Volex plc (VLX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Volex plc Full Year Results Investor Presentation. Throughout the recorded presentation, investors will be in listen-only mode.[Operator Instructions] Before we begin, I would like to submit the following poll. I'm sure the company will be most grateful for your participation. I'd now like to hand over to the Chairman, Nat Rothschild. Good morning.

Good morning, and welcome to the Volex plc Annual Results Presentation for FY 2024. I'm Nat Rothschild, Executive Chairman; and I'm joined today by our Chief Financial Officer, Jon Boaden. It's good to be back on the Investor Meet platform. We have a real following on here, and it provides us with a unique opportunity to interact with you, a wide range of investors. Let me start by saying that this past year has been marked by significant achievements, strategic advancements, and of course, robust financial performance. I will take you through the highlights of the year before handing over to Jon, who will run through our financial review. I'll then provide an update on our strategy and close with our outlook. And there will be ample time for questions at the end of the presentation. These results demonstrate that our business is in excellent shape. We achieved revenues of $913 million, doubling revenue in 3 years. Over 40% of this growth has been organic, with the rest from acquisitions. This impressive growth underscores the strength of our business. Our strategy is to diversify and develop in niche markets, where we can generate profitable growth. And this has been highly effective, helping us to achieve an excellent underlying operating margin of 9.8%. We are particularly pleased with the significant growth in our Medical and Complex Industrial and Technology sectors. Despite some short-term headwinds in the Electric Vehicles and Consumer Electrical sectors due to destocking, our overall business saw 7% organic growth. And this demonstrates how our strategic focus on diversification allows us to adapt to changing market conditions. We are extremely happy with our progress in Off-Highway following the acquisition of Murat Ticaret in August 2023. The integration is progressing well with good feedback from customers and our new colleagues. This is a fantastic business. And with the positive changes that we're implementing along with opportunities for cross-selling and global growth, it will become even stronger. This success underpins our confidence to keep investing in growth and seek out new opportunities. Turning to Slide 4. We have transformed Volex into a diversified business, focused on specialist manufacturing for advanced technology customers. This has allowed us to deliver compound annual growth of 27% over the last 3 years, at an average organic growth of 12%. We have consistently delivered underlying operating profit margins within our target range of 9% to 10% for the past 4 years, despite a challenging environment that's included COVID, supply chain disruptions and inflationary pressures. We are a manufacturing partner for the 3 biggest technology businesses in the world. This includes our high-speed data center cables, which are experiencing a significant increase in demand due to the rollout of artificial intelligence technology. Many of our customers across multiple end markets from agricultural to aerospace, from medical to industrial automation are demanding increasingly complex solutions. Our well-equipped manufacturing locations and world-class engineers are supporting these programs and delivering critical connectivity solutions to these advanced technology companies. Our global footprint continues to be a critical differentiator. Given the significant trends we're seeing towards localization, it is a central topic in many of the conversations we're having with existing and potential customers. We can offer the choice and flexibility that customers are looking for as they reconfigure their global supply chains. Our advanced manufacturing locations in North America, Europe, India and Asia allow customers to diversify and de-risk their sourcing strategies. Customers are willing to show flexibility and undergo the disruption of moving operations to ensure continuity of supply. It's not just businesses relocating from China. We also have North American and European customers interested in exploring low-cost manufacturing opportunities we have in India and Indonesia. To capitalize on this trend, we have significant incremental capacity coming online in Mexico, Turkey, Poland, Indonesia and India, which will increase our overall footprint by 25%. This capacity is either ready now or will be ready within the next 3 months, perfectly timed to meet the demands of our customers who are looking to relocate their production facilities as we invest ahead of customer demand. In addition to the optionality that we offer around location, we pride ourselves on the level of choice we are able to provide to customers. We have different types of facility catering to different customer and market requirements. Our small specialist sites are dedicated to meeting complex needs like printed circuit board assemblies for critical applications. They use advanced engineering and thorough testing to meet the high standards of their markets. By concentrating on specific end markets and customer groups, these sites deliver the highest levels of proficiency and quality for specialized applications, resulting in higher gross margins. Also, we operate larger sites, some of which are specialists and provide scale and low-cost options to our customers. Others, like those in Tijuana and Batam, sell multiple markets at once. These sites act as centers of excellence, bringing together skilled engineers to solve various manufacturing challenges. Their size enables us to work more efficiently, lowering overhead costs and boosting overall productivity. I'll now hand over to Jon to run through our financial performance.

