Volex (LSE:VLX) — Interim results for the 26 weeks ended 1 October 2023

0:01 Good morning, ladies and gentlemen, and welcome to the VOLEX PLC Interim Results Investor Presentation. Screen. Please just simply type in your questions and press send. Given the significant attendance on today's call, the company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where appropriate to do so on the Investor Meet

0:32 company platform. Before we begin, I would like to submit the following poll, which will just appear on your screens now. And I would now like to hand you over to the executive management team from VOLEX PLC, Nat. John, good morning. Good morning, everyone, and thanks, Jake. I'm Nat Rothschild, the Executive Chairman at VOLEX. We are pleased to be back on the Investor Meet company platform for the fourth year in a row with our results for the first half of financial year 2024. We have a significant retail investor base who have been very supportive of our company, and we appreciate the opportunity to set out our progress and answer your questions. Please feel free to submit any questions to us, and we will answer them at the end of the presentation.

1:23 First, we will highlight the key points from this period, then John will walk you through our financial performance, And after that, I will update you on how we are moving forward with our strategic plans. We'll wrap up with a summary and, of course, our outlook for the future. We've delivered strong overall revenue growth across our diversified market sectors. We are seeing positive changes across different markets as they adapt and recover, benefiting as an example from smoother supply chains. Our approach to diversification and building solid customer relationships has paid off, allowing us to grow profitably regardless of the market conditions.

2:13 As a specialized manufacturer, we are aligned with growing market sectors. We've seen impressive growth in medical and complex industrial technology with improved supply chains allowing customers to scale up demand. We're also excited about our expansion into the off highway sector, having acquired Murat Tijarat, which I'll refer to as MT for the duration of this presentation. We'll come back to MT later on. Our electric vehicles and consumer electricals customers increased inventory levels a year ago. Now with more stable supply chains, they are reducing inventory. This is a normal part of adapting to the improved conditions.

3:00 John will give more details on revenue for each sector later. Our focus remains on executing our long term strategy. This means driving sustainable growth, enhancing our capabilities and capacity. We are achieving this through astute investments in infrastructure and through strategic acquisitions.

3:25 Turning to Slide three. Over the last five years, our team has transformed VOLEX into a strong, high quality company. We have become a resilient organization that consistently delivers profitable growth and is on track with our five year plan. Even with recent challenges such as inflation and supply chain issues, we stayed strong and adaptable. In particular, we diversified our portfolio, providing us with a high degree of resilience alongside sustainable through cycle growth opportunities. We've branched out into new sectors, engaged with new customers and improved the profit margins of our operations. This shift has resulted in a more diverse and robust business, laying a solid foundation for future growth.

4:20 And the markets we have entered were carefully chosen. They align with our goal to be a specialist manufacturer in sectors with high growth and structurally attractive characteristics. This strategic approach positions us well for continued success.

4:42 In the past eighteen months, since outlining our strategic plan, we've made significant progress in several key areas, showcasing our commitment to growth and innovation. Whether through an expanded EV product set, the latest high speed data center cables or the innovations we've delivered in extrusion capability, our talented engineering colleagues are supporting growth through their development activities. To support this growth and position us for the evolving requirements of our customers, we are expanding our global manufacturing footprint and increasing our capabilities in key markets. We've achieved all of this in a challenging inflationary environment while successfully maintaining our margins above 9%.

5:30 With two acquisitions in this period, including the transformational acquisition of MT, we are expanding our market reach but also bring new competencies and opportunities for growth. This puts us firmly on track to deliver on our five year plan commitments. I'm now going to hand over to John to take us through the financial results. Thank you, Nat. We're pleased to share our achievements for the first half of the year where we're showing a robust 11% increase in revenues, of which 4% is attributable to organic constant currency growth, and I will provide a commentary on each sector in this section of our presentation.

6:19 Furthermore, our underlying operating profit has seen a substantial rise of 16.5% along with an enhancement in our underlying operating margin, which is a crucial indicator of our business up to 9.4%. This has positively impacted our profit before tax. And in line with these strong results, we're pleased to announce an increase in our interim dividend per share for the fourth consecutive year now at 1.4p per share. In the past five years, we've successfully grown our electric vehicles business from scratch to annual revenues of over a $100,000,000, all achieved organically. This remarkable growth is a testament to our outstanding products, best in class engineering capabilities, and partnerships with some of the world's leading manufacturers.

