Volex Group Plc Ord

Good morning, ladies and gentlemen, and welcome to the Volex PLC investor presentation for the four-year results for the year-ended 4th of April 2021. Throughout this presentation, investors will be in listen-only mode. Questions are encouraged and could be submitted at any time by the Q&A tab situated on the right-hand corner of your screen. Simply click Q&A, type in your question, and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via Investor Meet Company dashboard, and we'll notify you once they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Nat Rothschild, Executive Chairman, John Bowden, CFO of Olex PLC. Good morning.

Good morning, or should I say good afternoon, everyone? And welcome to the AdWords presentation for Olex PLC. My name is Nat Rothschild, Executive Chairman, and I'm joined today by John Burton, our Chief Financial Officer. I'm delighted to be presenting another set of excellent results with our underlying operating profit the highest on record for the last 20 years. We have delivered tremendous progress at Volex since 2016 by bringing in a number of senior operational executives who committed some very good people already in place by acquisitions, which have brought new capabilities and by being relentlessly focused on the implementation of our strategy. Today, we would like to take you through the performance we have delivered this year, our outlook and our strategy. There'll be plenty of time for your questions after the presentation. I'm particularly proud of the fantastic results we've delivered this year. because we've achieved this despite the challenges that our business and our employees have experienced as a result of the pandemic. This is a testament to the strong and diverse business we have reshaped and to the commitment and talent of our colleagues around the world. Today, we will start with an overview of the principal achievements and operational highlights for the year. Then I will hand over to John who will take us through the financial performance and talk about our customer sectors and cash generation. Then I would like to provide you with an update on our strategy and the outlook for Volex. Turning to the first slide, I would like to explain how we have delivered the best underlying operating profit that Volex has seen in 20 years. We have grown our revenue by more than 13% this year. Tom will take us through revenue movements by customer sector shortly, but it is worth mentioning the significant progress we have made with our electric vehicle customers. We are the leading manufacturer of grid cords for electric vehicles, providing a safe and convenient product that allows customers of some of the biggest EV brands to charge at home. Grid cords are difficult products to manufacture. Safe is paramount. And we believe we are well positioned to maintain our market-leading position, especially with the cost-saving initiatives we have underway. We have significantly increased underlying operating profit, which is up to $42.9 million, an increase of over 35% from last year. This means that our underlying operating margin is now at 9.7%. This compares with an underlying operating margin of less than 2%. when I joined Bolex in 2016, showing just how far we have come as a business in the last five years. We also made a strategic acquisition in the year, buying the leading power cord manufacturer in the European market. The acquisition of Deka means we are now the only power cord producer in the world with a truly global footprint across three continents. We have a winning combination Our global scale and investment in vertical integration and automation allows us to achieve customer cost requirements. Our extensive engineering experience and investment in developing our own products in areas such as electric vehicles and data center products is a differentiator. We are proposing an increased final dividend of 2.2 pence per share, a 10% improvement on the prior year. Having controlled cash extremely carefully during the year, it is a testament to the strong cash generation of our business that we have the confidence to increase the dividend. We closed the year end with net debt of just $7 million excluding leases. This is excellent considering the investment we've made during the year in both acquisitions and improving our facilities and infrastructure. It also leaves us with significant headroom for further investment and acquisitions. I'm also pleased to report that customer demand in the first few months has been very strong. We are seeing encouraging signs of recovery in areas where some of our customers have been affected by the pandemic, such as the medical sector. I will provide more colour on the outlook in due course. Turning to slide three, let me take you through some of the operational highlights. In a challenging and turbulent year, you really see the benefit of excellent customer relationships and the importance of exceptional customer service. It has been a very complicated year with a lot of changes to demand and logistical complexity. We have stood by our customers providing solutions to their problems. With customer facing teams around the world, we know and understand our customers and they trust us to deliver. This has been so important over the last year. We began the year cautiously, pausing some of our strategic investment and development activity as we work to understand the impact of the pandemic on our business and on demand. As our confidence grew, we invested more in the areas that we believe will deliver long-term growth. This included a significant expansion to our factory in Batam, which doubled the production space. Batam is one of our most versatile facilities, gives us an opportunity to manufacture in Asia and deliver to the US with low tariffs. We were also able to relocate our manufacturing facility in Suzhou to a state-of-the-art facility elsewhere in the city. This gave us the opportunity to expand our capacity as well as a chance to create an engineering center of excellence in Asia, support product development. We've expanded our sales and marketing teams, particularly in areas where we can offer a complex vision into a growing market, such as our data center products. Our marketing strategy has been refreshed during the year and we are encouraged by the number of new customer inquiries we are dealing with. With a heritage of over 100 years in delivering consumer power products, we have an incredible level of expertise in the production of power cords for consumer electronics, domestic appliances and electric vehicles. We have a small but important number of patents which are helping us win new business implications where the design requirements of new technology introduce challenges that traditional solutions cannot overcome. We are making investment in specific areas through the recruitment of new engineers and development expenditure focused on the customer segments where we believe we can deliver growth and further cost optimization. Having acquired six businesses in three years, integration is important for us. We are maximizing our global footprint and compelling skill set to cross-sell to our expanded customer base. Our global scale and centralized procurement team mean we have significant pricing power in negotiations with key suppliers. Related to this, it is worth me providing a bit of color around the impact of the recent inflationary pressure we have seen with commodities such as copper increasing significantly. Like any business, we are not immune from inflation, but we are fortunate that the model in our industry is that input cost increases are passed on to customers. In particular, for our power products, where copper is a significant component of the bill of materials, we have formal mechanisms in the majority of our contracts allowing us to change prices as copper moves. We have worked incredibly hard to improve our margins to where they are today, and we will work equally hard to protect them from erosion. And with that, I would like to hand over to our CFO, John Bowden, who is going to take us through financial performance.