Thanks, Nat. I'd like to add to echo Nat's comments. It's great to be back on the Investor Meet company platform, and it's great that so many of you are tuning in to listen to our latest set of results. And look, it's been a great year, as you can see from our financial performance. Revenues up by 26%, and this includes 7 months of contribution following the acquisition of Murat Ticaret. We also achieved 6.9% organic growth despite facing variable demand across our different sectors, and I'll go through the sectors shortly. Our underlying operating margin improved by 50 basis points, delivering almost $90 million in underlying operating profit, which is a 33% increase from the previous year. And this improvement is a result of our sustained focus on managing operational costs, passing through inflation, and identifying opportunities for continuous improvement. We also saw a 13% increase in profit before tax. And as a result of the strong financial performance, we're able to increase our total dividend for the year by 8% to 4.2p. This increase reflects our confidence in the future growth prospects of the business and our commitment to delivering value to shareholders. So let me talk you through what we've seen in each of our markets during the year. So in Electric Vehicles, FY '23 was incredibly busy with customers who were stocking up due to shipment delays. As shipping times have normalized in FY '24, customers have reduced inventory levels, and that's led to a year-on-year revenue decline that's against a very strong comparator. However, in the last 4 or 5 months of the financial year, we started to see a return to growth, indicating that we're moving through destocking. We're using our expertise in high-voltage power delivery and harnessing to deliver complex connectors that are installed within electric vehicles. And that's a great example of how we're increasing our participation in the EV market. We're also winning business based on our expertise in relation to Tesla's North American charging standard, which is becoming the universal charging standard in the U.S. market. This positions us well for future growth with our range of cables, couplers and connectors. The EV market is maturing and continues to offer opportunities for significant long-term growth as the world looks to decarbonize transportation. As a vertically integrated, market-leading expert in these products, we have confidence in our ability to make further progress in this space. The Consumer Electrical sector, which represents about 25% of our total output, has also seen significant changes. In FY '22 and '23, we saw increased demand caused by the trend towards remote working and spending within the home. This demand has normalized and customers have been adjusting inventory levels accordingly. We saw a fall in revenues of 7.6% as destocking worked through. As we approach the end of the year, particularly in the last quarter, we started to see a normalization in demand, which suggests a positive outlook for the future. We have several new projects scheduled to go into production in FY '25, which should drive continued success in the market. Mid-term growth will be driven by our competitive commercial position, our fully vertically integrated operations, and from consumers increasingly replacing appliances with more energy-efficient alternatives. And if we turn to Medical, we had an exceptionally strong year. Now this was partly due to pent-up demand as our customers have faced component availability challenges. And for our medical customers, the products they manufacture are highly sophisticated, requiring regulatory approval, which means it's very difficult for them to substitute components. However, with supply chains improving, our customers have been catching up on significant backlogs, driving high demand. So when we look ahead, we expect growth in the medical sector to be flat or slightly down next year due to the one-off nature of some of these catch up. However, the long-term prospects are really strong. Advances in medical technology and aging population and the increasing need for health care services will help drive demand for these products. We've invested in capability and engineers to support customers who would like to move production to Volex. This strategic positioning will enable us to capture future growth opportunities in the medical sector. In the Complex Industrial Technology sector, we achieved organic growth of 32%. Now much of this was from high-speed cables for data centers. And this increased demand was driven by improved component availability, which was supporting data center builds, and also the growth in artificial intelligence applications. Now there's a huge amount of processing required to run AI models, and that's significantly increased demand for our high-speed products. Across the rest of Complex Industrial Technologies sector, which spans markets including aerospace, military and defense, telecommunications and industrial automation, we saw a variety of requirements. Some customers are restocking and catching up with help from better supply chains, while others are destocking. Overall, the performance was broadly flat. Looking ahead, we expect demand to remain strong for data center products, although we don't expect the growth to be at the levels that we saw in FY '24. In FY '25, we have several new programs set to launch as we continue to meet the evolving needs of our diverse portfolio of customers. And then turning to our newest sector, Off-Highway. We experienced significant growth due to the acquisition of Murat Ticaret. Just a reminder of what we do here, we're