Volex (LSE:VLX) — Interim results for the 26 weeks ended 29 September 2024

0:00 Good afternoon, ladies and gentlemen, and welcome to the VOLEX PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Given today's announcement, the company will only be addressing questions relating to the results themselves. These can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Please simply type in your questions at any time 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 your questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following

0:31 poll and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Nat Roth Charles. Good afternoon. So good afternoon. And, just to remind everyone, the purpose of this call is to talk about our results, we I'm afraid we can't talk about the possible offer for TT Electronics, and we won't be taking any questions about about that as well during the q and a at the end of this webinar. So look, I'm going to take you through the highlights of the year before handing over to John for the financial review and I'll then provide an update on our strategy and close with our outlook and there will be time for questions about our results at the end of the presentation.

1:18 There's over a 100 people on this call. As always, we are extremely grateful for the retail element of our shareholder base. We've made exceptionally good progress in the first half delivering strong organic revenue growth of 9.7%, as well as achieving underlying operating margins of 9.2%, which is within our nine-ten percent target corridor. We've achieved this while continuing to invest in our business and making significant progress in the delivery of our five year plan. We have positioned ourselves as a key supplier of critical power and data connectivity solutions to our customers, many of whom are global technology businesses, allowing us to build deep and long lasting relationships.

2:07 By way of example, during the period we have on boarded new significant customers in medical in Europe and off highway in North America. Through our focus on five sectors, we are recognized as experts in attractive markets with structural growth characteristics. Our expertise in charging was recognized by Tesla, who made us a licensed partner for their North American charging standard, allowing us to secure business with new customers in the first half of the year. We've opened three new state of the art facilities already this year in India, Mexico and Indonesia delivering cutting edge capabilities where our customers need them. I'm pleased to report that the integration of Murat Tejarat, the global off highway business that we acquired in August 23 is going well and we'll talk you through this in more detail later on.

3:01 As is clearly demonstrated in our results today, our strategy, our investment and our expertise are delivering significant success.

3:12 At VOLEX we are incredibly privileged to work with some truly excellent customers who are delivering significant technological progress on a global scale. This supports a wide range of innovation from the efficient harvesting of crops to curing life limiting diseases, to the decarbonisation of passenger transport. We support our customers across five markets, providing mission critical connectivity solutions across power and data, where exceptional quality is paramount. Each market aligns with our core strengths and capabilities. We use our global reach to cross sell to customers between different parts of our organisation and to support customers on a worldwide basis.

3:58 At the same time, we are dynamic and able to respond quickly to changing requirements. In each of our markets, there are high degrees of customer lock in which limits customer churn and enables relationship building and account development. The balance between these markets supports our delivery of sustained growth through long term customer partnerships helped by structural growth drivers. These include societal, environmental and technological factors. So look, I'll now hand over to John to take us through the financial and operational review. Thanks John. Great, thank you Nat. So I'm going to turn to our financial performance and again this is another set of really strong results for our business and it's in line with the expectations that we set back in June.

4:47 So first of all, we've delivered over $500,000,000 of revenue in the first half of the year, and this is a first for us and represents a 30% year on year increase. So you've got growth coming through from the acquisition of Murat Tigerette, which completed in August 2023, as well as almost 10% organic revenue growth. And I believe this is a real achievement given the challenging market backdrop. In fact, our performance underlines what Nat was saying about our strategic market position, and that's what gives us confidence in our ability to deliver sustainable growth. Underlying operating profit increased by 27% and we achieved a margin of 9.2%. This is the fifth year in which we've consistently delivered in the nine to 10% operating margin corridor, which demonstrates our capability to blend together the moving parts of our business to deliver a consistent outcome.

5:46 Our return on capital employed shows our ability to deliver strong and consistent returns. We've also improved profit before tax by 20% despite higher interest costs in the period. Our strong results gave us confidence to increase the interim dividend to 1.5p per share, which is a 7% increase and the fifth successive year in which we've increased the dividend. So as we turn to the sectors, I'm going to start with electric vehicles and talk you through what we've seen and the trends in each of our markets. EV is an important market given the role that electric vehicles will play in delivering substantial emissions reductions in the future. We achieved $80,000,000 of revenue in the first half of the year, which is a record for us.

