Trifast plc (TRI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Trifast plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And if you could give that your kind attention. I'm sure the company would be most grateful. I'd now like to hand over to CEO, Mark Belton, and CFO, Clare Foster. Good morning.

Good morning, and thank you, Jake, and good morning, everybody on the call today for joining our financial year '22 presentation. Before I begin, I really do like the strap line, which is shown here, innovation today for a better tomorrow. This really encapsulates the disruptive technologies that we find ourselves in, in our markets today, which in turn, creates the opportunities to capture market share. For those that don't know us, I'll give a very quick overview of Trifast. We were formed in 1973 and listed in 1994 on the London Stock Exchange. We are an international specialist in the design, engineering, manufacture and distribution of high-quality industrial castings and category to C components, principally to major global assembly industries. The industrial market is highly fragmented, valued at around GBP 60 billion and is not dictated by any one player, so that there's plenty of opportunities for us to go for. Our core strategy is working with our global OEMs and Tier 1s to get our parts designed in at the early stages of prototyping. The manufacturing those cost ourselves where we can and then delivering a seamless service to the customer on a global basis over our 4 regions. 75% of our revenue comes from customer-specific branded or licensed parts. We tend to stay clear of commodity parts. And we are fairly well balanced sector spread, which you can see here on this slide. If we move on to the next slide. We have 34 locations worldwide split into 4 regions; U.K., Europe, Asia and North America. And from the East, we supply into over 75 countries. We have 7 manufacturing plants and currently, these represent around 30% of our revenue. And finally, we have well over 5,000 customers with no one customer being more than 7.5% of our group's revenue. I appreciate that this is a very high-level overview, but you can find out more obviously on our website. Move on to the next slide. I'll give you an overview of the highlights for last year. Given the current headwinds, I'm very pleased and proud as to how we've tackled those challenges head on and delivered the results that we have. Revenue and underlying operating profit were up 18.7% and 27.1%, respectively. ROCE, up 150 basis points and dividends, an increase of 30%. On the downside, but not unexpected is the outflow of cash. We have invested in stock during the period to ensure continuity of supply, given the very high lead times witnessed in the world today. That said, customers were not let down and already new customers were brought on board as a result. Going to the next slide. Financial year '22 was a record year for revenue for us. Organically, up nearly 16% and up nearly 9% against FY '20 pre-COVID levels. Price negotiations resulted in our gross margins returning back to more historic levels in March '22, which has helped along with the increased revenue improve our margins slightly, and Clare will talk about this in more detail later. Falcon in North America was acquired during the year. And with respect to Atlas, the second phase of our largest subsidiary went live in the U.K. at the beginning of July with the final phase hopefully completing by the end of this calendar year. The current macro issues facing businesses today are incredibly frustrating and take time and resource to manage, but this doesn't take our focus of growing the business. Our ambition remains the same, to be much bigger and more profitable than we are today. And you can see on this slide our 4 strategic pillars, which will help increase capacity into the business, take market share, improve margins as well as moving towards a more environmentally sustainable business. Emerging technology and legislation overhauls are beneficial to us because our engineers can work with the customer in the early stages of design as usually, customers tend not to have engineers with fixing expertise. I can give you a good example of this. Recently, a global company that supplies enclosures, example, IT service, which have cabinets and are fast and rich asked us to look at their spend. Our engineers, we're doing a line sidewalk mainly on fastness, but noticed an issue regarding parts for cable management. Our engineers worked with the customer to develop a solution. And as a result, we are now the preferred supplier. We start in the U.K. and then hopefully move on to the U.S. and that account alone could be worth up to GBP 5 million. Another aspect of engineering is identifying, assessing and implementing new product ranges. And this is so important as it gives customers value-add alternatives as well as attracting new customers. Last year, we added 8,000 new parts to our new website. And talking about the new website, this now represents both commercial and investor needs, and is a prime source of engineering information. And we are flattered by the likes of highly innovative companies such as Tesla, Blue Origin, SpaceX that are visiting us. This engineering-led approach meant at the end of financial year '22, we secured over GBP 20 million of approved new business, over 13,000 new parts traded with customers, of which over 80% by value in class is specials. And looking at light vehicles, which is, for us, the easiest sector to measure, we're beating this market by around 9%. A large proportion of inquiries in the light vehicle space are from electric vehicles and hybrids. And as mentioned before, these provide double the fast in spend due to us also being involved in battery casement, charging units and other ancillary elements. Our pipeline of inquiries has never been so strong. And as a result, we need to invest in the business to ensure we cope with that demand. Two key areas in FY '22 that we've invested in. Firstly, in our manufacturing. Our Italian plant was running at 120% capacity. Staff were overloaded. We were turning down new business, and there were requests from several customers to onshore more into Europe. As a result, we approved an initial CapEx of EUR 4 million last year, giving us an extra 30% capacity. This work is progressing well, and we'll be ready in time for when the new business is set to start later this year. We've also invested in the group supply chain. As part of our sustainability strategy as well as reducing reliance and risk in parts of Asia, we are investing and developing the supply chain team to enhance our onshoring and product soaring expertise. Regarding future plans, we need to expand some of our warehouses to support the growth rates that you've seen within distribution. With respect to Hungary, this is now fully operational, and the building is very environmentally compliant. Triple-glazed windows, ground source heat pump, solar panels, charging units and furniture, all sourced from sustainable manufacturers. This will be a great blueprint for future. I'll now hand over to Clare to update on Project Atlas, which is an important enabler for the margin growth.