making complex wire harnesses that are used in a variety of applications, and our end markets include agriculture and construction equipment, materials handling solutions, and buses and coaches. We've broken out our prior year numbers to include off-highway products that were previously reported in other end markets. And actually, we're really pleased with the progress we've made in integrating Murat Ticaret, maintaining strong customer relationships and winning significant new business. And the acquisition has, not only expanded our market reach, but provides us with new opportunities for growth. And future growth in the Off-Highway sector will be driven by the electrification and increased mechanization of vehicles, with customers looking to reduce their reliance on labor and enhance efficiency through modern technology, creating demand for our products. And we see significant potential for growth in this sector as these trends continue. So margin performance was really great this year, and we increased our margins by 50 basis points to 9.8%. And that was due to a number of things and included a strong focus on cost management, favorable foreign exchange rates, and improvements in product mix. And the acquisition of Murat Ticaret also contributed to our margin improvement, landing the margin upwards. In thinking about our business model, it's important to realize it contains factories with a mix of different margin levels due to the varied types of manufacturing and end markets that we serve, as well as the utilization levels in each of those facilities. So some of our facilities produce operating margins in excess of 20% and some of them are sub-10%. And what we do every year is we blend those margins together. We add in central overheads, which we control very tightly, and that gives us headroom that we can invest in growth. And as we've made such a strong performance across our operating sites, we're able to channel more into investment, including capital expenditure in FY '24 to support our growth objectives. And we've consistently shown excellent capital allocation decisions as evidenced by our strong return on capital. And we'll continue our proven approach as we invest in the next phase of growth for the group. Cash flow performance this year has been excellent. So we generated $57 million in underlying free cash flow, even after $31 million of capital expenditure. And this strong cash flow reflects our ability to manage working capital effectively, and that's included reducing inventory, improving collections, and negotiating extended terms with suppliers. We ended the year with a net debt of 1x covenant leverage, which is well within our target range of 1 to 2x. And the leverage measure we use corresponds with the way our banks assess leverage for covenant purposes. So this excludes operating leases, and it annualizes the impact of acquisitions. With a strong financial performance and strong financial position, provides us with the flexibility to invest in future growth opportunities while maintaining a healthy balance sheet. And further to that, since the year-end, we've completed a refinancing. So our facilities now comprise a full year $400 million RCF with an uncommitted $200 million accordion. And this facility is unsecured, and we have improvements in interest margins and leverage covenants, which demonstrates the confidence that our lending banks have in the progress that we've made and positions us for further M&A activity. So just a reminder in relation to capital allocation, and our clear policy on capital allocation has been an integral part of the sustained growth of our business, driving the levels of return that we've delivered. Our strategic approach focuses on reinvesting profits into higher return projects, ensuring that we maximize shareholder value. We're also committed to maintaining a strong balance sheet, providing us with the financial flexibility to seize emerging opportunities. By optimizing our capital structure and efficiently managing our resources, we can fund strategic acquisitions that complement our core operations and drive synergies. This holistic approach not only support sustainable growth, but also mitigates risks, ensuring long-term stability. We also believe it's important to pay a dividend and would consider a return of capital to shareholders if there were no more compelling opportunities to deploy capital through investments or acquisition. So as I mentioned, we invested $31 million in capital expenditure this year, which represents 3.5% of our revenue. So it's within the 3% to 4% range that we guided to last year. And these investments support the growth of our business and offer excellent returns. Most of our projects provide cash payback within 2 years, which we believe is industry leading and highlights that our capital allocation approach is working very well. Returns from capital expenditure have been very successful, so we're confidently increasing investment to approximately 5% of revenue for FY '25. And our investment is driven by our customers and understanding their evolving requirements, reducing the risk of underutilization of assets. Looking at our return on capital employed, it's consistently been above 20%, and I believe that's particularly impressive given that we've doubled revenues over this period. With 7 new projects coming online at the end of FY '25 and into FY '26, and we'll continue to invest in CapEx to deliver these incremental projects, these strategic investments will support our growth and deliver our long-term objectives. I'll now hand back to Nat to cover some key points in relation to strategy.

