Nexteq (LSE:NXQ) — Interim Results

0:01 Good afternoon, and welcome to the NEXTEQ PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll.

0:31 And I would now like to hand you over to CEO, John Jayal. Good afternoon to you, sir. Good afternoon to everybody. Thanks very much for dialing in to the NEXTEQ PLC first half twenty twenty three results. I'm joined by my CFO, Johan Olivier. So first thing, those of you that have followed the business in the past, I'm really pleased to say that we're announcing these results under our new brand called NEXTEQ. That new brand sets out our stall as a multisector engineering company that can supply product to customers and help them in the markets that we focus to outsource noncore parts of their product proposition. NEXTEQ is an aim listed business. We have operated in selected markets, and we do that through a combination of a wide range of engineering skills, computer hardware, computer software, display engineering, mechanical engineering expertise, combined with the Far East and manufacturing base, which allows us to provide products to the markets where we focus, which allow the customers to be more successful businesses through outsourcing non core parts of their proposition.

1:36 We're innovative and have 22 patents and 28 trademarks and have around 240 employees globally. And when I say globally, it truly is a global business with operations customers in around 50 countries and around six years of average employee tenure. So a very stable workforce within the company. We've historically had a strong track record of growth with 19% CAGR in revenue since flotation in 2013 to, full year '22. And in the first half of the year, just to give you an idea of our sector positioning, around 60% of the business, is, or 6% of the revenue is from the strategic gaming sector, around 6% of the revenue is from the strategic broadcast sector, and then the balance of our revenues come from a number of other industrial markets that we supply product into.

2:25 To give you a bit of a flavor of of where we play, so in, which is our brand that we supply into the gaming market, and as I said just now, about 60% of our revenue, what we saw is an opportunity for us to supply bespoke computer platform products, which allow the manufacturers of the slot machines, and you can see an example of such a machine on the right hand side of the slide, to outsource that computer platform to us. And by outsourcing that computer platform for us, they to us, they didn't need to develop it in house with their own engineering resource. And that meant they could spend all of that engineering effort on game design, and game design is the thing that drives their commercial success. That is what differentiates them. The computer platform is just an enabler. So having done that, what it meant they could do is they could drive a more lean and and and optimized business for, for success. And some of our customers are on the left hand side of the slide that you see at the bottom there, and they have had quite successful businesses as a result of that decision to outsource.

3:23 The market's very large. It's very global. So most of our customers are overseas. In fact, about around 6% of our revenues come from from from The US. And actually, total addressable market in gaming with all of the product offerings we have, which include not just the computer platforms, but also full turnkey cabinet solutions, which we incorporate those computers into a full cabinet product. That total addressable market is is over $3,000,000,000. Realistically, within that, there are many segments of that market which we can't address or we couldn't address with our current product portfolio. And so that annual addressable market within the current product set is around $310,000,000. So so a big market for us to go after. The product life cycle, so every three to five years, these these cabinets need to be swapped out for a new prod product. That's because they get a bit long in the tooth, and they need to have more performance to drive the latest round of games.

4:16 Typical ASP for our computer product is around $1,200, and we have around a 23% of the addressable $300,000,000 market on the basis of last year's revenues. Just on to broadcast, so this is our second strategic market around 6% of revenues we supply to broadcast, and it's growing fast. In broadcast, we saw a different opportunity, but again, very market centric. So within broadcast, what we saw was the manufacturers of broadcast equipment, the likes of which are installed in production control rooms in in places like the BBC. They were looking to increasingly adopt touchscreen technology into their, into their control interfaces. But that was really difficult for them to do because they had no experience of touchscreen architecture with the computing requirements to drive those touchscreens. And so what we sought to do is to bring up bespoke turnkey control offerings, which they can put on the front of their on the front of their devices and allow them to adopt this touchscreen technology without the pain point of of designing it all in house.

5:14 One of the things we learned in that market was the tactility that they feel from controlling the equipment was so important because they don't always have line of sight to the it due to the control device when they're when they're operating it. So what we then sought to develop and we've now sought to patent is tactile touch technology. So objects which sit on the front of the touchscreen surface and allow the manufacturer of that equipment to keep that tactile feel, but also to have the multi programmability and the multipurpose ability of a touch screen. And customers are selected because it allows them to revolutionize their control interface, without having to go through that painful r and d effort. Same kind of way we look at the market. So the total annual addressable market is around $880,000,000, of which around $220,000,000 is realistically addressable with our current product set.