6:36 We provide a comprehensive range of EV charging products, which covers charging at home, charging out of the home, as well as high speed charging networks. Over the period that we've been involved in the EV market, we're producing a greater level of components and increasingly specialized technology. Part of the reason for the increase in the first half of this year is the ramp up of a project to deliver specialist high voltage connectors for one of our key customers from our facility in Northern Mexico. In addition to that contract, we've also grown organically by 20% across the rest of our product portfolio. This demonstrates the appeal of our wide range of solutions and the fact that we've moved through the destocking cycle.

7:24 Momentum is expected to continue into the second half, but it's worth flagging that the comparatives are tougher for H2. Longer term, we see opportunities in electric vehicles as adoption will continue to increase in the mid term, supported by clear government targets across multiple markets. Turning to consumer electricals. So it's been fantastic to see Consumer Electricals not just returning to growth, but delivering 7.5% organic growth. And in fact, the 132,000,000 we delivered in the first half this year is not far off our all time record performance in the first half of twenty twenty three, which was in that peak post COVID period.

8:11 Remember, we really like consumer because it has an attractive returns profile. The growth, which is predominantly volumetric, is driven by market factors and competitiveness. New technology in appliances and electronics is encouraging customers to replace existing products. The other reason is our ability to deliver both power cords and wire harnesses in an incredibly cost competitive way. This comes through the increased deployment of automation and vertical integration supporting our global operations. A year ago, we were experiencing destocking. We're now through that destocking process and firmly back into growth, with new projects that kicked off in the first half of this year, and further new projects coming on stream in the second half of the year.

9:02 There is some seasonality in demand with revenues first half weighted supporting electronics customers as they plan for the Christmas peak. Next up is medical. As you will recall from the full year presentation, we had a very strong year in FY24 in Medical, as customers were able to catch up demand due to better availability of components. We flagged a modest decline as we came into FY25, and that's exactly what we've seen with a reduction of 4%. Much of this is due to, as we expected, the one off catch up business from twelve months ago not repeating.

9:45 There's a lot that we like about medical as a sector. It's representative of our overall strength. It's high quality, it's high technology, and it's high mix for highly demanding customers. And customers are right to be demanding because they're changing lives through the solutions that they're deploying such as advanced diagnostics, robotic surgery and image guided therapy. This is an incredibly important sector to be in and we're very proud of the strong relationships we have in this end market. Not only with well established customers and some important new customers who've come on board in the last twelve months, but also with many start up businesses who are pushing the bounds of medical technology. VOLEX's proven history in this market, combined with the regulatory approvals held, ensure our partnerships are deep and long term.

10:37 Revenues in the second half are expected to continue at similar levels to what we've seen in the first half, with clear share gain and structural opportunities giving us confidence in the growth opportunities in medical over the medium term.

10:55 Complex industrial technology represents a range of advanced solutions to meet our customers' requirements across a variety of end use activities. These include artificial intelligence infrastructure in data centers, mission critical aerospace and defense applications, as well as telecommunications, smart metering, and industrial automation. End market demand has varied in these different areas. Data center sales have been really strong in the first half of the year, boosted by the continuing rollout of AI applications. We are working with two of the biggest data center and AI businesses in the world, supporting their complex requirements. For some of our other industrial customers, demand has been softer, driven by a combination of factors, which included uncertainty pending the outcome of the recent US election and waiting for a more benign interest rate environment before investment is deployed.

11:54 Overall, we delivered organic growth of 4% in complex industrial technology, which in the backdrop of a difficult industrials market, we're very pleased with. In the long term, we see opportunities in this space as we establish ourselves as a significant force in the world of high speed data center cables, and also as the demand cycle picks up for other industrial customers. Although we recognize that industrial demand pickup may not arrive until next financial year, we have some new projects coming in the second half which is encouraging. Off highway is a really interesting market and one that we're very pleased that we moved into in scale with the acquisition of Murat Teixeurette last year.

12:40 The first half of the year included six months of revenue from Murat Teixeurette, compared with only one in the first half of last year. Overall, we're up by 20% organically for the entire period, but like for like for marettiagerette on an organic basis it's up by about 7%. With an increased focus on delivering efficient production, whether that's in agricultural food production, in construction, in mass transport, there's a big focus on functionality and features across a range of off highway equipment. In addition, more stringent safety standards and environmental factors are encouraging the adoption of more modern equipment in a range of different markets.