7:14 The long term increasing trends of sales of these vehicles are driven by several factors which include government incentives and regulations promoting the adoption of this technology, improved EV ownership experiences due to enhanced charging infrastructure, as well as growing customer familiarity and trust in EV technology. Despite this backdrop, our revenues for this period are lower by 16% compared to the same period last year. We're comparing against a particularly strong first half in f y twenty three when we saw a 53% organic growth. We're also seeing short term customer destocking. Our customers are reducing the additional safety stock they've built up to take account of supply chain challenges.

8:05 This results in a temporary dip in demand despite the fact that industry data shows that vehicle sales are increasing. In addition, our largest customer slowed production in the summer to carry out to carry out some factory upgrades. Looking forward, we're seeing signs of the demand starting to return, and we're excited about several new EV projects launching in the second half of the year, including those in North America that we have previously announced. We remain highly confident in the strength of our relationships, our product portfolio, and our capability to grow this sector in the long term. In the consumer electrical sector, we've observed trends similar to those in EV.

8:58 The pandemic led to a surge in homeworking, driving high demand over two years for products like laptops, printers, and domestic appliances. More recently, consumer priorities have shifted, and we're seeing a normalization in consumer spending. This has resulted in a 9% reduction in revenue, three and a half percent of which was attributable to lower copper and PVC costs. And just like the EV sector, some of our customers increased their inventory during the previous period to support production. Now with the situation improving significantly, they are confidently reducing these levels. We saw the destocking effect in Europe first, and it took about six to twelve months to stabilize varying by customer.

9:51 This process is largely complete in Europe, while it's still ongoing in Asia and North America. However, we are beginning to see early signs of increasing demand from our customers as we progress through the second half of the year. Looking ahead, there are substantial growth opportunities for our consumer electricals business. We have strategically positioned ourselves as the most competitive, customer focused, and geographically capable manufacturer in this sector. This positioning is why we're securing new business and why we collaborate with some of the world's most significant consumer electricals brands.

10:39 So turning to medical. In the first half of the year, our medical business has seen substantial organic growth bolstered by our clients who are now able to expedite deliveries. This progress comes as customers overcome some of the challenges they had with their own supply chains, enabling them to address backlogs that accumulated over the past two years. In response, we've increased our output to support the additional customer demand. The long term outlook for the medical sector is highly promising. We're proud manufacturing partners to some of the world's leading medical equipment manufacturers specializing in key technology such as imaging, therapy, and diagnostics.

11:28 The cutting edge advancements these companies are introducing into health care are significantly improving patient outcomes. Additionally, the growing demands of an aging population for the latest medical technologies are expected to are expected to drive sustained long term growth in this sector.

11:52 In our complex industrial technology segment, we've witnessed remarkable growth due to two key reasons. Similar to the medical sector, our customers are now able to ramp up their production schedules thanks to better availability within their supply chains of key components. In addition, there's been a surge in demand for our high speed data center cables. This increase is partly because data center operators can now proceed with their equipment refresh cycles more efficiently. It is also due to the growth in cloud computing and artificial intelligence, which demands high speed infrastructure in data centers. We anticipate sustained strong opportunities for our high speed cables, thanks to their first rate quality that not only meets but exceeds industry performance standards and all at competitive prices.

12:51 Our complex industrial technology business successfully collaborates with diverse array of industry leaders. This includes sectors like aerospace and defense, telecommunications, and smart technology. We support these industries with a wide range of manufacturing services from intricate subassemblies and printed circuit board assemblies to comprehensive box builds that integrate various components such as displays and processors.

13:24 This is the first occasion we're presenting off highway as a distinct sector following our successful acquisition of MT. However, it's important to note that our involvement in the off highway space isn't new. The off highway sector encompasses a wide range of equipment including agricultural machinery, passenger transport vehicles like coaches and buses, material handling equipment such as lift trucks, construction machinery, and specialized defense vehicles. We've had a great start in this sector, thanks in part to the new revenue streams from MT, but also due to the strong organic growth within VOLEX's existing operations in India and North America prior to this acquisition.

14:14 The prospects in the off highway sector are particularly exciting for us. New agricultural technology is delivering greater efficiency in farming and helping overcome challenges with the supply of labor. Urbanization and economic development in emerging markets are boosting the commercial segment, calling for additional investment in passenger transport and construction equipment. Additionally, the trend towards more sustainable products is poised to drive long term growth in this sector. On slide 12, we've outlined our achievement in enhancing our underlying operating margin, which has improved from 9% in the first half of f y twenty three to 9.4% in the same period this year.

