Volex plc

Good afternoon, ladies and gentlemen. Welcome to the Volex PLC four-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab just situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be able 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 it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation. I'd now like to hand over to the management team from Verlex PLC, Nat, John. Good afternoon.

Hello, ladies and gentlemen, and welcome to the FY25 event. full year results presentation for Volex PLC. As you know, I'm Nat Rothschild, Executive Chairman, and as always, joining me today is John Bowden, our Chief Financial Officer. So I'm going to begin by taking you through the highlights from the year before passing over to John to take you through the financial performance. I will then provide an update on our strategy, concluding the presentation with our outlook statement. There'll be plenty of time for questions at the end. FY25 was a year of significant progress as we successfully executed key elements of our strategy. This allowed us to deliver over 11% organic growth against a tough market backdrop. We invested in manufacturing centres of excellence, enhancing production efficiency and increasing our capacity in strategically important regions. Our position as an essential and trusted partner to global technology companies was strengthened through our consistent delivery of critical specialized manufacturing services. We continue to serve high value markets, including electric vehicles, data centers, and off highway. Each market has unique structural growth drivers, and our deep expertise allows us to capitalize effectively on emerging opportunities. The ongoing integration of Murat Tijaret was a significant highlight, focusing heavily on productivity enhancements and operational optimization. This integration provided substantial scale, strengthened customer relationships, and augmented our engineering capabilities, notably in the off-highway segment. These improvements are integral to our broader goal of capturing greater market share while maintaining profitability across our business segments. John will take us through the numbers in more detail later in the presentation, but I do want to highlight that this is the first time we've exceeded $1 billion of revenue and $100 million of underlying operating profit. This is a milestone on our way towards delivering our five-year plan targets, positioning us favorably for the future. Looking forward, we remain confident in our ability to navigate complex market conditions adapt to evolving customer needs and leverage our unique competitive advantages to sustain profitable growth so i'd like to provide an overview on what makes volex such a compelling investment proposition we've consistently delivered strong financial performance including five years in a row where our operating margins have been maintained within our target range of between nine and ten percent and this includes during challenging periods due to COVID, variable supply chains, destocking and inflation. Alongside this, we have delivered 11% average organic revenue growth over the same period. We are in the right markets with attractive characteristics and structural growth drivers. We focus on niche sectors where our capabilities align closely with customer needs. These are expanding markets with high barriers to entry, giving us natural diversification. Our global footprint and scale give us a real edge. We have well invested manufacturing and engineering presence across three continents that will be difficult for a new entrant to replicate. And this infrastructure gives us flexibility and resilience in our supply chain, while allowing us to be close to our customers, many of whom are global businesses themselves. Our engineering-led innovation allows us to add value far beyond simple assembly. We are not just a manufacturer. We design, engineer, and optimize solutions for manufacturability and performance. This includes developing a full suite of our own products for EV and data centers. Vertical integration allows us to control quality, manage costs, and ensure reliable delivery. We differentiate through our ability to be agile and responsive. Volex combines the rigor of a public company with the entrepreneurial mindset of a smaller organization. We make decisions quickly. We empower local teams while maintaining clear strategic and financial oversight. This allows us to respond rapidly to changes in customer demand, emerging opportunities or shifts in market dynamics. Finally, we've been highly disciplined in our approach to acquisitions. Over the past few years, we've made a series of carefully selected acquisitions that have expanded our capabilities, deepened our customer relationships and extended our geographic reach. We will cover our acquisition framework later in the presentation. So the scope and pace of recent changes in global trade policy presents opportunities and challenges. We have a resilient and diverse business well suited to navigating the current tariff landscape with our extensive global footprint. The evolving situation has created opportunities to deepen customer relationships. We actively support customers as they address all manner of supply chain challenges, taking a proactive approach to ensuring operational continuity. Our ability to relocate complex manufacturing operations seamlessly backed by a global interconnected approach and single points of contact underpins our value proposition. Given these dynamics, we see Taras as an opportunity, an opportunity to cement our position as the manufacturer of choice with our key customers to support new customers in their supply chain transformation activities and to demonstrate the value-add that we can provide. Based on the current tariff landscape, only around 12% of group revenue is potentially impacted by increased tariffs, which is very manageable volume given that we're frequently manufacturing mission-critical solutions for our customers. We're already engaged with key customers in transfer projects, reducing their exposure to specific markets and moving to our centre of excellence locations such as BATAM Indonesia. And throughout our discussions with customers, we've been clear that the incremental tariff costs will be passed through in their entirety. This has been accepted given our role as a manufacturing specialist. We're frequently the sole supplier of specialist solutions to our customers with limited alternative sources. Often this is reinforced by regulatory approval requirements or similar barriers. The fact that we have such a high degree of lock-in with our customers means that they are keen to work with us to mitigate tariff challenges rather than looking to transfer business elsewhere. So I'll now hand over to John to talk through our financial performance.