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Hello, I'm Greg Harmer, global leader of Payroll for Amazon. We began our relationship with ADP back in 1999 when Amazon had around 7,600 employees. Now, more than 20 years later, we're over 1.3 million employees, and we still rely on ADP to pay more than 75% of the worldwide. ADP is also a customer technology partner of Amazon Web Services. Amazon is a large and complex business. and our workforce is constantly evolving. ADP is delivered at the scale and timing we have needed, and they have done so consistently and well. We've relied on their data and analytics to make confident decisions. When Amazon acquired Soup in 2017, we suddenly needed to support employees at scale in countries where we have very little history, including Saudi Arabia, Egypt, Jordan, and Kuwait. Integrating a new country at scale is one of the more difficult challenges our payroll platoons face. and ADP's global tech and in-country experts helped us get each step right. ADP's systems have always evolved with us, but especially so in 2020, when Amazon became a lifeline so many during the pandemic. We began 2020 with 800,000 employees worldwide and finished the year with nearly 1.3 million. And on top of having to meet the challenges of that growth, Amazon decided to convert our U.S. hourly employees from fine weekly to weekly pay. On short notice and with ADP's help, Amazon moved hundreds of thousands of U.S. employees to weekly pay, and it was all done on ADP technology. There was no room for error and no time to waste, and with ADP's help, we delivered it accurately and on time. Amazon is committed to being Earth's best employer. Our relationship with ADP helps us do so by offering our employees an intuitive user experience, greater pay flexibility, and financial wellness tools. ADP's new mobile web-based user experience is excellent. It's user-friendly, simple, and straightforward. ADP helps Amazon provide transparency and functionality to help our workforce focus on what's most important. And now, with ADP, we can pay employees quickly with Wisely. Given our scale, we can be pretty demanding on our partners. Worldwide, we run a combination of monthly, bi-weekly, and weekly payrolls, and also anytime pay by the Wisely card. ADP has helped us make this happen. Anytime you select a partner, you're looking for two things. Great technology and a great team to work with. With ADP, we have both. Our ADP team is knowledgeable and there to advise us and answer our questions. That combined with ADP's robust and adaptable mobile technology gives us confidence that our employees are taken care of. We've challenged ADP with some crazy, unprecedented things. Managing through disruption is now ordinary course of business. We've come to them with some unusual and extraordinary tasks, and ADP has delivered for us.

Good afternoon, everyone, and thank you, Nat.