15:04 Our commitment to continuous improvement plays a crucial role in optimizing our cost base and enhancing our margins. This approach is especially vital in an environment with high inflation forming a key component of our effective inflation cost management strategy. We manage direct cost inflation by passing it on to customers either through contractual mechanisms or through regular transparent price negotiation processes. Our growth in more complex, higher margin products, combined with the destocking in higher volume products, has positively influenced our margins compared to the previous period. The acquisition of Murat Teixeurette also contributes positively, blending our margins upwards as we integrate their high mix complex wire harness manufacturing capabilities.

15:59 We are also making targeted investments to support the growth of the business, which are expected to bring significant benefits in the long run.

16:12 Moving on to the cash flow. Our underlying free cash flow has increased almost $12,000,000, a significant improvement on the prior year despite higher investment in CapEx to fund our growth. A year ago, as we reported, we were seeing increases in inventory levels as part of our approach to manage supply chain challenges. We saw a significant improvement in working capital in the second half of last year as we managed inventory back down to normal levels. For the first half of this year, the increase in working capital reflects the revenue growth that's been achieved. Interest is higher due to higher rates. We fixed the interest on $50,000,000 of our debt a year ago.

16:59 Our current covenant leverage is 1.3 times, meaning we have maintained a strong balance sheet after the acquisition of MT. With strong cash generation, we are in a position to reduce our leverage levels further in the next twelve to eighteen months. Tax is higher, a combination of increased profits, but also the timing of various settlements and incentives around our global business. I will now hand back to Nat who will take you through an update on our strategic pros progress. Thank you very much, John. So in the past five years, VOLEX has undergone a remarkable transformation, involving into a dynamic, high growth company that is strategically aligned with profitable market sectors.

17:52 We have doubled our revenues, a testament to our commitment and strategic direction. And this growth includes the development of new products and capabilities in the electric vehicle sector. We've also significantly increased our PCB assembly capacity, responding proactively to the needs of our customers. As well as revenue growth, we've also seen a substantial increase in our profits. Our underlying operating profits have now tripled compared to five years ago. This impressive growth has been driven by our investments in vertical integration, reducing manufacturing costs and enhancing competitiveness. We have also embraced targeted automation, enhancing quality and efficiency.

18:42 Another key factor has been the evolution of our customer base, where we have strategically focused on profitable sectors. Furthermore, the last five years have been marked by an expansion of our capabilities. Our strategic acquisitions have brought new expertise and strengthened our position in the market. These acquisitions have not only increased our knowledge base, but have also extended our geographic footprint, allowing us to serve our global customers more effectively. This strategic focus gives us great confidence in our ability to deliver on our current five year plan. We are not just aiming for growth, we are achieving it, while also elevating our profitability and expanding our capabilities.

19:29 This is truly an exhilarating time for VOLEX as we continue to build on our success and set new benchmarks in the global manufacturing landscape.

19:45 As a global manufacturing business, we run 27 manufacturing locations and work across 24 countries. Our teams operate globally to put our customers first. Yet in the last six months, we have dramatically moved forward in our expansion plans. I traveled to our sites in Mexico, China, India, and Turkey to speak to our customers and understand their requirements. Our customers' sourcing strategies are changing. Many are aiming to streamline and consolidate their supplier networks. They are increasingly interested in moving manufacturing closer to their own operations, supporting local economies, simplifying logistics, and reducing the environmental impact of transportation.

20:41 Our global presence uniquely positions us to meet these evolving needs. We're investing and expanding our capacity to meet demand. In the first half of the year, we opened a new facility in Poland. And looking ahead, we're excited about further expansions in Indonesia, India and Mexico planned for the second half of this year and into the next. We also utilize our specialist capabilities in key locations to support manufacturing in other regions. For example, producing specialty cables in Indonesia to use in our Mexican sites. This approach enhances our margins. Our acquisition of MT was a strategic decision made for several key reasons, reflecting our commitment to growth and market expansion.

21:40 Firstly, the acquisition has created scale in a fifth growth market for us. We have already experienced excellent initial customer engagement, indicating strong potential in a fragmented market. This fragmentation presents us with numerous opportunities to make significant inroads and establish a robust presence. And we are already making an impact by securing incremental customer projects, a promising sign of the potential that lies ahead. Secondly, the acquisition of MT offers us an exciting opportunity to develop and expand our business in North America.

22:23 This market is equally fragmented, providing us ample room to grow and strengthen our presence. Our existing footprint in North America positions us advantageously, allowing us to leverage our current infrastructure and relationships. Thirdly, the acquisition presents us with significant synergy opportunities. We see very promising prospects for cross selling, which will not only broaden our customer base, but also deepen our existing customer relationships. Additionally, this acquisition offers the opportunity to improve processes. By integrating best practices from both companies, we can enhance efficiency, streamline operations and ultimately drive better performance.