6:03 Product life cycle is about five to seven years, and the typical ASP for our products is is over $1,000. And on base of last year's revenue, we had around 3% of the addressable market in in the broadcast sector. Final final components of the business is Dentsitron display components. This is a company which we acquired in 2015, and this has a very broad market exposure with over 500 customers that we supply to in different market sectors. Through density from display components, we've been able to identify new focus sectors in which we can develop higher value businesses. And that allows us to penetrate up the up the value chain, also allows us to generate better margins. The dense and display components market on its own, however, is extremely large but very competitive. So $6,000,000,000 annual addressable market globally and around a five to fifteen year product life cycle. So we have some medical customers, for example, in this sector that we've supplied for over ten years. And so so you can see sort of how sticky that business is. However, it is also very competitive, and therefore, the margins that we earn are lesser than we do from from broadcast or gaming.

7:09 Typical ASP is quite small because these tend to be quite small displays that we're supplying, and it's less than 1% of the addressable market that we have with our current product set. What we've built with the business is a is a scalable platform, which allows for organic growth or efficient organic growth within the businesses that we have already and also a platform for plug and play acquisitions as we go forward. So within NEXTEQ, we have all of the core components required, the engineering capabilities, the supply chain manufacturing, which we do out of Asia. So we have a Taiwanese based office that does all of the supply chain, and that means that we get access to the critical Asian markets. And that was so important over the last two years when we've had such an unusual period of time around electronic component shortages.

7:55 We've also got centralization of all core functions, around servicing the business. And then at the market level, we have specific sales account management and product innovation teams that have the domain knowledge needed to target the gaming market, the broadcast market, and other industrial sectors. So that gives us that scalable platform platform where as we grow, we keep our overheads in check and allow that operational leverage to flow through to to enhance profitability. The growth strategy for the business, we've deployed already in two markets I've just taken you through. So the growth strategies were identifying markets where they would benefit from having a specialist outsource provider. So currently, they are trying to do lots of the stuff that they need to do themselves, and some of that stuff is non differentiating to them. So if we help customers by providing a specialist product, that would benefit those businesses.

8:43 We then seek to acquire customers in those

8:45 chosen target sectors and then undertake r and d so that we can penetrate further up the value chain with our product propositions. And where we see opportunity to do so, we'll undertake m and a to accelerate that organic growth. So when we look at that growth strategy, that's exactly what we've applied in gaming. We identified the gaming market as needing a as as needing a bespoke computer offering. We then sought to acquire customers from doing that. And then because we've done this r and d, we've extended further up the value chain. I've got a slide in a few slides time, which takes you through a bit more detail about how we've penetrated through that through that value chain. So some of the highlights for the first half. It's been a strong period of financial performance. We grew our business in both the strategic gaming and broadcast sectors, and this reflects the strength of order book that we had entering the first half of the year.

9:32 We've also, combined with that strong revenue growth, delivered materially improved profitability with gross margins returning towards historic levels, and that's driven up our operating profit significantly in in h one. As many companies have seen, there's been a normalization of order book, and that's been reflective of the shortening supply lead times. And through the last two years, we've seen extremely extremely long long lead lead times, times, some cases sort of twenty to fifty weeks. And now we're getting things back to more normal levels. Customers can order a bit later. And so the order book has come in, and that gives us more typical levels of visibility. We've also been able to make investments to drive our growth strategy that I just outlined, and that's all about diversification of our business into more customers and into more markets. And finally, we've we've held a net cash position in the business through most of its history, and that net cash position is built up from our strong cash flow generation that we have, and we've continued to build on that in the first half of the year.

10:30 And with that, I'm gonna hand over to Johan who's gonna go through some of the more detailed financial highlights. Thank you, John. Good good afternoon, everyone. This slide just sets out some of the financial highlights for the first half of this year compared to the first half of of last year, furthered some of the comments that John just made. I'm not gonna go through these in detail, overall, all positive, all trending in the right direction. So it's a good a good first half from a financial perspective for the group. Just specifically on group revenues, 56,300,000, so up 6% from 53,300,000 in the first half of last year. Beyond just the absolute revenue growth, one of the focus areas for us is around diversification of our revenue. We we started out as a gaming business. We're very proud of our gaming heritage, but growing into other sectors is important.

