Codan Limited (CDA) Earnings Call Transcript & Summary

Welcome to the Codan Limited FY '22 Half Year Earnings Presentation. [Operator Instructions] I would now hand the presentation over to Mr. Al Ianniello, Managing Director and CEO. Please go ahead.

Good morning. I'd like to welcome everyone to the half year results presentation for Codan. I'm Al Ianniello, the new CEO of Codan. Alongside me, I have Michael Barton, CFO and Company Secretary of Codan; and Donald McGurk, the previous CEO of Code. I'll be presenting the business summary section of the presentation, while Michael will present the financial summary section. Post the presentation, we'll field any questions that may arise. I'd like to start the presentation with introducing myself. Over the course of 20 years in senior management positions across 3 key industries being defense, automotive and packaging, I've had a clear focus to improve the current state of organizations. I've built and leveraged organizational capabilities focused on innovation and R&D in order to increase revenue and generate above-average returns over the longer term. Being an engineer with management qualifications has helped me ease into Codan and understand what we do. In a very short amount of time, I have found that Codan's core basis aligned with my values. I've worked across the developed and developing world in diversified markets with different degrees of complexity. As such, I've learned many lessons that I anticipate will be relevant to Codan. My first impression is that Codan is a strong business with solid foundations. I look forward to continue the great work that has been completed and also continue to execute the existing strategy, add my perspective, drive growth and make Codan a leading global technology business with long-term sustainable competitive advantages. It's been a positive start for the first half of FY '22. In the first half of this financial year, Codan has again demonstrated its ability to positively execute initiatives and generate record profitability and positive sales growth better than the prior corresponding period. Revenue for the first half was $257 million, representing a 32% increase on the prior corresponding period. An NPAT of 50.1% is a 21% increase over the prior corresponding period. Post the 2 acquisitions, the business is more balanced and diversified. Both acquisitions are ahead of their first half profit targets. The 2 acquisitions have been integrated in line with plan. DTC secured Codan's largest contract award in the company's history, as announced at last year's AGM. The 2 acquisitions have had the ability to create a greater level of predictability in terms of revenue with a forward order book of $163 million, of which $71 million is expected to be shipped in the second half of this financial year. Minelab has maintained its profitability despite a reduction in sales. The reduction in sales is a record -- is against a record FY '21, which was a 55% increase over FY '20. Minelab's first half sales are up 38% over FY '20 and down 11% over FY '21. FY '22 was equal to FY '21 if Sudan revenues are excluded from the FY '21 figures. Considering the difficulties experienced in the first half in the African market, in particular the civil unrest in Sudan, this was a great result. Supply chains and inventory positions have become a significant topic in the business world. This has been a major focus for the Codan management team. And against this backdrop, we are pleased to report Codan has grown its gross margins, reduced operating costs, and we had deliberately invested in having more inventory available than ever before to meet future demand and optimize freight costs. This was a key point raised at the AGM, and the inventory levels that we targeted have been achieved. The Board expects to continue its policy of paying shareholders in the order of 50% of our full year profits. A positive outcome of the strong business performance is the payment of an interim fully franked dividend at $0.13 per share. This is an increase of 24% on the FY '21 interim dividend and will be paid on the 10th of March 2022. It's been a strong half year for Codan. This slide demonstrates the difference in makeup of the Codan group when compared to 12 months ago. The group is more balanced and diversified. We continue to transition the communications division from a product-centric business to an end-to-end solutions provider. The communications business is now a much more significant, robust and diversified business in higher-growth markets than it was previously. Codan communications sales increased by $84 million on FY '21, with this increase mainly driven by our newly acquired businesses. Both DTC and Zetron are tracking ahead of integration plans, and we have seen some real success with significant customer orders across both businesses. As previously mentioned, the forward order book for this joint communications business is $163 million. The 11% decline in Minelab revenues against the FY '21 prior corresponding period, which was a record, is up 38% on the first half of FY '20. We are hopeful that stability will return to this African region during the second half as it is a significant driver of our global gold detector sales. In our recreational markets, sales have held at the record levels of FY '21. We expect future growth in these markets as we release a number of new detector platforms in FY '23 and we continue to grow in recently established markets and further broaden our market through geographic expansion into new markets. Countermine experienced significant growth with sales in the first half of FY '22 doubling what was achieved in the prior corresponding period. This slide demonstrates the positive changes that have been achieved with respect to segment sales, forward order books and split between the developed and developing world. Executing the group's inorganic growth strategy and continually reinvesting in the existing business has positioned the business today as a stronger and more diversified business than it was 12 months ago. This is clearly demonstrated with the percent movements and the increase in the forward order book in the communications business. The numbers speak for