23:12 The acquisition of MT is a strategic move that aligns with our growth objectives and offers multiple avenues for expansion and improvement. It's a step that reinforces our commitment to exploring new markets, capitalizing on synergies, and continuously seeking opportunities to enhance our operations and customer offerings.

23:43 So in the last year, we've achieved remarkable success marked by a series of strategic triumphs and robust performances across our diversified end markets. A key advantage of our business is its diversification. Our strong performance in medical and complex industrial technology is allowing us to achieve growth rates, growth despite short term headwinds in EV and consumer. And the acquisition of MT creates a platform for future growth in the off highway sector. This not only broadens our market reach, but also adds valuable capabilities to our portfolio, setting us up for even greater achievements.

24:29 And the structural long term growth drivers that underpin our business remain firmly in place, ensuring that this growth is sustainable and scalable. Our targeted investments are carefully chosen to bolster our core competencies, enhance our technological capabilities and expand our global footprint. With our strong performance in the first half of the year, we are confident in our ability to deliver full year results in line with consensus. All these efforts and achievements keep us confidently on track with our ambitious five year plan. We are achieving the stretching goals we set, forging a path of success,

25:14 and setting new benchmarks in our industry. This is truly an exhilarating time for our organization as we see our progress accelerate. I'd like to thank all of you for joining the presentation today, and we will now address the questions that have been kindly submitted. John, that's great. If I may just jump back in and just give you a few moments before we look to take those questions. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

26:01 John, Nat, we did receive a number of presubmitted questions ahead of today's event. And as you can see there in the q and a tab, we've also received a number of questions, throughout your presentation this morning as well. So thank you to all of those on the call for taking the time to submit their questions. And, Nat, John, if I may just hand

26:17 back to you just to respond to those questions where appropriate to do so, and then I'll pick up from you at the end. Thank you. Yeah. Of course. Yeah. Thank you. Look. We really appreciate all the questions that come in, and it's great to get your feedback and understand how investors are thinking about about VOLEX and the types of types of things that you're you're interested in. As always, there will be a lot of of questions, and they tend to keep coming in as we we answer them. So in the interests of covering as many as as possible, we'll try and give quite succinct answers to the to the questions so we can cover everything that the people people are interested in. I will read the questions, and then between Nat and myself, we'll we'll answer them.

27:03 So the the first question we had is, can the team please outline how new acquisitions are underwritten, and if there is an IRR hurdle that needs to be met? What is the current pipeline? What is likely to be actionable, and will this be funded through free cash flow?

27:21 So it's good questions. Broad question around our acquisition policy, and we don't use a particular IRR hurdle for acquisitions. We look at a number of different perspectives on each business that we acquire. So we're interested in understanding the revenue profile and what the growth looks like. We're always very focused on the customers, and that's both in terms of customer concentration overlap with our existing business, but how we could develop those individual customers. Profitability is a key consideration and trying to identify acquisitions that can help blend up the profitability of the group. But there's also some nonfinancial measures, like thinking about the cultural fit of the business, who it's run by, what the opportunities would be for us to optimize that business as we bring that into the VOLEX family and making sure we have a good understanding of the the end markets.

28:19 And then, of course, incredibly important is the valuation. And if you look back across the 12 businesses that we've acquired, we

28:27 believe that we've acquired those businesses for very attractive valuations. That's really key for us in in understanding the the dynamics of the business. In terms of whether acquisitions are underwritten, we'd like to do two things. First of all, we do an appropriate amount of due diligence. So the larger the acquisition, the greater the level of the due diligence that that we will complete to make sure that we understand what we're looking at buying. And we like to use earn outs where appropriate. That gives us a level of of derisking the the the transaction by putting in those earn out structures and supporting the the growth of the business and the the profitability in that initial period post acquisition.

29:13 In terms of what the the pipeline looks like, as I mentioned, we've acquired 12 businesses in the last six years, so we are active in acquiring attractive businesses. So we're always looking. We always have a number of businesses that we are we are looking at. At the moment, as you can imagine, having just made a very large transform transformational acquisition of Murat Teixeurette, we're incredibly focused on integrating that business and delivering the maximum possible benefits of of that business into into VOLEX. But at the same time, we are keeping a lookout for bolt on acquisitions, and there's a number of of entities that we're engaged with trying to understand whether they could be a good fit for for VOLEX in the future. So we're always always scanning what is what is available and and qualifying those quite hard to make sure they're a good fit for for our organization.