11:22 And and one of the ways that we we measure that is around percentage of our revenues from our top 10 customers. That was 52% in the first half of the year, down from 60% in the second half of last year and and 54% in the first half of last year. With the new business wins that we've made recently, we expect to to drive further revenue diversification and get that percentage down in the medium term. Just looking at our revenues by division starting with quicksons on on the left, $34,300,000 in the first half, up 9%. The the graph shows revenues going back to 2018. And for those for those of you maybe not that familiar with the group, the the decline there in in in 2020, the impact of of COVID with casinos closed for a quarter. And then since then, we've had a a steady improvement in the gaming industry, and there's 34,300,000 in in the first half of the year, a near record high for the for the for the quicksand division for a first half.

12:24 The growth that we've seen year over year was almost solely volume driven. We put some price rises through to our customers in 2021 and 2022 in response to component price inflation. We've not put any price rises through since then. And so our our revenue growth has really been driven by the improvement in our in our platform sales up 13% year over year. And then also within that 34,000,000, we delivered our first turnkey gaming cabinet deliveries. We we were our first order last year, and the the cabinet is an expansion of our of our gaming product range and allows us to have a larger addressable market within within gaming. Then moving on to Dentaton on the right, $22,000,000 in the first half of the year, marginally up on the same period last year.

13:17 You can see that it trend over the last few years, a more stable revenue profile from Daintaton, but we have taken a step up in the last sort of since 2021, 2022, as you can see, revenues up compared to where they were where they were pre pandemic. Part of that growth has been the strategic broadcast business, which grew 10% in the first half of this year compared to the first half of last year, the third year in a row where that business has grown by double digits. Just moving on to our to our gross margins, 34.2%, in the first half of this year. You can see good good improvement compared to to 2022. Just to give you a bit more background, again, you can see the margins at 34, 35% pre pandemic.

14:04 The I'm sorry. Just to explain the the the graph in a bit more detail. This is the relative contribution between the the Quixon and the Dengstrom division. So Quixon at the bottom, Denstrom at the top. In and the Quixon division makes margins at a slightly higher rate than than the Denstrom division. The impact of the the lowered margins in 2020 was because of that decline in our in our quicksand revenues in that year. In 2021, as many other industries saw, there was a shortage of key components, raw materials. Alongside that, there was also inflation of component prices. That impacted our margins in in 2021. You can see it going down to 29% in the second half of that year. As I mentioned earlier, we put price rises through to protect our margin, and that's now started flowing through in our p and l.

14:56 We started seeing that last year, and that's continued into the first half of that of this year, aiding that improvement in our gross margin. In addition to that, we've also benefited from a much improved Dentitron margin performance. The Dentitron team has worked over the last year with our customers to to to improving our our our sales prices, focusing on higher margin business, also working with our suppliers to reduce our input cost, and that's delivered a step up in Dentitron margin performance. That alongside the growth of the broadcast broadcast business, which comes at a higher margin than the rest of the Danish strong products has meant that we've delivered the best level margin from a for Danish strong since acquisition in in 2015.

15:44 Looking ahead, we expect gross margins to continue that up in trend, getting to and surpassing the margins that we delivered in 2018 and 2019.

15:57 Just moving on to profit before tax, 5,900,000 in the first half of this year, up 70% on the $3,500,000 from the first half of twenty twenty two. Part of the increase there is just the improved trading, higher sales volumes, improved gross margins that I've just mentioned combined adding $2,600,000 to to overall profits. We benefited from FX in the first half of this year. So within the 5,900,000, we had about $500,000 of FX gains just from normal trading activities. But in the comparative year, we had losses of about $1,000,000. So the year over year, there's a positive impact of $1,500,000. And then, generally, the stronger US dollar is a benefit to us. We all of our most of our sales are in US dollars with some of our overhead expenses, like here in The UK or in Taiwan or in other currencies. So with a stronger US dollar, that benefits our our bottom line and and added $500,000 when compared to the first half of last year.

17:05 And then that was offset by by increases in our in our operating expenses. Part of that was around additional headcounts. We've got as a mid counter last year, predominantly in our in our broadcast team, dedicated engineering and commercial teams in the past. Broadcast was was part of the broader, Densitron Densitron team. We've now got dedicated resources, and we started to see the the the positive, impact of that as our pipeline is growing, within broadcast. And then in addition to that, we've also seen increased marketing and travel cost. Some of that is against a still what is some of the soft compared to last year as there were still some COVID restrictions which limited the the travel and the marketing activities in the first half last year.

