Volex (LSE:VLX) — Full Year Results for the year ended 3 April 2022

0:01 Good morning, ladies and gentlemen, and welcome to the VLX PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab that's situated on the right hand corner of your screen. Just please simply type in your question at any time and press send. The company may not be in a position to answer every question received during the meeting itself given the attendance today. However, the company will review all questions submitted today and publish responses

0:29 where it's appropriate to do so. Before we begin with your participation, I'd now like to hand over to John Bowden, CFO and Nat Rothschild, Chairman. Good morning to you both. Good morning, everyone, and welcome to the annual results presentation for VOLEX PLC. I'm Nat Rothschild, Executive Chairman, and I'm joined today by John Bowden, our Chief Financial Officer. We are pleased to be sharing with you another excellent set of results. We will start with an overview of the principal achievements and operational highlights for the year. Then I will hand over to John, who will take us through the financial performance and talk about our customer sectors. Then I would like to provide you with an update on our strategy, including our new five year plan and the outlook for VOLEX.

1:19 There will be an opportunity for questions to be submitted at the end of the presentation. So when we set about transforming VOLEX back in 2016, our vision was to create a diverse and resilient business that could deliver growth in attractive markets. Although it has been a challenging year for all manufacturers with high material costs and increased lead times, I'm very pleased with the way our organizations responded to these challenges to deliver another set of record results. We delivered higher revenue, including significant organic growth. We achieved an underlying operating margin of 9.1%, successfully managing the impact of inflation.

2:05 Our robust performance and outlook give us the confidence to once again increase our dividend with a 9.1% increase on last year. Our strategy is clearly working as we deliver growth across our market sectors and benefit from our investments in both acquisitions and infrastructure.

2:25 We are focused on long term growth, and our performance puts us firmly ahead of the stretching goals we set for 2024. To maintain momentum and continue our growth trajectory, today, we are launching an ambitious new five year strategy. More about this later.

2:45 We believe we have created something unique in VOLEX, which is positioning us for future growth. Our geographic spread is a major differentiator and a key selling point. Customers want to simplify their supply chains to reduce risk and complexity. Having expanded our global footprint, we are well placed to support this. We now have six production sites in North America, giving us capability across all our key markets. We have printed circuit board assembly infrastructure in two of our U. S. Facilities, and we are deploying this technology in our flagship medical site in Tijuana, Mexico. This will help us meet growing customer requirements and improve our competitiveness for higher value add box build projects.

3:32 In Europe, we also have six sites, including two in Turkey that support our European customers. These sites range in capability from complex subassemblies for specialist medical equipment to power cords and wire harnesses for a range of domestic appliances. Our six sites in Asia include our facilities in Batam, Indonesia and in Hanoi, Vietnam. These locations are important because we can ship to The U. S. With lower tariffs compared to Chinese manufacturers, giving us an important cost advantage. We also undertake a lot of our research and development activities in Asia, where we benefit from local engineering skill. Our site in Pune, India is our most recent acquisition.

4:19 We are constructing a new purpose built medical production site to offer a low cost manufacturing opportunity to our largest medical customers. We're excited about the growth opportunities that India offers. I'll now hand over to John, who will take us through the financial performance. Good morning, everyone, and thank you, Nat. As Nat mentioned, it's been another excellent year for VOLEX, and we have delivered a strong financial performance. Our revenue is up by 39% to $615,000,000. Half of the revenue growth was organic. In addition, revenues in our Turkish business that we acquired in FY '21 were up by over a third as customers look to avoid higher freight costs by sourcing locally.

5:08 We increased our underlying operating profit by 31% to $56,200,000. This represents an underlying operating margin of 9.1%, and I will step through the movements in operating margin later in the presentation. Profit before tax increased to $36,200,000 an increase of 23.1% compared to the previous year. Finally, as Nat mentioned earlier, we are increasing our dividend. We paid an interim dividend of 1.2p in December, and we are proposing a final dividend of 2.4p, taking the total dividend for the year to 3.6p. This is an increase of 9.1 year on year.

5:56 Slide six illustrates our success in delivering revenue and profit growth year on year, including through some challenging macroeconomic and operating environments. This demonstrates the success of our strategy and the steps that we have taken to optimize our cost base, including vertical integration, automation, and continuous improvements. This has enhanced our competitiveness and helped us win projects with both new and existing customers. We are a more diversified business than we were five years ago, working with customers that suits our manufacturing capabilities. Our acquisitions have delivered new relationships and allowed us to achieve cross sell opportunities. We have a well balanced book of business giving us confidence that we can grow through the cycle.