30:13 And then in terms of the funding for acquisitions, our leverage at the moment, our covenant leverage, which is how we measure it and how our our banks look at it, is 1.3 times. And we're said that we're comfortable between one times and two times. So we do have flexibility for future acquisitions, but, of course, we consider everything in the round and think about the the the financial profile, think think about the leverage post acquisition and what it does to to our financial position. So having said, I'd give short answers to the questions. That was quite a long answer, but I know there were several questions that were quite similar. So, hopefully, that will will cover off some of the other questions that we had on on acquisitions.

31:04 Right. Just a second. I just need to right. Let me go to the next question. So this is a question which is about it says, can you share an update on encouraging the kaizen type culture at newly acquired sites? How long does it take for the teams to buy into this mindset, and where is it working straight, not working? So, Nat, did you want to say anything about

31:36 the culture as we embed new acquisitions and how we get them up to speed with with Kaizen? Absolutely. So, look, it's an incredibly important question. And when when I got involved in this business operationally back in 2015, this this culture didn't didn't exist at all. We now have a a system where we have a a Kaizen leader, a head of operational excellence who's been with the company first as a consultant in 2015, and then we we we brought him on full time in 2017. The the key the key point of our of our Kaizen activities is we try and share across the group. So we're trying to take the best practices in the groups that are in the in the factories that are most far advanced and then share religiously with what we have learned in those sites, across across countries, across geographies, across across continents.

32:48 And that is the key to the to VOLEX's Kaizen

32:54 activities is the context of the concept of sharing. The other thing is worth noting is that labor as a percentage of the overall cost is really in the sort of 10 to 15, sometimes 2020% range. And so often, a site will say, well, hang on a sec. It's really the supply chain which is more important. You know, why are we even bothering about this? And and we do not, as a senior management team, we we we are we take the opposite view. The the the operational excellence and being able to walk around site and to see the level of of advancement of individual sites is absolutely key. And I was actually in

33:46 in Taiwan last month looking at a business which is a a competitor of ours and seeing the sophistication of their sites and the sophistication of their manufacturing was actually very humbling to me. And we we're a much let me be clear. We're a much we're a much more profitable business than they are, and in many ways, we're a much better business than than they are. If you just mentioned mentioned

34:19 this from a sort of profit perspective, but seeing where we can get to from a manufacturing excellence standpoint is, was an eye opener to me and that is the bar that we're trying to achieve inside of VOLEX.

34:37 Great. Thank you. The next question is, does the firm obtain any feedback on team member satisfaction? And if so, what are the main takeaways? What initiatives are being carried out? What is the current turnover of staff, and how has this changed over time? So in terms of how we operate from a HR perspective, we have HR business partners in the majority of our factories, certainly in all of the the larger factories as well as a a regional HR team as well who are supporting our h our colleagues globally. And, of course, we're very interested in understanding what supports our colleagues around the world and how to make them happy in their their roles.

35:27 And we tailor that in each particular market that we we work in, where the requirements are different. There's different cultures. We're a very diverse business globally and culturally. And we're looking at how to be a competitive employer, how to make sure that the the offer from from VOLEX stands out in the market so we can attract talented people at all levels within the organization. And we do a lot of outreach within local communities, so supporting local communities through charitable events, through fundraising, and also events that fit with the cultural calendar in each of our our markets. So celebrating local festivals, in our environments and and making sure that we're supporting our our people through each of our in each of our sites.

36:28 The turnover of our staff really varies, particularly at different levels of the organization. It depends very much on the the local market and the labor dynamics. In our more complex factories, we rely on staff who have a significant level of experience.

36:48 And as a result of that, then we focus very much on ensuring that we have people who who want to stay with VOLEX for a long time and also by encouraging internal promotion. So all of those things are helping us to to hold on to talented people and to ensure their succession through the organization. So, Nat, the next question is definitely for you. So it says, is Nat committed to the long term future of VOLEX, and where would he see the company in ten plus years? Okay. Well, I I I should probably take that question. Look. I mean, first of all, I honestly feel like we're only just getting going in in this in this journey.

37:34 So although, in my case, I've been doing doing this for eight years, I I feel like we're just at the beginning. And from where we've come from with what was essentially a loss making business with around 300 or $400,000,000 in revenue with very high customer concentration, very high exposure to consumer electricals, a cable assembly business that only really could do one one thing, which was cable assemblies. If you look forward today, we now have a platform, a genuine platform for future growth to go on, to kick on, and to to to build this up into a very substantial business.