themselves. The business has maintained its 20% NPAT margin, a great result and demonstrates a consistency in approach. Despite civil unrest in Minelab's largest gold detector market in Africa, the business delivered 95% of the record profit result reported in Minelab in H1 FY '21. The communications business also made a material contribution to NPAT. In the current business cycle of significantly supply -- significant supply chain disruption, Codan has been able to leverage all of its core competencies, being engineering, supply chain, production, et cetera, to ensure we have product that we -- can be sold to our customers. In early January 2021, we took the conscious decision to invest in production capacity and inventory across all business units, and we made product design changes to reduce component shortage risks. This has enabled us to maintain supply to our customers and position ourselves to satisfy future demand. In the case of Minelab, our investment in additional inventory has had 2 benefits: We reduced freight costs as we were able to freight product by sea rather than air; and more importantly, the additional inventory also mitigates the supply chain risks from the global shortage of electronic components. In an inflationary market, Codan has demonstrated its ability to increase sales prices, and this was demonstrated in the half year with gross margins increasing from 53.8% to 57.2%. Excluding freight, Minelab increased gross margin by 4% through price increases. The objective for Codan is to deliver the strategic growth plan over the next 3 to 5 years. The plan will ensure the business maintains its internal CAGR benchmarks into the future. There is an ongoing commitment to the existing strategy in which we will continue to invest internally to drive organic growth in both communications and metal detection segments while looking for inorganic growth options that are consistent with Codan's strategic priorities. The business has demonstrated progress in all of the 4 sections of the plan. Our commitment to product development continues to remain consistent. The engineering expenditure continues at 9% of sales, with Minelab, Zetron and DTC all having strong engineering road maps well into FY '24. The expansion of our products and markets only has flourished in the first half with the ability to access new technology from the 2 new acquisitions, while Minelab continues its geographic expansion into Latin America and India, ensuring the business still has a strong runway of growth opportunities. Through the acquisitions, we have opened new and large addressable markets in communications and created a business that provides systems rather than products. As we continue through the presentation, it is evident that the organic growth and growth by acquisition priorities have been executed. An overview on Minelab. One of the many strengths of Minelab has been its ability to successfully execute its strategy. During the first half, we have seen progress with many initiatives. GPX 6000 has significantly outperformed the GPZ 7000 when we compare the units sold since their respective launch dates, with GPX 6000 units exceeding GPZ 7000 units by 56%. The take-up in Africa is accelerating and will overtake Australia ultimately by a material amount. Minelab has a demonstrated ability to launch new products that have increased market share. Minelab has a strong pipeline of products that will be launched over the next 18 months across both gold and coin and treasure that will enable it to maintain its technological competitive advantage and provide products that are relevant to our customer base by meeting customer needs with respect to price points and features. The India business has been modeled on the successful Latin American model. India will be slower as we will have to do more market development and the demographic trends in the market are positive. Brazil and Mexico have continued to grow with strong pull-through of gold detector sales and coin and treasury products. The recent investment in an e-commerce platform also has allowed an extended reach to new customers. Sales of metal detectors in this region have increased by 84% over the last 12 months. With respect to profitability, despite the civil unrest in Minelab's largest gold sector market, the business delivered 95% of the record profit result reported by Minelab in H1 FY '21. The first half of FY '21 was an extraordinary period in artisanal gold mining in other markets with a 55% increase Minelab revenues over the FY '20 prior corresponding period. The underlying business has strengthened substantially from the first half of FY '20. And as previously stated, we believe the first half of FY '21 had the benefits of a vibrant Sudan market and a COVID-induced growth in coin and treasure. In the first half of FY '22, the gold market is down due to Africa, predominantly Sudan. Pleasingly, we have held our record position in the coin -- in the consumer market. Historically, Minelab has had a weighting of sales to the second half due largely to the seasonality of sales in Africa and a number of new product releases which have occurred in the second halves of years. As Minelab sales continue to diversify, we do not expect this second half weighting to occur to the same extent in the future. Through our continued focus on expanding our superior product range and through further geographic expansion, we expect this business to continue to grow over the long term. Minelab continues to be a fantastic business, generating exceptional returns for the shareholders, and we are focused on continuing to grow revenues and profits by maintaining and capitalizing on its global leadership position in metal detection. The approach that has enabled Minelab to grow in the past will ensure its success and growth into the future. Our product range is a distinct competitive advantage. The business now has products well suited to bring new hobby detectorists from low-cost entry models all the way to our high-end, top of the range models. Geographic expansion and continued market share gains in North America and Europe are key to growth. In North America and Europe, Minelab would represent 30% of the addressable market in coin