Volex plc

that's recorded presentation investors will be in listen only mode questions are encouraged they can be submitted at any time using the q a tab just situated on the right hand corner screen simply type in your questions at any time and press send the company may not be in a position to answer every question received during today's call however the company can review all questions submitted today and we'll publish those responses where it's appropriate to do so before we begin we'd like to submit the following poll i'm sure the company be most grateful for your participation i'd now like to hand over to executive chairman nat rothschilds good morning

Good morning and welcome to the Volex PLC Annual Results presentation for FY 2024. I'm Nat Rothschild, Executive Chairman, and I'm joined today by our Chief Financial Officer, John Bowden. It's good to be back on the InvestorMeet platform. We have a real following on here and it provides us with a unique opportunity to interact with you, a wide range of investors. Let me start by saying that this past year has been marked by significant achievements, strategic advancements, and of course, robust financial performance. I will take you through the highlights of the year before handing over to John, who will run through our financial review. I'll then provide an update on our strategy and close with our outlook, and there will be ample time for questions at the end of the presentation. Excuse me. These results demonstrate that our business is in excellent shape. We achieved revenues of $913 million doubling revenue in three years. Over 40% of this growth has been organic with the restroom acquisitions. This impressive growth underscores the strength of our business. Our strategy is to diversify and develop in niche markets where we can generate profitable growth, and this has been highly effective, helping us to achieve an excellent underlying operating margin of 9.8%. We are particularly pleased with the significant growth in our medical and complex industrial technology sectors. Despite some short-term headwinds in the electric vehicles and consumer electrical sectors due to destocking, our overall business saw 7% organic growth. And this demonstrates how our strategic focus on diversification allows us to adapt to changing market conditions. We are extremely happy with our progress in Off-Highway, following the acquisition of Murat Tijarat in August 2023. The integration is progressing well, with good feedback from customers and our new colleagues. This is a fantastic business, and with the positive changes that we're implementing, along with opportunities for cross-selling and global growth, it will become even stronger. This success underpins our confidence to keep investing in growth and seek out new opportunities. Turning to slide four, we have transformed Volex into a diversified business focused on specialist manufacturing for advanced technology customers. This has allowed us to deliver compound annual growth of 27% over the last three years and an average organic growth of 12%. we have consistently delivered underlying operating profit margins within our target range of 9% to 10% for the past four years, despite a challenging environment that has included COVID supply chain disruptions, and inflationary pressures. We are a manufacturing partner for the three biggest technology businesses in the world. This includes our high-speed data center cables, which are experiencing a significant increase in demand due to the rollout of artificial intelligence technology. Many of our customers across multiple end markets from agricultural to aerospace, from medical to industrial automation are demanding increasingly complex solutions. Our well-equipped manufacturing locations and world class engineers are supporting these programs and delivering critical connectivity solutions to these advanced technology companies. Our global footprint continues to be a critical differentiator. Given the significant trends we're seeing towards localization, it is a central topic in many of the conversations we're having with existing and potential customers. We can offer the choice and flexibility that customers are looking for as they reconfigure their global supply chains. Our advanced manufacturing locations in North America, Europe, India and Asia allow customers to diversify and de-risk their sourcing strategies. Customers are willing to show flexibility and undergo the disruption of moving operations to ensure continuity of supply. It's not just businesses relocating from China. We also have North American and European customers interested in exploring low-cost manufacturing opportunities we have in India and Indonesia. To capitalize on this trend, we have significant incremental capacity coming online in Mexico, Turkey, Poland, Indonesia, and India, which will increase our overall footprint by 25%. This capacity is either ready now or will be ready within the next three months, perfectly timed to meet the demands of our customers who are looking to relocate their production facilities as we invest ahead of customer demand. In addition to the optionality that we offer around location, we pride ourselves on the level of choice we are able to provide to customers. We have different types of facility catering to different customer and market requirements. Our small specialist sites are dedicated to meeting complex needs like printed circuit board assemblies for critical applications. They use advanced engineering and thorough testing to meet the high standards of their markets. By concentrating on specific end markets and customer groups, these sites deliver the highest levels of proficiency and quality for specialized applications, resulting in higher gross margins. Also, we operate larger sites, some of which are specialists and provide scale and low-cost options to our customers. Others, like those in Tijuana and Batam, serve multiple markets at once. These sites act as centres of excellence, bringing together skilled engineers to solve various manufacturing challenges. Their size enables us to work more efficiently, lowering overhead costs and boosting overall productivity. I'll now hand over to John to run through our financial performance.