13:24 We have significant experience in the off highway space through our acquisition of Murat Tejarat, which has global customer relationships. The products in off highway are complex, and they are ruggedized to be used in harsh environments and manage varied power and data requirements within the vehicles. Our off highway business supports a range of sub sectors, and this diversification is important given the cyclicality of those markets. For instance, we've seen demand softening from agricultural customers, but at the same time increasing from European bus and coach manufacturers. There's generally some seasonality into the second half with off highway, particularly for agricultural customers. We're incredibly pleased with the progress that we've made and with our acquisition of Muratisuerette, and we will talk a bit more about how the integration is going later in the presentation.

14:22 As I mentioned earlier, we're pleased to have maintained our profitability within our stated nine to 10% range, given the level of investment we've made in our business. This year, we put a strong focus on cost optimization through the period and that benefited margins by 90 basis points, more than offsetting the impact of inflation and foreign exchange rate changes. The product mix benefit is predominantly down to higher sales of data center products, where we receive a better margin than the average across the group. In terms of acquisitions, we had a lower uplift from the acquisition of Murat Tigeret relative to the second half of last year due to inflationary pressures in Turkey. We are actively managing the inflation theme in Turkey through sensible and fair price increases and through a focus on efficiency gains and optimization, which was already part of our integration plans.

15:17 The growth investments represent the spend we're making in our business to target specific areas that will support our growth through the remainder of the five year plan and beyond. And this equated to $5,000,000 in the first half of the year. This includes investments in salespeople, in automation technology, and in incremental capacity. So overall, bringing all those factors together, we achieved a very decent 9.2 operating margin for the first half of the year, and would have been at 10% without the incremental investments in growth.

15:53 Return to cash flow. Underlying EBITDA improved by 31%. We invested more in capital expenditure than we did in the previous year. This is in line with our guidance at the full year when we said we were going to spend 5% of revenue on CapEx. In general, cash generation is weighted to the second half for a number of reasons. We have some annual payments such as the bonus and full year dividend that come out in the first half, along with increased working capital ahead of the Christmas peak for consumer products. A year ago we were destocking and experienced lower growth, so the underlying working capital movement you see in the prior year was unusually good. In H1, inventories increased for three specific reasons.

16:41 First of all, approximately $7,000,000 was due to the growth in our business and the additional working capital needed to support the 9.7% organic increase. We also invested in additional inventory for the Murat Tigeret business to support efficiency programs and deliver benefits around supply chain. The third element was in relation to various factory moves and new customer projects that were happening associated with the additional capacity that we delivered in the period. Where customers are moving locations, you need to build up a buffer stock to prevent disruption. Cash generation is expected to improve in the second half of the year, as we are not anticipating significant incremental working capital investments.

17:28 Our interest and tax payments were higher, which was a combination of the average debt levels over the period and also the additional profit that we generated resulted in a higher tax charge. Overall, resulted in an outflow of $11,500,000 at the underlying free cash flow level. Our net debt was 1.3 times EBITDA for covenant purposes, which continues to offer us flexibility and is consistent with the same period last year. Our journey towards sustainable growth is guided by clear, multifaceted strategy designed to maximize value for our stakeholders. First of all, we focus on organic growth, ensuring that our core business remains strong and competitive.

18:15 Capital investments are the foundations of this growth, enabling us to maintain and expand our capabilities. Typically, allocate three to 4% of our revenue towards these investments, with higher levels of 5% in the current year as previously guided. To accelerate our growth and diversify our offerings, we also pursue strategic acquisitions. By enhancing our capabilities and broadening our customer base, these acquisitions add valuable assets to our portfolio. We carefully select targets that offer attractive valuations, ensuring that each acquisition complements our long term goals.

18:55 Supporting our growth initiatives is a commitment to providing sustainable returns to our shareholders. Our dividend is designed to be resilient through market cycles, and we progressively increase payouts over time, reflecting our financial health and stability. Lastly, we consider capital returns in cases where reinvestment opportunities are limited. We currently have a pipeline of acquisition opportunities that we're exploring along with our focus on growth investments. I will now hand back to Nat to take you through our strategic progress. Thank you very much John. Our consistent strategy has been proven to be successful, building the diverse and resilient business we have today.