6:46 We have achieved underlying operating margins of between 910% for the last two years. This level of margin gives us the right balance between profitability and growth, allowing us to reinvest in further enhancing our business.

7:03 On slide seven, I've set out the impact we saw during the year from inflation. Copper prices have been about 40% higher than the previous year. Most of our power product contracts allow us to pass through higher copper costs with a short delay. We also pass through increases in the cost of other raw materials and freight in line with our established practice. And again, there was a short delay as we recalculated the prices and agreed these with our customers. Through FY '22, copper remained relatively stable, but it is still higher than it was eighteen months ago. Since the year end, we've seen reductions in freight and some key raw materials such as PVC resin, although there are some components where the costs are still increasing.

7:51 Labor costs increased during the year, and we will keep these costs under close review. We manage our costs very closely and focus on delivering savings through continuous improvements, although this is harder to achieve in an inflationary environment. We know that our operations are extremely efficient, and this gives us confidence that even after increasing prices to reflect higher raw material costs, we still have an extremely competitive commercial proposition. As a result, we will continue with our approach of passing through cost increases where we need to. Slide eight provides some more color on the movements in our margin.

8:39 I've broken out the impact of the prior year one off COVID related employment tax credits, which was 50 basis points. And without this benefit, our FY '21 operating margin would have been 9.2%, which is very much in line with this year. There is a benefit from cost optimization as we kept tight control over our operating costs, which helped us improve our operating margin by 120 basis points. We sold more power products in the year relative to more complex higher margin products. This resulted in a 90 basis point reduction in margins. As you can see, there's a 70 basis point benefit from acquisitions, which includes Deka. The inflation impact is due to a combination of factors.

9:26 There is the impact of passing through higher costs such as copper, which dilutes margins. In addition, there's a short delay in the pass through of costs, which reduces margins when costs are increasing but becomes a benefit if input costs start to fall.

9:47 Slide nine sets out the movement in cash during the year. There was an outflow due to higher working capital as we grew the business and sales increased. We decided to increase inventory to meet customer commitments and protect revenue. We want to avoid delaying an entire assembly for the sake of one missing component, So we are buying components earlier to ensure that we have availability for scheduled builds. We were holding about two weeks more inventory compared to a typical year end. We expect to maintain higher levels of inventory in FY '23 with ongoing variable and extended lead times. We are used to managing greater supply chain complexity now, and it's a headache for our production schedulers, but it is not affecting our ability to keep the factories busy and well utilized.

10:38 Trade receivable and trade payable days were broadly in line with historical averages, demonstrating our tight control over these important elements of working capital. We paid $55,000,000 for acquisitions, and this included contingent consideration for DeCA because it's exceeded its earn out targets. To reduce dilution from employee share plans, we purchased $5,000,000 of shares in the market to settle awards. At the end of the year, we had a $111,000,000 of headroom in respect of our revolving credit facility, giving us plenty of firepower to execute our strategic plans.

11:18 We invested around $15,000,000 in capital projects, almost double the figure from the previous year as we increased investment to meet customer demand as well as due to our increased scale. This investment is not speculative and is in response to customer demand and the increases in organic revenue that we saw, as well as to keep pace with anticipated demand in future periods. As we have successfully transformed our operations, we have increased confidence in our ability to generate value through the sensible deployments of organic capital investments. Levels of investment have increased, reflecting our successful expansion in areas with strong growth characteristics, such as electric vehicles.

12:06 We have invested in vertical integration and automated production lines to enhance efficiency and maintain our competitive position. Towards the end of the year, we increased the production capacity of Deka with the introduction of two more automated production lines, allowing us to meet the strong demand we are experiencing. Investment levels in future years are expected to increase based on the number of exciting growth opportunities we are seeing. Most of our investments are low risk as they achieve a cash payback within two years. We believe this represents an extremely good return for shareholders. We are also increasing our manufacturing footprint with expansion activities in India, Poland, Indonesia, and Mexico, all driven by additional customer requirements and our ongoing sales success as we are awarded new project wins.