17:51 And then also more broadly, we we there was the impact of inflation on our on our overhead expenses. Looking ahead to the second half of the year, other than the the annualization of the headcount cost for those new new hires, don't expect a significant increase in our in our controllable operating expenses in the second half of the year. And then just the the the graph at the bottom left shows our PBT as a percentage of revenue. So 10 and a half percent in the first half of the year, pleasingly above last year and the first half of last year and the second half of last year. Looking across 2018 and 2019, recognize that it's still not at those levels, But in in and it remains a focus for us in the medium term to get the profit margins up to to those mid teen levels.

18:39 And we we believe we can get there through continued gross margin improvement for the factors that I mentioned earlier, as well as in the medium term being able to to grow our overall revenue base and benefiting from that operational leverage from a higher revenue base. And then just finally, from from my side on on cash, net cash of of $18,500,000, up 43% on the position at the start of the year. The the the largest part of that increase was from the the good improved trading. We were able to convert our profit into into cash with $88,300,000 of cash from operations. We had an outflow of working capital of $1,500,000. That was largely due to a decrease in trade payables just through the normal course of of of trading, paying down some of the balances at the end of December. Some of the accruals were held at that point.

19:34 That was offset by a decrease in our debtors. Collections continue to be good, and and our and debtors continue to be in good health. And alongside that, a small increase in our in our stock balance. So over the last couple of years, to combat the the the shortages that we saw in components, we made strategic stock purchases to ensure that we had raw materials available to to continue with production and meet our customers' demand. That meant a an increase in our stock levels and an outflow of working capital. We've now started working through that strategic stock. In the first half of the year, our our raw materials decreased by about 10% compared to the position they were at the end of December last year.

20:22 As at the end of June, that was offset by an increase in finished goods. We had some finished at at at our sales, whereas it's waiting for delivery in the second half of the year. But we expect that balance to continue to to move down. And with that, we'll bring continued good operating cash flows. Operating cash flow conversion is a is a key KPI for us. We achieved a 113% in the first half of the year, we are focused on continuing with with high operating cash flow conversion so that we're able to convert our profits into cash and expect that the cash generation that we've seen in the first half will continue through into the medium term. Just to point out in the second half, in August, we we paid a dividend of $2,500,000.

21:07 That was a 25% increase year on year on year. Within capital allocation, we we haven't changed that. We prioritize a a strong balance sheet for us. That means having sufficient liquidity that allows us to to pay a dividend, which would increase as we plan to increase our our earnings alongside being able to invest in the business to drive organic and selective acquisitive growth. And with that, I'll I'll hand back to John. Thank you. Thanks, Johan. So just take on a little whistle stop tour of how the company's position sector wise and product wise on the matrix on the slide, in front of you. So if you remember the growth strategy, we seek to identify target markets where we can play. We seek to acquire customers in those target markets. We then seek to undertake r and d to

22:04 develop better products for those markets than are currently available off the shelf. And then having built those products, we then go and try and penetrate up the value stack with those high value products. So that's the sort of the growth strategy. And then from time to time, we may acquire. So if we look at how we're positioned in that context within within the sectors that we service. So the the strategic gaming sector, we started with a computer product that I talked about. So that box is ticked. We also have HMI solutions. So HMI stands for human machine interface. That's the the screens or the or the control panels which sit between the the user and the piece of equipment. So we have button decks and we have monitors which sit as an HMI solution for gaming. We have a software stack in gaming which allows customers to more easily integrate their games to our hardware. And finally, we have the turnkey cabinet solutions with which we've recently launched, which means that for customers, they can entirely outsource hardware to to to us and allow them to focus entirely on software development. So if you look at actually that growth strategy within gaming, we've ticked all of the boxes on on the parts of the value chain we can

23:07 we can target. The only thing really left in that value chain is going up into game design, and that's something we're never gonna do because that would be competitive with our customers, and it's something that we're really there to enable them to do the best. So gaming, we have got a fully penetrated product set within that with with within that space. What we still have plenty of growth to achieve, however, is acquisition of customers to leverage that that that fully fully fitted product set and win more business within it. And that's what we're currently very actively targeted at at achieving. We go across the broadcast, the second strategic set that we focus on. We don't do computing in broadcast, and the reason we don't is often the the computing for broadcast is done through through servers that sit in racks, There are some very big server vendors out there that is not gonna be somebody that we want to compete with. We do have the HMI solutions, which incorporate these these innovative tactile objects on them. And so we have a a tick in that box. We've also got some software that we have have built into the business through acquisition of the the IDS software platform. And we have turnkey solutions where actually some broadcast companies now look to outsource their whole hardware proposition to us and to focus on doing the software themselves.