Thanks, Mark. As many of you already know, Project Atlas is a huge and important part of our growth strategy, has expired this investment into our IT business platform and our underlying processes, policies and procedures. Trifast will become the fully integrated global player that our multinational customers are looking for to support them on their growth journeys. So it's not just about how we interact with our established and developing customer base. Project Atlas is about real tangible benefits, an engine for continuous improvement that will see us generating noticeable margin improvements as we get more and more sites rolled out. I'm not going to take us through everything in the table you see there in detail, as you can read faster than I can speak. But I am conscious that a number of you are already aware of some of the detail behind this. But I do want to put out a few of the more key points that stand behind the Atlas benefits case. Firstly, a greater inspiration and automation at inquiry level will facilitate increased in-house manufacturing levels. If you ask Mark and me, do we make the right make or buy decision at site level, then we're going to answer in the vast majority of pieces, yes, yes, we do. But if you were to ask us, do we always make the right make or buy decision as a group when an inquiry comes into distribution, well, do we always push this to the right intercompany manufacturing site? Then, to be honest, the answer is no. But with an integrated system, we can do this, meaning that we can increase the spend that our distribution businesses made with our internal manufacturing sites, lowering our external spend, keeping our profit in-house and allowing for a greater volume of double margin business within the group. And in the world of increased onshoring and especially given the investments we have made into our Italian operations, as Mark just spoke about, increasing our capabilities in this area has never been more important. Secondly, the specific investments we are making into warehousing infrastructure. With full Wi-Fi and scanning technology and dynamic product placement will drive down picking errors and speed up our warehouse operations to save costs. And we're pleased to report that this is something that we've already seen evidence of at our initial pilot site, and we can see this being repeated at each of the sites we rolled out to. The final point is that a fully integrated understanding of our global purchasing spend with improved demand planning and forecasting capabilities will exponentially change the way that we interact with our customer base or our supplier base. Instead of going to supplies from individual silos and asking for the price on, say, 500,000 parts. For the first time, we will be able to use our group purchasing power to negotiate for a group price based on a combined spend and backed up with an improved demand forecast of what our short- to medium-term need looks like. And of course, in a period of cost inflation, being able to achieve that greater control over our input cost is even more key. A couple enhanced data capability with the recent investments that we've made into our global supply chain resource and the changes we have made in how these teams are structured, as Mark just mentioned, you can see why we expect to be able to make significant input cost savings as we develop and rationalize our global supplier base. Project Atlas, and we have spoken about this before, has always come with a medium-term benefits case that is very compelling at over 25% return on investment. And the further through this project we get, the more confident we are that we will see these benefits coming through and our underlying growth and therefore, operating margins improving. If we move on to the next slide, how far have we got? Well, as you can see on this slide, we have already come a long way. A lot of the hard work is already done. Our global processes, policies and procedures have been established. The integrated IT system that supports that new way of working has been designed, built and tested and we are now firmly into rollout phase with 6 sites already fully onboarded. Now we're not going to say that this doesn't still involve a lot of hard work and financial year 2023 is still a big year as it has been our largest trading subsidiary onto the system via phase process, which is already well underway. But on many levels, the really heavy lifting and the higher risk element of the project is already done. We have a system that works, and we have a proven rollout capability to get this into site. And most reassuringly, last month, we successfully rolled out to our largest and most complicated trading location, which sits here alongside our head office site in the U.K. This was always going to be a multiyear investment, and we're not going to tell you that the time line was not tripped up by the global pandemic, travel restrictions and now challenging macroeconomic and geopolitical environment, the like of which most of us have never seen before. However, as we sit here today, we are rightfully proud of where we have got to with this project. Yes, the phased rollout to our largest trading subsidiary is running behind the half year 1 financial year 2023 original type deadline. But we do still expect to be able to achieve this just a few months later by the end of the 2022 calendar year, by which time, 45% of our global workforce will be live on the new system. And perhaps most importantly, we remain confident that we have the resources, determination and the in-house expertise to get to the finish line. The current geopolitical and macroeconomic conditions will continue to throw [indiscernible] at us, but that we have no doubt. But all that means is that we will keep on thinking innovatively, keep being flexible, keep working hard and most importantly, keep on rolling this thing out to the next site and the next site so we can get to a full realization of the benefits gate as soon as possible. We see still an incredibly important and exciting project for the group. There are always challenges that have to be overcome with projects of this scale. But we continue to view this project and the journey we are on as first and foremost, a real success story and the cornerstone that will underpin all of our other strategic goals. And on that note, I'll hand back over to Mark to take you through our accelerated acquisition journey.