13:01 The movements in earnings per share this year are quite complicated due to the effect of deferred tax, so I've included some analysis on slide 11. First, let me go through the key movements before tax. The increase in underlying earnings per share due to the higher level of operating profit was 8.7¢. Having made four acquisitions in the period, interest expense was up. There was a small impact due to the issue of shares in FY '21 related to acquisitions including Decker. As you may remember, in FY twenty one, we recognized the deferred tax assets in relation to historical tax losses. Accounting standards require you to recognize a deferred tax asset when you become confident that you will generate suitable profits to receive a future cash benefit from the tax losses.

13:48 As the group became more profitable, we achieved that threshold and recognized deferred tax asset worth $12,900,000 in f y twenty one and an additional asset of $2,900,000 in FY twenty two. Before tax, EPS grew 20% in the year. Turning to electric vehicles and consumer electricals. We started our EV business from scratch five years ago and continue to go from strength to strength, which reflects our leading position in grid cords and expanded product sets and increased customer base.

14:26 Revenues were over a $100,000,000, up 96%, which was all organic. We have substantial market presence due to our design and engineering skills, building deep technical partnerships with our customers. Our vertical integration helps maintain our position as a lowest cost manufacturer. We have expanded our range as the EV market develops. We sell to vehicle manufacturers, to automotive supply chain specialists, and to the manufacturers of out of home charging solutions. This has allowed us to expand rapidly, supporting a broad cross section of the North American and European EV markets.

15:05 We've seen strong progress in our consumer electrical sector, supporting a supporting leading global consumer brands in the electronics and appliances space. Revenues were up by almost $100,000,000 to $262,000,000, an increase of 60%. Longer shipping times and higher freight costs are encouraging European customers to choose Deka with sales up by over a third on a like for like basis.

15:33 We saw organic growth of 14% including the impact of copper pass through. Cost optimization and efficiency programs have improved competitiveness, and our global capabilities and successful cross sells are allowing us to win more business. Some customers are reporting a softening in demand for some consumer electricals products in the first half of FY twenty three due to lower consumer spending. We believe that the increases in our market share will broadly offset the impact of the changes in demand.

16:11 We're really pleased with the strong return in demand in the medical sector with sales up 10% above pre COVID levels and growth of 14%, which was virtually all organic. Sales of complex assemblies increased with high customer demand due to healthcare providers investing in infrastructure to tackle waiting lists. This should be sustained over the medium term given the complex nature of the end products that we support and the structural growth in this market. Having experienced real challenges during the pandemic in securing supplies, some of our medical customers are looking for our support to relocate production, moving closer to their manufacturing sites. With specialist medical sites across three continents, we are perfectly positioned to support this activity.

17:01 Our complex industrial technology customers range from businesses that support industrial automation, manufacturing technology, defense specialists, to global data center operators. Demand from the industrial space has been strong, particularly from customers who sell technologies that help businesses achieve efficiencies and automation in their industrial processes. In FY '21, we saw strong demand for high speed cables as customers stopped up to avoid disruption to their supply chains. There's been some normalization of inventory at our customers in FY 2022, reducing demand for 100 gigabit products. Our engineering team developed next generation 400 gigabit per second high speed cables for our data center customers.

17:48 We have successfully qualified these products with our largest customers who will look to retrofit their existing estates when there's greater availability of compatible service later in FY '23. I would now like to hand back to Nat who will take us through some strategic and operational highlights. Thank you very much, John. So acquisitions, they've played an important part in our growth and development over the last four years, helping us diversify so we now have a global footprint, a broader customer base and enabling us to achieve vertical integration, among other benefits. We purchased Irvine in October and TC in January, both aligned to the North American defense market.

18:34 Irvine produces mission critical printed circuit board assemblies for defense and aerospace applications. TC produces complex wire harnesses for use in a variety of specialist vehicles. The We

18:50 made market the in announce that we We strong our We acquired are additional land, allowing us to create a dedicated facility for our medical customers, supporting the demand for a low cost manufacturing alternative to China.

19:26 We are seeing an increase in potential acquisition targets coming to market, And in general, valuations are sensible. This means that we have some interesting opportunities at various stages in our acquisition pipeline.

19:42 On Slide have been team. A company's We very leadership tool team. So we can capture reliable on data set to understand the impact we have from a sustainability perspective. This information will help us prioritize our future improvement activity and provide a baseline so we can set targets and measure our progress.

