Good morning, and welcome to the Volex plc full year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question, and press Send. The company may not be in a position to answer every question received during the meeting itself, but the company will review all questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Nat Rothschild, Executive Chairman. Good morning, sir.
Good morning, and welcome everyone to our full year 2023 results. I'm Nat Rothschild, I'm the executive chairman, and joining me today is Jon Boaden, our Chief Financial Officer. Before I begin, I want to say that this is our fourth year on IMC. It's very important to us. Retail investors represent between 15% and 20% of our register, so doing this kind of outreach to you is a very important part of our investor relations strategy, and it's a pleasure to be back here again. We were delighted to enjoy a high level of support from a range of retail investors for today's fundraise. We had, believe it or not, 441 people taking part in the retail offer, contributing around 2.3% of the total raise, so an average of just over GBP 3,000 per person.
That shows you why this is such an important and incredibly effective platform. Over to the presentation. Look, we'll start with a summary of the key points for the year, and then Jon will take us through the financial results, which are slightly ahead of the trading update we issued in April. We are also incredibly excited to talk about Murat Ticaret, the transformational acquisition we announced earlier today, which we genuinely believe moves this business forwards in leaps and strides. We will conclude with a discussion of our outlook and current performance, followed by questions, and we'll try and take as many questions as possible. It's been another incredibly strong year for us, demonstrating our strategy is working. We have tremendous traction in the market, supporting our profitable growth.
This means we are well placed to take advantage of important localization trends in addition to the structural growth within our markets. Constant currency, organic revenue growth was 11.4%. We will explain how our market sectors contribute to this performance later. There was strong growth in operating profit, up 20% to $67 million, which gives us an operating margin of 9.3%. Customer demand is very good. We are winning new projects. Supply chains are looking up. As we grow the business in line with our five-year plan, we are investing in enhanced capabilities with additional capacity. During the year, we acquired RDS, a bolt-on for our U.K. operations, specializing in display technology.
We are genuinely delighted to be presenting the forthcoming acquisition of Murat Ticaret, since this is an excellent deal with a major opportunity to grow our business. Turning to slide three. You will see we have created a diverse but interconnected organization, encouraging our high-quality teams to collaborate, to grow sales, improve profitability, and serve our customers. We are investing in production facilities and capabilities aligned to customer requirements. A paradigm shift in procurement philosophy has taken place, caused by dislocations in the supply chain due to the pandemic. Customers need manufacturing partners close to home, and we are perfectly placed to support this with our global footprint and diverse range of capabilities provided us with the ability to deliver around the world. Sustainability is really important, too, to our people and to our customers.
We are pleased to formally announce our intention to reach net zero Scope 1 and 2 emissions by 2035. Significant progress has been made in the year on sustainability. We have reduced our carbon intensity by 14% through using a greater proportion of green energy and reducing electricity consumption at our sites. Taking a responsible approach runs right through our business. We are ramping up recycling rates and putting in place active procedures to reduce waste. A third of our sites now send no waste to landfill, and we should be very proud of this as shareholders. I'll now hand over to Jon to take you through the financial performance.
Thank you, Nat. As Nat mentioned, it's been an incredibly strong year, and I'm really pleased to present these results, which are slightly ahead of the trading update that we issued in April. Revenue has increased by $108 million- $723 million, and we're incredibly proud of delivering an underlying operating margin of 9.3%, which is a further improvement on last year, despite a challenging cost environment. We also achieved organic growth of 11.4%, which is a fantastic start to the five-year plan we announced last year. This demonstrates what we can achieve in our markets through our great customer service, price competitiveness, and talented people working hard to exceed customers' expectations.
We are proposing a final dividend of GBP 2.6 per share, which brings the full year FY 2023 dividend to GBP 3.9 per share in total. I'll take you through each market sector and explain what we've achieved during the year. Starting with electric vehicles, and again, we've seen high growth, which is down to a number of factors. First of all, consumer demand is increasing, and acceptance of this technology has reached a tipping point. We're also broadening our capabilities beyond grid cord to faster modes of charging, such as wall boxes for homes and commercial environments, and we now offer wire harnesses, which are integral to the vehicle itself.
Whether it's down to environmental considerations or desire for the latest technology, or perhaps government support schemes, demand for EVs is taking off, and we are well positioned to be significant beneficiaries of this trend. We're not complacent, and we're continuing to invest in vertical integration, optimizing our production to make sure that we continue to be a low-cost manufacturer with great engineering talent, 'cause that's a vital part of our strategy. The trend in consumer electricals is pretty straightforward. Essentially, demand peaked during the pandemic when people started working from home, and during this year, we've seen a normalization in demand. For some of our customers, that means that they've been destocking, and for others it means that they've been restocking, particularly as semiconductors have become available again.
If you look at the year-on-year position, we're broadly flat, but actually there's been a small increase in volumes, and that's been offset by lower pass-through of copper and PVC costs. Where you see that small organic revenue decline, that's predominantly price driven, and actually, volumes are up because we've been winning new customer projects. The reason that we continue to be strong in this space is that we're incredibly cost competitive, added to the fact we have an impeccable reputation around quality and first-class customer service, and as a result of that, we see continued opportunities for growth based on the new project wins that have come through already this year. Slide nine is on our medical sector, and it's been a really strong year in medical, definitely benefiting from an improvement in component lead times.
What we see more broadly in the market is that healthcare providers are still catching up, both in terms of patient procedures, but also wanting to implement the latest technology following the pandemic. If you think about our customer base, many of our customers are real leaders in the sector, so they're constantly investing in technological advancements to help with essentially screening and treating patients in the most effective way possible. We're really proud to support that market, and we see continued structural growth drivers in the medical sector.