Thank you very much, Jon. So it's worth reminding people about our strategy. First of all, we target niche areas of integrated manufacturing services where we have the maneuverability and flexibility to serve complex customer requirements. We also pursue vertical integration opportunities, enabling us to be cost competitive and a dynamic manufacturing partner. Talented people are crucial, for example, our engineering and sales colleagues who are supporting the customer moves. And execution is key. Customers trust us to meet complex and challenging requirements through operational excellence, maintaining our reputation for quality and reliability and exceeding customer expectations every single day. And acquisitions have played a vital role in our growth story. Over the last 6 years, we've completed 12 acquisitions, enhancing our capabilities and customer base. And finally, our global presence and scale are unique, positioning us to -- perfectly to capitalize on trends towards localization, meeting customer needs in the markets where they operate. As a rapidly growing business, we are responsible for developing our operations in a sustainable and ethical manner. And ESG is of great importance to our teams, our customers and the communities that we operate in. I'm pleased to report that we've made very significant progress in several key areas of ESG. By implementing energy-efficient practices and using renewable energy sources, we've reduced our environment impact, while supporting sustainable growth, and we've lowered our carbon intensity. We're using less water, ensuring that our operations are more efficient and environmentally friendly. We've also enhanced health and safety, and improved overall workforce engagement, recognizing that people are our most valuable asset. And this hard work has not gone unnoticed. We've been recognized as a Financial Times European Climate Leader for 2024, and we've seen improvements in our EcoVadis rating. So we've chosen the right markets that suit our capabilities' strengths, and these give us opportunities to grow. Our 5 end markets complement each other. For example, our expertise in EV manufacturing evolved out of our capabilities and decades of experience in manufacturing power cords. Medical and Complex Industrial Technology frequently intersect as we produce printed circuit board assemblies, box builds and complex cable assemblies for customers at the forefront of innovation. Complex Industrial Technology aligns well with Off-Highway where we produce highly sophisticated wire harnesses for diverse applications. Closing the circle, our expertise in Electric Vehicles supports the electrification journey for Off-Highway customers, leveraging our knowledge of high-voltage power transmission in the automotive sector. The complexity of the products that we manufacture for our customers often surprises people. We're seeing a trend towards increasingly complex designs. Off-Highway is a perfect example where the sophistication in agricultural equipment is increasing all the time. Our customers are producing tractors with multiple cameras, sensors, safety equipment and GPS tracking, all to enhance the capabilities of the end product. That means they're looking for manufacturing partners who could work across a variety of technologies, can comprehensively test and quality-assure everything that they produce, and can deal with some very complicated requirements. An example of the complexity of our products is one of the harnesses that we make for a bus and coach manufacturer, which has over 550 individual components and about 5 miles of cables. Acquisitions have been a key part of our growth story. And in the last 3 years, we've looked at over 100 different targets. Of this, we've made 21 offers and we've acquired 6 businesses. So we're very active in the market, identifying opportunities for acquisitions that will be a good fit with our strategic objectives. When we think about M&A, we're looking for businesses with good customers in markets we understand, with complementary capabilities and the right geographic footprint. We like to buy good value businesses. And cultural alignment is also important. In total, since 2019, we've invested approximately $400 million in acquisitions, delivering a cumulative free cash flow payback of 20%. So turning to Slide 23. We've made excellent progress in our integration of Murat Ticaret following the completion of the deal in August 2023. We've had great customer engagement. We understand how we can partner with them across multiple regions and identifying exciting potential cross-selling opportunities. We've also been really pleased with the warm welcome we've received from our new colleagues. High levels of vertical integration enable us to provide cost-effective solutions to our customers. With world-class engineering capabilities and an experienced management team, the business is in great shape. These encouraging growth opportunities require us to invest further to increase the capacity of Murat Ticaret. We are also investing to strengthen and broaden back office functions and to modernize facilities to bring them up to Volex standards. Labor inflation is being carefully managed, and we are reviewing cost optimization opportunities as we do across the entire group. For a rapidly-growing business like ours, making the right investment decisions is crucial. And we maintained a return on capital above 20% by investing strategically. Our 5-year plan guides these investments. To support our growth plans, we need additional manufacturing space. We currently have 325,000 square meters of space, with an additional 80,000 square meters coming online in FY 2025. This capacity supports anticipated customer growth requirements and our 5-year plan. And in particular, we're focused on key locations where customers have the greatest demand for space, including Mexico, Indonesia, India and Turkey, to support our go-to-market strategy. Customers require available capacity before they commit to move, and there is high demand for alternative manufacturing right now. Customers only want to move once. So we have delivered the space we need to support these requirements. This investment in increasing capacity will increase our CapEx spend in FY '25 to around 5% of revenue. In FY 2024, we invested $8 million of operating expenses into long-term business growth. In FY 2025, we plan to increase this investment by $10 million to $18 million in total, as we accelerate our investment plans and scale up our operations. So here's a reminder of our 5-year plan. With the growth that we've delivered in FY 2024, with the new projects that we're winning and the markets that we're positioned in, we remain extremely confident of achieving our 5-year plan. When we laid out the 5-year plan to get to $1.2 billion of revenue by FY 2027, we said that at least $200 million of that growth would come from acquisitions. I'm pleased to say that, of the 2 acquisitions that we've made in the last 2 years in the U.K. and Turkey, we have met that element of the 5-year plan. That said, if we can identify acquisitions that add value to our organization, we'll certainly consider them. But we're in a nice position where we don't feel that we're under any pressure to acquire anything given the strong organic growth trajectory. In summary, these results showcase our progress and growth potential. We've achieved 7% organic growth in a challenging market. Our consistent margin within our target range demonstrates our financial strength, giving us confidence in delivering our 5-year plan. The acquisition of Murat Ticaret has been transformational, expanding us into a fifth market vertical. And we are excited about replicating its success in North America and have started building a North American Off-Highway team. We will accelerate FY 2025 investments to support strong customer demand for these products in this region. And we will also further integrate Murat Ticaret in Europe, pursuing cross-selling opportunities and sharing best practices across manufacturing sites. We've invested in capacity and have available space to meet increasing customer demand in key locations worldwide, supporting localization efforts and global manufacturing needs. We've made a strong start to FY 2025, which will be a further year of growth and investment as we continue to serve our customers. Volex is in exceptional health, with fantastic opportunities ahead that we are committed to pursuing. Thank you all, and we'll now take any questions that you may have.

