Nexteq (LSE:NXQ) — FY23 results

0:02 Good morning, ladies and gentlemen, and welcome to the NEXTEQ PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, I would like to submit the following poll, which will just appear on your screens now.

0:33 And I would now like to hand you over to the executive management team from NEXTEQ PLC. John, good morning, sir. Good morning to you all. Thanks very much for dialing into our FY twenty three results presentation. But before we talk about the company, I'd just like to talk a bit about how we see the industrial technology markets and the equipment that's supplied into them. So the first thing is that in all of the industrial technology equipment now that is supplied, there's typically a computer at its heart. And the way that we're interacting with that equipment is changing. So we're increasingly using touch screens. We're increasingly using voice recognition to be able to talk to these devices, and that's driving a metamorphosis in human machine interaction. The fact that everything's got a computer in it means that software now is an increasingly important part of the technology stack.

1:19 And we're seeing an increasing level of reliance on these devices to replace labor in in many, in many markets.

1:27 Customers have got a legacy of technology in their in their in their businesses, which is driving an increasing level of technology debt, which they have to at some point pay down. And that meaning that having to spend a lot of money on r and d, in many cases, that r and d isn't necessarily directly beneficial to the commercials of their business. And that's where we come in. We enable customers in selected markets to outsource aspects of their machines which are not differentiating to their commercial success. And by doing so, they can focus all of their r and d efforts on the parts of their equipment, which makes the greatest difference to their p and l. Thank you, John, and good morning, everyone. So who are we? NEXTEQ's an AIM listed technology business, and we've grown significantly, since listing on AIM in 2013 with revenues of $114,000,000 in twenty twenty twenty twenty three.

2:18 Innovation is the heart of everything we do with more than 20 patents and trademarks. We're headquartered here in The UK, but we're a global business with our 220 employees across countries in Asia, Europe, and North America with our products reaching customers in 47 countries across a variety of markets, the biggest of those being the gaming sector. So let's talk a bit about what how we grow the business, and then I'll come on talking a bit about these these markets that we're into. So we first all seek to identify markets where they would benefit from that outsourced provider. So going back to this point where customers are doing things which is non differentiate differentiating to their business, they're designing technology which is non differentiating. We enable them to outsource that to us. But there are selected markets where we believe they're more compelling for us to be playing in. We then acquire customers in those markets.

3:07 We undertake R and D to allow us to penetrate further up the value stack, within those customers to help them further. And from time to time, we may undertake M and A to accelerate progress in those markets alongside the organic growth that we deliver. So what makes for an attractive market? First of all, it's compliance led. So there's stringent regulations or they're very conservative markets, maybe some certification requirements. And reliability and quality is more important than price for the customers in that market. The software is multi tiered and it's complex and it allows us to develop aspects of that software. We call it middleware, which enables the customers to outsource also that software element to us. And the contracts are typically over a multiple year multiyear a basis, typically more than three years and in some cases up to ten.

3:54 The technology is unique. It's technology which is not available to start directly off the shelf from the standard PC solutions that you get, And that's where we innovate and we generate IP and patterns. And finally, markets which aren't typically large today, but they're growing their structural technology evolution, which is driving that growth where we can participate. And the first of the markets where we entered into this strategy was was the gaming market. The Quixent brand is what we supply into the gaming market, and what we seek to do is enable customers to outsource computer platforms to us that sit at the heart of slot machines that are installed globally around the market. The computer platform is an incredibly important part of the machines. It's a very heavily regulated item by by all global regulators. But nonetheless, to the player that sits and plays these machines, it has no bearing on their on their enjoyment of the machine.

4:43 Therefore, while customers historically were manufacturing and designing these machine these these computer boards in house, they were spending a lot of r and d effort on something which their players didn't care about. That's where we came in. We enabled them to outsource that us with a compliant platform that met all global game gaming jurisdictional requirements, and they could then focus on the game design. And importantly, it's not just the hardware box that you see at the bottom right hand side of the slide here. It's also the software that sits above that hardware box. And that software is integrated into our customers' games, it makes it easier for the customer to write that game to work on our solutions. There's some major customers that we supply to on the bottom left hand side of the slide here. You see some of the customers that we work with. And it's a very big market. So globally, the annual replacement cycle for the products that we could supply into that market is over $3,000,000,000.