As Nat mentioned, it's been another excellent financial performance for Volex, and we've delivered revenue growth and margin improvements. We increased revenue by $52 million this year. This includes $9 million from Deka, which we owned for the last six weeks of the year. I will take you through the movements by customer segments on the next two slides. Underlying operating margin has improved significantly this year, up at 9.7%. We believe that an operating margin of around 10% is optimal for a business of our type, balancing our customer mix, our desire for top-line growth, and our intention to invest in people and development activities where we can deliver excellent returns. More on margin shortly. Underlying operating profit is our preferred measure as it strips out the amortisation of intangible assets arising from acquisitions and the cost of share-based payments related to acquired businesses and management incentive schemes. Adjusting items fell by $2.3 million due to a lower share-based payment charge associated with acquisitions. This results in a profit before tax of over $29 million. We've controlled central costs very tightly again, with strict cost control measures in the first half of the year in particular. We have saved from lower travel and expenses costs, which has given us a benefit of around $1 million. Earnings per share is up to 32.1 cents per share. EPS is an after-tax measure, so it includes a favourable impact from a tax credit we recognise in relation to the future benefits we will derive from historic operating losses. As Nat mentioned earlier, the dividend is up with a proposed final dividend payment of 2.2 pence, bringing us to a full year dividend of 3.3 pence, which is a 10% improvement on the previous year. Return to the next slide, I can take you through movements in revenue by sector. I give you some colour on the trends that we're seeing in each area. Growth in electric vehicles has been remarkable this year. It demonstrates that we have an excellent product. We also have significant expertise in what is a complex manufacturing process that requires stringent quality procedures, as well as experience in and safety approvals for mains voltage power cords. We've certainly benefited from the popularity of electric vehicles as consumers start to embrace the technology. With governments around the world encouraging the shift to electric technology through a range of incentives and targets, there is a very exciting future for electric vehicles. As well as a significant expansion in the number of makes and models that we supply during the year, we've been broadening the range of products that we support, providing another path for growth. We have a flexible go-to-market approach in electric vehicles, As well as supplying direct to a vehicle manufacturer, we also work with tier one automotive suppliers who have existing relationships with a wide range of automotive brands, allowing us to maximize the market opportunity. As adoption of electric vehicles gathers pace and the market grows, we know that competition will increase. We have the advantage of having developed the right processes and procedures to support this market. As Nat said, these are not easy products to get right, and this is likely to mitigate some of the risk in relation to price erosion. Our strategy is to optimize our production process to remain as one of the lowest cost producers, delivering excellent quality and customer service at a competitive price point. Our investment plans take into consideration how the market is likely to develop in the medium to long term. If I turn now to Consumer Electricals, which is our biggest customer sector and also includes the revenue from DECA, our major customers are global consumer brands across consumer electronics and domestic appliances. It's been an interesting year for our Consumer Electricals customers. The first quarter was very slow as a number of our customers either closed their factories to prevent the spread of COVID or they were running at reduced capacity. Then we started to see a significant pickup in demand, driven initially by demand for home office equipment, followed by strong demand for home entertainment products. The high levels of demand continued beyond the normal seasonal peak in quarters two and three, where our customers are preparing for Christmas, into the last quarter of the year. We had a strong fourth quarter and demand has continued. Turning to the next slide, We can take a look at our medical and complex industrial technology customer sectors. The story in medical was very different from customer to customer and for some of our larger customers between their different product lines. We support a very wide range of customers, offering everything from small patient monitoring devices up to whole body scanners that take up an entire room. Sales of smaller devices and anything in the respiratory sector were very strong. We worked extremely hard to support our customers in these areas so that they could increase production. We also participated in a number of projects to help accelerate the provision of ventilators to be deployed in the battle against COVID. For our customers who installed large medical devices, demand slowed as they were not able to get access to hospitals to carry out installations. With the vaccines being rolled out across a number of developed markets, we're starting to see encouraging signs of recovery. The pandemic has limited patient access to routine procedures and screening. We believe that governments and private providers will need to invest in healthcare and infrastructure to address the backlog. Complex industrial technology covers a range of customers who require connectivity solutions for data and power. Included within this sector are our high speed customers who make up just over a third of the total revenues at $113 million. Again, some variability in the trends at a customer and product level. Data center products sold well with strong demand in the first half of the year as our customers pulled stock to minimize the risk of supply chain disruption, resulting in an increase of over $10 million in data center related revenues for the whole year. Some of our customers support technology projects, such as the deployment of industrial robotics or building control systems. Some of these projects were delayed as a result of the pandemic. Just as in medical, we're seeing signs of recovery in this sector.