19:43 We have global scale and have now delivered over $1,000,000,000 of revenue looking back over the last twelve months. It's an extraordinary number given where the

19:55 revenue for this business was in 2015. And we've achieved this because we have an incredibly talented and hard working team across the organization. It's this team effort that has accomplished some significant milestones and I am continually impressed with how we exceed our customers' expectations. We are making investments in growth, deploying capital effectively to drive long term sustainable progress. We have increased our investments to support customer requirements, ensuring we have capacity and capability to effectively partner with them. We are focused on the right markets to provide the business with a platform for growth. Each has its own distinct structural long term drivers, providing a portfolio effect and enabling through cycle growth.

20:48 Underpinning everything we do is a mindset of continuous improvement and operational excellence. We're a vertically integrated business. An example of this, and it's a great example, is a contract with a European EV customer where we are manufacturing the specialist cable in China, wire harnesses in Indonesia, printed circuit board assemblies in India, and building the final product in Poland.

21:16 Combining these factors creates an extremely competitive enterprise allowing us to maintain margins within our target range of nine to ten percent for the last five years through Covid, through supply chain disruption and through high inflationary environments. As we explained at the full year presentation, we continue to invest in the long term growth of the business The current trends towards nearshoring and regionalization are likely to receive further impetus following the US presidential election result. We have capacity available right now in key locations to support our customers with their supply chain simplification projects. Timing is critical because customers only want to move once and we are ready for them.

22:06 In the first half of the year, we've

22:07 completed expansion projects in Indonesia, Mexico and India, adding a further 15% to the manufacturing footprint of the group. And there are two further expansion projects due to completing low cost regions of Turkey in the second half of the year, increasing capacity in FY '25 by 20%. We started construction on a new facility in Central Mexico, which will come on stream next year. Along with our normal customer led CapEx, the investment in CapEx is 5% of revenue as previously communicated and giving our market leading returns profile with the majority of projects giving cash back within two years, and this will support our continued growth.

22:56 And as mentioned at the beginning of the presentation, we're making good progress on the integration of Murat to Jarret following the acquisition in August last year. We acquired a business with excellent customers, great engineering innovation, but with room for improvement to bring it up to our world class manufacturing standards. We have established a dedicated team locally with support from our global experts to roll out the VOLEX way of working across Murat to Jared. This will enhance productivity and deliver efficiency gains. We are deploying new systems and processes to improve efficiency and customer responsiveness. In line with our plans to modernize facilities, we are expanding our footprint in Turkey in lower cost regions, increasing flexibility and competitiveness.

23:45 In addition, we are embedding our successful global supply chain processes in this business to leverage our scale and procurement discussions. Labour inflation is a headwind as the government

23:59 in Turkey delivers reforms that will stabilise the economic conditions. Given this, we are focusing our productivity improvement activity on areas that will reduce labour costs. At the same time, we are agreeing price enhancements with customers to pass through the increased input costs. We now have a dedicated, highly skilled and experienced sales team in place in North America, and this will drive the next stage of our expansion. Initial progress has been very encouraging,

24:31 and we are actively quoting a number of prospective customers. We are in the early stages of production for a major new off highway project in Mexico from our facility in Tijuana and these actions are creating the foundations for our expansion in this market.

24:51 Acquisitions remain a key part of our strategy. And notwithstanding the announcement today, which we're not going to talk about, there are a variety of key considerations that we review when we assess potential acquisitions. This ensures that any transaction provides clear benefits and enhances our value proposition. The location of the target business is important, given evolving supply chain dynamics. We are attracted to businesses with deep customer partnerships in markets we understand well. To ensure a smooth transition, we assess the cultural fit of any prospective acquisitions and remain mindful of additional or adjacent capabilities that could be brought into the group.

25:37 Valuation is extremely important to us to ensure that we are able to make attractive returns. In the last six years, we've acquired 12 businesses for a total of $400,000,000 giving a blended multiple of 5.2 times EBITDA. These businesses are generating strong returns, with a last twelve months Return on Capital employed of 18.9. So with the continued progress that we've made in the first half of FY25, we remain confident of achieving our five year objectives. At the halfway stage of the plan period, we've delivered revenues of over $1,000,000,000 in the last twelve months, which is a compound annual growth rate of over 20%.

26:27 We need to grow by approximately 6% the remainder of the plan to meet our target of $1,200,000,000 of revenue. Throughout this period, we have maintained our underlying operating margins within our nine-ten percent corridor. This puts us in an excellent position and we are excited and enthusiastic about a variety of opportunities ahead of us.