and treasure, and there are territories in Africa where we are yet to penetrate. Furthermore, our local presence in the markets that we serve are a real differentiator against our competitors, and our dealer network across the globe is a competitive advantage that can be leveraged and scaled. Our continued high level of R&D means there is no shortage of new ideas in our product development pipeline, consistent with our drive to innovate and be the product market leader across the range. The DTC and BWS acquisitions -- BWS was announced in December 2021, have allowed Codan to scale the business to compete in the developed world markets for larger contracts. This also allows the business that compete in a larger addressable market and bid for significant contracts over multiple years, making the business more predictable. In October 2021, DTC was awarded the largest ever order in Codan's history for the supply of software-defined mesh radios to large multinational business. The first order for approximately $38 million is part of a multiyear framework agreement. We are contracted to deliver $15 million of this order in FY '22, with our first shipment of product totaling $3 million made in December and the remaining $12 million to be shipped by June this year. The balance of the $23 million will be shipped in FY '23. The current order book of $78 million is significant and creates predictability, $36 million of which will be delivered in FY '22. The DTC business had a very strong first half in FY '22 with sales of $47 million and EBITDA of $10 million. This exceeded our first half plan for the business, and we are on track to exceed our first year EBITDA target of $14 million. The acquisition of DTC, as seen in this slide, has filled a technology gap in our communications portfolio. DTC has enhanced our ability to become a more relevant player in the military, law enforcement and broadcast market. The addition of their cutting-edge technologies and waveforms have allowed us to move up the value chain as a full solution provider in high-growth markets such as military, unmanned systems, law enforcement, commercial and surveillance. This acquisition is consistent with our strategic road map of accessing large addressable and diversified markets focused in the developed world, the acquisition potentially as DTC to create a substantial reoccurring revenue stream in the command-and-control, surveillance and broadcast markets. The Safe Cities contract with the U.S. Department of Justice is an excellent example of this with significant uplift into the future. BWS technology portfolio consists primarily of wireless video camera links and a newly developed range of high-quality remote video broadcast products. While this $8 million acquisition is relatively small for Codan, we feel it is strategically important as it broadens DTC's technology offering and enables access to the growing remote broadcast industry much quicker than developing this technology internally. COVID has driven the demand for remote production, low cost and efficiency, which in turn will drive sustained demand for DTC as our products are very well suited to support this segment of the market. We expect there will be a surge in demand for our products over the next 24 months with live sports and events increasing as many broadcast operators move from a high-cost traditional model, as seen in the slide, to a low-cost, efficient remote model. The complementary and adjacent nature of BWS acquisition to the existing DTC broadcast business has moved the market segment from being niche to being large and scalable. Since closing the Zetron acquisition on May 1, we have integrated the Zetron business with our critical communications LMR business under a single Zetron brand management, sales and operational team. These changes have enabled us to take cost out of the combined Zetron business while also increasing our 3-year sales pipeline of opportunities by 70% since May, with the greatest pipeline growth in large systems. Of note, our systems pipeline has grown across all regions. In December, Zetron was awarded the communication systems upgrade for one of the world's largest airlines. We also achieved record emergency call taking sale through our Iowa hosted services statewide contract and shipped our first Cascade Project 25 simulcast network to New Mexico. We see tremendous opportunities in the combined product/systems capability that we can offer to existing and new customers. The introduction of our new mountain top repeater, MT-5 product, the next generation of MT-4, opens up a replacement market of $200 million over the next 10 years for LMR. The current order book of $66 million, not dissimilar to DTC, is a significant amount, and it creates predictability, $22 million of which will be delivered in FY '22. Due to the effective expense control and accelerated integration efforts, we have realized greater than 100% of our cost synergy goals. And in combination with a strong command-and-control go-to-market execution, we expect to exceed our targeted revenue synergies. And in FY '22, this means we expect to exceed our first year EBITDA target of $8 million from the acquired business. As Zetron is now an end-to-end solutions provider for critical communications, we are able to offer a variety of critical communication applications, products and services across a variety of market verticals, as seen in the slide. Our LMR solutions are ideal for customers in the most rugged terrain and services a niche available market. With the acquisition of Zetron, we now offer solutions that span the entire critical communications response and increases our effective total market. For example, the Next Generation 911 program funded by the U.S. government is a high-growth opportunity for Zetron. As previously noted, our land management vertical has already benefited from our enhanced end-to-end solutions with an investment in an ACOM dispatch at a major customer. Likewise, our first responder pipeline has seen tremendous growth as Zetron's control room customers consider our LMR product/systems as a viable replacement option to existing legacy products. I will now pass over to Michael to discuss the financial results.