Thank you, Clare. Acquisitions are still very much on our agenda with North America being our prime target. It's the largest fastening market in the world. 79% of our top 100 customers trade there, and it will help rebalance our regions, a key strategic objective. And with respect to TR Falcon, it continues to run ahead of our expectations and is everything we hoped it would be that was acquired almost 12 months ago. Can we go into the next page? It's not just North America, though, if it's the right acquisition to enhance our manufacturing footprint or product offering or sector diversification, then we will pursue it further. We do have several targets currently on the go at various stages. Unfortunately, recently, we had to walk away from one that we were very close to completing due to a difference in culture and future forecasts, which was a shame, but it was the right thing to do for now. If I can move on to what we're doing on sustainability. I'll pull out some of the salient features here. We are performing well as you can see from the ratings on the left-hand side. However, every month, there appears to be extra requirements needed. So it's so important that we keep -- monitor this regularly. The Right to Repair bill, as you can see in one of the bullet points there is very useful. It means companies need to have the ability for their products to be repaired. A good example of this is in the domestic appliance sector. The washing machine, tumble dryer, dishwasher may have parts welded together. Now it needs fastness in place to enable it to be opened up for repair. If we go on to the next page. Obviously, sustainability is a hot topic literally at the moment. And these are some of the reasons why we're investing in this area. Firstly, if we look at the environment, we look at how we can on/near-shore more. Obviously, one, it is better for the environment because it's -- the products have less distance to travel from their source and it can also deliver commercial benefits as well. Example, lower freight cost and better inventory churn. We're also looking at how to onboard new suppliers who are closer to our locations, which also removes some of that geopolitical risk. Also looking at acquisitions that have manufacturing that will help them to supply it more locally into their market and as well, investing in our own manufacturing capacity, again, to support more locally as for the Italian example I gave earlier. And investing in our ESG credentials at our location. And again, Hungary is a good example that I mentioned. When looking at the social aspects of sustainability, there are benefits about retaining employees and making it easier to attract new employees, which, as we all know, is becoming increasingly more important in this current market. You can see some of the learning and development initiatives that we've put in place as well as well-being initiatives that we've implemented, and also some of the scores that we have received, we do employee survey scores every 6 months. And you can see here that the overall happiness is 7.5 out of 10. And really pleasingly, the employees, the commitment to the business, 9 out of 10. And finally, governance to achieve the growth aspirations that we want, we need to have strong governance in place to support that. On to the next page, and I'm certainly not going to go through all the detail in here, but what I will say is that these commitments are realistic and pragmatic. Finally, I will say that we have published an updated sustainability report this week, which can be found on our website and we'll give you a whole lot more information. I mentioned earlier about the ambition of being a much larger company and how the benefits of the strategy will help make this happen. On this page, we've listed some of our key strategic targets in the medium term in order to achieve those aspirations. Looking at revenue, our aim is certainly to be in excess of gross domestic product. Also, when looking at the underlying operating margins, we've got to get back to double-digit margins again. And how are we going to do that? Well, obviously, it's about passing through prices increases. We talk about our own intercompany manufacturing where we can have both a distribution and a manufacturing margin. We talk about Atlas, again, as you've heard from Clare, on how that will benefit the organization and also about investing in our supply chain to get synergies as a group. That will obviously help our ROCE also to get into double digits again. And I've spoken about North America and the ambition to become more rebalanced, and that will be achieved both organically and acquisitively. And with Atlas, this will benefit many aspects of the business, and we've got to get this in as soon as we feasibly and practically can. What I'd now like to do is just run through the region -- the revenue by the regions and the sectors for last year. All regions performed well even when compared against financial year '20 pre-COVID levels. Sector-wise, all markets performed well. Distributors performed the strongest, growing 46% as their high stockholding enabled them to have the ranges to supply the