Thanks, Nat. I'd like to echo Nat's comments. It's great to be back on the Invest to Meet company platform, and it's great that so many of you are tuning in to listen to our latest set of results. And look, it's been a great year, as you can see from our financial performance. Revenue's up by 26%, and this includes seven months of contribution following the acquisition of Marat Tijeret. We also achieved 6.9% organic growth, despite facing variable demand across our different sectors. And I'll go through the sector shortly. Our underlying operating margin improved by 50 basis points, delivering almost $90 million in underlying operating profit, which is a 33% increase from the previous year. And this improvement is a result of our sustained focus on managing operational costs, passing through inflation and identifying opportunities for continuous improvement. We also saw a 13% increase in profit before tax. And as a result of this strong financial performance, we're able to increase our total dividend for the year by 8% to 4.2 pence. This increase reflects our confidence in the future growth prospects of the business and our commitment to delivering value to shareholders. So let me talk you through what we've seen in each of our markets during the year. So in electric vehicles, FY23 was incredibly busy with customers who were stocking up due to shipment delays. As shipping times have normalised in FY24, customers have reduced inventory levels, and that's led to a year-on-year revenue decline, but against a very strong comparator. However, in the last four or five months of the financial year, we've started to see a return to growth, indicating that we're moving through destocking. We're using our expertise in high voltage power delivery and harnessing to deliver complex connectors that are installed within electric vehicles. And that's a great example of how we're increasing our participation in the EV market. We're also winning business based on our expertise in relation to Tesla's North American charging standard, which is becoming the universal charging standard in the US market. This positions as well for future growth with our range of cables, couplers and connectors. The EV market is maturing and continues to offer opportunities for significant long-term growth as the world looks to decarbonise transportation. As a vertically integrated, market-leading expert in these products, we have confidence in our ability to make further progress in this space. The consumer electrical sector, which represents about 25% of our total output, has also seen significant changes. In FY22 and 23 we saw increased demand caused by the trend towards remote working and spending within the home. This demand has normalised and customers have been adjusting inventory levels accordingly. We saw a fall in revenues of 7.6% as de-stocking worked through. As we approached the end of the year, particularly in the last quarter, we started to see a normalisation in demand, which suggests a positive outlook for the future. We have several new projects scheduled to go into production in FY25, which should drive continued success in the market. Mid-term growth will be driven by our competitive commercial position, our fully vertically integrated operations and from consumers increasingly replacing appliances with more energy efficient alternatives. And if we turn to medical, we had an exceptionally strong year. Now, this was partly due to pent-up demand as our customers had faced component availability challenges. And for our medical customers, the products they manufacture are highly sophisticated, requiring regulatory approval, which means it's very difficult for them to substitute components. However, with supply chains improving, our customers have been catching up on significant backlogs, driving high demand. So when we look ahead, we expect growth in the medical sector to be flat or slightly down next year due to the one-off nature of some of this catch-up. However, the long-term prospects are really strong. Advances in medical technology, an ageing population and the increasing need for healthcare services will help drive demand for these products. We've invested in capability and engineers to support customers who would like to move production to Volex. This strategic positioning will enable us to capture future growth opportunities in the medical sector. In the complex industrial technology sector, we achieved organic growth of 32%. Now, much of this was from high-speed cables for data centers, and this increased demand was driven by improved component availability, which was supporting data center builds, and also the growth in artificial intelligence applications. Now, there's a huge amount of processing required to run AI models, and that significantly increased demand for our high-speed products. Across the rest of the complex industrial technology sector, which spans markets including aerospace, military and defence, telecommunications and industrial automation, we saw a variety of requirements. Some customers were restocking and catching up with help from better supply chains, while others were destocking. Overall, the performance was broadly flat. Looking ahead, we expect demand to remain strong for data center products, although we don't expect the growth to be at the levels that we saw in FY24. In FY25, we have several new programs set to launch as we continue to meet the evolving needs of our diverse portfolio of customers. And then turning to our newest sector off highway, we experienced significant growth due to the acquisition of Murat Tijeret. Just a reminder of what we do here, we're