5:34 Now realistically, some of the customers in that space are are probably going to be on commercial terms, which we wouldn't be attractive to wouldn't be attracted to our business. And also some of the products which are supplied into that market are not necessarily directly relevant for our product mix. So for example, some of our cabinets wouldn't be necessarily applicable to certain gaming jurisdictions because they're not high end enough for that. So actually, when we qualify down that $3,000,000,000 total addressable market, $310,000,000 is realistically very achievable for us to chase with with the Quixon business. And we've got a 22% share of that addressable market with our with our current product set that we have. So it's still plenty of growth available to us. And really the core thing for us about gaming is about expanding that addressable is about expanding that

6:22 about maximum percentage of the addressable market that we that we have today by by winning new customers. And the product life cycles are typically a three to seven year life cycle. In some cases, we've been supplying for up to ten. But when we started the business in gaming, we also believe we had opportunities in other sectors. And then the question was how do we identify markets in other sectors where we could play and deliver this growth strategy? And the answer to that came from us looking at where we identified this opportunity in gaming, and that came with the acquisition of Densitron. We acquired Densitron in in 2015, and this is a business that provides electronic display modules to a wide range of industrial customers. Not only did this diversify and grow the group's revenue base beyond just gaming, but it gave us access to a wide range of of of industrial markets for which we can focus on. The first of those markets that we are focusing on is the broadcast sector.

7:19 So why broadcast? As Johann said, we were supplying industrial display components to the broadcast market. And in doing so, we were enabling customers to have that visual feedback on their equipment that is installed into major broadcasting corporations, the likes of the BBC, for example, would be our customer's customer. But these display RFQs that we were receiving were for increasingly large displays, more graphical displays, and for adding touchscreens on the front of the displays. And and it was quite a solid trend that we saw through that customer portfolio. So we started to ask the questions, well, why are they doing this? And what was evident was that we're looking for increasingly adopting touchscreens in what was still a market, despite the fact that we were still in the 20 tens at this point, still a market which was using lots of buttons when many other consumer and industrial markets have moved towards touchscreens.

8:09 So we spent some time trying to understand why this was the case. And ultimately, this market was still very conservative. The the devices are very mission critical because it's very rare that you see a TV station or radio station off air. And also, really importantly, the operators of the devices don't want to be don't want to be looking at the device necessarily when they're operating it because they're looking at who's operating it, who's who's recording the studio or who's on the theater and stage. So those those those operators need to be able to feel where their fingers are on the device, and this is why they like the buttons so much. The buttons over antiquated, and it meant you had a lot of buttons and the buttons were single purpose. So what we sought to do is to enable the best of touch screen technology with fantastic displays that sit behind them, but with buttons that are overlaid on them or rotaries which are overlaid on them, which allow the customer to be able to feel those those objects alongside seeing them, but still with that wonderful reprogrammability and flexibility that that a touch screen offers.

9:10 And so that's one of our example device on the top right hand side of the screen. We also have put computing technology behind behind it it to enable this control surface, the revolution of graphical user interface based control for broadcast equipment to be easy for our customers to outsource to us. The market, $220,000,000 worth of addressable market that we believe we can with our current product portfolio today. Long buying cycles, so five to so three to seven year buying cycles for the broadcast equipment, and a typical ASP of over $1,000 considerably higher than the rest of the Dentistron business and at much better margins. And we've got a very small proportion of that addressable market, only 4% a day based on our revenues, and that's been growing double digit year on year.

9:56 So that's a bit of a background around the business. I'm gonna come on to talk a bit about now how the year has been in FY '23. So it's been a year where I'm really pleased to say I've had significantly improved profitability and cash flow. And also, resilient revenue performance in the context of what is a very difficult macro environment and there's been high interest rates, high inflation, and this sort of customer sentiment has been weakened by by the sort of those macro factors. We've also seen customers going through a destocking trend, something that's very common in many technology companies. But despite those those sort of headwinds, we've been able to grow volume in the strategic gaming computer space and the broadcast sectors, and that within significantly improved profitability, both at a gross margin level as the product mix has improved and as we've been able to take advantage of some of the improvements in input stock costs.