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As we move on to the next slide, I thought I'd show you how much progress we've made in respect of margin. This is the result of sustained continuous improvement activity and targeted investment in our operations. There are some significant steps on this journey that are worth calling out, including our vertical integration activity. At the end of the year, half of our consumer electricals output was vertically integrated, where we start with the copper and other raw materials to produce key components of the product ourselves. We expect the trend of increasing vertical integration to continue. The automation that we have delivered has allowed us to increase capacity while reducing our cost, improving margins and helping us win new business. We will continue with these projects now we have demonstrated the value they can deliver. If we look at the second chart on the page, I can take you through the movements that we've had in margin as we've improved from 8.1% to 9.7%. We've seen the benefits of margin optimization in the year, giving us a 40 basis point improvement. This has been delivered through the rollout of vertical integration and automation. Some of the total benefit is offset by changes in product mix, as we sold a higher proportion of less complex products, which have lower margins. There was a headwind from foreign exchange and copper. This was mainly foreign exchange related, as the Chinese renminbi strengthened relative to the dollar in the second half of the year compared with the previous year. We also saw higher copper prices in the second half of the year. Although we passed copper pricing changes through to the vast majority of our customers, where copper is a significant input cost, there is a delay which leaves us with a modest exposure. The impact from copper was approximately 0.4 million dollars. We kept control on operating costs and these did not grow at the same rate as our revenue increased. This is despite investing in senior sales and marketing specialists to continue with our growth story. We benefited from lower employment taxes in China and Singapore, which were a temporary benefit to employers in these regions. This will not repeat in FY22. We've made excellent progress in improving margin in a challenging year and our low cost base provides a platform for growth. Moving on to the last slide in the finance section covering our cash flow. We delivered strong free cash flow with EBITDA up by almost 32%. Our capital expenditure increased to $7.4 million and almost half was invested in Batam in Indonesia, where we doubled the production area of one of our largest and most versatile factories. This year's adverse movement in working capital was mainly due to high levels of inventory. We've seen a reduction in sea freight capacity and goods are taking much longer to travel from Asia to North America and Europe. This ties up more stock on the water, increasing inventory levels. Our customers are also requesting additional buffer stock to deal with the extended shipping times. We expect this to unwind when global freight capacity rebalances. Our tax charge for the year was very low, with an effective cash tax rate of just over 10%. This is lower than normal due to some specific items. We believe we have an efficient tax structure and we have losses that we can utilise in the UK which will help with the tax rate going forward. We had significant cash outflows associated with our acquisitions. This is a combination of the acquisition of DECA and earn out payments in respect of businesses purchased in previous years. We close the year with net debt of $27 million or $7 million if we strip out the impact of recognising lease liabilities on the balance sheet. We look at net debt without lease liabilities because operating lease obligations are excluded from our banking covenants. We have significant debt facilities we can draw upon up to a maximum of $100 million, giving us the ability to complete further acquisitions. I will now hand over to Nat to go through some key points around operations and strategy.

Thanks, John. If we turn to slide 11, I will give you a brief overview of how we are continuing to deal with the challenges of COVID-19. We have talked in previous presentations about how we put in place strict measures across all of our sites in February 2020 to protect the well-being of our colleagues and to reduce the risk of disruption to our operations. And we continue to follow best practice across all of our sites. As a result, we navigated the last financial year with no factory closures as a result of COVID. I've been immensely impressed with the way our teams have stepped up to assist our customers and to go the extra mile during these challenging times. We've supported various projects to deliver ventilators and other critical care products to support the global battle against this pandemic. It has been a particularly complicated period for our supply chain specialists, and they have performed a truly amazing job of keeping components flowing into our factories. of course the threat of disruption for the pandemic isn't over in particular we see risks in asia as new strains of covid19 are appearing and local populations remain largely unvaccinated we remain vigilant and continue to plan for a range of scenarios and we are acutely aware of further risks from component shortages and we are ever vigilant in our efforts to protect our workforce As we move on to slide 12, I'd like to take this opportunity to talk about some of the key qualities of Volex and why we believe we have such a strong investment case. Clearly, a huge amount of management-focused planning and old-fashioned hard work has gone into creating the diverse and strong business you see today, with revenues of over $440 million and close to 10% operating margins. But from our perspective, the journey has only just begun. And we intend to take this momentum and expertise, and we are focused on exceeding our five-year plan launched in 2019, where we set out to grow Volex to $650 million in revenues and $65 million in operating income. We believe we have the best customers, the best capabilities, and the best people. This combination creates an incredibly compelling proposition. We have shown that we can increase profitability and optimize margins. This year, we have also demonstrated that we can deliver significant revenue growth. This has come about because of the strategic decisions we made and our investments in both people and process capability. And at this point, I would like to pay tribute to our senior operations team located around the world in North America, China, Singapore, and Australia, as well as the UK, whose collective team effort have built the platform we have today. There are some incredible opportunities available to us. The electric vehicle sector is hugely exciting. In our complex industrial technology sector, we have our data center products where transition to the next generation of data transmission rates will drive sales we are experiencing a buoyant consumer electricals market and seeing a medical sector where confidence is returning. Our operational team know what it takes to deliver improvement in Volex because over the last five years, they have taken this business apart and put it back together again. This comprehensive transformation has delivered the performance we have discussed today. The equation is very simple. If we get our costs right, if we deliver excellent quality, if we expand our product offering, and if we are easy to do business with, we can deliver profitable growth. We will never stop in our pursuit of cost optimization and quality improvement, allowing us to expand our share of our customers' wallets as well as secure new customers. Acquisitions have been an incredibly important part of our successful expansion and the diversification of Volex. Identifying, acquiring and integrating the right businesses is a key pillar of our strategy. We put a significant amount of work into sourcing and qualifying opportunities because we are very selective. The market is buoyant at the moment with pent up demand as confidence recovers. We have some exciting opportunities at various stages of development in the pipeline, but we are forever patient and have turned down opportunities unless we are absolutely certain we will be serving our shareholders' best interests by proceeding. Collectively, your management team owns over 26% of Volex's common equity, so we see ourselves as perfectly aligned with our shareholders.