24:20 So within broadcasting gaming, actually, our our products are pretty well penetrated up the the value stack. And these two sectors now, it's all about conversion of customers. So we have got more innovation to be to be done. We've got more product evolution to be done within both of those, but actually, we're already playing in

24:39 all of those different parts of the value chain. And then in the other sectors in the business that we supply display components to, those we supply component part, we don't supply any of the higher value product to as yet. And where there may be opportunities in the future for for for expansion to other sectors, that would be about finding sectors in which we find the right characteristics to expand up that value chain. So with that sort of context of those sectors, I'm gonna take you through a bit of background around how trading's been. So importantly in the gaming market, there's been there's been lots of, you know, lots of success seen in The US around online gaming in The US market being being 60% of our business. It's an important sector for us. It's an important geography for us. In The US, we're seeing continued very robust gaming gaming demand. So the players are still attending casinos. The footfall's good. And also, they're spending significant money in the casinos and revenues in The The US commercial casinos continue to be at historic high levels and have been for the last five quarters.

25:42 In Europe, we saw a much more significant, you know, prolonged decline from the COVID effects. But actually, last year, those those effects were sort of largely behind us, and we saw a recovery from the from the pandemic back to more normal levels. And that's something which we expect to continue to see. So sort of right at the end of our gaming value chain, we're seeing the the customers, the the players attending casinos and and spending the same amounts of money as they spent in the past. The next sort of step down is is how many machines are our customers able to deploy into casinos. And, again, in the same vein, the casinos are buying plenty of machines. So So the volumes of of of demand this year are pretty consistent with where they were last year. The one thing that we have seen, however, is probably the the customers were more buoyant about how many were going to be bought this year than actually has transpired. So it's not declined. It's just not quite as as much growth as they as they potentially anticipated.

26:40 But nonetheless, we've been able to grow our unit volumes by 13% year on year. So there's been growth in our demand, and that's been through delivery of this this order book. And that's in the context of perhaps some softer trading from from some of the customers, but new business filling that gap and and and bolstering our our revenues. We've also delivered mass production shipments of our first cabinets, as Johan said, and this is a new push up that value stack, and we've got further shipments to go into the second half of the year. Continue to refresh our product portfolio within gaming with new Intel product. That's something where through the last two years while we've been focused on on on r and d to to ensure existing products can be can be supplied. Now we've got more of those efforts being spent on on on new product design. So we'll have a completely refreshed Intel based product road map by the middle of next year.

27:30 And our pipeline for for new business for both computer solutions and turnkey cabinets is healthy, and we've got, you know, a good set of products to be able to deliver on that pipeline. Turn turning over to broadcast. So the growth you see in broadcast has all been about the ramp of customers, which has delivered another period of double digit year on year growth in the first half. IDS, the software product that I described, is on track to deliver a record year in in in 2023. And the investments that we've made into the broadcast sales and product teams now with dedication to that sector support the driving conversion of the sales pipeline. So broadcast all of the ingredients necessary to deliver a a a decent result in that business. In the other sectors, as as Johan alluded to, there has been some softness in demand.

28:19 So the broader effects of destocking that we've seen across all of the different industries has hit the the display component sector in the same way. It's just that our focus on on high margin business and our focus on on on growth of the higher value gaming and broadcast sectors has meant that's not been replaced with with with new business. And so there has been that that reduction in in in revenues. However, the profitability of that business is substantially better than it has been in the past. So if I look at I said earlier that we've been successful in driving value enhancement of our value enhancement and diversification through our growth strategy. And, you know, within that, here's some sort of progress against each of those steps. So So within identification, so we've now just started to identify adjacent markets where perhaps some of our industrial PC capabilities can be deployed. That's because we've got to the point where actually broadcast and gaming, we've got a very well filled product set, and it's now about the acquisition stage within that. So we're continuing to progress pipeline within that, and we're we've had orders in early in the second half to deliver against, which mean that we we've got customers confirmed from that pipeline within both broadcasting gaming.