Thanks, Al. I'll just touch on some of the group highlights, some of which Al has alluded to already. So in terms of the profit and loss achieved in the half, we did deliver another record of $50 million NPAT, up from $41 million. The 2 acquisitions made a material contribution to that increase. And that was shown by the communications business delivering some 46% of the group sales, which is a significant increase on previous years. We were able to increase prices over the first half, which delivered a real improvement at the gross margin line for the business. And operating costs were able to be controlled, and we made some quite significant freight savings in comparison to FY '21. In a COVID-impacted world, with all of the challenges that the business has faced to maintain a 20% NPAT sales ratio, it was a great achievement for the business. On the balance sheet, there has been a significant investment in working capital. Some of that has been a normalization from the prior year and also a conscious decision of management. So debtors were higher as we have more communication sales into more traditional markets. We ended the half with debtor days of around 35 days, which is a good number. We were just coming off an extraordinary result at June where our debtors were very low, and we actually had negative working capital. Inventory has been a conscious decision to be invested in. We put approximately $20 million of additional inventory largely by way of finished goods into our warehouses around the globe. So the investment in working capital obviously did have an impact on our cash flows. Codan has been a business that's had significant cash generation in recent years, and we expect that to continue into the future once we do normalize the working capital that was growing in the first half. And the next slide really just does show the impact of the working capital adjustments with higher debtors, higher inventory investment and our payables normalizing to a more consistent number. We had quite a large FY '21 tax bill that was paid in the first half, some $11 million. In terms of -- we've continued to invest in our engineering teams. You can see we've spent $22 million on new product development across all of our businesses. 67% of that has been spending on our communications businesses, and that's really representative of the fact that the businesses that we acquired had strong engineering teams with strong engineering road maps that we will continue to invest in. And in the $22 million that we spent in the first half, it was actually all business units increased their investment in engineering. And that really is what drives the chart on the right-hand side of this page. Our return on equity at 35% is excellent, and that really is -- that really does come about by us leveraging internal IP that Codan continues to create. I'm going to hand back to Al to talk about the outlook and to take questions.

