Volex plc

Throughout this recorded presentation, investors will be in listen-only mode. Given today's announcement, the company will only be addressing questions relating to the results themselves. These can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Please simply type in your questions at any time and press send. 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 publish responses where it's appropriate to do so before we begin we'd like to submit the following poll and i'm sure the company will be most grateful for your participation and i'd like to hand over to netrock charles good afternoon so good afternoon and um just to remind everyone the purpose of this call is to talk about our results so we

afraid we can't talk about the possible offer for TT Electronics and we won't be taking any questions about that as well during the Q&A at the end of this webinar. So look, I'm going to take you through the highlights of the year before handing over to John for the financial review. And I'll then provide an update on our strategy and close with our outlook. And there'll be time for questions about our results at the end of the presentation. There's over 100 people on this call. As always, we are extremely grateful for the retail element of our shareholder base. We have made exceptionally good progress in the first half delivering strong organic revenue growth of 9.7% as well as achieving underlying operating margins of 9.2% which is within our 9-10% target corridor. We have achieved this while continuing to invest in our business and making significant progress in the delivery of our 5-year plan. We have positioned ourselves as a key supplier of critical power and data connectivity solutions to our customers, many of whom are global technology businesses, allowing us to build deep and long lasting relationships. By way of example, during the period, we've onboarded new significant customers in medical in Europe and off highway in North America. Through our focus on five sectors, we are recognized as experts in attractive markets with structural growth characteristics. Our expertise in charging was recognized by Tesla, who made us a licensed partner for their North American charging standard, allowing us to secure business with new customers in the first half of the year. We've opened three new state-of-the-art facilities already this year in India, Mexico and Indonesia, delivering cutting-edge capabilities where our customers need them. I'm pleased to report that the integration of Murat Tejara, the global off-highway business that we acquired in August 23, is going well and we'll talk you through this in more detail later on. As is clearly demonstrated in our results today, our strategy, our investment and our expertise are delivering significant success. At Volex, we are incredibly privileged to work with some truly excellent customers who are delivering significant technological progress on a global scale. This supports a wide range of innovation. from the efficient harvesting of crops to curing life-limiting diseases to the decarbonisation of passenger transport. We support our customers across five markets, providing mission-critical connectivity solutions across power and data where exceptional quality is paramount. Each market aligns with our core strengths and capabilities. We use our global reach to cross-sell to customers between different parts of our organisation and to support customers on a worldwide basis. At the same time, we are dynamic and able to respond quickly to changing requirements. In each of our markets, there are high degrees of customer lock-in which limits customer churn and enables relationship building and account development. The balance between these markets supports our delivery of sustained growth through long-term customer partnerships helped by structural growth drivers. These include societal, environmental and technological factors. So look, I'll now hand over to John to take us through the financial and operational review. Thanks, John.

Great. Thank you, Nat. So I'm gonna turn to our financial performance. And again, this is another set of really strong results for our business. And it's in line with the expectations that we set back in June. So first of all, we've delivered over $500 million of revenue in the first half of the year. And this is a first for us and represents a 30% year on year increase. So you've got growth coming through from the acquisition of Murat Tijeret, which completed in August 2023, as well as almost 10% organic revenue growth. And I believe this is a real achievement given the challenging market backdrop. In fact, our performance underlines what Nat was saying about our strategic market position, and that's what gives us confidence in our ability to deliver sustainable growth. Underlying operating profit increased by 27% and we achieved a margin of 9.2%. This is the fifth year in which we've consistently delivered in the 9 to 10% operating margin corridor, which demonstrates our capability to blend together the moving parts of our business to deliver a consistent outcome. Our return on capital employed shows our ability to deliver strong and consistent returns. we've also improved profit before tax by 20% despite higher interest costs in the period. Our strong results gave us confidence to increase the interim dividend to 1.5 pence per share which is a 7% increase and the fifth successive year in which we've increased the dividend. So as we turn to the sectors I'm going to start with electric vehicles and talk you through what we've seen and the trends in each of our markets. EV is an important market given the role that electric vehicles will play in delivering substantial emissions reductions in the future. We achieved $80 million of revenue in the first half of