unforecast demand. Health & Home saw the lowest growth at 4%, hampered by chip shortages as well as temporary lockdowns and the Malaysian floods. Light vehicle grew over 7%, but was hindered greatly by chip shortages and the impact of these shortages on trading, we estimate to be between 650,000 and 800,000 per month. Some key customers are anticipating greater availability of these chips in the second half of the year, but we aren't including that in any of our forecasts, so there could be some upside risk this year. And looking at energy, tech and infrastructure sector, this grew 24% in total, and just over 4% of this was from our acquisition of TR Falcon. Going into a little bit more detail, if I may. Looking at Europe, this delivered a strong trading performance with over 14% growth, both against '21 and pre-COVID '20 levels. Germany delivered impressive growth over 45% across numerous markets. And a good example is in Health & Home, where we saw strong growth from an electric bike component business. Despite these chip shortages, the light vehicle sector sales exceeded pre-COVID '20 levels in all but one of our sites, and the strong growth shown in both Hungary and in Italy prompted the investment I mentioned earlier. So looking forward, semiconductor shortages will remain for a while, we believe. This will be very frustrating creating a stock and start process and also making it extremely difficult for our procurement teams to know how much to buy and when. They have to balance the risk of having enough of stock around to support customers when production lines ramp up extremely quickly when chips arrive versus buying too much because of the very long lead times from suppliers. Our normal lead times pre-COVID was around 23 to 25x. And just to put it into perspective, straight after COVID, those lead times increased to 70-plus weeks. That now has stabilized to around 50, but that gives you an indication of why the inventory levels have had to increase the way they have which has stood us in very good stead. Going forward, we have started to see a softening in Health & Home volumes in Europe, and that's based on a downturn in consumer sentiment, but also the impact in demand by the Ukraine conflict has had on a couple of Health & Home customers. And finally, the transfer of EU distributors from the U.K. to Germany, which we mentioned last year, continues well and will be completed by the end of this financial year. Moving on to Asia. This delivered strong growth of 13.9% and was only up 3.5% on pre-COVID levels in financial year '20 due to some COVID lockdowns, customer subcontractor delays and December floods in Malaysia. We have seen substantial growth in Taiwan as EU and U.S. distributor sales recover well beyond pre-COVID levels. And Singapore saw strong growth in the energy, tech and infrastructure sector, but has been negatively impacted in the Health & Home sector by the largest customer due to lockdowns, floods in Malaysia as well as a subcontractor transfer timing delay in the region, temporarily reducing volumes. But going forward, demand should remain high in the distributor sector and a return to higher volumes in the Health & Home. There is a potential risk of recurring lockdown disruption in China. We estimate that we lost around GBP 1.5 million of trading in revenue in the first 2 months, but we should recover a good proportion of this as the year progresses. We should also see trading increase again within Malaysia, both for our customers and also our own intercompany manufacturing where we are increasing the spend in that region. Moving on to the U.K. We've seen fairly strong growth of around 21.7% against FY '21 and 11.1%, up from pre-COVID '20. The distributors that I've spoken about before have performed extremely well. And although light vehicle did recover in the period, it did remain below pre-COVID levels due to the chip shortages that I've spoken about. Looking forward, this revenue in the U.K. is expected to reduce in '23, and that is because of the transfer of EU distributors to Germany. And that is based on the Brexit and to make it a lot easier for customers and reduce the costs involved in supporting them. Chip shortage, these will carry on and will weigh on the light vehicle volumes, but a new OEM customer wins should drive electric vehicle market share gains. And again, I'll give you another example on this. We have just received a letter of intent from a niche electric vehicle manufacturer worth between GBP 3 million and GBP 4 million a year, and we hope to start delivery of that in Q4. And finally, moving on to North America. We have seen exceptional growth of 89% in the year, of which organic was 36.6% and 52.6% by TR Falcon. Light vehicle is delivering the largest organic growth and new OEMs that have been brought on with TR Falcon have helped rebalance this light vehicle dominance in the region. Looking ahead, we have appointed a new Regional Director for North America to drive growth and profitability as well as supporting future acquisitions, and we expect to see strong growth continue in this region. I'll now hand over to Clare to go through the operating profit in more detail.