10:46 And that's allowed us to recover our margin back to more normal levels compared to the sort of the drawdown we had in more recent years as supply chains were dislocated. We have seen lead times easing as well, which has been a much easier supply side challenge for us. And that's allowed us to take advantage of that lower stock level that we have coming out of the year. The order book, though, is also normalized. And, again, many other companies are reporting the same kind of thing. So we've now got five months' of visibility of twenty twenty four revenues when we enter the year. And but it remains strong and gives us confidence for this year's financial performance. We also generated good cash flow through the year. So we have a strong net cash balance entering the year, and that's been enhanced.

11:31 And that strong net cash balance allows us to take advantage of both organic growth in our core markets and to take advantage of acquisitions to accelerate that organic growth.

11:43 Moving on to some of the financials then and starting with the 2023 KPIs compared with 2022, splitting up some of the highlights here. Gross margin, 36.3%, as John said, significantly up on the prior year. Now back at historic highs. And in fact, this is the the best gross margin performance of the business since the Dentistran acquisition in 2015. Profit before tax up 45% to 14,700,000. And then just an excellent cash performance this year with conversion of a 142%, driving our net cash balance up to a record of 27,900,000 at the end of twenty twenty three. Moving on to the income statement and just playing out a few points here. Revenue is down 5%, and I'll get into that in a bit more detail by division in in later slides. But overall, volumes in our gaming and and broadcast sectors did increase despite the overall decrease in revenues. We also saw a more diversified revenue base with revenue from our top 10 customers at 51%, down 56% in the pre in the previous year.

12:48 Operating expenses were down about $1,000,000 or or 4% year over year as we benefited from smaller FX movements alongside good cost control. We earned $500,000 on on on financing commission. We made the most of those higher cash balances, putting putting cash on deposit to earn the best possible rates. And then just to point out around EPS, you can see the EPS in line year over year despite the increased profits. Now that's due to the change in effective tax rate. So in in 2022, we had a a tax credit of $2,200,000. This was due to a deferred tax asset that we recognized on taxable losses that we have available to us here in The UK, which resulted in that sort of exceptional tax credit. In the current year, we had a more normal tax charge of of $2,000,000 or just shy of 16%, which tempered the growth in our EPS.

13:41 Had it not been for that tax change, our our EPS growth would have been in line with our with our profit growth. Moving on to revenues and starting with Quixen that serves the gaming industry. Revenues have just charged $35,000,000 in the second half last year, in line with the first half as as growth was tempered by customer push outs and product mix changes. But pleasingly, within within the the overall clicks and revenues, our our core gaming platform sales, our volumes then increased by 5% year over year. We saw particularly high demand for our cost effective and mid range products. Now we we make the same margin across all of our gaming platforms, but because of the the higher relative sales of the cost effective and midrange products, we did see the overall ASP decline by 4% year over year.

14:34 So we move to Dentitron and a resilient performance by Dentitron in what was a challenging market a challenging year across across industrial markets. 45,100,000, broadly in line with the prior year, which was a record year for Dentitron. And what was particularly pleasing on the Dentitron performance was that higher oh, sorry. Those those revenues came at much higher gross margin and overall profitability in the

14:59 in the Dentitron business. And then specifically within the focused broadcast sector within within Dentitron, revenues of $8,400,000, up up 12% year over year, and that business now doubled over the last five years. And just in terms of the that growth over the last year, that 12%, that came in spite of some of the the broader slowdowns we saw in industrial markets, which also impacted the broadcast sector. And in the broadcast sector, revenues are also delivered at margins ahead of the ahead of the rest of the the Danishron business. Staying with our with our gross margins, and as I said, margins up significantly year over year to 36.3%. You can see their margins impacted in 2020 and 2021 by component price inflation due to the supply chain constraints experienced in those years.

15:53 And the improved margin performance in 2023 was in part due to recovery or stabilization in the component prices, which allowed our our gross margin to recover as the price rises that we put through in 2021 and '22 2022 came through the p and l. And specifically within the Dengstrom business, we've really taken a step up in margin in this in this business from sort of high twenties to low to mid 30% in that business. Really, it was gonna focus on on high margin business, higher value products that's that's driven a a significant improvement in Dentistram. Looking ahead, we feel there's still room for growth in our gross margin as we as the the normalization of supply chain is continuing to into 2024.