29:35 We've got the Intel based IQ and ICON gaming platforms for develop which are being developed at the moment, and they'll be launched late last part of this year and early part of next year. And we've been successful in migrating customers from the display components that will then broadcast all the way up to a bespoke product offering in that sector. And because we've got this balance sheet strength and we have an we have a net cash position, we have excellent liquidity, which allows us to identify acquisitions. And perhaps that would be an area where we're able to accelerate the identification of adjacent markets for our industrial PC capability. So in terms of outlook, we're guiding revenues to be broadly in line with the prior year, and that is in the context of a normalization of customer inventory levels.

30:22 So so that is sort of new business replacing business, which is delivering softer demand while that inventory normalizes, combined with us focusing on on higher quality revenue business, which is at better margins. And you can really see that flowing through and that structural enhancement in our operating profit margin for the full year, we expect to persist and to build over time. And that means that we we will have a a more efficient business that's driving better profitability. Operating cash generation expect to also continue. So whilst last year, we did use some of our cash to fund the stock purchase we made, We're we're now sort of forecasting that to to continue to unwind and further enhance our net cash position. So overall, whilst there is this short term challenge we face around destocking and that's not dissimilar from many other companies, you know, what many other companies are seeing.

31:12 We've put in place many of the growth initiatives, and we have a strong balance sheet position, which allows us to deliver, you know, strong growth organically, but also importantly through that ability to to diversify into other markets through acquisitions. So we believe that that journey that we that we set out at the beginning around NEXTEQ being a multi sector, this a multi sector technology business can be very much achieved by the way the company is positioned today. And that's the end of the presentation. I've got some questions already asked, but if there's any others, I'd be very happy to take them. John, Johan, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, 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 our investor dashboard.

32:07 John, Johan, as you can see, we have received a number of questions throughout today's presentation. And if I may hand back to you, kindly ask you to read out the questions, give responses where appropriate to do so, and I'll pick up from you at the end. Yeah. Thanks very much, Alex. So so the first question we've got is should we have next next next next next viewpoint regarding to q four business outlook? So so so yes. So I think, you know, so I alluded to it on the on the slide that's in front of you. So, you know, we have got we do expect to see continued normalization of inventory levels, and we've we've guided to a revenue being broadly in line, and that reflects that broader sort of economic, you know, headwind that is out there and and customers destocking to to reflect that. What what I've also said, however, is whilst there's that sort of, you know, world says that short term adjustment that is is is underway, actually, long term structural drivers are very much there for for for a healthy growth within the business.

33:02 And importantly, not just a healthy growth, but a more diversified growth within the business. And that and that's fueled by new business coming in. And once that sort of destocking effect completes, then that new business starts to fuel revenue growth overall within the company. And then also because we have that capacity to acquire as well, which will drive further further build on our business. And because we're not in a position where we're indebted already, that that there's, you know, good borrowing capacity as well should we should we need to do so. So so in terms of q four business outlook, you know, the the the guidance is there. We're expecting to deliver profits that are that are that are in line with expectations and expectations being ahead of where they were in the prior year, is on the strength of the operating profit margins that we're seeing combined with revenues in line with prior year.

33:51 Second question is, is the business affected by the Hollywood writers actress Hollywood writers actors strike? And the answer to that is we haven't seen any effect of that so far, and we haven't heard of any effect of that so far. So that's not been an excuse that's been used as yet. What I will say is sort of just in terms of when that would affect us, you'd be looking at that being a lagged effect because the first thing that would happen would be less production in films. That less production in films would mean that the studios would be making less money, and thereafter, you'd see a a you'd see a a potentially a slowdown in their capital expenditure. What I would also add, though, is that, you know, Hollywood and and the film industry is only one of our end markets that that the the broadcast solutions are deployed into.

34:41 So for example, we have broadcast technology going into outside broadcast tracks for sport sporting events, which is a buoyant market at the moment for concerts, etcetera. We also have it going into the broadcast corporations for things like the news networks. So so our broadcast end market exposure where our customers deploy is is is sort of far beyond just the sort of the the the film industry and and in particular, Hollywood. Third third question we've got, given the lowly rating the company's own shares, is the board considering whether buybacks or a tender offer would create more value for shareholders and acquisitions? So I think on one of the slides, Johan picked up the sort of the capital allocation priorities we have within the business. So we obviously will always maintain a strong balance sheet. And as an outsourced player, that's incredibly important. It gives our customers confidence that we're gonna be here through through any economic cycle, and that strong balance sheet is why through the last few years we've weathered it so well.