Thanks, Mark. So we've heard about the top line and some of the challenges and opportunities that we've been facing. But of course, it's not just about revenue. And therefore, what I want to do now with this slide is provide an overview of what has happened to our underlying operating profit in financial year 2022 and what the main drivers are behind that 27% year-on-year increase. And as you would expect, the biggest impact in absolute terms has been the increase in sales. As you see on the slide, at GBP 13.9 million, representing the fall-through of contribution from the strong sales increase Mark spoke about down to the operating profit level. While looking beyond the impact of the sales increase, the next thing to note on the gross margin side is that smaller negative amount of GBP 3.4 million. And the main thing behind this is the net negative impact of increased input costs such as freight and raw materials. As you know, we have been able to successfully pass on these costs by price increases. And as Mark mentioned at the beginning, we did see the month of March gross margins to get back closer to historic averages as a result of this. But there is always a deferral of this pass-through. And so the overall net impact for financial year 2022 has been negative. Although it is also worth noting that this has been offset in part due to the positive impact of product mix shifts in the year coming predominantly out of the large increase in our higher-margin distributor sales. Looking ahead, we do expect cost increases to continue to impact underlying operating profits in the short term as ongoing cost inflation and price increase negotiations become an every day and key part of doing business. Outside of the pure trading side of the business, financial year 2022 has also been a year where we have normalized our overhead base after the pandemic. As you can see in the graph, the removal of government support schemes has increased costs by GBP 2.1 million. But in addition to that, as you would expect, we have also seen the normalization of other more discretionary costs in the business. In addition to the impact of the strategic investments that Mark spoke about earlier, including into our global supply chain and ESG capabilities as well as the consolidation of TR Falcon's overheads into the group following the acquisition in August 2021. But if that is a group position, what does this look like on a regional basis? Well, for that, let's move on to the next slide. And here, we have presented our normal regional price. I don't intend to go through these in a lot of detail as all the headline numbers we just spoke about, largely feed through into the underlying regional numbers. But it is worth filling out all the extra bit of information so you can better understand the relative movements across the regions. So starting with Asia. Here, we have seen a small decrease in operating margins of 30 basis points to 12.9%. The more moderate increase in sales due to lockdowns and floods in Malaysia has positively fed through into margins, but the positive impact of this has been almost offset by the removal of the more generous government support schemes in the region totaling around GBP 1 million. On top of this, we have seen some negative impact of the increased cost versus deferred price increase recovery but this has been significantly less pronounced compared to other regions, particularly as freight is a much lower proportion of costs on this side of the world. Our European region has seen the biggest relative reduction in operating margins of 210 basis points. Sales growth of 14.2% has fed down positively into operating margin. But we have also seen more significant inflationary cost pressures in the region as freight costs increased sharply at the start of the year and increased raw material costs impacted our Italian manufacturing plant ahead of the curve. In the U.K., margins have shown a marked improvement of 430 basis points as very strong sales growth of 21.7% as fed through to underlying operating margin and a favorable product exchange coming predominantly out of the large increase in our higher-margin distributor sales has helped to offset the impact of inflationary cost increases. In our smallest but rapidly growing region, North America, we have seen a 560 basis point improvement in year-on-year margins from a negative position of 5.9% loss in financial year 2021 as very strong sales growth has driven operational gearing gains and following the acquisition of TR Falcon in August 2021. We do continue to see North America as a source of strong organic and acquisition growth for the group and expect to see this region return to profit in financial year 2023. So having covered the income statement, if we move on to the next slide, we can take a look at the balance sheet side as well. And that ever, the best way to do that with Trifast is delivered on that debt position. At a high level, we have seen a GBP 37.1 million movement, taking us from a net cash position of GBP 13.3 million to a net debt position of GBP 23.8 million. There are a number of reasons for this. Let's turn first to the biggest number on that bridge, being the GBP 31.7 million investment we've made into inventory in the year. In a macro environment where lead times are still running at historic 50-week highs and customer demand is volatile and difficult to predict, to protect supply and support sales growth, we have made use of our strong financial position to invest in inventory. When we spoke to some of you in November, we had hoped to see macro conditions, and therefore, the level of risk investments stabilized in the second half of financial year 2022. However, extended lead times and volatility have continued to work against us and to maintain reliability of supply around the world, further investments have been made. Looking ahead, as lead times remain high, but are now more stable and the pressure on supply chain is starting to ease a little, we will be looking to stabilize our inventory -- our investment in inventory as far as possible over the course of the first half of financial year 2023, which will bring us firmly back into cash generation territory and with a view to start to reduce our inventory holding in the second half of the year macroeconomic environment. But it is worth mentioning that to maintain reliable supply, we consider it likely that inventory weeks will remain higher than historic levels for at least the short term. Outside of inventory, we have also invested in the acquisition of Falcon on the 31st of August 2021. And excluding the GBP 2.6 million investment into Project Atlas that we've already touched on, we've also invested a further GBP 3.7 million in CapEx, most specifically into our Italian manufacturing operations, as Mark discussed earlier. And if we move on to the next slide, on the banking side. I won't go through this in detail, but suffice to say that we have around GBP 29 million of available headroom, excluding a GBP 40 million accordion, which is providing us with the capacity and the confidence to continue to invest in market share opportunities and our ongoing strategic investments, even given the investments we've made into inventory over the last year. And the last and very positive thing I want to touch on is dividends. The Board absolutely recognizes the role that dividends play in forming talks about to hit TSR, and we do remain committed to maintaining a progressive dividend policy broadly in line with profitable growth. With that in mind, we have proposed a financial year 2022 final dividend of 1.4p, which together with the interim dividend equates to a total dividend of 2.1p and an increase of 31.3% in the prior year. We do still believe that an appropriate level of dividend cover is in the range of 3x to 4x. However, it is worth noting that we are expecting to target payout at the top end of this range for the medium term to allow for our organic growth, strategic investments and acquisition ambitions. And on that positive note, I will hand you back over to Mark for the summary and outlook.