16:40 And we're now also structurally selling more higher value products, which would allow us to grow gross margin beyond levels that we saw pre pandemic. Moving on to our profits, up 45% to 14,700,000 this year. Really two main reasons for that. First of all, the higher gross margins that I've that I've just talked about, adding 4,700,000 to profits. We also then but we we benefit from a modest FX gain of $600,000 this year. But when compared to the FX loss of 1,600,000 in 2022, the overall change was was was 2,200,000 on FX. Offsetting that was the lower sales volumes and an increase in our operating expenses largely due to heads that we added commercial and and and engineering heads we added in our broadcast our broadcast team.

17:32 Looking ahead to 2024, we don't expect a significant increase in our operating expenses. And then just looking at our our profit before tax margin, 12.9%, so significantly up on the on the prior year, and a step in the right direction of our of our medium term target of getting back to those mid teen profit levels that we saw pre pandemic. In terms of our cash, as I said, a really strong cash performance this year, about $15,000,000 to 27,900,000. Most of that came from the improved profitability, cash from operations nearly $18,000,000. We also added $3,000,000 from reduction in working capital. Now over the last couple of years, we've seen an increase in our in our stock as we made strategic stock purchases to ensure that we had components available to deliver to our customers.

18:24 In 2023, we started working through that stock balance, allowing for a reduction of working capital. And looking ahead to next year, we expect well, this year, we expect further reductions in our in our overall stock balances. Beyond our operating our operating cash flow, because we run a capital light model, there isn't really that many cash outflows. We paid a bit of tax. The CapEx is is capitalization of of r and d time. We also pay a dividend of $2,500,000. The board is proposing a 10% increase in our dividend, which will be paid in 2024. And just on cash conversion, a 142% in the in the current year, meaning over the last five years, we've averaged a 119%, and we expect to continue to to achieve high levels of cash conversion going forward.

19:14 Just in terms of capital allocation, our approach to capital allocation is to maintain a strong balance sheet, which means healthy liquidity that allows us to continue to invest in the business to deliver growth in our established markets. Also, investing in product product development to ensure that that growth is sustainable in the long term, complementing that organic growth with acquisitions, diversifying to new markets. And whilst making these investments in organic and inorganic growth, we will continue to pay a dividend that we look to grow as we grow our earnings. And when all our organic and acquisition opportunities have been satisfied, we will look to return any surplus capital to shareholders. Let's talk a bit about some of the highlights of why those financial results have been achieved.

20:06 So the backdrop in the gaming market, particularly in The US, is that the casinos are seeing record levels of revenue. So FY '23 was another record level of casino gaming spend by the players in The US markets. Europe's been, was a was a more steady recovery from COVID, but has remained steady and, has delivered another good year of revenues, but but slightly below where it was pre pandemic. But the LatAm market really is growing, and that's a good opportunity for us and for our customers to take advantage of increasingly countries regulating gaming in the Latin American space. You're also seeing an influx of new land based market entrants through omnichannel gaming. So omnichannel gaming is where you play exactly the same game on a land based terminal as you do on an online virtual platform.

20:55 And what you're seeing is there are an increasing number of online entrants that are trying to enter into the much more much larger land based market, particularly in The US in in in The US. And that that entrant of those online customers into the land based market, they require somebody to help them with the hardware. They're software

21:12 businesses that have never had to do hardware in the past. And our outsource offering, in particular, our cabinet solutions enables us enables them to take advantage of of that new land based revenue to put their games out into. We're seeing good gaming unit volume growth so that low cost IQ and ICON computer platforms were were success stories in in FY twenty three. That meant a slightly lower ASP simply because of the lower cost of those platforms for the markets that they're targeted at. But we are agnostic to margin, as Johan said earlier. We've reduced volumes in our gaming monitors business, and we expect that to continue, but that's partly down to the lower revenue profile of the monitor business carriers. Within Broadcast, we invested into that business in the second half of twenty twenty two, and we saw an acceleration of order intake on the back of those investments through the second half of last year with key orders from some major customers that are called out in the slide here.

22:11 Importantly, the margins that we get from that broadcast business for these higher value products are at higher levels than the rest of the dense drum business. And we are still uniquely positioned within Broadcast to provide these turnkey control solutions for the broadcast equipment market.