That's great. Nat, Jon, thank you once again for updating us this morning. [Operator Instructions] I'd just like to remind you that the recording, along with a copy of the slides, and the published Q&A, will be available to you later on this afternoon. Nat, Jon, as you can see, you had a number of questions from investors throughout your presentation. And thank you to everybody for engaging. If I may, Jon, maybe I should hand back to you just to moderate us through these questions and I'll pick up from you at the end.

Yes, of course. Thank you, Mark. Look, we've got tons of questions, so we'll move through them quite quickly because we'll try and answer as many as we can in the time that we have available. So the first question, a pre-submitted question, and it's what percentage of turnover do you spend on research and development? So research and development, some of it goes through the P&L and some of it is capitalized under IFRS. And in FY '24, we spent $4.4 million, which went through the P&L. And in addition, there was a further $3.3 million, which was capitalized development costs. And the predominant focus of R&D is in 2 areas. It's in high-speed cables for data centers and it is also in relation to the evolving EV products that we're manufacturing. Next question. Please give details of the auditor of the recent Turkish acquisition. The auditor for our group is PwC. PwC audit all of the material components of the group. Murat Ticaret, the acquisition was a material component, and it was a team from PwC Turkey reporting into PwC London, who audited the acquisition. They reviewed the opening balance sheet, the closing balance sheet and the P&L in between. So it's the same as the rest of the group where we use PwC. Next question is, given projected CapEx and OpEx investments, is free cash flow expected to be positive in FY '25? So as you can see in FY '24, we have strong free cash flow, and that was even after we spent $30 million on CapEx. So we certainly are generating a lot of cash within our business, and that's what's giving us the confidence to invest in CapEx and really use the cash that we're generating to support the future growth of our business.

So the next question is, how is the action of the Houthis affecting our business in terms of goods ship via the Red Sea? Well, the answer is, is the vast majority of our goods shipped from Asia go across the Pacific and into the U.S. We don't do much around the -- through the Red Sea. And in fact, it helps us a little bit because the -- it makes our Turkish businesses more competitive against China because the shipping rates have gone up.

Thanks, Nat. So next question is, revenue in Electric Vehicles and Consumer Electricals declined due to normalization and destocking, but showed recovery signs later in the year. What is the outlook for these sectors in FY '25? So we're making good progress in Electric Vehicles. We have a new project that we're delivering from our facility in Tijuana, which we did an RNS about several months back, and that is part of the growth. And what we're doing in electric vehicles is we're expanding the products and our capabilities that we support. So that's giving us good confidence in the ability for us to grow Electric Vehicles over the medium term. And in terms of Consumer Electricals, as we said in the presentation, it feels that there is a normalization occurring in the last quarter of FY '24. So that positions us in good stead as we're picking up new projects with existing customers and some with new customers as we go through 2025. There's a question from Andrew H. It's quite a long question, but the gist of it is around return on investments being made for FY '25 and how that contributes to the growth that we're seeing going forward. Now we look at FY '25 as, really, a year of consolidation. And the reason for that is we have some sectors which have grown incredibly strongly, notably Medical and the data center cables that sit within Complex Industrial Technology. Some of that growth is catch-up, it's one-off growth. So in Medical, for example, our customers had problems with supply chain, and as a result of that, they -- problems with supply chain in '23, and in '24 when supply chains improved, there was some catch-up going through in those markets. So for Medical, in particular, we expect it to be flat or down next year because some of that business won't repeat. In contrast, we've got other markets like Electric Vehicles where we've got good line of sight on some of the projects coming through that we're growing. So we're still seeing some of the impacts of destocking and restocking that are going on. And our focus is very much on what we can achieve in -- sorry, I just -- not the slide. So our focus is very much on what we can achieve in '26 and '27. We're expecting strong growth. And it's worth noting that many of the projects that we're working on now, they're for increasingly complex products for our customers, and therefore, they have a longer sales cycle and it takes longer to onboard those. And that's also factored into how we're thinking about the forward growth. So the next question is talking about capital expenditure on existing operations and generating return on investment of 50%. And have these return on investments been achieved? So you're right, when we think about CapEx, we talk about CapEx that has a cash payback within 2 years. And that's the default expectation for all of the projects that we're signing off. And the exception would really be, of course, there are some maintenance CapEx, it's less than 1% of revenue, which is around replacement, and also if we're doing a longer term project. So if we're investing in a new facility, for example, that the payback will be longer. But most of the individual projects that we're doing, they will pay back within 2 years from when that program goes live. And we monitor that. We check that we're achieving those return on investments. Often we -- the payback is shorter than that, so it's a great return, and it gives us good confidence in the CapEx investment that we make.