20:17 Employee safety is very important for us, and we have implemented a group wide health and safety policy to ensure that we maintain high standards in this area across our organization. Moving forward, our focus will be on establishing additional sustainability targets for the organization, which we will track through our reporting process. We have waste to landfill and employee turnover as two key priorities for FY 'twenty three, and we will put in place improvement initiatives to deliver positive change in these areas. On Slide 17, we set out our approach to capital allocation, and I'm sure that none of this will come as surprise given the strategic priorities we have discussed.

21:05 Investing in growth areas of our business is a high priority. We invest where we can identify established demand, and we have a high degree of confidence of delivering a strong return. Acquisitions are an excellent way for us to enhance our capabilities and reach new customers. We have demonstrated that we are good at acquiring and integrating businesses which perform well within our organization. Our intention is to pay a sustainable dividend, and we have increased the dividend over the last three years. Finally, we would look at returning capital to shareholders if we are unable to generate value through investment. The Board believes that a leverage ratio of net debt to EBITDA between 1.5 to 2x is sensible for our business and at the year end leverage was 1.3x.

22:03 Back in November 'nineteen, we announced a challenging plan to achieve $650,000,000 of revenue by FY 'twenty four. Having delivered strong organic growth in FY 'twenty two alongside some attractive acquisitions, we are on course to achieve this plan significantly ahead of schedule.

22:24 Our ambition is to deliver $1,200,000,000 of revenue by the end of FY 'twenty seven. We aim to achieve this growth while maintaining underlying operating margins of around 9% to 10%. Our expectation is that at least $200,000,000 of revenue will be the result of new acquisitions, maintaining our commitment to identify and integrate attractive businesses that enhance our operations. To continue our growth momentum, we have developed a new detailed strategy for each of our market sectors. In five years, we have grown our electric vehicles business from nothing to over $100,000,000 in revenue.

23:12 We have built a talented engineering and design team who have translated our experience in consumer power cords into cutting edge designs for EV customers. We will continue to develop innovative products to meet the evolving requirements of the EV market as the world transitions to EV technology. In consumer electricals, we have been gaining market share through cross sales and our low tariff, freight efficient locations. With plans for further continuous improvement, vertical integration and automation, we will enhance our competitiveness, supporting our growth.

23:52 We have an excellent reputation, brand and relationships with the best customers in this space. We are well established with some major medical customers who trust us to support their latest innovations. Healthcare providers are investing in advanced technology to support an aging population and deliver improved treatment outcomes. Our global capabilities align with the trend to reassess manufacturing locations, supporting customers looking to simplify their supply chains. Our ongoing investment in PCB assembly capability will increase our competitiveness for box build projects. For our data center customers, the move to the next generation of high speed cables will generate considerable demand.

24:43 We have a range of highly competitive and low tariff solutions for this market. In addition, our skill at acquiring good businesses at reasonable valuations will support our growth. In summary, we have delivered another record performance with substantial organic revenue growth. We have invested in growing our business with a focus on optimizing our manufacturing and enhancing our competitiveness through vertical integration, automation and continuous improvement. Our strong performance puts us well ahead of our existing five year plan, and we have set out our updated strategy with an ambition to achieve revenues of $1,200,000,000 by the end of FY 'twenty seven.

25:34 In terms of our outlook for FY 'twenty three, we have started the year well. Customers are ordering earlier in view of continued extended lead times, and this gives us better visibility into the first half of the year. We continue to follow best practice to reduce the risk of COVID, and all of our sites have remained open so far in FY 'twenty three. There were some delays in shipping times for goods transiting through Shanghai at the beginning of the year, but this has largely cleared. We are, of course, mindful of some of the challenges emerging in the broader economic environment, and we continue to manage risk carefully in respect of growing our business and our investment strategy.

26:20 Our alignment to four attractive market sectors gives us a balance of opportunities with our global blue chip customer base. The sensible investments we have made in the last twelve months in people, capabilities and continuous improvement will help us continue our progress in FY 'twenty three and position us well as we move towards our new ambitious five year plan. So we would now be happy to take your questions electronically. Thanks, John. That's great. Nat, John, thank you very much indeed for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while Nat and John take a few moments to review your questions submitted already, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

27:17 Nat, John, as you can see, investors have submitted a number of questions electronically through today's presentation. And if I may just ask you to read out the questions and give a response where it's appropriate to do so, and then I'll pick up from you at the end. Okay. So there's hundreds of questions literally on here. So I'm just going to to try and sort of pick out a few a few interesting questions that that may resonate with me. Well, Alan says, please, can you let me have your thoughts regarding the share price?