26:54 Coming to the So, summary. These are an excellent set of results for the first half of the year, particularly considering the tough macroeconomic conditions. Our diverse end markets continue to provide growth in this period of variable demand with both electric vehicle and consumer electricals end markets recovering from destocking to grow really well in the first half.

27:18 We are continuing with our targeted investment program to fuel the long term growth of the business. With a strong balance sheet and a pipeline of potential targets at various stages, acquisitions remain an important focus. And on the back of this great set of results, full year performance is expected to be in line with expectations, whilst the growth investments provide us with continued confidence in delivering our five year plan. Thank you for attending our half year results presentation and we'd now be happy to answer any questions. That's great. Nat, John, thank you very much indeed for updating attendees today. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. But just wanted to and Nat take a few moments to review your questions submitted already. I'd just like to remind you that recording of this presentation along with the copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

28:14 John Gnat, you've received a number of questions both ahead of today's event and throughout your presentation. So thank you to everybody for your engagement. If I may just hand back to you to read out the questions where it's appropriate to do so, and I'll pick up from you at the end. Yeah, of course. Thanks Mark. Look, I think first of all, I'd like to say we get some brilliant questions on here. We will try and answer as many as we we can. Obviously, there's some restrictions since we can't answer questions about the possible offer for TT electronics, but we will go through the other questions. We do really appreciate the engagement we have on this platform.

28:49 So let me start off. There was a pre submitted question and this I think this is off the back of the some recent headlines talking about reduced prices for electric vehicles. Manufacturers looking to reduce costs, OEMs looking to reduce their costs around electric vehicles, and if that was having any impact on our EV margins. Do you have a view on that, Nat? Well, the the answer is it isn't. And we the the way we maintain our margins in EV is through is through vertical integration. I just got back from a trip to China, and and it's extraordinary to see the amount of vertical integration that's going on in our in our business and and the paybacks that are available by bringing in plastics and other

29:49 machine tools into the factories that we own and operate. So really it has no effect at all what's going on outside of our business. Good, thank you. The next question is around cash, which I did cover in the presentation, but it's asking about the increase in inventories that resulted in a working capital outflow in the first half of the year. And

30:18 really just to reiterate, there were three specific areas. There was some growth in our business, which results in higher working capital. There was investment in working capital into Murat Tejarat to try and support some improvements we're making in the timeliness of delivery and the supply chain integration that's going on in that business. And the third piece was all around factory moves. And just to elaborate on that, because I think it's an important point that we've had a couple of areas in particular where we've been moving production. So we've been moving some of our high speed data center cable production from China to Indonesia, and that's about making sure we've got tariff efficient routes to customers.

31:08 And the other thing we did, we doubled the size of our factory in Tijuana. So we're relocating some of the production lines that we have from the old factory to the to the new space. And when you do those relocations, have to build up a buffer stock so that you don't let the customer down. And that resulted in additional inventory in the first half, which we would expect to come back out in the second half. So our view is that we we don't have significant incremental working capital to go in the second half of the year. The next question from Lawrence is about customer concentration of data center customers.

31:54 So we have two data center, two large data center customers, big household name technology businesses, and we supply them with a variety of different products.

32:11 So although they are significant customers in the data center space, of course data centers is only 10% of the overall revenue for the VOLEX as a whole. From a customer concentration perspective, we don't see any particular outsized risks there. Nat, would you like to talk sort of more broadly on the relationship that we have with those two data center customers? Yeah, sure. So, look, in the case of one of the should I mention the name? Or do think I should I mean, look, one of those customers is NVIDIA, where we have a multi decade relationship with the with with one of the the businesses that they that that NVIDIA acquired, and another bit and another of those customers is Amazon.

33:03 And and really, you can't get to better to better customers than that. In both of them, these are multi year relationships. We work with them. We have a partnership ethos. Don't, for a moment think it's not competitive, and don't, for a moment, think we don't have people who who are are trying to, supplant us, but we have we've had these relationships for a literally, in in the case of the former, for for more than two decades. And it's a it shows genuinely how important and how and how long standing these these relationships are and how they can be main maintained. And, I I think you should investors should take great comfort in the longevity of these relationships.