22:26 In other industrial sectors, where we supply DENTSPROM's display components to them, we see a softer demand in FY 2023, and we expect that to be something that continues going forward as the customers continue to go through destocking and see weaker business confidence. And we are seeing margin performance, however, at record levels. So the Densitron business was done really well to reprice all of its customers and get margins up to levels that are much better than they were historically. And that's compensating somewhat for that revenue weakness that we see just with that broader macro theme of industrial market softness.

23:01 And we've also seen some evidence of some of our Asian competitors failing, and that's really just driven by the 2023 sort of inflection that we went from a supply constrained market to a demand constrained market. Some of those competitors have now struggled to continue in business because they operate on such low margins. And so that's an opportunity for us to win extra business. So some of the new products we've launched. So in the in the Quitson business, we've launched two new products the last twelve months. One is called the IQ two, and one is the ICON two. What's the let's say what about these products is that, first of all, they're based around Intel, which is a very reliable and very stable processor to be at the part of them, and that new process has a much better set set of graphics capabilities than its predecessors. But also that they're repriced around a set of components, which has been available since the since the '21 and '22 dislocation supply chains.

23:55 And that means that they're a much more compelling price point than their predecessors.

23:59 And therefore, we've seen really good demand for them. And actually, I take IQ two, we have 48 sample leads at ICE, which was a major gaming show in February this year. That's a really exciting product launch, and we're well positioned now to target the LatAm route markets and some of the more mid tier markets with these two new product launches.

24:17 Over onto the densitron side, Tactila, we launched smaller Tactila rotary controls. These smaller controls allow us to expand the market applications that we can roll Tactila out onto. The main reason for that is because the old controls are much larger and they wouldn't fit under certain pieces of equipment, but these new controls now enable that. So really pleased with how we're positioned on the product portfolio to take advantage of the commercial opportunities we see in the business. And here's a really a really good example of our of our control solutions in broadcast and action. We are installed into equipment, which is being used at major sporting events, and you can see two names here that you probably know of. The NFL, our equipment was used for the game screening rooms to control those screens, and it's been also used at the Paris Olympics by one of our customers.

25:07 And that goes back to a a picture we did in 2022 to demonstrate our our control solutions, which include, importantly, a software stack that makes it easy to design these these these control panel GUIs. And that's used in these really high profile sporting events. So just focusing on our on our manufacturing operations. So we do all of our electronic product manufacturing through sub subcontractors in in Asia with components supplied from Taiwan and China. So but cognizant of the geopolitical tensions in that region, we made the decision in 2022 to explore a a second manufacturing facility. And in the fourth quarter of last year,

25:48 we had our first mass production run of a product in our second facility in in Malaysia. And it was really an incredible effort from the team to go from initiation through yield testing to production in just nine months. Looking ahead to 2024, we all look to increase the manufacturing in Malaysia with both with with production of both our quicks and the Danish one products done through our Malaysian and Taiwan facilities.

26:14 And then also just pointing out on our our gaming cabinet manufacturers. We have an existing relationship with a manufacturer in The US serving our customers in North America. In the fourth quarter of last year, we we entered into agreement with Ilas, a respected Bosnian gaming cabinet manufacturer, to support our our customers in Europe. And then just finally on the right, in terms of our our core processes, we we now also have Intel and NVIDIA to complement our existing AMD relationship. So a broader range of our of core processes available. So in summary, last year, we delivered a really resilient revenue performance with volume growth in the core product offerings that we have in the game and computer space and the broadcast space.

26:59 We saw a normalized but still robust order book entering this year, and we delivered record levels of gross margin that is continuing to flow through that p and l and had excellent cash generation. And in terms of what that means, so we're confident in the outlook of achieving FY twenty four market expectations with improved gross margins continuing and the focus on high quality revenue business being a part of our future and then also continuing strong operating cash generation. And that gives us the opportunities to take advantage of organic and acquisitive growth supported by that strength of balance sheet. And we believe that overall, that set of ingredients gives us medium term opportunities for transformational awareness enhancement in the business.