Okay. When we consider the second half of this financial year, there's a few key factors: The successful uptake of GPX 6000 gold detectors in the developing world. Obviously, the resolution of the ongoing civil unrest Sudan is important. The extent to which DTC and Zetron will exceed the initial full year profit targets currently on track has been very positive. And like every business, we need to contend with the new and ongoing challenges that COVID continues to pose. And that's a weekly, monthly, daily review. So the presentation is now completed. We will now take questions.

[Operator Instructions] Your first question comes from Elijah Mayr from CLSA.

Congratulations on the rollout. Just a couple of quick ones from me. There wasn't really a specific, I guess, trading update in the presentation. Are you able to provide how trading sort of tracked along for the first 6 weeks across metal detection and communications?

The first 6 weeks of this calendar year have been at the same running rate of the first half.

Yes. I guess that's the same for, I guess, metal detection and communications?

Yes. Correct. Yes. It's the same.

And then if we're sort of looking at the first half sales breakdown with sort of metal detection, you had recreational hold and counter sort of double. So that implies, I guess, gold metal detectors was down somewhat maybe $20 million, $25 million. How much of that can be attributed to -- directly to Sudan and how much to, I guess, underlying demand across the African region?

Yes. We -- the data that we've got on hand would suggest it's all Sudan.

So the $25 million loss in sales can be attributed to just the inability to get product into Sudan?

Not the inability of getting -- not inability to get product in. We have product to get in if we could actually get in. The civil unrest has created some roadblocks. Some of those roadblocks are starting to be managed down at the local level. We have seen some green sprouts, I would say, in the last 2 to 3 weeks. So the -- Sudan has started to evolve out of the military coup. So we just need to understand what the new running rate will be over the next month.

Yes. I understand. And then -- and maybe just finally, I guess, on the seasonality aspect and calling out, I guess, that there'll be less seasonality in the second half than it has been historically. Is that a way of saying that we should think about this second half '22 sales, I guess, maybe broadly in line or a little bit up from what we saw in the first half granted there's obviously ongoing issues with civil unrest in Sudan at the moment?

Yes. I would say that's an observation that we could take forward at the moment. I guess the second thing from a Codan group perspective, Codan is a very different group today. Previously, if you looked at the slides from last year, you had the metal detection business that was at 80% and the comm business that was at 20%. Now we've got one at -- metal detection at 55% and 45%. So it's -- the seasonality aspect of our sales is just not related to metal detection and Africa. It's now related to a more diversified, evenly split business.

Your next question comes from Aaron Muller from Canaccord Genuity.

Look, this is going further into -- on the metal detection side. Just in terms of the first 6 weeks, could you give us an indication of how GPX 6000 has been selling into the developing world?

It's really unchanged, Aaron. We haven't commented specifically on January and February because it's really no different than what we've experienced in H1.

Right. Okay. I mean could you -- is it better than you expected? Or is it sort of in line with what you're expecting of how this product would launch into Africa?

Yes. I think if we look at the launch itself, it's been a successful launch. The -- when we go back to some of the comments made previously of targeting run rate of $800 to $1,000 per month, we would have run rates currently at $500. If the Africa market was at a decent running rate, you would see the uplift in the GPX 6000 numbers.

Yes. Okay. Right. And just on comms, obviously, the outstanding result, $16 million EBITDA versus -- sorry, for the Zetron and DTC versus the guidance, I think it was $22 million for the year. How should we think about the first half, second half split? And I know that you've given some guidance around order books and what's going to be shipped in the second half, but can this first half result be replicated in the second?