28:07 Well, obviously, I'm disappointed in in where the shares are today because I think we have a very, very strong investment proposition. I think that the the market overall is obviously is obviously is obviously going sideways, and the broad the broader market in our in our industrial space has sold off. I do think that that if you take a long term view and you're prepared to kind of look out beyond the the current cycle, I think our shares are incredibly undervalued at these levels. And that's why myself and other members of the management team have been have been acquiring shares. And we've also bought in around $5,000,000 of shares over the last twelve months for the to to satisfy stock options.

29:02 And the final thing is is that what, you know, what differentiates businesses like ours is the quality of the management team. And and we have a a genuinely brilliant management team inside of VLX who have obviously taken the business from the brink of extinction in 2015 to something which is a company that which which we believe can can generate a billion to a revenue by by 2027. So that's the that's one question. John, do you wanna answer on just unutilized tax losses? A question from Michael r. Yes. Absolutely. So let me just find Michael's question and read it out. So Michael asked, do you still have unutilized tax losses? If so, how much? And I think we've had a few questions similar to that. So, we do have unutilized tax losses. The tax losses are generated in a number of territories.

29:55 Some of those territories are more relevant to our ongoing operations and the tax losses are easier to to access. Our expectation based on our current plans is that we'll be able to utilize tax losses in certain jurisdictions for the next three to five years, although that is, of course, dependent on a number of factors and things such as changes in legislation and also where we generate profits around the group. Okay. Thanks, John. So there's another question here. Noted the recent investment in in Yantra. Does this does this herald increasing investments in the Indian market? Well well, obviously, we've we've acquired Inyantra.

30:44 We've we've guided that the company will will generate around $20,000,000 of revenues for this year. But the exciting thing about Inyantra is the land, the 13 and a half acres that we bought with with the company. And that land is gonna enable us to invest around 4 to $5,000,000,000 to build a 100,000 square foot state of the art medical facility. And, you know, we looked high and low in India for for an acquisition, and and there's really very, very few companies engaging in medical cable assembly because most of the sort of our competitors are focused on the automotive market. So we do think India is a really, really interesting interesting area.

31:34 And there's also the opportunity to go into into power cord in in India. And obviously, as well, there's the there's the the longer term desire to go into the electric vehicle space as well in India. And there's obviously been some talk of major Western manufacturers putting down new factory developments there. And if that if that was if that did occur, then we'd obviously react. We we'd obviously react very quickly. Good. Thanks, Nat. I've spotted there's a couple of questions on the Turkish lira, and we we talked about how pleased we are with the progress that we've made with Deka, the business that we acquired in Turkey in February 2021.

32:21 So Chris s asks, can you explain the impact of the falling lira on your Turkish business? And I think I saw another similar question, which was also from a Chris s. Do you buy raw materials and sell from Dekker in dollars or Turkish lira? So first of all, we are selling from Deka in euros and in dollars with a very small amount of sales in Turkish lira. So on a sales side, we have virtually no exposure to Turkish lira. We are buying raw materials in euros and in dollars, predominantly in euros. Where we do have some exposure to Turkish lira is on staff costs because we're obviously we're paying our workforce in Turkish lira.

33:09 And what we found is that although there is significant wage cost inflation in Turkey, because the currency is devaluing at the same time, if you look at wages on a euro basis, then wages are relatively stable. And the way that we operate with our largest customers in Decca is it's on a semi open book basis, which means where we experience either increased cost or reduced cost as a result of labor, then that is passed through to the customer. So that's the the way that they have established that business and and the practice that they have for that European white goods space. So overall, we don't have a significant issue in operating profit terms as a result of our activities in Turkey and our exposure to the lira.

34:06 Okay. Thanks, John. So here's a question from Mark a. In terms of acquisitions, what does the pipeline look like and new territories you would like to expand expand into? Well, we we mentioned it in the in the in the in the presentation that the the acquisition pipeline at the moment is quite deep and quite quite varied. And and I think that's I'd like to sort of underline that point that we have a we have a tremendous amount of interesting acquisition opportunities at the moment. And they are, as you would expect, across the globe, there are a number of interesting low cost regions in Europe. So further east you go. That does not include the Ukraine, which is obviously a terrible situation, but we have we have nothing in the Ukraine. We have virtually I think our sales into Russia are kind of half of 1%.