33:53 Right, a few questions I'm going to try and run through quite quickly just because there's so many questions and I want to make sure we have time for them. So, Laurence asked: How close to 2.75 times covenant leverage is the board prepared to go for the right acquisition opportunity? So our covenant, maximum leverage under our facility is actually three times. We've talked previously that we're comfortable in the range one to two times, so that answers that question. Will the company prioritize growth investments if it means the short term operating margin drops below the target range? Now we are very committed to this margin corridor that we have been working through this nine to 10% margin corridor that we've been consistently within for five years now, and we blend together a number of things, the growth that we want to deliver, the margins that we make in different parts of our operation to come back into that range.

35:00 To be clear, it's very important that we deliver within parameters, and I think that that is an important part of the consistent delivery that we've maintained. Do you expect net capital expenditure to be maintained at 5% of revenue in FY '26? So when we increase capital expenditure to 5%, it's generally been at three to 4%. We said that that would be for one year, but it's really driven by the growth that we see. Much of the capital expenditure is down to customer projects. In a normal year, we think that we can absorb capital expenditure within three to 4% of revenue. Of course, we had a particularly strong year of growth of customer projects and it might increase those levels.

35:52 There's a question here. You've made additional targeted investments in the period. Is this CapEx mainly in Turkey? What does this strategic capacity and capability enhancement actually look like? Would you like me to take that one Nat? Yeah, so look investment's really important, but it's across all parts of our business. The only end market that gets a higher level of investment is electric vehicles, and that's really down to the level of automation and vertical integration that we have that requires investments in more substantial machinery and infrastructure. Investment in Turkey is not any bigger than any other particular region in which we are operating, so it's actually very well spread across the organization.

36:45 Those investments deliver, as I mentioned, customer projects. So that could be automation, it can be equipment to deliver a particular manufacturing solution for a customer. It also includes where we build our own facilities. We make a decision in particular markets whether we're going to lease or buy land and build a facility. We've recently decided in Central Mexico in San Luis Potosi that we're going to buy land and build a facility. We like about that approach is you can buy more land than you initially need which gives you room for further growth. There's a question about wage inflation in Turkey saying it's not being offset by local devaluation.

37:32 So what this is flagging is that for many years the cost of labor in euro terms in Turkey was very stable and then recently the currency is not devalued in the same way that it has done previously and it's created a headwind for us around labor cost inflation. Now we're managing that like we manage inflation in any part of our organization and unfortunately we're not strangers to inflation because it happens in many of the markets in which we operate. And the approach is always the same first of all, you go after productivity improvements and efficiencies, and then secondly, you pass on higher costs to customers. Now we have an opportunity in Turkey with the Muratijarat business that we acquired to enhance that business and bring the productivity levels up to the levels that we see in the rest of the of the group. So we're working through those enhancements and productivity improvements, and that is allowing us to manage those inflationary pressures.

38:36 There's a question here, Nat, saying would threatened US tariffs have an impact upon VOLEX? So look, my my view is we have benefited as a business from the introduction of the Trump tariffs in the first Trump in the first Trump presidency, and that's because we truly have a global footprint, and we were already moving out of or in a position where we had a lot of non China manufacturing capabilities. So we have benefited from this. We and we're benefiting enormously from near shoring and from the from the conscious decision of many global manufacturers to start to move production back to closer to where the actual, the the goods are sold. So if you take, for example, the the nearest shoring out of China into Mexico, we've had a we've benefited dramatically from that. So no, we haven't been affected by tariffs.

39:39 Good. Thank you. There's a question on MT margins and it's asking to explain the, sort of the movements in the margin bridge when we go from 9.4% to 9.2% and the, as we mentioned in the presentation, we would have expected a bigger uplift from MT and that's what we had in the second half of last year. The inflationary pressures that I talked about previously, the labor cost inflation was a was a headwind for us in relation to the MT business, and that will be offset as we deliver the efficiency improvements that I previously referred to. So what we really had was some improvements in cost optimization across the entire business. So running things more efficiently, we had investments in growth, and the the positive blend up from the MT business was less than we saw in the second half of last year due to those inflationary pressures.