Yes. I think, Aaron, there's certainly that possibility. We're still just a little bit too far away from year-end to being able to make that call in the announcement today. But we're certainly in a really strong position in terms of the orders that we have on hand. So that's certainly a target for us for H2, but we're not quite there as yet.

Your next question comes from James Lennon from Petra Capital.

Can you hear me guys?

Yes.

Great. Three questions, if I can. Firstly, just on CapEx, I think you mentioned that of that $22 million you've sort of spent on engineering, product development, 70-odd percent of that is -- or 2/3 is in communications. I'm just keen to know if you could elaborate on what that might be. And clearly, you're pretty confident you can get the same returns from that, that you would probably get from investing that in Minelab.

Yes. From a communications perspective, I mean you need to split it into DTC and Zetron. A lot of the work, as I mentioned, the MT-5, there's new generations of existing products. So we're actually modernizing those products really to fit the consumer. And there's a lot of work in actually creating a standard suite of products that can be upscaled and customized. So that's what we're doing with Zetron. DTC, if you look at the slide, it's the market segments that we have. You've got military, surveillance, unmanned, commercial. So within all those market segments, we are also driving a customization of the standard product, the standard defined -- software-defined radio, into those different markets. So that's fundamentally it. We're using the Codan method of engineering that has been so successful in Minelab over the past to actually bring consumers -- consumer-related products to the DTC and the Zetron market.

That's great.

I just want to -- I'll just jump in for a second. I think just to supplement what Al said, we do expect to have attractive margins from our communications engineering spend. So it's very similar in terms of both divisions. So we're not choosing lower margin investment in engineering versus higher margin in engineering for metal detection. They're both similar. We've already got a very full program of metal detection products in trade. And with the new acquisitions, we are now supplementing some of the road maps that these guys had and investing, as we said, when we bought these divisions.

That's great. The second question was just in terms of the working capital. I know you've sort of elaborated on it a bit. But just keen to know how much you think it's going to normalize. Obviously, you bought quite a lot of new revenue in communications. What's a reasonable level of working capital going forward?

Yes. I think we've seen most of the increase in H1, James. So we'd be expecting to see working capital at these levels perhaps a little bit reduced by the time we get to June, just depending on timing of sales and purchases, but we think we're at a more normal level today.

Okay. Great. And last question was just on -- I think you mentioned in the release that the profit you had on the sale of Minetec as sort of $1.5 million pre-tax that was offset by some integration and restructuring costs. Is that all captured in that Note 3? Did you net those 2?

Yes. That is, James. So the numbers really did offset each other. Most of those integration costs related to the Zetron side of our business but some from DTC as well.

Okay. Great. And just what's the expectation for restructuring costs in second half? Are you well through that now? Is there more to come?

Yes. We think we've captured a lot of it, James. There are still a few initiatives that are underway that might bring some additional costs before they bring the resultant savings, but I think we're through most of it now.

Your next question comes from Jason Palmer from Taylor Collison.

I had a couple of questions as well, and this probably just follows on from some of the other questions around Minelab. I just want to be crystal clear. The delta appears to be in gold somewhere in the vicinity of $20 million in the first half in terms of top line. Is that -- are you saying, Al, that's entirely Sudan-related?

Yes.

Okay. And so does that imply then, with the seasonality of that business, that Sudan is probably somewhere in the vicinity of $40 million to $50 million of revenue for the growth pre the civil unrest?

Yes.

Okay. And in terms of the sales that you've made in the first half, what gives you the conviction that gray markets haven't moved that product into other -- from other regions into Sudan?

Sorry, Jason. You're saying that sales have gone into Sudan from other markets?

I'm just talking about...