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Turning to slide 13, I would like to spend a little bit of time explaining what we do and how we add value to our customers. As John mentioned earlier, we have some exceptional product engineers and technical specialists in Volex who work to optimize our manufacturing processes as well as supporting the realization of of our customers' design objectives. In certain key areas, including consumer electricals and electric vehicles, we develop our own products. Where appropriate, we protect our designs with international patents. In other areas, for example, data center products, the proprietary technology is the manufacturing process and creating something that meets customer specifications at a compelling price point. We have created an engineering center of excellence in Suzhou to expand our capabilities in this area. We are experts at manufacturing. Our customers are at the cutting edge of medical and information technology, and they need a manufacturing partner they can rely upon for complex mission critical assemblies. Our consumer electricals customers need a manufacturing partner who will not let them down, delivering on time, every time. none of this happens without a huge amount of work behind the scenes this starts with making the right investments and defining the right strategy we build in rigorous quality checks to minimize the risk of errors we've put the customer at the heart of everything we do and delivering a great service experience is very important we monitor customer feedback at a site level every month and implement immediate improvements if required We have customer facing teams around the world to form a bridge between our customers and our manufacturing sites. In addition, our senior team are all available to work with customers to help resolve any issues if they arise. This is a real point of differentiation from some of our competitors who either concentrate their customer service in one location or who are too big to be responsive to customer issues. Lastly, but importantly, is our culture. We have a small, united central management team and we provide our local managers with a lot of autonomy. This speeds up the decision making process and allows us to be agile and responsive to issues as they develop. Working together is important. Our leaders work as one team, collaborating to achieve the stretching objectives we set for ourselves every year. This way of working has been a central part of our success to date. and it will be a critical part of our success going forward. If we turn to slide 14, I can step into a bit more detail about how we ensure that all the investment we make delivers benefits to our business. The first area is our investment in customer projects. This is where the expenditure is supported by a customer contract, giving us confidence that we will recover the investment over the life of the contract. For a lot of customer projects, it is not unusual for the customer to pay for part or all of the investment required upfront. As I mentioned earlier, we have some truly excellent engineers and technical specialists. We have our sites firmly set on a subset of high value add, high growth products, where we have an in-depth understanding of the market dynamics. Optimization spend is targeted at reducing costs, removing bottlenecks, and enhancing the rigorous quality processes in our manufacturing sites. This is what allows us to get better at what we do and improve our manufacturing. The final category is central expenditure. This is generally for group-wide infrastructural processes, such as central systems. We are investing in a new ERP system. This will be a catalyst for a process transformation initiative, creating a set of unified processes across our businesses all reporting on a single system that will deliver significant benefits, allowing the reduction of overheads and facilitating better interaction between our different sites. Acquisitions are an extremely important part of our strategy. We have delivered six acquisitions in the last three years, including DECA, which I will talk about in more detail on the next slide. We are incredibly pleased with the acquisitions we've made, The EBITDA generated to date by MC, GTK and Silcatech, the businesses we acquired in the 2019 financial year, has covered the upfront cash costs associated with the acquisitions already. Servatron has exceeded all of its earn-out targets so far. Tarshing has been pivotal in our vertical integration strategy. DECA is performing brilliantly, as I will come on to in a moment. With six successful acquisitions completed, we know what works. We are looking for excellent and long-standing customer relationships, particularly where this will provide us with cross-sell opportunities. We like businesses with complementary capabilities that we can use to expand our offer to existing customers. Location is important. To either move us closer to our customers or to ensure we have the right management in place to oversee the integration activity. It is critical that we buy businesses at the right valuations. Valuation has been challenging in the current market where there is a lot of demand and recent performance is not always representative of underlying run rate. We are extremely disciplined and we believe it is better to walk away than to overpay, especially because our markets are extremely fragmented and opportunities are widespread. Finally, Within this fragmented marketplace, we look at businesses that we understand incredibly well. We have to carry out financial due diligence, assess operational performance, and be comfortable that the management will fit within our culture. We have financial flexibility, an acquisition team to get deals done, and team leaders available for sponsor integration activity. We have great opportunities at the pipeline, and we are focused on delivering further value through acquisition. Our target is to add about 10% of revenue through acquisitions annually, although this is, of course, dependent on finding the right businesses. I promised I would give you some more information on DECA. So here is a brief overview on slide 16. We announced the acquisition in November of last year, and the deal completed mid-February once we had competition sign off in Turkey, which we required because we were bringing together two significant power cord manufacturers. Production has been running at full capacity in Deka. They have benefited from a surge in home improvement spending, which has delivered a buoyant white goods market. With the demand expected to continue, we have approved an investment in an additional two automated production lines. This will expand their production from eight lines to 10. We've also used Volex relationships to secure a significant new customer. The volumes from the new customer are expected to ramp up around the time the new lines become operational. We are progressing with our integration activities and we are extremely pleased with the business, the customers, and in particular, we really enjoy working with the DECA management team. They think like us, and they work really hard to deliver incredible customer service and efficient manufacturing. DECA contributed just over $9 million to our results in FY 2021, which is higher than normal. If we look at their results for the 12 months of the 4th of April 2021, they had achieved revenue of almost $61 million and EBITDA of $13 million. This values the business at 6.4 times against the total consideration, including the earn out, JECA is a perfect illustration of our acquisition criteria in action. It has tremendous customer relationships. It provides us with a power product footprint in Europe. We also got a great deal on a business in an industry we know everything about.