40:47 There's another question here, another accounting question. Could you please say a bit more about the significant gap between your revenue growth rates and how much lower earnings per share growth rates in these results? So there's a number of things that are different between revenue and earnings per share. So earnings per share is a post tax, post interest measure, and during the period there were three things that bridge the gap really on the EPS. So first of all, interest costs were higher. Now some of that was non cash interest due to the fact that we entered into a new facility and there's an accounting requirement that you have to write off capitalized debt costs associated with the old facility. There was also some non cash interest that's the unwinding of the discount on deferred consideration.

41:40 So two accounting wrinkles that go through interest. Tax was higher, tax was higher about 1% and that's really down to the profits that we were generating in the countries in which we generate those profits. So we operate in 25 different countries in total. Every country's got different tax regulations and different tax rates and depending on where we generate profits and it has an impact on what the tax rate is. So those were the two things that affected the earnings piece of the earnings per share calculation. In terms of the number of shares, we issued shares when we did a placing associated with the acquisition of Muratisia just over a year ago. So the share count in this half year is higher than it was twelve months ago.

42:35 So there's a question here that at each end of the wiring you manufacture, do you also the fixings, plugs, connectors, are these components manufactured by external suppliers? So look, wherever we can, we are vertically integrating the business. So in the case of power cord, where we can, we're doing the pins, the connectors, the PVC, the plastics, everything everything in house. So our business is about vertically integrating. Good. Thank you. There is a question which I just need to try and remind myself of the number to do with what are US what are sales to The US as a percentage of the total, which I believe we disclosed.

43:30 So, North American sales, so we don't distinguish between The US and the rest of North America, but most of our customers in North America are in The US. It's 42.4% of overall revenue. As a question about the 20% increase in space, so this was manufacturing footprint, and is this consistent with our growth targets, or are we targeting more? And an associated question is, is this one off this year or can we expect similar in subsequent years? So in terms of the incremental capacity, we've been focused on three markets in particular in the first half, which is Mexico, India and Indonesia, because we believe they're very important low cost alternatives to China, and with the potential for higher tariffs between China and The US, then that is very attractive to our customers.

44:41 We want to have that space available for customers as they move. Customers will only move once once they've moved production. They don't want to do that again for multiple years because it's very disruptive. So having that capacity available right now, when it's a very live and relevant topic for customers is incredibly important. So putting in that 20% space, we believe that gives us sufficient footprint, plus the other projects that we've already commenced, including the one in Mexico I mentioned, and some other builds that we're doing in Turkey, take us through to the capacity that we need to deliver the five year plan, which as you remember is $1,200,000,000 of revenue by the end of FY twenty seven. Now, of course, we don't want to get to the end of FY twenty seven having delivered that plan and not have space for whatever comes after that. So there'll be further capacity increase in the future, but this has been a particularly big year for capacity increases because we recognize how important it is to have that capacity available right now.

45:48 As the question here, Nat, any thoughts on business prospects in The USA with the new government in place from January? Gosh. That's a difficult question. Look. I I I think that the, the Trump administration is gonna be more business friendly. I think there'll be more growth in The US with the Republican administration. I I think that's accepted. And, and, therefore, I'm I'm on a personal note, I'm I'm I'm not supposed to sort of, reveal my political affiliations, but I'm pleased that Trump was electrically good for our business.

46:34 Good. Thank you. So question I know you don't agree, by the way. So there's a question here. This year sounds like an exceptional one for growth CapEx. If so, what would the cash flow profile look like for the next three years? Do acquisitions need to be made to fill additional capacity coming on stream? So breaking that question down, you're right, this is a higher year for CapEx than we've had in previous years, and we believe that 5% is is the right amount for this year to get things moving and to deliver some of the growth plans that we have. And then in general, over the life of our five year plan, we'd expect CapEx to be three to 4% of revenue.

47:22 In terms of the cash flow profile for the next three years, I think we've got a business here that's capable of generating good cash returns. We've got some great customer projects, we've got a business that's growing in scale, we're continually delivering efficiencies. So we've got great opportunities to deliver good cash returns over that three year three year period. And in terms of if we need to acquire to support the additional capacity that we've bought on stream, That capacity was really intended to deliver organic growth opportunities, and we have some great opportunities with existing customers, but also some really notable new customers that we've onboarded in the last twelve to eighteen months. So the capacity is really to deliver organic growth. In general, if we acquire businesses, you'd anticipate them having their own capacity.