27:45 So why do I think we're interested in investment story? Well, those ingredients combined with a fully resourced and experienced management team, which has managed through a number of very difficult years and also a very global business already. So we're in all those six countries that Johan referred to. That gives us a great footprint to execute our growth strategy to leverage our core industrial computing expertise across new sectors, both through organic growth and through acquisition.

28:14 Thanks very much. That's the presentation. I've got a number of questions that have come up, but please do ask any more that you've got. Perfect. John, Johan, if I may just jump back in there. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the company takes a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Guys, as you can see there in the q and a tab, we have received a number of questions from investors throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But, John, Johan, if I may, at this point, just hand back to you to address those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

29:05 Thank you. Yeah. We have got a lot of questions, so thanks very much for for asking so many. So I'm just gonna go through through an order, actually. So first question is, do we have any pipeline m and a? And and, yes, we do. So in terms of the m and a pipeline, we've been working on that now for about nine months. It's it's obviously a process of of, first of all, identifying as many participants in the market that meet some of the deal criteria. We'd want a company which is focused on some of those those sectors where they have the characteristics that I outlined at the beginning of the presentation. The rightsizing, of course, geo geography, synergistic with where we are today. So we've been working on that deal pipeline and filtered out a lot of companies clearly that didn't meet those criteria, but also got a short list of companies that we are that we are working on.

29:53 And and hopefully, we'll be able to close one of those during this year. But but that's something which is is continuing to be to be to be picked up. Next question I've got, which regions generate the most sales for broadcast? The US is the biggest territory for selling into broadcast. Some of the customers actually, there's two major customers in in Canada that are sold out of our US office. That's Evertz and and and Ross Video. But, yeah, The US market is is the biggest opportunity for us for the for the broadcast sector.

30:26 Next question is they're seeing good growth opportunities in both businesses as you've outlined. However, broker forecast for FY 'twenty four, revenue PBT and EPS are broadly flat. Do you see these broker forecasts as being very conservative? So I guess if we sort of look at where where we are today, so the markets aren't in a great place. We have high interest rates. I think customers' confidence is pretty weak. We're not taking any heroic judgments on where this year may be at this stage in time. We do expect a second half waiting, and that's not atypical for this business. That's been quite common. But but, you know, at this stage in time in the year, we're comfortable where the forecasts are in the context of a sort of a wider industrial market, a slower period of trading, but with good confidence in growth within the the gaming business and the broadcast businesses.

31:20 So the next question and actually, just maybe so so I don't talk too much. Johan, the question is how do gross margins compare between Quicks and Dentistron and Broadcast? Maybe you could pick that up. Yeah. So so thanks, John. So, So, typically, Quixon Quixon margins was at at or around 40%. As I mentioned when I when I spoke earlier, on the display components side of the business, that was historically sort of in the high twenties. We've now moved those up to low low mid thirties. And then on the broadcast side, the broadcast business, as I mentioned, makes elevated margins compared to Dentitron at those at those the same levels that we achieved within Quixon, so 40% plus. K. The next question.

32:08 On the broadcast equipment side, I believe motorized slide is now pretty standard. Presumably, your solution cannot offer this. Does this cause an issue? Really good point. So it is correct. Many broadcast mixing desks do have motorized sliders. I guess there's a number of other applications for sliders which aren't on mixing desk. So I think you're right. I think on mixing desk, it doesn't fit in because they do have that motorization. It's it's impossible. But so far, anyway, we've not found it possible to be able to offer that as something that's installed on a touchscreen surface. They are they have got other applications, though. So for example, video feeding or video switching between one source and another source, that's a slider. That's an area where we can use a slider. So we've got sort of three essential types of tactile objects. There's there's buttons, there's rotaries, and there are there are faders.

32:59 And in the case of faders, you're you're you're very you're very much correct that we couldn't use motorization of those devices. Next question, very roughly, how much of the Dentistrond revenue came from the largest customer? What about the proportion of gross profits? So is a very diverse book of business. So so in, we've probably got about three or 400 customers in total. There are a number of accounts which are which are larger than others, but I wouldn't have said that any of those accounts are, you know, more than 1 to $2,000,000 of revenue. So so it's a it's a very diverse business. And in terms of gross profit, it's pretty proportional with that with that mix of of revenue. Thanks, John. Why don't I why don't I pick up the next one? The question here is inventory revisions have been on an upward trend recently.