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And onto the final slide to take you through the outlook. Demand has been strong in the first two months of the year, and we are seeing encouraging signs of recovery from customers who have experienced disruption due to COVID. This gives us cautious confidence about the year to come. At the same time, we are acutely aware that the threat of factory closures, whether of our own sites or those of our customers, has not gone away completely. There are also challenges because demand is outstripping supply for some components and also for global shipping. We are monitoring these situations and continue to work closely with our customers. We are focused on growth and we are investing to deliver that growth. We are enhancing our team and we are strengthening our capabilities to achieve our objectives. We are incredibly focused on driving value for shareholders through all the activities we have taken you through today. 18 months ago, we set out an ambitious plan to achieve $650 million of revenue and $65 million of underlying operating profit by FY 2024. With these results today, we have demonstrated we are firmly on track to deliver that commitment. And that is the end of the presentation. And we'd now like to take some questions.

Now, John, thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your question using the Q&A tab situated in the right-hand corner of the screen. But just while the team take a few moments to review those investor questions submitted already, I'd like to remind you that recording this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard on the InvestorMeet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Now, John, perhaps before we go into some of the live questions we've had today, we did have a pre-submitted question. And I know you've covered on this a fair bit throughout the presentation, but perhaps if I could just read it out. It's how important could the EV market be for Volex in the coming years?

So now let me start on that and you can add in. So I think EV is obviously an important part of our strategy. It's an important part of the growth that we've delivered this year and it's an area where we're particularly strong. great products we have great engineering resource and we have an established and very capable manufacturing facility in two places and we're able to to make these ev cables in china and in batam in indonesia at two of our our best performing factories so ev is certainly important to us but what's also important is having a balance and one of the reasons that we've been able to produce such a successful set of results in what's been a very challenging year is because we've worked very hard to diversify our business So for us, it's good to have a balance and to be mindful when we invest in parts of our business of maintaining that balance. So EV is really important. We see some good growth opportunities in EV. We're investing for growth in EV and we're encouraged by the signs that we're seeing in the uptake of electric vehicles overall.

Fantastic. Thank you very much indeed, John. If I could perhaps just ask you both just to click on the Q&A tab and you'll see the number of questions submitted by investors throughout the presentation. If I may, perhaps, John, if I could hand back to you, if you could read out the question, even who it's from and either answer it or pass it to Nat, that'd be really appreciated. Thank you.

of course right so we've got some great questions there's quite a lot of questions so what i'd like to do is is probably go through them quite quickly so we can cover as many as as possible so the first question we're going to talk to is from p to s so it's about data transfer rates and data center products and just asking us to elaborate around our strategy around data center products. So really the trend that we've seen in data center products is a continual innovation cycle where the data transfer rates of the cable increases. So whereas a year ago then a very capable cable would have been transferring data at a rate of 100 gigabits per second, now the market is starting to move to 400 gigabits per second. So we've been working on that with our product specialists and we have a product that's in the market. We're talking to customers with it. Our customers have tested our 400 gig product and they've said that it exceeds all of the technical standards. So we're hugely excited by that because we have a great production capability. Again, we can produce these cables in China and we can produce these cables in Batam. Both of those locations are low-cost manufacturing locations and have very capable manufacturing teams who can deal with what is a very complicated and high-tech product. The advantage we have in Batam, of course, is being part of Indonesia, it doesn't suffer the same additional tariffs that you face if you ship goods from China to the US. So that is really going to be the growth engine for our North American data center products business. And the market will continue to move. And every time there's an upgrade cycle, it's gone from 100 to 400. In the next year and a half, we anticipate it will move to 800 gig per second. That's an opportunity to resell because it causes data center customers to refresh their infrastructure. So it's actually a great opportunity every time that those data transfer rates change.