the year, which is a record for us. We provide a comprehensive range of EV charging products, which covers charging at home, charging out of the home, as well as high-speed charging networks. Over the period that we've been involved in the EV market, we're producing a greater level of components and increasingly specialized technology. Part of the reason for the increase in the first half of this year is the ramp up of a project to deliver specialist high voltage connectors for one of our key customers from our facility in northern Mexico. In addition to that contract, we've also grown organically by 20% across the rest of our product portfolio. This demonstrates the appeal of our wide range of solutions and the fact that we've moved through the destocking cycle. Momentum is expected to continue into the second half, but it's worth flagging that the comparatives are tougher for H2. Longer term, we see opportunities in electric vehicles as adoption will continue to increase in the midterm, supported by clear government targets across multiple markets. Turning to consumer electricals. So it's been fantastic to see consumer electricals not just returning to growth, but delivering 7.5% organic growth. And in fact, the $132 million we delivered in the first half this year is not far off our all time record performance in the first half of 2023, which was in that peak post-COVID period. Remember, we really like consumer because it has an attractive returns profile. The growth, which is predominantly volumetric, is driven by market factors and competitiveness. New technology in appliances and electronics is encouraging customers to replace existing products. The other reason is our ability to deliver both power cords and wire harnesses in an incredibly cost-competitive way. This comes through the increased deployment of automation and vertical integration supporting our global operations. A year ago, we were experiencing destocking. We're now through that destocking process and firmly back into growth with new projects that kicked off in the first half of this year and further new projects coming on stream in the second half of the year. There is some seasonality in demand with revenues first half weighted supporting electronics customers as they plan for the Christmas peak. Next up is medical. As you will recall from the full year presentation, we had a very strong year in FY24 in medical, as customers were able to catch up demand due to better availability of components. We flagged a modest decline as we came into FY25, and that's exactly what we've seen with a reduction of 4%. Much of this is due to, as we expected, the one-off catch-up business from 12 months ago not repeating. There's a lot that we like about medical as a sector. It's representative of our overall strength. It's high quality, it's high technology and it's high mix for highly demanding customers. And customers are right to be demanding because they're changing lives through the solutions that they're deploying, such as advanced diagnostics, robotic surgery and image guided therapy. This is an incredibly important sector to be in, and we're very proud of the strong relationships we have in this end market, not only with well-established customers and some important new customers who've come on board in the last 12 months, but also with many startup businesses who are pushing the bounds of medical technology. Volex's proven history in this market, combined with the regulatory approvals held, ensure our partnerships are deep and long-term. Revenues in the second half are expected to continue at similar levels to what we've seen in the first half with clear share gain and structural opportunities giving us confidence in the growth opportunities in medical over the medium term. Complex industrial technology represents a range of advanced solutions to meet our customers requirements across a variety of end-use activities. These include artificial intelligence infrastructure and data centres, mission critical aerospace and defence applications, as well as telecommunications, smart metering and industrial automation. End market demand has varied in these different areas. Data centre sales have been really strong in the first half of the year, boosted by the continuing rollout of AI applications. We are working with two of the biggest data center and AI businesses in the world, supporting their complex requirements. For some of our other industrial customers, demand has been softer, driven by a combination of factors, which included uncertainty pending the outcome of the recent US election and waiting for a more benign interest rate environment before investment is deployed. Overall, we delivered organic growth of 4% in complex industrial technology, which in the backdrop of the difficult industrials markets, we're very pleased with. In the long term, we see opportunities in this space as we establish ourselves as a significant force in the world of high speed data center cables, and also as the demand cycle picks up for other industrial customers. Although we recognize that industrial demand pickup may not arrive until next financial year, we have some new projects coming in the second half, which is encouraging. Off-highway is a really interesting market and one that we're very pleased that we moved into in scale with the acquisition of Murat Tijeret last year. The first half of the year included six months of revenue from Murat Tijeret, compared with only one in the first half of last year. Overall, we're up by 20% organically for the entire period, but like for like for Mouret-Tigeret on an organic basis, it's up by about 7%. With an increased focus on delivering efficient production, whether that's in agricultural food production, in construction, in mass transport, there's a big