35:09 But in terms of the the the pipeline, there are some very interesting low cost regions in the East Of Europe. And, obviously, Turkey is a market that we like very much, and we've had we've made a tremendously successful acquisition in Turkey. So there are there are there are very, very interesting opportunities there. The North American market is is a huge captive market. And again, we're looking at a variety of deals in in North America. And then also in in Southeast Asia, the one area we're not looking at is China. We have enough we have enough scale and capacity in China. China remains an important market to us, but one of our one of our advantages and one of our differentiators is we have a truly a truly global footprint, and that was that was by design.

36:04 And and clearly, the the COVID situation in China has just made it impossible to go there. It's also made it a much more difficult place to do to do business. And then I mentioned in in in the earlier call with the with the analyst that that that specialized vehicles, what we call non passenger automotive, is a is an interesting area where there are rich, you know, rich pickings. It's it's it's not as it's not as competitive. You can get interesting margins and and that's an area we want to we we we potential potential new vertical for for us. Good. Thanks, Nat.

36:51 Getting some really good questions in. So I'll try and answer some of these questions quite quickly. So we've got time to get through through them all. Question from Paul b. How many customers do VOLEX have for electric vehicle charge charges? And is one of them Tesla? So as a policy, we don't disclose the names of our customers, but we we have said previously that we work with some of the largest automotive brands in the EV space, and we're really, really proud of the customers that we work with. Our go to market strategy in EV is to either work directly with manufacturers or we will work with major automotive supply chain companies and use that as a route into lots of different brands through their existing relationships.

37:40 And that's been a great way for us to accelerate our growth. And we also are really excited by the opportunities for what you might call out of home charging or charging infrastructure. And, of course, as EV adoption grows, then for the ability for people to charge away from the home becomes really important. So we're working with a a broad cross section of of different companies in the EV space. And then if I can pick another one here from Henry w, what is the split of organic growth between higher prices and higher volumes? So we haven't published that. We've given details of the organic growth that we've achieved. I'm really pleased to have achieved 19.4% organic growth this year.

38:27 It varies the split between price and volume varies by the different parts of our organization, the different customer sectors that we we face into. So it's hard to give an answer that is sensible across all of those those markets. But the majority of the the growth that we've seen has been volume driven rather than than price driven. And I'll take one more and then I'll hand back to you, Nat, to answer a few more. So Bill c says, underlying PBT is up by 23.6%. Well done. The underlying diluted EPS excluding deferred tax asset recognition is somewhat pedestrian, 6.3% up. Why this massive adverse difference between the two metrics?

39:14 So I believe I've covered this on the EPS slide. So a big part of it is tax. We've explained that before tax, EPS is up 20%. There's a deferred tax difference between this year and last year. There's also a current tax difference. So we've published the the numbers in the press release that we put out this morning. There's a a detailed analysis of of tax. But I think that the the answer to that question, you can you can drill into that by looking at what we've published on the the slide and in the in the press release. So here's a here's a easy question to answer. It says, and now you own almost 50% directly and indirectly. Could this be a reason that the share price is hampered?

40:07 Well, I wish I owned 50% of VOLEX, but that is actually not the case. I own just about exactly 25. And the second part of your question is market might consider that you will be a constant seller. Well, I've never sold any shares of VOLEX ever since I've been the executive chairman, and I've only ever I've only ever bought shares. So to that question, we can we can quickly we can quickly move move on from. There's another question here, which is hang on. Is it from the same person? Let's see. What will be in what will be the impact of rising interest rates and fur and further acquisitions on on finance costs? Well, John could give you a more kind of granular answer to that. But, I mean, obviously, if we if we borrow more money with our interest bill, it will be will be higher. And the and the way I think about it is, you know, if you if you have a and I'm just throwing a number out. If you have a 5% interest rate and you can do better than 5% in your in your investments, then it's you know, you you want to seriously consider making making the making the investment. So so what we've said very clearly is we're going to prudently leverage the business. So I think we used a a figure of 1.22 times net debt to EBITDA, and we're come we're comfortably below that. But, John, if you wanted just to give a slightly more granular answer to that to that

41:39 question, I'd appreciate it. Yeah. Of course. I mean, I thought your answer was really good, and it's it's true. We we talk about the the sensible levels of leverage in the business and growing in a sustainable way. We are confident in the returns that we can generate within our own business through organic investment as well as acquisitions. And as the interest rate environment changes, my view is that that has an impact on valuations of businesses that we look to acquire. So we made a as we said in in the presentation that we're seeing businesses coming to market at sensible valuations, and people are understanding that the economic conditions are are different to what they were two years ago, and that's reflected in the valuations. So as Nat said, we will always look at the returns that we can generate through any type of investment that we do, and that typically significantly higher than the the cost of carry on on any debt that's associated with the with the acquisition.