35:37 So first of all, we will maintain a strong balance sheet, and we will maintain a a a degree of cash balance on it to ensure sufficient liquidity. Said, however, we do see quite compelling opportunities on on acquisitions to drive growth and diversification. So I think the next thing where we'd look to use, you know, cash would be around acquisitions just because of the the nature of of of what we're seeking to achieve strategically. We but buybacks are something which, you know, it's it's not the first time I've been asked the question about them. Would we would we be prepared to do it? And I guess if we've got no other use for the for the cash, then then then that's something the board has to consider. But at this stage, acquisitions, we feel, represent a better return on investment for shareholders than than doing buybacks. In terms of the next quest in terms John, why don't why don't I pick up the the next question? So, the question is, can we expect to see, the cash generation continue? And so we you know, as we can we stay on this slide, which shows the the first half performance.

36:35 So over the last so as you can see, other than our our operating cash flow, minimal other cash outflows, we're not very capital intensive. Most of that is some of that is capitalization of development efforts, and then the for the remainder is just minor maintenance maintenance CapEx. We don't have any debt, so there's no large interest payments. So it really is about being able to generate cash from operations and managing working capital. Over the last couple of years, we've structurally invested in in in stock, which is why when you look at our cash performance in 2022 and in 2021, it falls below what you, you know, what you've seen in the first half of this year. But in a normal course of of of of trading, we should be able to convert a high percentage of our of our profits into cash. So on that basis, cash generation to be able to continue.

37:33 Thanks, Jan. Final question we've got. If there are any others, please do feel free to ask. So how much growth do you see in existing markets with potential new customers and any thoughts for further expansion into new areas? Within existing customers or within the existing markets that we operate, we see we see substantial growth, double digit growth within both gaming and within broadcast. And that's because of, you know, penetration further penetration of customers within those sectors. The cabinet product, we've really only just started to ship, and there's much more growth within that. Within computers, we've got a pipeline of business, which is convertible to deliver a sort of a materially bigger business within that. So that's why I can sort of give that confidence. We believe there's double digit growth potential within our core sectors.

38:21 In terms of expansion to other areas, so we're looking at some of those now. And, you know, we have a very broad sector base through the Dentstrom through Dentstrom business. And right at the front, I showed that one of our biggest sectors in Dentstrom was medical. We supply component parts to that now, and, you know, that's one of the markets amongst many others that we're looking at whether there are opportunities to develop higher value products for those sectors. So those those sort of diversification opportunities outside of gaming and broadcast are are are likely something which would use acquisitions to to accelerate. But certainly, just to be really clear, we we see opportunity within our core markets to grow substantially beyond where we are today, which is which which is why we're continuing to invest in those and and where we, you know, have a product set, which which allows allows us to deliver into that.

39:11 John, Johan, that's great. And I think you have addressed all the questions from investors today. So thank you for being so generous with your time. And, of course, the company can review all questions submitted today, and we will publish those responses on the investment company platform. But before redirecting investors to provide you with a feedback, which one is particularly important to the company, John, could I please ask you for a few closing comments? Yeah. So so we've we've obviously had a first half where we've delivered, you know, revenue growth despite some challenging macro circumstances. That sort of is on the back of, you know, a very good year last year and, you know, stable trading through what has been a turbulent period. I think the resiliency of the business has been well proven through that. So even in difficult times, we've continued to be profitable and continue to be self funded through our through our own balance sheet. And so, you know, that that gives us that resiliency. But equally, we're now coming out of that period where some of the dislocations are in place. And whilst short term, there continues to be this destocking effect, which we expect to continue into the second half. Longer term, we believe all of the structural drivers to being a more diversified growth business in multi sectors is very much in place.

40:27 And that combined with our ability to undertake acquisitions, some of which would be self funded through our through our own balance sheet and and with the ability to raise debt should that not be sufficient. We think we're in a very good position for a strong sustainable structural growth within the company. John, Johan, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback and all of that the team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of NEXTEQ PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.