there's 2 questions on the defense sector that, is there any update on the opportunity within that sector? And then also potentially with the Turbo Wheels sector given the fact -- or segment given the fact that we've got excess available capacity within that segment. 2 questions in one, please.

Yes. And actually, the 2 of those are tied together, right? So the whole drone UAV sector is on fire at the moment, we've been sort of looking at the sector for around 12 months since an initial approach by one of the UAV manufacturers. And that has really taken off in terms of approaches and pipeline build over the last 6 months. It's a new segment or a new potential segment for Doncasters. It's very early days. For those of you who are on the road show, I've indicated it will take to the end of the year to see if this comes to pass or not. It is, however, a perfect fit for our Turbo Wheel business, right? So our current casting plants are not geared to make this type of product and volume. They're small. These are for micro turbine engines that are used in these UAVs. We're targeting sort of -- there's 5 categories within that UAV sector. We're in categories groups 1 through 3, which are these micro turbines. They're large volume and of similar size and scale to what we make in the turbo wheel factories today. So for a limited capital investment, we have open capacity with the market conditions today in the Turbo Wheel sector. We make 14 million turbo wheels. So we're used to the rigor of high-volume manufacturing on these nickel-based superalloy castings. So really, they're a dream fit for our turbo wheel factories. We can convert over at a relatively fast pace. Speed appears to be everything in the sector. We're used to turning prototypes in 2 to 4 weeks, which is obviously much, much faster than in our traditional casting business. And we've got a heavy prototype activity going on right now. So it seems to be an amazing sector. Every -- it seems like every week, we get a new approach from someone to see we're interested in manufacturing these turbine wheels. And I'll keep you posted as things progress. But as I said before, it's probably going to be the end of the year to see if we can ramp this as a business segment.

Another question is really sort of expanding more on the margins and the longer-term expectations. Engine products currently earning the low mid-20% margins. Do you think there's scope for further expansion there should margins for the business overall group converge towards or exceed those levels over the medium term.

Yes. Look, it comes back to -- there are certainly margin drivers in the slide that Mike presented, margin is a critical element in terms of the medium and long-term value creation for the group. The margin opportunities will come through volume, price and operational efficiencies, and we'll continue to move the margin to the right-hand side. We would expect it to come from each of our 3 segments as we go forward, but more pronounced in Engine Products.

Can you provide an update on Mexicali and how that transition is going, please?

Yes. Look, we started this journey probably 24 months ago now, maybe a little bit longer. Mexicali, when we did the Uni-Pol acquisition, we had always targeted Mexicali as a conversion to an aerospace plant. I'm pleased to say we've made very significant progress on that journey. The transformation of that site into an aerospace plant was always to be done in 3 phases. Phase 1 and 2 is complete. Phase 3 requires the installation of heat treat capability and NADCAP certification. That will happen, start that qualification -- installation qualification will start in October this year. And that's a very important milestone for the facility. So for those of you that have spoke to, Mexicali is doing post-cast operations, which is the labor-intensive piece of our aerospace casting business. So everything after the foundry. So we've been qualified by all of the aerospace OEMs. We've had to transfer parts back over into the U.S. for heat treat because we weren't able to find an NADCAP certified heat treat facility in Mexico. We'll have our own one now shortly. And that will allow us to transfer -- continue to transfer post-cast work from our U.S. operations to Mexicali and then ship that directly from Mexicali to the OEMs rather than shipping it back to the U.S. sites. So the final phase and the final piece of the jigsaw to allow it. So we'll do all of the pre-cast up to the foundry operations in the U.S., then ship it to Mexicali for finishing and then ship from Mexicali to the OEMs. So 2-, 2.5-year journey, but that facility will -- in 2027, that will be a fully-fledged aerospace business.

Alexandra, do you want to take the other question we have on the audio?

Yes. Turning back to our audio Q&A. Your question comes from Ken Herbert from the line of RBC Capital Markets.

Maybe just wanted to see, you've talked about for the business seeing historically a seasonal or a sequential step-up in cash generation or cash use from first half to second half. I wondered if you could put a finer point on how we should think about free cash flow in 2026. And then maybe just use this opportunity out now to talk about sort of more normalized free cash to the extent you can as it relates maybe to adjusted EBITDA obviously, with the consideration that you're continuing to invest pretty substantially over the next several years. But just any commentary on how we think about cash flow on a more normal basis for the business would be helpful.

Yes, sure. So in terms of 2026, we have seen cash being utilized for demand. We've also seen cash being utilized for working capital build and for capacity expansion and growth. And we've also seen cash being utilized off the back of the metal side of things. So as we're in this growth phase and also have the heightened metal, which takes time to pass through and then be recovered from the customers, we'll see a heightened effect of cash flow through the course of 2026. As we look forward and more medium term, we're in a growth phase. There is a fair amount going into capital expenditure and growth and capacity expansion. We have said that, suggested that CapEx will be stronger as we go through '27 versus 2026 to build out those partnerships. And then as we get through the more normalized phase of life, then there's certainly going to be strong opportunities for strong cash generation within Doncasters Group. We are in the growth phase. We are a growth company and certainly looking to drive that capacity, working capital growth and then convert that into stronger earnings.

We have reached the end of the Q&A session. I will now turn the call back to Mike Quinn, Chief Executive Officer, for closing remarks.

Thank you, everyone, for taking the time out of your day today to attend our earnings call. I said the team are pretty excited. This was our first earnings call. Hopefully, you've got what you needed from it. There's some great things to come in Doncasters, and I really appreciate the support that everyone has given us to this date. So thank you very much, and we'll leave it there for today. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.