Supply chain, as you know, is very complex. The information we have and the information that we need to take is from the dealers that service that market. So the dealers that service that market, a company called [ Alkalali ], and they are seeing no movement of product at least through their channels into that market. With respect to gray market activity from other dealers, that would be very minimal given that we only sell through authorized channels to maintain price competition amongst dealers in the territories that they actually serve. So it's a possibility that some product has moved in through the gray market but we expect it to be relatively insignificant. So therefore, Sudan has kind of closed down over the last 6 months. But as I also mentioned, there are some signs that, that should change within the next few months.

Great. I've got a couple more questions. That's really helpful, and I appreciate that clarity. That sort of clears that up for me. And then the comments around the GPX sort of running in line with sort of previous halves' run rates and sort of being dependent on Africa kind of reopening, is that because the GPX 6000 is more of a product that is likely to be sold in Sudan?

Yes. That's a good observation. The GPX 6000 is designed specifically for the African market, similarly to the GOLD MONSTER. So it's waterproof, shakeproof, dustproof, idiot-proof, point and go. So we expect that product, when Sudan opens, to flood into Sudan in time once they get the benchmark performance data from the rest of Africa, which has been very, very successful, I've got to say, in the initial period.

Okay. And then just 2 last ones. In terms of the margin comment you made, Michael, around pricing that you took in the first half and freight benefits, so the segment margin increased to 45% for metal detection and the segment margin for metal detection in the second half of '21 was also 45%. So if there are any additional jump-ups in segment margin that we should be expecting into the second half? Or is that 45% now the flat line or status quo?

Yes. So most of the levers have been -- so pricing happened relatively early on in the half, Jason. So that 45%, that percentage to maintain it when our sales have actually fallen was a great result. If we can hold at that level, we would be happy with that.

Right. But I think what you're saying is if, on a like-for-like basis, your margins have actually increased and the second half '21 versus current margin structure for the existing product range was less than the current margin structure you're getting now.

Sorry. Just say that again.

I guess the point I'm making is the margin structure that's embedded in the '21 numbers, the second half '21 numbers, is lower than the current margin structure that you're getting in those same products.

Yes.

Okay. And just the last question I had. I'm sorry I'm taking a bit of time. In terms of the DTC business outlook and the major contract you spoke to, 3 of it delivered in December. I think you might have said $12 million to $13 million to be delivered in June.

Correct. Yes.

Does that -- what level of certainty do you have over that order flowing through? And how do we think about the operating leverage in these acquired businesses with increases and decreases in revenue?

So on the first point, I would -- with the information we have on hand at the moment, we will be fulfilling the order in June. You are dealing with large multinational businesses, and we can't control if there's a program slippage. So that's something we'll keep an eye on. We've pre-bought. We've taken a lot of strategic decisions with respect to the componentry to make sure that we have everything ready to go. Could you repeat the second question, please?

Just in respect of the incremental margin that you get on average. I don't know -- I'm not asking you to sort of split out Zetron and DTC. That's probably commercially sensitive. But across the bucket of the acquired businesses, how should we be thinking about the incremental margin that -- of a variable contribution for every dollar movement of revenue? Because obviously, you've got a reasonable leverage in the first half but you're guiding towards a smaller second half.

Yes. Jason, I think in terms of the acquired businesses, they are largely consistent with the historical communications business in terms of their structures and their gross margins and the fixed costs that are in the business. So they will behave in the same way that you've seen our traditional comms business behave.

Okay. So that would be, as a stab in the dark, in the vicinity of sort of 35% type contribution margins or thereabouts on incremental movements or something like that.

On the incremental movements.

Thank you. There are no further questions at this time. I would like to pass the call back to Mr. Ianniello for closing remarks.

I just like to thank everyone for attending our FY '22 first half presentation. Hopefully, it's created some clarity on the business performance in the first half and some comments about our outlook for the remainder of FY '22. Thank you very much.

This concludes today's presentation. Thank you for participating. You may now disconnect.