So the next question is from David R. "As you already have business relationships with Tesla, do you get any inquiries from Elon Musk's space-related businesses for Volex products?" So the answer to that is, yes, we also supply SpaceX and we also supply Tesla Solar. And both of these relationships have been referrals from our core electric vehicle customer, which is obviously a good sign and should give people a lot of confidence that we're doing the right thing. Let's have a look at that. Okay. Next question is, "How can you discuss how the Kaizen philosophy is being implemented and cost efficiencies realized across the group? Has this culture been adopted at new acquisitions?" Well, look, we are completely committed to Kaizen. We have Kaizen workshops going on around the business at a site level, not just on a daily basis but on an hourly basis. Kaizen is central to everything that we do. And it's one of the first sort of exercises that we employ in all of the acquisitions. And it's incredibly important to our business and to its future success.

Good. Thanks, Nat. So the next question is around acquisitions. And it is, "Is Volex expecting to acquire new companies through the existing cash flows or debt or raise further equity? What is the current pipeline of M&A, average size and average multiple?" So we've been very successful through acquisitions. It's been a key part of how we've grown and scaled the business and how we've increased the capabilities that we have and made sure that we have strength in geographies that we think are going to be important now and important in the future, which includes places like Turkey and India, where acquisition has been a route into those markets. And we've done it incredibly well in those locations. So we are always looking at M&A opportunities. And as we talked to in the slide, our 5-year plan is to get to $1.2 billion of revenue by the end of FY '27. We've done the acquisition piece of that, which was $200 million from acquisitions. So we're comfortable that we can achieve that 5-year plan with organic growth. So we don't feel under any pressure to do acquisitions. If good acquisitions come up, then obviously we will look at them. But we don't feel that we have to force new acquisitions to achieve those top line targets. So that's really how we're thinking about it at the moment. In terms of how we would fund it, we've got this larger facility now. So that gives us the ability to execute acquisitions. We've talked about our target from a leverage perspective to be between 1x and 2x. And actually, what we're feeling right now is there's so much organic opportunity that we can deliver through investment in our own business, which pays back within 2 years. That's very much our focus, because you can't buy a business that pays back within 2 years. So we will continue to sensibly invest in our own operations. So we've got a question here from David R., who says, "In the energy transition, improving grid connectivity seems to be getting more attention now. I know this has been mentioned before in previous presentations, but are you starting to get inquiries for Volex products for grid-related work or in the areas of long and short storage on the grid, and whether here in the U.K. and in Europe and beyond?" So we don't supply the high-voltage, high-current cables that you use for things like electricity transmission into buildings or to factories or supplying the national grid within the U.K. That's not one of our core competencies. Where we're very focused on supporting infrastructure of -- infrastructures around electric vehicles, where we make a number of products, including high-voltage charging solutions for the electric vehicle market. And if you think about the markets that we're in, EV is clearly all around electrification, but we're seeing increasing demand for electrification for the off-highway vehicles as our customers look to adopt cleaner technology and harness the efficiency and convenience of electrification. So that's really where our focus is around electrification.

So here's a question from Lawrence C. "Will M&A expand within the 5 current end markets, or focus on a new end market?" So the answer to that is we are laser-focused on what we are doing at the moment, and we're trying to grow within those existing verticals, because the value of this business is its complete focus on very, very narrow areas around integrated manufacturing services, around box builds, around printed circuit board assembly, complex cable assemblies. We're one of the few companies in the world that has this level of focus in this area. And we're trying to make this a very, very valuable company and a market leader in this space.