42:59 So a question here from Henry w. He said, what changes have analysts made to forecast for f y twenty three this morning? Well, I haven't been through the notes that have been published in detail yet. The analysts made some changes back in April when we did our trading update, and that gave them an opportunity to revise, of course, their position for f y twenty two, but also firm up their their view for f y twenty three. I think we've got some really great analysts that cover VOLEX and provide a lot of of insights, and they all come at it with slightly different perspective and different different questions, but they they produce some really good quality quality research.

43:49 There's a question here from Lionel h. He says, can you provide more detail on the new five year plan? What will be the key drivers, geographies, products for doubling annual revenue? So I'm not sure whether that question was asked after we'd put the slide up. It was the penultimate slide where we did go into detail in each of the markets. We set out the growth rates in those markets. But what I would like to say about the five year plan is this is not a top down plan that's been dreamt up in head office. This is a bottom up plan that we've put together across the business involving our sales teams, our operational teams, and our finance teams around the world to create a stretching and ambitious plan that will be incredibly hard work for us to deliver.

44:39 But with the momentum that we've built in this business, the competitiveness that we've achieved through our continuous improvement programs, the cross sell opportunities we've got, and the quality of the management team at all organization at all levels in the organization, we're confident that we can deliver this this five year plan. So it will be a mixture across the different parts of the organization. We've done really well creating this balanced business, and we want to keep the business balanced by growing in all aspects of our operations. Okay. Here's a here's a question from Greg m. How much can you improve margins over the next three years? What what return on capital employed you're achieving, and what is your what is your target? Well, we we said very clearly, Greg, that we're trying to keep the margins between 910% over the course of this this of this five year plans. I think that answers that question. We've taken the margins from nothing to nine nine plus percent over the last seven years. We think this is the right margin for this for this business. And then you you the second part of your question was around the the return on capital employed. It's come down from sort of 30 to 20% because of the effect of acquisitions, but it's still an incredibly

46:09 healthy number. And it shows you, you know, why these are such kind of great businesses because they require such little capital, and they are extremely cash generative when you when you get them right. And so what you're seeing is you're seeing the the organic growth now is we're really putting money back into the business, and and that's obviously that's obviously sort of coming through in the numbers. The question is why aren't we buying back shares right now? Well, the answer is we have we have a tremendous amount of investment opportunities. So rather than buying back shares, we are investing back into the business. What what I would say is that is that internally, we have a we have a an informal policy that for the share awards, we like to we like to buy the shares in for the awards, which is a form of a share buyback.

47:05 And we do that because we want to underlie underline the value of the shares, the cost of these shares to the to the management. And and what you'll see is if you look at our share count year on year, it's hardly moved it's hardly moved at all, and that's because we've been so so assiduous in in buying in shares, which, as I say, is a form of share buyback. So Ariel, I'll just do one more, John. I mean, Ariel Cohen says or says that the the perhaps the share price has fallen this morning despite the results of the market is worried about the company meeting forward guidance. If there is a a global recession, are you still confident of achieving double digit growth in the event of a of a recession?

47:55 Well, look, the answer, Ariel, is this, is that since we did since we started this journey, we've never we've never missed an earnings forecast. So we we we take it incredibly seriously. We don't want to overpromise and and under deliver with the other way around. And so all our forecasts have historically been extremely conservative, which is why we've always we've always met or or or beaten them. And, you know, the the what's interesting about our business today is that we're winning a lot of market share. So we've got some big customers who like us and who want to do want to do business with us.

48:46 And so that I hope and believe, and we have a saying inside of VOLEX that hope belongs in churches. But I I genuinely believe that we're gonna have a good year this year even in the event of a of a of a recession. And in terms of your final question is do you what do you think is an appropriate PE multiple to be to be to be valued on? I mean, what what I would say is that in the in the in the broader m and a universe that we that we look at, companies that are being sold, for example, by by private equity are are almost all going for to 10 times EBITDA multiples at at at the low end.