making complex wire harnesses that are used in a variety of applications and our end markets include agricultural and construction equipment, materials handling solutions and buses and coaches. We've broken out our prior year numbers to include off-highway products that were previously reported in other end markets. And actually, we're really pleased with the progress we've made in integrating Murat Tijeret, maintaining strong customer relationships and winning significant new business. And the acquisition has not only expanded our market reach, but provides us with new opportunities for growth. Future growth in the off-highway sector will be driven by the electrification and increased mechanisation of vehicles, with customers looking to reduce their reliance on labour and enhance efficiency through modern technology, creating demand for our products. We see significant potential for growth in this sector as these trends continue. So margin performance was really great this year and we increased our margins by 50 basis points to 9.8% and that was due to a number of things and included a strong focus on cost management, favourable foreign exchange rates and improvements in product mix. And the acquisition of Murat Tijeret also contributed to our margin improvement, blending the margin upwards. Thinking about our business model, it's important to realise it contains factories with a mix of different margin levels due to the varied types of manufacturing and end markets that we serve, as well as the utilisation levels in each of those facilities. So some of our facilities produce operating margins in excess of 20% and some of them are sub 10%. And what we do every year is we blend those margins together. We add in central overheads, which we control very tightly. And that gives us headroom that we can invest in growth. And as we've made such a strong performance across our operating sites, we're able to channel more into investment, including capital expenditure in FY24 to support our growth objectives. And we've consistently shown excellent capital allocation decisions as evidenced by our strong return on capital. And we'll continue our proven approach as we invest in the next phase of growth for the group. Cash flow performance this year has been excellent. So we generated $57 million in underlying free cash flow, even after $31 million of capital expenditure. And this strong cash flow reflects our ability to manage working capital effectively. And that's included reducing inventory, improving collections and negotiating extended terms with suppliers. we ended the year with a net debt of one times covenant leverage which is well within our target range of one to two times and the leverage measure we use corresponds with the way our banks assess leverage for covenant purposes so this excludes operating leases and it annualizes the impact of acquisitions with a strong financial performance and strong financial position, provides us with the flexibility to invest in future growth opportunities while maintaining a healthy balance sheet. And further to that, into the year end, we've completed a refinancing. So our facilities now comprise a four year, $400 million RCF with an uncommitted $200 million accordion. And this facility is unsecured and we have improvements in interest margins and leverage covenants, which demonstrates the confidence that our lending banks have in the progress that we've made and positions us for further M&A activity. So just a reminder in relation to capital allocation, and our clear policy on capital allocation has been an integral part of the sustained growth of our business, driving the levels of return that we've delivered. Our strategic approach focuses on reinvesting profits into high return projects, ensuring that we maximise shareholder value. We're also committed to maintaining a strong balance sheet, providing us with the financial flexibility to seize emerging opportunities. By optimising our capital structure and efficiently managing our resources, we can fund strategic acquisitions that complement our core operations and drive synergies. This holistic approach not only supports sustainable growth, but also mitigates risks, ensuring long-term stability. We also believe it's important to pay a dividend and would consider a return of capital to shareholders if there were no more compelling opportunities to deploy capital through investment or acquisition. So as I mentioned, we invested $31 million in capital expenditure this year, which represents 3.5% of our revenue. So it's within the 3% to 4% range that we guided to last year. And these investments support the growth of our business and offer excellent returns. Most of our projects provide cash payback within two years, which we believe is industry leading and highlights that our capital allocation approach is working very well. Returns from capital expenditure have been very successful, so we're confidently increasing investment to approximately 5% of revenue for FY25. And our investment is driven by our customers and understanding of their evolving requirements, reducing the risk of underutilisation of assets. Looking at our return on capital employed, it's consistently been above 20%, and I believe that's particularly impressive given that we've doubled revenues over this period. We've several new projects coming online at the end of FY25 and into FY26, and we'll continue to invest in CapEx to deliver these incremental projects. These strategic investments will support our growth and deliver our long-term objectives. I'll now hand back to Nat to cover some key points in relation to strategy.