Great. Thank you, Clare. So just really to summarize. For FY '22, we saw strong growth and record-breaking revenues in the period. Our supply chain issues have been effectively managed, as you can see, but this has resulted in historically high inventory levels for all the reasons Clare and I have mentioned. Price increases have returned to a more -- or sorry, did return to a more normalized gross margin in March '22, but additional inflationary costs after that have prevented us getting a full recovery. With respect to Atlas, our U.K. site was brought forward into the scheduling to get our largest and most complex sites on board. But again, has been delayed for the reasons that Clare spoke about. TR Falcon was acquired during the year. And finally, we published our sustainability strategy, demonstrating our commitment in this area. So looking at the outlook. In the short term, given the political and economic environment we're in, really it's very challenging to predict what's going to happen. The global metrics do show that a recession is likely, but at the moment, a few customers experienced a softening in volumes in the Health & Home sector. Customer forecasts are not dropping and our distributors are still showing growth. But obviously, this won't lead us to complacency. Cost inflation will continue, so we do expect margins to remain under pressure for at least the first half of '23. However, the new contract wins, the activity level that provide us with confidence for the future, given everything that's going on, I think this year will be steady progress, maintaining customer service, investing where appropriate and capturing key opportunities as and when they appear. I know there isn't much good news out there at the moment. But the foundations we are laying our business model and the delivery of our strategic initiatives do give us the confidence for our medium-term aspirations. With that, I thank you. And are there any -- well, there are questions. We just now need to go through them.