38:23 And, look, from my perspective, I'm 52 years old. I have desire to do anything else for the rest of my business career than to to try and grow this business and to create a, you know, a spectacularly successful company. And the only way to do that is through is through having a a succession planning policy both for me and for everyone else. And I think what what what distinguishes VLX as a business, and actually this is building on what John said earlier, is we've had virtually no turnover amongst our senior management. So we have a really, really strong bench of young leaders coming through who who are not only do they do they want to, grow up inside the organization and and and and achieve greater things inside the organization, But but but they also know that unless they themselves have people below them who can take their positions, they'll never be considered for for higher for higher roles. And so we've got now a an interesting a very interesting company operating a series of, of growth sectors.

39:57 And, I couldn't think of anything else I'd rather be doing at this moment than, than playing a leadership role in VOLEX. Good. Thank you now. That's really clear. So the next question is, what differentiates VOLEX compared to its main competitors? Are any of the main sectors getting more or less competitive? And there's VOLEX trying to implement a shared economic scaled model in a similar way to Costco, Amazon. So in terms of differentiation, we've invested heavily in vertical integration and also in expanding our global footprint. So we believe that the vertical integration gives us a competitive business in relation to our pricing relative to others and gives us some capabilities that some of the organizations we compete with cannot replicate.

40:53 We also have an incredibly good global footprint, and as customers are looking to localize supply chains for a variety of reasons, that global footprint really plays into their requirements, and that's why we are investing in particular markets where we can see that opportunity for growth. I would say that as an organization, we've always operated in a competitive environment. So I don't see it getting any more competitive or or less competitive, but I do think we've got much better in the last five years in what we do and what we offer and how we can articulate the differentiation to to customers, and that is helping us win business.

41:38 So although the market is still very competitive, our ability to win new projects and win new customers has enhanced, and that's been helped by the the strategy that we've had around vertical integration, the acquisitions through the cross selling, and through the capabilities of our global team. There's a question about whether we're looking for more acquisitions within power transmission to tap into grid expansions. So if that's to do with the electrical grid such as the national grid in The UK, it's not really an area that we are we have any specialisms in, so that's not a a key a key focus for us.

42:24 There's a question here about how long how long is the term on the Tesla NACS contracts? That's the Tesla North American charging standard contract where we we announced earlier in the year that we are a licensed manufacturing partner for the for the North American charging standard. So that license, as far as I'm aware, there's no time limits on that, and that is a a product that is now becoming the universal standard in The US for electric vehicle charging. It is a a product that we have significant familiarity with, and we see that as a huge opportunity. Anything to add on the NACS side, Nat?

43:11 No. I think you covered it. Good. There's a question here about, please, could you provide some color on the underlying operating margins by operating division? So we don't break down margins by the market sectors. It's commercially sensitive information. But what I will say is broadly the way to think about it, the more complex the products are and the lower volumes in which you supply them, the better the margins, which is why, for example, we're interested in markets like off highway where it's very specialist niche manufacturing, which is higher volume, is lower volume and higher mix than we would be trying to compete in a very mainstream market such as the general passenger car market, which is not a market we'd go into because the the competitive dynamics are are such that we wouldn't achieve good margins in there.

44:16 There's a financial question here. How do we deal with inflationary and currency weakness in Turkey? Well, the first thing I always point out to people is that our businesses in Turkey, they are euro businesses. So both Decca and MT, they are selling in euros. They are buying in euros and dollars, and they do have some exposure to the Turkish lira either through some of the sales to local businesses and through the fact that they pay their salaries to people in lira. But the incomes, the receipts, the cash inflows, and the cash outflows are very closely matched, so we don't have any significant exposure having to to buy or sell lira to to manage our our current exposure in those markets.

45:10 Inflation is difficult in Turkey. It's a very high inflationary environment. We see increases in labor costs twice a year, and we pass those higher costs through to customers. When you take into account the increases in the labor cost in Turkish lira, but the devaluation of the the currency, the devaluation of the currency significantly offsets the impact of inflation in those markets, allowing us to to deal with those those impacts on a regular basis. The so then there's a there's a broader question from Steve Wye about how is VOLEX coping with and managing wage inflation.

46:05 So I would say the best demonstration of how we're dealing with all sorts of inflation, whether it's wage inflation or whether it's component inflation, is to look at our track record of margins over the past three or four years where we've been very consistent with the margins that we've achieved, and they've been within our target range despite an inflationary environment. And we've done that through fairly and transparently passing on higher input costs to customers, but we've also managed inflation through continuous improvement that Nat was talking about earlier. So reducing our cost base, improving efficiencies, being as an efficient business as we we possibly can be, and that really helps with with managing wage inflation.