Thank you, Nat. And I'd just like to say it's great to be back on the InvestorMeet company platform. It's always one of the highlights for us of the the results process because we get such interesting questions. So please be thinking about your questions you'd like to ask at the end. So turning to Volex, these are an excellent set of results. In FY25, we delivered sustained, strong financial performance across key metrics. Our revenue grew by 19% year on year with organic growth of 11.1%. And that's a tremendous outcome reflecting a strong performance across the entire organization. I'll step through the performance by end market on the next few slides. Our strategy delivers strong growth with consistently healthy margin profile. And we've achieved this again, the fifth consecutive year within our nine to 10% margin corridor. This is a testament to our efficient manufacturing, strong customer relationships and disciplined financial management. Return on capital employed remains robust, demonstrating the effectiveness of our capital allocation strategy. Our net debt leverage ratio was maintained at one times, reflecting prudent financial management and ensuring substantial flexibility to support future growth initiatives. So if we turn to electric vehicles, we had an extremely strong year in electric vehicles with organic growth of approximately 40%. This marked a significant recovery from the prior year where we'd experienced destocking and we're firmly back on a growth trajectory. We're achieving this through a combination of expanding the products and services that we offer to existing customers, but also onboarding new OEMs who are keen to purchase our market-leading EV product sets. Adoption of electric vehicle technology continued to grow in key markets, notably in the European and Chinese markets, where EVs as a proportion of all cars sold are up to 26% and 53% respectively, demonstrating continued strong consumer adoption of this technology. We continue to roll out successful projects, including to one of our key customers, providing high voltage connectivity solutions that power all the electrical systems within one of their new vehicles. This demonstrates that our capability has broadened beyond external charging infrastructure to being able to support specialist applications on the vehicles themselves. In consumer electricals, we delivered significant growth of 9.6% organically. And again, this contrasts with the prior year where we were experiencing some customer destocking. This is an important market for us, given that it's highly cash generative. And we have, through vertical integration and automation, created an incredibly cost-competitive proposition for our global customer base. We've won additional projects in the year, with new and existing customers as they develop new technologies to improve the consumer experience. We're continuing to expand the breadth of our offering, particularly around our wire harnesses for domestic appliances, which is a further growth opportunity. Customer trends continue to be positive in the consumer electrical space underpinning our confidence in this end market for the future. As we anticipated at the beginning of the year, medical was slightly down year on year by approximately five percent this was really driven by the dynamics of the comparative period where we saw a one-off catch-up as our medical customers recovered from challenges around availability of key components over a five-year period we've delivered 10 compound annual growth in this market although we expect demand in fy26 to be fairly static In the longer term, there are strong structural growth drivers related to advances in medical technology and demographic considerations that will support the future growth outlook. We have an excellent customer base and we've onboarded new customers during the period, which will help support growth as we move forward in this market. In complex industrial technology, we had an excellent year delivering organic growth of 14.5%. We were particularly strong in the data center space, with high growth demonstrated in the second half of the year. Our data center customers are supporting significant increased demand in relation to artificial intelligence and cloud technology, and our high-speed cables are critical to their infrastructure rollouts. Approximately half the revenue in this end market now comes from data centres. Across the rest of complex industrial technology, we have a diverse book of business, including IT, telecoms, aerospace and defence, as well as a variety of other commercial and industrial applications, where we provide complex cable assemblies, printed circuit board assemblies and box build services to our customers. Demand across these customers was variable and organic growth on aggregate was 1.5%. This reflects similar dynamics to medical when the prior year benefited from a recovery in component availability. Growth was also lowered by certain customer projects rolling on and off, which reflects the specialised nature of the end-use applications that we support. We see wins in HVAC as a source of growth in FY26 as production ramps up. Moving on to off-highway. This is the first financial year where we've had a full year of contribution from the off-highway business we purchased in Turkey, Murat