Good. Thanks, Nat. So there's a question from Scott M. And I love a tax question, so this is a tax question. "Can you give any guidance on your expectations for the ETR, which is the effective tax rate, for this year and next?" So in the slide deck, on Slide 36, we have given some guidance around the FY '25 effective tax rate. And our expectation is that we're looking at the underlying effective tax rate, which applies to underlying profit before tax. It will be circa 22.5%. Now our cash tax rate is lower than that. So from a cash perspective, we expect tax payments to be approximately $15 million to $20 million. And the reason that the cash tax number is lower is that we still have losses in certain territories that we're able to utilize. So that gives you a cash tax saving. Now in a group like ours, tax is complicated. We're in so many territories. The laws change frequently. And we're managing a complex set of requirements. But we're very focused on tax. We've got a great tax team in our head office, and we're always looking at opportunities to make sure that we're paying the right amount of tax in the markets in which we operate. A question from Richard G. "Can you please reference your 5-year plan reminding listeners what stage has been reached, with an indication of current targets and expectations?" So the 5-year plan, we're 2 years through the 5-year plan, it runs until the end of FY '27, so we've got '25, '26, '27 to go. But we feel that we're doing really well against the plan in terms of where we want to be. We're in the right markets that can deliver the growth that we need. We've got a fantastic team who understand those markets incredibly well. We've got some of the best customers in the world. And it's really now all about execution. It's about investing in the right places. We've put in the capacity. We've got factory space that's either become available in FY '24 or is becoming available in the first half of FY '25. And that's really important as we capitalize on this megatrend of localization. And with all the disruption that there's been to supply chains over the last 2, 3 years, customers are really looking at how we can support them in different geographies. So we're feeling very confident about the 5-year plan. So then the next question, Ian H. "You talked about investment in FY '25 for future growth. What is the impact on profitability for FY '25?" Well, the great thing about our model is how we're flexible in the amount that we invest. And we have consistently, for the last 4 years, delivered underlying operating profit margin between the 9% to 10% target that we've guided people towards. And our investment plans take that into consideration. So with the investment that we're planning to make in FY '25, that's all built into our margin thinking as we go through the year. A question from Scott M. "At the end of the 5-year plan, what will you expect net debt to look like?" So it's a good question. I think the simplest way to answer it is we've set out that we want to be between 1 and 2x from a leverage -- covenant leverage perspective. I don't see any reason why we would be outside of those ranges as we sort of continue to invest. Remember, the 5-year plan is a growth plan to the end of FY '27, but clearly, we have aspirations to carry on growing beyond that. So as we get towards the end of FY '27, we'll be starting to invest in the growth that we look to deliver in '28, '29, et cetera.

So here's a question from David C. "How disappointed are you by your share price performance? And what are your thoughts to improve that price?" Well, look, I do think the company is undervalued today. I think it is an extremely diversified and resilient and well-managed business. And I do think that it should be more appreciated by the stock market. And what we've been doing recently is starting to look at overseas investors. So Jon and I have been over to the States. This year, we've met with investors in New York and other locations, Boston and some -- a couple of other cities in the U.S. So we are now looking at other areas to try and find investors. Because the reality is the U.K. equity market is depressed. There's been outflows from equity funds. There's a shrinking pool of investors over here. So we've got to go out. We've got to try and find new investors. But most importantly, we've got to keep doing what we're doing, which is growing the business. And it's extraordinary when you think that we doubled revenues in the last 3 years. And the organic growth in the business should mean that the share price will continue to trend up, providing you take a medium- to long-term view.

Good. Thanks, Nat. So a question from David W. "How does Volex manage the high inflation in Turkey estimated to be 30% plus this year and 14% next?" Now, as an organization, we're no strangers to inflation. We operate in lots of markets where the inflation characteristics are broad. And we also manufacture some very complicated products for our customers. It's important for us to be very cost competitive. So we manage our business very carefully to make sure that we're as efficient as possible. Where we face inflation in a market, our first course of action is to deliver efficiency savings to offset the impact of that inflation. And where we have to, then we will pass inflation through to customers.

So here's one from David S. "Great performance, well done. Any plans for dual listing given the issues with the London market?" Well, I think I answered that just now, but just to be clear, we are committed to the London market. And I don't want to spend millions of dollars relisting the company on another exchange, because I think I'd rather spend that money on sales people, engineering people, and trying to grow the business.