49:36 And when you look at the size, the sort of complexity, the diversity of this business, this business is that we have is is is better than than any business that we have looked at, and we've looked at hundreds and hundreds of deals over the last four years. And this is as good a business as we've as we've as we've come across. So, obviously, you know, I I think, you know, you know, if this were private company, it would command a far high multiple than where it's trading at at the moment. Good. Thanks, Nat. I think we've got time for a couple more questions. So there's one here from Andrew g, which is how does VOLEX share best practice across sites globally to drive efficiency and performance?

50:27 I mean, I think that's a question that's well illustrated by an example. And what we've done is we've put in place global specialists who focus on continuous improvement. So we have a a global continuous improvement expert who is taking best practice to the sites. He's learning from sites and what efficiencies they've had in delivering that in other parts of the organization. We're also doing a lot of cross site collaborative activity. So helping our general managers from sites visit other sites and understand where they found improvements. The best example is what we've been doing in power cords. Now something a lot of people don't realize is that when you're extruding your own cable for power cords, you have a particular recipe for that and everyone has got their own recipe. It's a bit like your mom's recipe for Victoria sponge and it's it's everyone is slightly different.

51:27 Now we have got some very clever people in our cable extrusion businesses, and they've been getting together. So we we flew our management team from Bataan to our factory in Turkey, and they had two or three days where they're exchanging ideas. They were looking at their recipes. They're looking at how they can optimize the product. And then from that, we believe we can make some significant savings in the cost of our cable that we're extruding around the world by sharing that knowledge and that best practice. And of course, what that translates into is more competitive products, which is one of the ways that we will drive further sales. So thanks for that question, Andrew.

52:12 And then final question that we'll answer for today. There's been a couple of questions around acquisitions in the EV space. So Ketan says, are you looking at any acquisitions in EV space to vertically integrate or will the growth be totally organic? And Ariel has asked, have potential acquisition targets in the EV space now come down to attractive valuations? Are you particularly focusing on acquisitions in that space given it highest growth? And the way I think about this and interesting to get Nat's perspective as well is that we've built entirely organically a $100,000,000 revenue EV business.

52:57 We've been putting in vertical integration. We've been optimizing our production ourselves through organic investment, and that's been the right strategy to allow us to grow. Of course, if we did find an attractive opportunity in EV, then we would we would look at it. But the valuations for businesses, given the opportunity in EV, do tend to be quite quite high. And I believe we've got one of the best EV businesses going. So it's hard to think about what we would buy that would further enhance that. But we would certainly look at if there's gaps in our capability, a way to accelerate the the knowledge and to to build that capability could be through through acquisitions. We keep an open mind to that.

53:47 Did you have anything to add on that, Nat, before we we bring the call to a close? I I don't. I think EV is a is a is an organic grower. We we don't need inorganic opportunities for EV. The the opportunity organic opportunities in EV are are so profound that that that they would cost inordinate amounts of money to to try and acquire them. That's great, John. Nat, thank you very much indeed for your time this afternoon. Thank you to all those investors that have submitted questions today, and we'll make all the questions available to management post today's call. Nat, John, I know investor feedback is particularly important to you both, and I'll shortly redirect investors to provide you with their thoughts and expectations. But before doing so, I wondered if I may, Nat, just ask you for a few closing comments before I redirect the investors on the call.

54:38 Thank you. Thank you, Mark. I mean, look, all I would like to say at this point is thank my colleagues. We have 7,000 of them. This has not been an an easy an easy time, and people have worked extraordinarily hard to to deliver these results. So this was a true a true team effort. We are very excited about this coming year, notwithstanding the the headwinds. It's a challenge, but it's a challenge that we're that we're up for. And I'm just looking forward to next year when we can present these results again and again deliver for for all our stakeholders, for our employees, for our customers and for you guys, shareholders. So thank you very much.

55:24 That's great, Nat. John, thank you once again for your time this morning and for updating investors. Could I please ask investors not to close these sessions? We will now automatically redirect you for the opportunity to provide feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be highly valued by the company. On behalf of the management team of VOLEX PLC, we'd like to thank you for attending today's presentation. That now concludes today's session, and may I wish you all a very pleasant morning.