Tijeret. We've also delivered 3.6 organic growth, despite some softness in some of the end markets that we support, notably agricultural and construction. We've delivered this growth as a result of the diversification that we have in the off-highway space. combined with our relationships with customers and our strong commercial proposition. This has allowed us to offer cost competitive solutions into the marketplace. These are incredibly complex products and as a result the customer relationships are very sticky. We've also seen increased revenues coming out of North America particularly from our facility in Tijuana, where we're supporting a major North American manufacturer on a specialist vehicle program that will last for multiple years. We see North America as a huge opportunity building on our incredibly strong position in the European market and replicating this success in the region. As an organization, we put a huge amount of focus on cost control and continuous improvement. These activities had a beneficial impact on margin of 1.5% in the period, offsetting the impact of inflation, which was an adverse headwind of 1.6%. A significant element of the inflationary impact arose in Turkey, where inflation is beginning to trend down following changes in economic policy. Our cost optimization activities allow us to achieve stable operating margins while maintaining competitive pricing, which is a huge achievement in an inflationary environment. The margins were supported by product mix with a greater contribution from higher margin complex products, including those that we sell into the data center space. This has allowed us to deliver towards the top end of our guidance, even after incremental growth investments that support the continued development of our business. and the successful delivery of our five-year plan targets. Turning now to cash flow, this year we delivered almost $135 million of underlying EBITDA, which is an increase of 21% on the previous year. As we explained a year ago, FY25 was a year of investment in increased capacity and in total, we invested $45 million in capital expenditure. Much of that was supporting new customer projects and building up centers of excellence in key locations, particularly Mexico, India, Indonesia, and Turkey to support our ongoing growth plans. CapEx represented 4.2% of revenue slightly higher than normal levels of between 3 and 4% of revenue and in FY26 investments are expected to revert back to normal levels. Growth capex represents the majority of our spend for less than 1% of revenue required for maintenance. There was an adverse movement in working capital which included additional inventory to support various customer growth programs. As the business grows, we need to put in additional working capital to support those customer programmes. Interest and tax was broadly in line with the prior year, growing with the business. We delivered underlying free cash flow of $42 million for the year due to the excellent returns from our targeted CapEx investments. We ended the year with a covenant net debt ratio of one times, which is at the lower end of our one to two times guidance. This provides us with significant flexibility on the balance sheet to pursue further growth opportunities. We're incredibly proud of the industry leading return on capital that we generate of approximately 20%, which has been consistent over the last three years. This is despite a huge amount of investments in our business. We achieve this because of our strong focus on returns and organic investments. where we qualify projects comprehensively. We focus on investment that we know will generate a cash payback within a two-year period, whether that's through new customer programs or whether it's through cost outs, such as the automation and digital transformation projects that we've been deploying across the group. Our basic underlying earnings per share has increased 11% annualized since the launch of the five-year plan. and we're now at 36.3 cents per share, reflecting the additional value that we're delivering to shareholders through our strategy. Our capital allocation priorities remain consistent with previous years. Our primary focus is on organic growth, particularly given the strong return on capital that we deliver through organic investments, where we generally achieve a cash payback within a two-year period. We continue to originate acquisition opportunities that meet our strict criteria around valuation, bringing financial benefits and fitting our cultural environments. We've increased the dividend again this year with a proposed final dividend of three pence per share. We've consistently increased this every year since reinstatement in FY20. Finally, in terms of capital allocation, We would consider a share buyback if we're unable to deploy cash through organic investment or acquisition opportunities. We've consistently been buying shares in the market to settle our obligations under management share incentive schemes. And over the last three years, we spent a total of $28 million buying shares in the market, including $11 million this year. This is a decision that we've made to avoid issuing these shares and therefore limiting the dilution for existing shareholders. I'll now hand over to Nat to take you through an update on our strategy.