Mark, Clare, if I may just jump back in there. And thank you very much indeed for your presentation this morning. If I may just bring back up your cameras. [Operator Instructions] Mark, Clare, as you can see, we have received a number of questions that have come in throughout today's presentation. And thank you to all the investors for submitting their questions. If I could please just hand back to you to run through that Q&A tab and where appropriate to do so. If you could please just read out the questions and give your response, and I'll pick up from you at the end.

Thank you. First question that we've got is from Joe D. How much more will be spent on Project Atlas this year? A very straightforward question, which is always nice for the first one. So thank you, Joe. Our best estimate of what we will spend this year is around about GBP 1.8 million. If it helps your context as well, when we get to the year after expecting to spend around GBP 800,000 to GBP 900,000. We are still within or expect to be within the GBP 17.5 million total budget. And we are now, as we go into rollout in the less expensive part of this multiyear investment. And so hopefully, that gives you the information you wanted.

Do you want to go on to the next question?

Yes, we can do. We have another Atlas question. So it's obviously inside of interest from Mark A. Can you comment a little on Project Atlas, what impact has this had on efficiencies within the business both from an operational and savings perspective? How far have you rolled this out across the business? Good question. Answering the first bit -- the last bit first. I expect we've already covered that on the presentation as we went through. By the time we've got the last phase of TR fastenings are most complicated and largest trading subsidiary here in the U.K. rolled out to, we will be 45% -- around 45% of our staff on to the new system. That is, for us, the way that we are measuring this is the most appropriate way to measure how far we rolled this out. And so I would look to that. We'll be just under halfway through by the end of this calendar year. In terms of efficiencies, obviously, gave a little bit more information when I was going through those slides. The things we are seeing now are on the warehouse side. And every time we do roll out to a site, we are seeing incremental efficiencies, time savings happening even when in the [indiscernible] which you are in for a few weeks after you've rolled out, we can still see that there are underlying efficiencies and time savings being made. That particular part of the benefits case was always meant to be incremental. Every time you get a new site on board, you get another little savings starting to come through. The biggest part of that benefits case, and I touched on 2 of those when I was going through the site, need more. They need a critical mass of sites we rolled out on to Project Atlas in order to start allowing us to see the benefit. And that's just about the realities and practicalities of having an upside on in order to have the data around us to have those sensible conversations with our third-party suppliers and to ensure that we are automating that making by decision.