46:56 There's a question here from Steven p. Can you give some examples of vertical integration? Nat, is that something you could pick up, please? Sure. So if you were to go to our our plant in Suzhou in China, you would see that during COVID, we've put in place entire an entire factory dedicated to making every piece of our EV supply chain in house. So today, we make about 90% of what we do in our in our electric vehicle extrude. We have the ability to make around 90% of our of our EV products in house.

47:49 So that is in Suzhou. Something very similar is going on in, in Batam in Indonesia, which is now a factory which has a site that has around two and a half thousand people in that one site. And there, you'll see again cable extrusion capability for our consumer electricals business. In in Turkey, in our in our Decker acquisition, again, we we put in, new new new automation equipment, new extrusion capability for our consumer electricals business. In in MT, in Murat Tajaret, again, very, very high levels of vertical integration in the off highway business, which we're looking now to take that know how and to expand it into into other into other locations around around the globe.

48:58 So it just gives you a sense of how different the business is from when we, took over the the stewardship of this business in 2015 where it had no vertical integration at all. And it's all about the the the economics because if you're taking, for example, a medical cable assembly and you're buying a few meters of silicon cable, for example, a month, it doesn't make sense there to to vertically integrate. And often, your your customer, your will will have will have designated a particular supplier that they want you to use and the cost of requalification is prohibitive. So in that case, it doesn't make sense. But but where we are operating in in in higher volumes, it it almost it almost invariably does make sense.

49:58 Good. Thank you, Nat. The next question is in what do we see the opportunity in the Chinese EV market, and what progress are we making. Is that something you could answer, Nat? Sure. So so look. In in the Chinese EV market, it is incredibly competitive, first of all, and there are there are aspects of doing business in China that that is that that that we find where it's hard for us as a kind of non Chinese western company to compete. So whereas we make things in China and we do supply the world's largest EV company from China into China, in other words, we supply one of their sites in China, We have not gone aggressively after the Chinese the domestic China for China market simply because the margins that are available are lower than what we would probably accept. That said, we are always looking at ways of of doing business with these companies.

51:20 We've developed the relationships with them. We know them, many of them now, at the senior level. But from my my perspective, I'm looking to try and find profitable niche pieces of business, and I and I don't see the need to go after very, very low margin business just for the sake of being able to say that we're doing it. Good. Thank you, Nat. There's a question here on the destocking in year on year revenue trends in consumer electricals and EV and to the extent to which we have forward visibility of that. And I would say we absolutely recognized twelve months ago that customers were were stocking up, and they were worried about supply chains. They were worried about, in particular, the increased shipping times from Asia to The US where shipping times had gone from six weeks to twelve weeks, which meant that customers needed to have a marked increase in their levels of inventory to support the longer longer time it was taking for those supplies to be replenished.

52:34 And we've then seen a greater degree of confidence from our customers this year that's allowing them to to reduce those levels of of inventory. So, yes, we knew that customers had stocked up. It's always difficult to know when you've got so many customers at which point that they will feel confident to start start destocking. It happened earlier for our consumer electricals customers in Europe than it did in in North America and Asia, and we're broadly through that process in in Europe, and it's still ongoing in in North America and Asia. There's a question here from Peter about whether we're able to say whether MT has continued to grow revenues in 2023 at expected 7% rate as mentioned in the acquisition RNS.

53:27 It's it's too early for us to give an indication of what the growth rate is, but it's not too early for us to say that we're really pleased with what we've acquired in MT. It is a fantastic business, and we've had some very interesting and exciting interactions with customers so far. So we believe that this is a a very strong business with great opportunities, fantastic customers. Nat was meeting a number of the customers last week and had some terrific feedback in terms of the opportunities available, but also in their experiences that they've had with with MT.

54:13 The early indications we've had are that there is a lot of new business that we can go after for MT. Anything to add there, Nat, in terms of the conversations you were having last week with some of the customers? Look. I I would just echo what you just said, John, also what we said in the in the in the the presentation we just gave, that that the MT business is a phenomenal business with an a to zed of blue chip customers, and we supply them essentially from Turkey with a we have a small site in Macedonia and a tiny site in in Mexico. But this is a a centric or Turkish centric business, and these are global customers. And just like we did with Deka, where we took Deka's Turkish customers and we globalized them by selling them to Mexico and by selling them to to to Asia, particularly Bataan, there is no reason to think, well, that we cannot do the same in the case of in the case of MT's customers. And so I think there's a a tremendous, tremendous opportunity to to internationalize this business, and it's all going to be down to

55:45 quality and to on time delivery and to, obviously, good pricing. And and that good pricing is is gonna be dependent on increasing the efficiency, improving Kaizen and introducing Kaizen as we talked about earlier, and also adding where we can more more vertical integration into the business. But we we've we've paid four times EBITDA for that business, 5.3 times if you include the the earn outs that they're currently being worked through. As the business has been growing at a at a terrific top line growth rate, and there's no reason why we can't we can't continue that.

