Volex plc

see interim results investor presentation throughout this recorded presentation investors will be in listen only mode questions are encouraged they can be submitted at any time via the Q&A tab that's just situated on the right hand corner of your 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 will publish those responses where appropriate to do so on the investor 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 Invest2Meet company platform for the fourth year in a row with our results for the first half. 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 we will answer them at the end of the presentation first we will highlight the key points from this period then John will walk you through our financial performance and And after that, I'll 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're 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. 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 Tijaret, which I'll refer to as MT for the duration of this presentation. We'll come back to MT later, 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. 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. Turning to slide three, over the last five years, our team has transformed Volex into a strong, high-quality company. We've 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. 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. In the past 18 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 for 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%. 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. 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 1.4 pence per share. In the past five years, we've successfully grown our electric vehicles business from scratch to annual revenues of over $100 million, 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. 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 FY23 when we saw a 53% organic growth. We're also seeing short-term customer destocking. Our customers are reducing the additional safety stock they built up to take account of supply chain challenges. This results in a temporary dip in demand, despite the fact that industry data shows that vehicle sales are increasing. In addition, our largest customers slowed production in the summer 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. The pandemic led to a surge in home working, 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 normalisation in consumer spending. This has resulted in a 9% reduction in revenue, 3.5% 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 de-stocking effect in Europe first, and it took about six to 12 months to stabilize, varying by customer. 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've 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. To turn into 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, specialising in key technology such as imaging, therapy and diagnostics. The cutting-edge advancements these companies are introducing into healthcare are significantly improving patient outcomes. Additionally, the growing demands of an aging population for the latest medical technologies are expected to drive sustained long-term growth in this sector. 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 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. Our complex industrial technology business successfully collaborates with a diverse array of industry leaders. This includes sectors like aerospace and defence, telecommunications and smart technology. We support these industries with a wide range of manufacturing services, from intricate sub-assemblies and printed circuit board assemblies, to comprehensive box builds that integrate various components such as displays and processors. 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 specialised defence 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. 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 labour. Urbanisation 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 FY23 to 9.4% in the same period this year. Our commitment to continuous improvement plays a crucial role in optimising 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 a destocking in higher volume products, has positively influenced our margins compared to the previous period. The acquisition of Murat Tijeret also contributes positively, blending our margins upwards as we integrate their high-mix complex wire harness manufacturing capabilities. We are also making targeted investments to support the growth of the business, which are expected to bring significant benefits in the long run. Moving on to the cash flow, our underlying free cash flow has increased almost $12 million, 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 million of our debt a year ago. 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 12 to 18 months. Taxes 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 progress.