48:26 Another I'm gonna ask you another US Trump question. So any comments on EV sale trends both in The US after Trump's reelection, also in The UK where new luxury vehicle taxes to EVs might affect sales? So look, clearly, biggest customer in EV is Tesla, and I think it's reasonable to assume that that Trump is gonna look favorably on on Tesla given the role that Elon Musk plays in the US presidential election. So I I just don't feel concerned about the for for all of the posturing by Trump over ending subsidies for electric vehicles.

49:20 I'm confident that that there will be a workaround for Tesla. What was the second part of the question? Additional taxes on luxury vehicles in The UK and I how that might affect have no view about that. Yeah. I mean, think the main thing is in terms of EV that the structural growth drivers are very strong because it's an important part of government targets to decarbonise transport. There's a question from Justin, how many factories do you have and where? So we've got 28 factories. I'm not going to list them but they are all set out in the annual reports and they're across a number of across three continents. Cover Central Europe, we have some factories in The UK, we've got factories in The US, Mexico and Canada, and various parts of Southeast Asia and China.

50:18 So next question: Assuming that a 60% tariff is implemented tomorrow on US imports from China, what percentage of sales from VOLEX be affected? So we have three manufacturing sites in China at the moment, but only it's low single digits in group revenue percentage terms are shipped from China to The US. So actually, we don't have a huge amount of business going from China to The US. Much of our business in China either goes to customers in China or to, other nations other than The US. Now actually interestingly, of the business that we do have that goes from China to The US, more than half of that is data center related.

51:07 We have in recent months been moving capacity for data center cable production from China to Indonesia. So we're already in the process of reducing the level of activity from China to The US in relation to data center cables. So we have a good strategy in place where should 60% tariffs be implemented in the short term that we can respond to that very quickly. Please outline plans for addressing opportunities in the Far East, e g China, Japan, South Korea. Well, in that sense, you've just come back from China and met quite a few potential customers. What what was your feeling of what our opportunity is, particularly in the the China for China market?

51:55 Yeah. Look. We we have a we have salespeople in Japan. We have a salesperson in South Korea. We have salespeople in China. We are making a big push at the moment on Asia sales. We're making a big push on China for China sales. And I'm not gonna go into the details, but we had a number of, incredibly interesting high level meetings in China this week with some of the biggest companies in the world at the high at the highest of CEO levels. So it's one of the advantages of of having the scale that we do now have as a business, And I remain as optimistic as ever about the about the opportunity to to win some very big accounts in China, in particular, over the next two to three years. And I'll probably make four trips to China next year on that. So I'm very involved with that process.

52:53 Good. Thank you. Question from David. What's the ideal scenario with respect to currency exchange rates for the business? Weak GBP to Euro stroke US dollar. Look, we benefit when the dollar is strong and the reason for that is we're predominantly selling in dollars. We have lots of local costs which are in local currencies. When the dollar is strong that that really helps us. It supports it supports sales. As a question's broadly about engagement with the workforce in Murat Tigerette, and look we've been working on a programme to improve engagement with that workforce as we do with any acquired business. It's a period of time where we want to look at how we can improve the morale and the engagement for all our employees across the group. And it's particularly important when you acquire a business and that perhaps hasn't been used to the level of communications that we would have as a, within our own organization.

54:03 So it's always a level of it's always an area of focus on any acquisition is making sure that we are we are getting the best from our workforce. Let me just check whether I have missed anything because I had to skip a few questions because we said we can't answer questions on the possible offer for TT Electronics. Just give me one second. So we've covered all of the questions. So thank you very much for the questions that have come in. It's great to have this level of interest.

54:56 That's great. John, Nat, thank you very much indeed. And thank you once again, as John just said, for your engagement this afternoon. Nat, John, I know investor feedback is particularly important to you both. I'll shortly redirect all of those attendees on the call to give you their thoughts and expectations. But before doing so, Nat, if I may just ask you for a couple of closing comments. Well, it's been a momentous few weeks and a momentous half year. And we are, as a management team, as I always say, we've never been so engaged, and we have never been so focused on trying to drive value for our shareholders. We have a great team, and really we feel like we're just getting going at VOLEX.

55:44 So we thank you for your support and we look forward to talking to you again in six months time. Thank you so much. That's great. Nat, John, thank you once again for updating attendees. If I could please ask attendees not to close this session, as we'll now automatically redirect you to provide your feedback in order the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of VOLEX PLC, we'd like to thank you for attending today's presentation, and have a very good weekend.