Just to add to that, every 18 months, a data center needs to refresh its cabling. So these cables are continually needing to be refreshed and upgraded.

Next question is a couple of questions. There's one from Steve S around recognition of deferred tax assets. And I had another similar question. Without kind of going into the detail of that, because it's quite technical, what we've done is we've recognised the deferred tax assets to reflect the fact that we have historic losses, and now as the business has become more profitable, we will be able to utilise those losses going forward to pay less cash tax. So the accounting for that is then you recognise a deferred tax asset. There's a specific question that someone else had asked around what the impact of that is on earnings per share. So the impact of that for FY21, that contributed 8.9 cents to earnings per share. So hopefully that clears that up. There's a question from Bill C about the impact of rising copper prices. So we're fortunate in our industry that it's well established that we pass on copper prices to our customers. And in fact, it's written into the majority of our customer contracts. And the way that we, we pass those on is we will wait for the, we wait for the end of the period. And we really have a look back on copper prices for the last quarter, or there'll be some other similar measure. and then we will reprice for the customers now you do get a short lag effect between the time that you you go to the customer the repricing so we're exposed to changes in copper price for between one and two months as we pass on those price increases to customers so when the copper price is going up then there's a slight adverse effect but equally when the copper price is going down then there is a benefit because again it takes us time to pass on the reduced prices to our customers so that's essentially how how copper works and of course we're very focused on inflation in terms of the impact of copper prices, inflation in other raw materials and inflation in wage costs. Now, it remains to be seen whether the high levels of inflation we're experiencing at the moment are transitory or they're more long lasting. As a business with a lot of employees in developing markets, we're no strangers to inflations around staff costs and for us it's all about improving efficiency and as you continuously improve efficiency in your manufacturing sites you can use that to balance the effect of inflation that we see in particular markets so we're very focused on inflation we're very aware of the impact it has on our our business and we're capable of passing those costs on to customers and we're capable of controlling those costs ourselves And then in terms of the next question from Ketan, there's a question here about how do we feel broadly about our medical division and its ability to grow? um so we're incredibly proud of our medical division we're working there with customers who are delivering the very latest technology to improve patient outcomes and as i think we brought out in the presentation the challenges some of our customers have had is around access to hospitals and we expect that situation to begin to resolve its around the world as we see the impact of the vaccine in various different locations. So I think that we are proud of what we've achieved. We've got some of the best customers in the world. We've got some of the best manufacturing facilities and we expect to see some improvements there, some encouraging signs of improvements in relation to our medical division as these the conditions that have been imposed by the pandemic start to ease.

I'll just add to that that historically the medical piece of our business has been very counter-cyclical and it's been steadily growing at about 5% a year. Obviously this year was the exception and the signs are now that the medical business is going to come back pretty strong and we have a lot of pent-up demand. We also have an advantage over many, not all, but many of our competitors is we have a global footprint, and many of the big medical companies have grown by acquisition. They have unwieldy supply chains. They're looking to reduce the number of suppliers, and they look at Volex as a mechanism for supplier consolidation. So in addition to our existing customers, we had a number of very encouraging inquiries this year with customers looking to use our capabilities. So we're very, very positive about medical

good thanks nat the next question is from melvin and this is a question about the worldwide shortages melvin's mentioned microchips but of course we see in the press the shortages in all sorts of components and where i would how i would address that is to say we're very fortunate in vollex that we have an excellent supply chain team a global supply chain team with particular strength in asia which gives us very good relationships with many of the manufacturers of these components the other thing that really helps us is our scale so the global purchasing power we have helps us use our use our purchasing power to ensure that we don't suffer issues from shortages of components. Now, of course, we're very focused on this at the moment because it is a worldwide problem. To date, it hasn't been a significant problem for us, but we will keep a watching brief on it and sort of respond to things as they develop. There's a question from Bill in relation to competition in electric vehicle electric vehicles so i think could probably bring out a couple of points there in response to response to the question we're really fortunate that we've built this leading position in the grid cord markets for electric vehicles and we do recognize that as the EV market grows that competition will increase and we mentioned it a couple of times in the presentation but these are very difficult products to manufacture they're designed to be used in harsh environments so they're designed to be dropped on the floor of your garage and they're designed so that if a vehicle runs over them they don't break or they can use in wet conditions in cold conditions in humid conditions We have a huge amount of expertise and knowledge of how to make power cords that will work in a robust way in those types of conditions. So that gives us an advantage in this market and that's why we are recognized as being leaders in the field. And Then we just scroll through some of the other questions. There's some great questions. So just to make sure I kind of do a good cross section, because there's quite a few on here. So there is a question around acquisition strategy. And I think we addressed that in the slide, but I guess there's a question around, you know, Broadly speaking, what's the acquisition strategy going forward and what can people expect to see around acquisitions? And it's really that focus on it's the right businesses. So it's businesses that have good customers, good capabilities, are in the right markets, they're in industries that we understand. and of course the market has been very buoyant so we're seeing a lot of competition private equity having not had the opportunity to invest for the last 12 months have come into the market very strongly and there's some rather enthusiastic valuations in the market so we would rather be patient for us acquisitions is about quality not quantity we've We've got some interesting businesses that we're engaged with and we are making good progress on the acquisition front. And what's important is we have the depth in our management team to make sure when we acquire businesses that we can integrate those successfully into our organisation. So I don't know if you had anything to add on acquisitions, Nat?