focus on functionality and features across a range of off-highway equipment. In addition, more stringent safety standards and environmental factors are encouraging the adoption of more modern equipment in a range of different markets. We have significant experience in the off-highway space through our acquisition of Murat Tijeret, which has global customer relationships. The products in off-highway are complex and they are ruggedised to be used in harsh environments and manage varied power and data requirements within the vehicles. Our off-highway business supports a range of sub-sectors, and this diversification is important given the cyclicality of those markets. For instance, we've seen demand softening from agricultural customers, but at the same time increasing from European bus and coach manufacturers. There's generally some seasonality into the second half with off-highway, particularly for agricultural customers. We're incredibly pleased with the progress that we've made and with our acquisition of Murrett Tigeret, and we will talk a bit more about how the integration is going later in the presentation. As I mentioned earlier, we're pleased to have maintained our profitability within our stated 9 to 10% range, given the level of investment we've made in our business. This year, we put a strong focus on cost optimisation through the period and that benefited margins by 90 basis points, more than offsetting the impact of inflation and foreign exchange rate changes. The product mix benefit is predominantly down to higher sales of data centre products, where we receive a better margin than the average across the group. In terms of acquisitions, we had a lower uplift than the acquisition of Murat Tijeret relative to the second half of last year due to inflationary pressures in Turkey. We are actively managing the inflation theme in Turkey through sensible and fair price increases and through a focus on efficiency gains and optimisation which was already part of our integration plans. The growth investments represent the spend we're making in our business to target specific areas that will support our growth through the remainder of the five-year plan and beyond. And this equated to $5 million in the first half of the year. This includes investments in salespeople, in automation technology and in incremental capacity. So overall, bringing all those factors together, we achieved a very decent 9.2% operating margin for the first half of the year and would have been at 10% without the incremental investments in growth. Return to cash flow. Underlying EBITDA improved by 31%. We invested more in capital expenditure than we did in the previous year. This is in line with our guidance at the full year when we said we were going to spend 5% of revenue on CapEx. In general, cash generation is weighted to the second half for a number of reasons. We have some annual payments such as the bonus and full year dividend that come out in the first half, along with increased working capital ahead of the Christmas peak for consumer products. A year ago, we were destocking and experienced lower growth. So the underlying working capital movement you see in the prior year was unusually good. In H1, inventory has increased for three specific reasons. First of all, approximately $7 million was due to the growth in our business and the additional working capital needed to support the 9.7% organic increase. We also invested in additional inventory for the Murat Tijeret business to support efficiency programs and deliver benefits around supply chain. The third element was in relation to various factory moves and new customer projects that were happening associated with the additional capacity that we delivered in the period. Where customers are moving locations, you need to build up a buffer stock to prevent disruption. Cash generation is expected to improve in the second half of the year as we are not anticipating significant incremental working capital investments. our interest and tax payments were higher, which was a combination of the average debt levels over the period and also the additional profit that we generated resulted in a higher tax charge. Overall, this resulted in an outflow of $11.5 million at the underlying free cash flow level. Our net debt was 1.3 times EBITDA for covenant purposes, which continues to offer us flexibility and is consistent with the same period last year. Our journey towards sustainable growth is guided by clear, multifaceted strategy designed to maximise value for our stakeholders. First of all, we focus on organic growth, ensuring that our core business remains strong and competitive. Capital investments are the foundations of this growth, enabling us to maintain and expand our capabilities. Typically we allocate 3-4% of our revenue towards these investments, with higher levels of 5% in the current year as previously guided. To accelerate our growth and diversify our offerings, we also pursue strategic acquisitions. By enhancing our capabilities and broadening our customer base, these acquisitions add valuable assets to our portfolio. we carefully select targets that offer attractive valuations, ensuring that each acquisition complements our long-term goals. Supporting our growth initiatives is a commitment to providing sustainable returns to our shareholders. Our dividend is designed to be resilient through market cycles, and we've progressively increased payouts over time, reflecting our financial health and stability. Lastly, we consider capital returns in cases where reinvestment opportunities are limited. We currently have a pipeline of acquisition opportunities that we're exploring, along with our focus on growth investments. I will now hand back to Nat to take you through our strategic progress. Thank you very much, John.