56:34 Good. Thank you. So in the interest of time, I'm gonna run through a few questions quite quickly. Question here about the key steps necessary to integrate MT into our our business. That that process has already started. We have a team of people working on the the integration who understand our business well, and they're getting to understand the MT business very well. There are some systems and processes that we want to enhance in the back office. The customer engagement is really good. The sales process is really good. The the the way that the business operates and it's an entrepreneurial spirit is is excellent. We don't want to change any of those good things, but we do want to support the business and allow it to grow even further through giving it a great set of systems and processes and replicating the the systems and processes that work well and support our global business.

57:28 A question about the margin impact from product mix. Well, as we said in the presentation that the the more complex products have higher margins. So what we've seen in the first half of the year is a big increase in some of the more complex areas such as medical complex industrial technology and also organic growth in off highway, and we've seen some some softening and some destocking in EV and consumer electrical. So that's that's had a a positive impact on the the margin position broken down in one of the the slides on the on the presentation. The question about prospects in data centers, and we see a really strong opportunity there. We have these high speed cables, which are very much in demand at the moment as our customers look to refresh their data centers, but we see some long term drivers there. So the continued move of of data into the cloud and therefore greater processing required in the the data centers. But in addition to that artificial intelligence, which needs a lot of of power in the data center, a lot of a lot of processing, manipulation of data, and as that really begins to take off, that's very supportive of this this trend to bigger and more substantial data centers running at the latest technology and using our 400 gigabit and 800 gigabit cables.

59:01 There's a question about improving operating margin, and we're launching and ramping up new manufacturing facilities impact the operating margin. Well, in general, what happens is when you open a new facility, there's an impact on profitability there because you have higher costs to begin with. And as you fill that facility, then it becomes more more profitable. So we take that all into account in our investment plan when we're blending together the different elements of our business, the new growth opportunities. We're very focused on profitable growth. We don't want unprofitable growth. So we do we do take all of that into consideration. A question here, have our auditors inspected the books of MT?

59:46 Well, MT will be audited by PLC for the year ended f y twenty four, and we did extensive due diligence using a big four firm over an eighteen month to two year period before we acquired MT. So we've done a lot of work in relation to the the financial metrics and understanding the the business to make sure we we fully understood what we we were buying, and then that will be be audited by by PLC this year end. I think we've got time for one more question. So I'm just trying to find something that's a a common theme that's that's coming through.

1:00:33 I would say let's have a look. A question here. I'm sure this is an interesting question for people. What is the pricing environment currently like for potential acquisitions? So we we've always negotiated hard on price, looked for deep value in everything that we have acquired, and there is some, I guess, some realism coming into some of the valuations. We've gone from a period where it's been very hard to value businesses. As we went through COVID, some businesses underperformed. And when they were coming to market, then they had lots of excuses why they'd underperformed. And some businesses had overperformed, and you had to try and estimate what the true run rate performance of that business was. As we move beyond the pandemic period, it's easier for us to carry out our own valuations of those businesses, and we're seeing a bit more realism from some of the the vendors as they recognize that we're moving into a environment where businesses have to be incredibly good quality. Investment will be more difficult because of higher interest rates, and they're starting to see the the benefits of being part of a larger global organization.

1:01:49 So I'm sorry we didn't get a chance to answer all of the questions. There were loads of questions today, so we've tried to get through as many as possible. And I'll just hand back to to Nat to make some closing remarks. Thanks, John. And, look, thanks to everyone for taking the time to to attend this presentation and for the remarkably insightful questions that that we get on this, on this platform. And I I hope very much that you found the the session helpful. I said earlier on, I feel like we're just getting started here and, we've been doing it for for for eight years. I think people on this on this platform are now starting to take a real interest in our business. I hope very much there are some potential investors out there who are thinking about investing with us.

1:02:47 So if you if you do and we've we've we've jogged some memories or jogged some minds, it means we've achieved, something in addition to trying to give everyone a good sense of how we've done over the last six months. So we look forward very much to speaking with you again in the summer when we set out our full year results. And all that remains is for me to say thank you to my colleagues, the people who make this business And if we don't speak before, have a very happy holiday season, everyone on this call. John, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations?

1:03:39 Will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of VOLEX PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.