No, look, I think you've You've said it all and actually I noticed that Ariel, you had a question also around do we need to make an acquisition in the EV side to grow the EV side of our business and the answer is we don't because we're probably the largest player in the Bitcoin market and that's really the major the major market at the moment. The market for travel for charge stations and the chargers that you might see at a Tesco car park or something like that, that's a tiny, tiny market in comparison to the market that we're growing in. And we're just starting now to get inquiries from those type of customers looking for design capability, they're looking for couplers, which we're in the process now of bringing out our own line of products. So we've invested in the engineering side. There's a time for acquisitions and there's a time for investment. And I think on the EV side, it's definitely something that we have the capability of doing in-house.

Thanks, Nat. There's another question from Ariel around customers and customer churn and how easy is it for customers to to move it's really um we really wanted to say is this year we have worked incredibly hard for our customers and incredibly closely with them and it's really showed that the benefit of those good customer relationships because customers have had to change the scheduling of things they've had to move their forecasts around and we've had to respond to that and i think we've we've really proved our worth and we've really lived up to our ambition of offering excellent customer service and in terms of how easy is it for customers to move it really depends on on the product but if i look at for example our complex industrial technology business or a medical business Many of those products go through a significant qualification process. In the case of medical, then they need regulatory approvals. So with those types of products, it's a very sticky business and it's part of the reason why we're so attracted to medical and some of the other very defensible areas like aerospace and defence, for example. that we've um yeah we've had some really good success stories with our customers and we've received some excellent customer feedback over the last 12 months just looking at some there's a couple of questions on deca so a couple of questions on fx impact in deca and the other question i had was how much of an impact has deca had on on margins well We owned DECA for six months in FY21. We acquired DECA on the 18th of February. So it's early days. We've owned the business for four months now, but as Nat said in the presentation, we are absolutely delighted with it. They're running at full capacity. We've signed off additional capex investments to increase the number of production lines from eight production lines to 10 production lines. And we've already secured our first customer that we can attribute to it as a revenue synergy. So this is a customer that came from an existing Rolex relationship that we've now landed in DECA. And we're thrilled that we're already starting to see the benefits of the synergies of acquisition. We got really well with the team at DECA and they're working like us, working really hard to deliver for customers. In terms of the specific question on foreign exchange in DECA, we're really fortunate in DECA in that it's really a Euro business. So most of the sales are in Euro. They have some sales in dollar. They have negligible sales in Turkish Lira. So the exposure on the sales side is it's a euro exposure. They do have some costs in Turkish lira, so wage costs and other local costs. But that's manageable and actually DECA are incredibly used to passing on any foreign exchange movements, any inflation that they see in their market to their customers. And they do that regularly through periodic repricing with their customers. So we actually feel that the exposure to the Turkish lira is very small. So hopefully I've managed to get through quite a few of your questions. We're running out of time now. So I'm going to hand back over to John.

Thank you very much indeed. And you have done so indeed. Thank you for addressing so many questions due to the number of attendees today. It does make it difficult to get through all of them. But of course, the company will have the ability to review all questions submitted today and will publish those responses in the Investor Meet company platform. Just before we redirect investors to give you some feedback, perhaps, Nat, I can ask you just for a final few words, please.

Thanks. So, look, really what we need to do here is to thank our employees. We need to thank everyone across Rolex, from the senior managers right through to the people who work on the factory floors, just as this has been an extraordinarily difficult year for everyone. And we're very grateful to them. So what we have now is we have a looking forward, hopefully with the pandemic behind us, we have a tremendous platform for growth in a very, very fragmented market. And we have a united management team. And really, we have a tremendous opportunity ahead of us. So we look forward to talking to you at the half year and of course, next year around this time. and greatly appreciate everyone for joining this call. Thanks so much.

Nat, John, thank you indeed for updating investors today. Could I please ask investors not to close the session as you will be automatically redirected for the opportunity to provide your feedback in order that the management can better understand your views and expectations. This will only take a few moments to complete and was greatly valued by the company. On behalf of the management team of Olex PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you and good afternoon.

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