So the next question, "How would you describe the long-term flywheel of Volex?" And I'm not sure I completely understand your question, but if that's about what do we feel is giving us momentum for long-term growth, well, it's the fact that we have these 5 markets that we've identified where they've got very structural growth drivers. We're a niche manufacturer of complex products for some of the best customers in the world. And we have a tremendous reputation for being very cost competitive with great quality and great customer service. And really, so those 3 things that mean customers keep coming back for repeat business and allowing us to grow. There's a question from Ariel C. about, with Chinese EV growth at the expense of Western EV companies anticipated, Volex still have a 20% CAGR forecasted by FY '27 within EV? Look, I would say that we're very pleased with the progress that we're making in EV. We're talking to customers in all markets. We recognize that China is the biggest EV market in the world, and we have a great sales team in China who are talking to a number of customers, some of which are becoming recognized names in Europe and North America, and some of which are relatively new brands, reflecting the vibrancy of the Chinese EV market. And I personally believe that as EV becomes the default technology over the next decade for passenger transportation, that it would support a wide variety of brands from different origins just as the current internal combustion engine supports brands from all over the world. So yes, we're still very confident in the progress that we can make in EV. And it's been a strong sector for us and continues to be a strong sector.

Here is one from Theo. "What sectors are most attractive to Volex for acquiring a business? If you have met the revenue requirement from acquisitions, do you expect to increase dividends?" Well, we've increased the dividend every year, and we're committed to our dividend. And I don't -- I'm not going to say anything more about that. And I think we covered the acquisition point in the presentation.

There's a question from [ Cattan P ]. "Any thoughts of moving from AIM to main market, listing on NYSE, and, indeed, going for U.S. listing?" It's similar to the question that we had before. But Nat recently wrote an article about how much value we feel there is with being on AIM. So have you got any points to make on what we like about AIM?

Well, I think -- look, I think I'm just repeating what I answered on an earlier question. I don't think it's the right thing to relist this company overseas. And the debate between the AIM and the main market is a reasonable debate to have internally. And I don't -- right now, we have no plans to re-list, although we're big enough now to be in the FTSE 250.

Good. Thanks, Nat. There's a question from Luisa. Can you -- when should you have your R&D centers? And can you tell us a little more about why you moved your plants to Eastern Europe? So I'm not sure about the second part of the question because we haven't moved any parts to Eastern Europe. But we've got a global footprint, which includes some plants in Eastern Europe. In relation to R&D, we've got centers of excellence, particularly in relation to EV products and data center cables in Suzhou in China. And also, we have R&D expertise in the U.S. and in Singapore. But we also have pockets of R&D around our organization. So for example, we have a very strong consumer electricals offering in Turkey, and they run their own R&D, focused on particular products. One of the things that they've been very successful in this year, just as an example, is coming up with more environmentally friendly products for power cords. So we're a business that's very focused on ESG. Our customers are focused on ESG. And we're trying to think about how we can offer more sustainable products in that area. And that's something that's being driven out to the team that's working in our facility in Istanbul, in Turkey. So R&D is happening around the group, particularly in the centers of excellence that I mentioned. Ariel has another question about whether we can expect a Q1 trading update. And what we've generally done is, on the day of the AGM, that we'll give an update on how we're seeing trading in the first quarter of the year, we said on Slide 28, look, that we've made a promising start to FY '25. So further information when we get to the AGM, which is at the beginning of August.

So here's a question from [ G. ] "Is the management team committed long term to Volex?" And the answer is yes. We have a very strong management team. They've all got equity in the business. Some of them have large percentages of their net worth in the business. And look, I'll be honest, I'm a major shareholder in this business, and it means that we think in a very long-term way. We're a long-term focused business, not a short-term focused business, so that's what you talk about in your question, about the distinction between the long-term decision-making and to avoid being short-term focused. Well, we are a very, very long-term focused business. I think that's the last question.

Nat, Jon, indeed, you've taken every question from investors. So thank you once again to everybody for engagement. Jon, Nat, thank you once again for your time this morning. I don't know, Nat, if you have any closing comments before I redirect investors to give you their feedback.

I just want to say thank you very much to everyone on this call. We have a large retail component to our shareholder base. We enjoy the engagement. It's very important to us to hear from you. And we are completely committed to this business and trying to create wealth for all of you. So thank you for your support. And I'd like to say one last thing, to thank the team at Volex for the incredible hard work they've put in over the last 12 months.

That's great. Jon, Nat, thank you once again for updating investors. If I could please ask investors not to close this session as you're going to be automatically redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team at Volex plc, we'd like to thank you for attending today's presentation and wish you all a very pleasant afternoon. Thank you.