33:49 Is this proportionately more on the Quixen or the Dantron side? Do you expect provisions to abate in the current year? So it is correct. Yes. This inventory provisions has has increased year over year. The overall provision, more of that is on the on the Quixon side than on the Denstrom side. This is in part just due to the the the relative the relative sizes of the business, but also we we typically have more raw materials, used for the manufacturing, of our of our quicksand products. Looking ahead, to twenty twenty four years, I expect those provisions to to, to abate in the coming year compared to where they were in 2023. Thanks, So next question, I'm gonna pick up. If the proposed IGT Every merger proceeds, how do you expect that to affect you?

34:36 So yeah. So for for those of you that don't know, a couple of weeks ago, it was announced that Every and IGT were going to merge. It's actually a a sort of a a spin out of IGT. So the components of the business emerging with Every. That's expected per their public statements to conclude by the end of this year or early next year. And so, you know, there's plenty to do along that time. There's the competition authorities that are assessing it. There's also the regulations that they need to the regulators that they need to get through to to combine their gaming licenses. There's lots of work to do. And in fact, that's some of the concerns that I think shareholders have got is, you know, how long that's gonna take. But nonetheless, you know, within the next sort of twelve months or so, it's anticipated that that deal will close. From our point of view, so we supply every 100% of the computer boards that it uses in its gaming machines.

35:26 We are obviously engaged with them trying to understand what this means to the future. What we understand is that we've got a good runway beyond that where we will continue to supply every because they won't be looking rationalizing products across the the two customers for a number of years. So it will initially be about content sharing that they're trying for, not not not sort of combining the platforms. But, of course, this is a great opportunity for us. So we now have a great opportunity to win the combined piece of business from the two companies when they become one, and that could be, you know, very material growth for our for our revenue. So I look at this very much as an opportunity for us to build the business in into into the IGT gaming gaming machines. Next question. Can we expect them to margins to remain at the second half levels of FY '23 going forward? Really simply, yes. We think that we've locked in a structural level of margin now that we can maintain.

36:27 We were probably anticipating some degree of customer attrition after 2021 and 2022. But, actually, we've been able to hold on to pretty much all that business and and keep that margin. So pretty, pretty confident in that going forward. Next question. Actually, do you wanna pick up the f the question on FX, Johan? Yes. I'll I'll pick up the question on FX. So sorry. Let me just just scroll there. So 50% of the 4,500,000 increase in adjusted PBT came from fortuitous FX gains of $2,200,000. Do you have any hedging policies in place to minimize further adverse FX movements? I think just as I mentioned when I when I talk through the results, the the $2,200,000, we only have $600,000 of FX gains in 2023 compared to $1,600,000 of losses in 2022.

37:22 So, yes, 2,200,000 of the movement year over year was related to FX. The reason that it was such a much smaller movement in 2023 was in part because of less volatile FX movements, but also because we've put in place natural hedges to minimize our overall exposure. Those are still in place. We do not have any any other hedges in place, but that is something that we that we consider on a regular basis. But but the the focus here is about minimizing, positive or negative, the impact that FX has on our results. Next question. If you cannot find a suitable acquisition over the next six months or so, would you consider a buyback of your shares? So in the in the statement, we do have some reference to putting in place a facility at the AGM in order to enable buybacks. So we will have the sort of the ability to do so if that resolution is passed.

38:23 As Johan said, our capital allocation policy is to is really sort of return of cash to shareholders being the last resort if we can't find an acquisition. So it isn't impossible that we would return cash to shareholders, but our first priority is about acquiring a company in order to diversify the business and and add further sector exposure to us. Next question is around is around the shareholding requirement for exec directors. What is the policy for NEXTEQ? And if none, what do believe is an appropriate shareholding for directors to align them with all shareholders? So we haven't got a formal policy on that. We do have, you know so so the executive directors do have, you know, a share of the business and, you know, and indeed have LTIPs to try and align them to that. We think that those LTIPs are are suitable to engage them to be aligned in their interests to to to drive the business in the appropriate way and deliver shareholder value.