Thanks, Clare. There's another question from Mark A. You referenced growth through organic means and through acquisitions. On the latter, what does the opportunity to make further bolt-ons look like? And will there be U.K. or internationally based? Again, I think I touched on this when I went through the acquisition slides. North America is where we're proactively looking. Ideally, it would be a manufacturing site where we can, but we're certainly not doing that exhaustively. As I mentioned, it's got a -- it's the largest part in market in the world, and it's an area that can help us rebalance the North American region although they are seeing exceptionally strong organic growth at this moment in time. But it's not just North America. We do -- when we -- it's been -- I think I said last time that there is a lot of opportunities coming across the desks at the moment. And we do review those. And that we have seen several in the U.K., absolutely. And we look at it on a piece by -- case-by-case basis. We have visited several and we're very choosy because obviously, it is a costly exercise. And when we look at culture, we look at earnings enhancing, we look at strategic fit. And yes, and what we are looking at, at the moment is our risk appetite. And if you look at the capital allocation model that we've got is, we're prepared to go up to 2x for an acquisition. But then we would like that to come back down quickly to around 1.5x since that's been put on board. We can move on to the next one. This is from Angela M. Can you elaborate further on your Italian phase expectations and time frame banks? With the Italian CapEx. As I say, this was a 4 -- there's a 2-phased approach actually on this. We had Phase 1, the EUR 4 million of investment that was going to give us 30% extra capacity. We have increased the -- we've implemented the infrastructure at this moment in time. So their efficiencies within the plant are improving, and the flow-through of products are improving. The next bit is -- and we've now, sorry, implemented quite a few of the machines into that plant -- the new machines into that plant. There are still a few more which need to come in, which we hope definitely to get completed by the by the third -- by the end of the third quarter. And there was a second phase that we're looking at, but that will be done once we've seen where the capacity gets to. I think we've already touched on this actually from Chris S. You say your ambition is to be a much bigger company. How will you measure this? And can you provide a number? That was on the slide I went through on the key strategic initiatives and the KPIs there. So I'm hoping, Chris, that, that answers your question.

I think the only thing I would add, Mark, there are also some key performance indicators, Chris, in the annual report. That's obviously also been released. So do take a look there as it might provide extra context of how we're measuring ourselves.

Okay. Simon C, what sort of demand are you experiencing for plastic components, particularly in the EV market? What would you say is the size of the opportunity here for Trifast? I mentioned earlier on about the product ranges on the engineering section. And that's actually plastic components is increasing. It's one of our fastest-growing ranges. And as you quietly say, particularly in the EV market, I mentioned about the cable management example, and that was a really good example of plastic components. So no, it is -- that is one of -- yes, definitely one of our fastest-growing ranges.

And then we have a question from Matt G. How have raw materials and freight costs moved in fiscal quarter 1? Looking at the quarter 1 of this year, financial year 2023, Matt, raw materials and freight costs have largely stabilized. We saw -- they were the story of -- the inflationary story from our last from financial year 2022, where we saw huge increases in raw materials and particularly in freight costs over the first half of last year. They started stabilizing towards the end of last year and have remained around that level. The costs that we are actually being impacted by now are hardly surprising what we're all reading about in the media, and it's the energy costs more than anything else and the huge increase in those energy costs which hits first and foremost, our manufacturing locations, but then starts to filter through into all of our distribution locations as well.

Mark, Clare, if I may just jump back in there. And thank you very much indeed for taking the time to address all of those questions that came in from investors today. And of course, if there are any further questions that are submitted today, we'll make these available to you immediately after the presentation has ended for you to review. And ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the Investor Meet Company platform. Mark, perhaps we're redirecting investors on the call to provide you with their feedback, which I know is particularly important to yourselves and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Now as always, thank you for your time and your interest today. It is very, very much appreciated. I hope you found the presentation today useful. If there is anything else that you want to know, please go on to our website. That is, as we mentioned, the annual report contains a lot more information across various different disciplines, which hopefully you'll find useful. And also the sustainability report, which we've released as well this week. So again, any more information can be found in those resources. Once again, thank you all very much and look forward to catching up in another 6 months' time. Thank you.

Mark, that's great and Clare as well, thank you very much indeed for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It is going to take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Trifast plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.