39:22 And, you know, that's including sort of EPS and TSR measures so that, you know, obviously, both of those elements need to be delivered, which is something that shareholders clearly want to be delivered in order for those outtips to be to be paid out. So we believe there's a good alignment with with executive executive directors financially and with the company's success for shareholders. And there's another question here, which is sort of, you know, largely similar. So dividend yield is is under 3%, which seems modest given the strong cash flow and net year a net cash balance of 27,900,000. Are there any plans to increase dividends from the low yield accepting that from time to time, there may be some potential capital locations with high priority? Pretty similar question. Answer to that is that, yeah, we we we could pay a much bigger dividend, but we believe that there are uses of the cash that we want to use beyond that, principally, as I said, around acquisitions.

40:15 But, yeah, we always review our dividend. We have a progressive policy and expect that to grow, as Johan said earlier, with earnings. But but but at this stage, you know, the first priority is around how we use that for for an acquisitions path. Dentist on Group's operating margin from 10% in twenty twenty one first half to 24% in 2020 sorry, twenty twenty three first half to '22, 24% in twenty twenty three second half. What were the major drivers behind this half on half improvement? Do wanna pick that one up, Johan? Yeah. I think some of that was was is just product mix. Some of it was the some of the actions that we've taken that flowed through in in the second half of the year compared with the compared with the first half of the year.

41:02 Overall, as as John said earlier, think the the margins that we've achieved in 2023 in Dainstrong, we expect to continue to be able to to deliver those margins in 2024. Next question is just around manufacturing. So the statement contained a mention of a proportion of manufacturing of our products moving to Malaysia. And just the the question was around, you know, providing a bit more details on that. So so let me explain it. So we we we started work, and we announced sort of in in the interim results. I think last year was the first time that we were exploring options in that region, and we were doing testing. The main the main reason for it is just around geopolitical tensions around Taiwan. So, you know, it's a very uncertain thing. It's totally outside our control what happens in that region.

41:51 So having a second manufacturing center to to to provide some level of derisk for that, we felt was prudent. It's something our customers were concerned with and it's also something that our shareholders have mentioned to us in the past. So that's why we've added Malaysia as a document map to manufacturing. We spend a lot of time doing yield testing. We spend a lot of time doing quality control around that factory, and it's very, you know, well respected business. It's a large business we're working with. And and we believe that provides us some supply resilience going forward in order to to produce goods. In terms of, you know, what our ability is to manufacture, we we will split manufacture between Taiwan and Malaysia. Although, you know, the anticipation is if if if something did happen more significant, we could manufacture all our goods in either one of those locations.

42:43 So the volume production would be there in order to in order to support that kind of diversification of of of manufacturing capability. Next question. The outlook statement sounds a bit uncertain with the second half weighting and confirmation meeting market expectations of revenue only, why only revenue expectations are not also profitability expectations. So so the first thing, it all starts with revenue. So it's obviously revenue is is is king here. You know, we've talked about how we see margins continuing to be robust. And so, you know, you can read into that, you know, we we we're we're pretty confident in market expectation for this year at this stage in time. But, yeah, with a second half weighting. So that that's a very fair a very fair comment. And then next question, what shareholder value criteria do you apply when evaluating acquisitions?

43:34 So I think I think probably the question here is, you know, is this acquisition the best use of our cash for a shareholder or are there better uses of our cash for a shareholder? You know, I look at it very much, you know, our our current multiple, I think, reflects the fact that we do have a degree of concentration risk around the gaming sector. I think that, you know, that multiple should be higher if we have a degree more diversity of our our sectors. And therefore, that's why we're so focused on looking at acquisitions to enable that. We look at, though, of course, the multiple that we're paying for the company. We would look to use cash and debt as a as a primary source of funding. It's unlikely we'd use any equity, and therefore, it would be earnings enhancing. And so therefore, we believe whatever we acquired would be would be, you know, a strong value for for shareholders, you know, almost without any question.

44:29 And I think that's all of the questions. Absolutely, John, Johan. Thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But, John, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great. Yeah. Well, first of all, thanks very much for for a really extensive set of questions. Always good to good to have some engagement and and some good questioning around the business. So we we think we're we're well positioned. We think over the medium term, there's good organic growth opportunities.

45:15 We've got acquisition opportunities supported by a strong balance sheet and and very little debt currently. And therefore, you know, that medium term earnings enhancement, we believe, is very much within within reach. John, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of NEXTEQ PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.