Looking at complex industrial technology, again, in this market as well, we've also benefited from the availability of components, that's allowed us to have a strong recovery from last year, where raw material availability had slowed our output, it's just great to see things bouncing back, it's allowing us to support our customers all around the world. With the acquisitions we made last year, we've now taken this part of our business to $178 million of revenue. That's 25% of our total group revenue. We've got a great mix of customers, we're able to support them through the value-added manufacturing process.
As well as having customers at the forefront of technology, we've also been developing our own cutting-edge products, which are technology that's going into data centers, and this includes active data center cables, and we're proud to say these are being supplied to one of the largest cloud computing businesses in the world. If we turn to cash flow, our cash flow has been really strong this year, and you can see that there's an improvement in working capital if you compare that to the previous year. It's allowed us to make significant investments in our business. You'll see there's $18.2 million of CapEx and still generate over $40 million underlying free cash flow.
In the past, if you've attended one of our presentations, you'll know that we've explained that there's been pressure on working capital as a result of the component shortages that have been a feature for the last couple of years. I'm really pleased to say that we feel that we've turned a corner. Availability of raw materials is improving, and as a result of that, working capital levels are getting better. Our view is that it was the right choice for us to support our customers over this period of supply chain challenges. Now the focus is firmly back on optimizing the working capital cycle.
With the strong cash performance, we finished the year with a covenant leverage of 1x , which was an improvement on last year, and that demonstrates the strong returns and high levels of cash generation within the business. Now I'll hand back to Nat, and he's gonna update on our strategy.
Thanks, Jon. Look, we've made incredible progress in your business. We've transformed every aspect of Volex, creating a platform for significant further growth. In the last six years, we have more than doubled our revenue, and our underlying operating profit is over 7x times higher. By delivering vertical integration, by using continuous improvement to drive down costs, and by transforming our customer relationships, we've achieved and maintained healthy operating margins. What is particularly impressive is that we've maintained these margins over the last three years in the face of significant inflation. This demonstrates that we are a critical supplier to our customers, allowing us to be robust about pricing and the pass-through of higher costs. As you're all aware, acquisitions are a key part of our strategy, and we have a very successful record of delivering high quality additions to the group.
We've acquired 11 businesses in the last five years. This has expanded our geographic footprint, it's delivered new customer relationships, which have then transformed into global relationships, and it's enhanced our capabilities. Importantly, we also have recent relevant experience in buying international export businesses headquartered in Turkey, as demonstrated by our acquisition of DE-KA for $85 million two years ago. The acquisition we are announcing today is the most exciting yet, and we believe, the most important for the development of the group. I'm pleased to share with you all this important transformational acquisition that we've been working on for a number of years, and which we believe is an exceptional fit with Volex. We have a excellent track record of identifying profitable specialist manufacturers, supplying customers with international operations. As part of our group, they flourish, accessing our global footprint and deep industry experience.
Murat Ticaret, or Murat, as I'm gonna call it, is a very high quality operation with a number of international manufacturing facilities and headquartered in Turkey. They make highly complex wire harnesses for the off-highway market. They work with some of the biggest names in agricultural, construction, commercial, and material handling equipment across the world. The Murat management team have delivered exceptional growth by being customer-focused, being agile and entrepreneurial in their approach to meeting customer requirements. The business has very high operating margins and a strong manufacturing interface with its customers. We've been engaging on this deal for over three years, so we understand the target extremely well, and by engaging in a bilateral negotiation, have been able to negotiate an attractive multiple for a business of this quality.
The acquisition will be funded through a mix of equity and debt, following completion of the deal, which is expected to take two to three months to obtain competition clearance, our covenant leverage will remain below 1.5x . Let me explain why Murat is such a great fit with Volex. Like Volex, it supplies into a specialist area, where there are stringent quality requirements and a complex product, and this results in long-term relationships and the right balance between mix and volume to ensure good returns. The business has grown organically due to its ability to deliver on customer requirements and to meet customer pricing targets. This has been achieved by being highly vertically integrated, allowing swift deliveries and attractive pricing. They are already developing new capacity at key sites, taking advantage of favorable labor rates and government incentives.
Margins are strong, with EBITDA margins in the range of 17%-19% moving forward as we invest to provide scalability within the organization to support future growth. This business has an incredible customer list. In agricultural, its biggest market, it's dealing with four of the five biggest agricultural machinery businesses in the world. In this sector, Murat is making wire harnesses for tractors, harvesters, and other equipment. Common to all these areas is the increase in the use of sensors, cameras, and automated control systems, which is increasing the complexity of the wire harnesses that are being specified. In commercial, customers are large European and Turkish bus and coach manufacturers supporting the European market, and on almost every bus in the U.K., you would find one of their harnesses.
In the construction space, they work with major brands, supporting the complex control systems needed to operate advanced construction machinery. Industrial includes various forms of industrial equipment, such as lift trucks and pallet movers, and their largest customer in this segment is the largest European lift truck manufacturer. These are really strong positions in growing markets and following the Volex approach of identifying profitable niche areas and then benefiting from economies of scale. We're buying a business that has achieved significant growth. They are highly vertically integrated with efficient manufacturing, meaning they win business on both price and quality. They are agile and can respond to customer requirements. This includes investing in capacity to grow with their customers, to be near to their customers.
The margins in this business are really healthy, reflecting the fact that this is value-added manufacturing, supporting complex, critical products that must be delivered on time to support major global brands. The margins achieved by Murat are consistently above Volex's blended average, making the financial case even more compelling. The largest market is Europe, and despite a number of manufacturing locations in Turkey, the operations have minimal exposure to the Turkish lira. Turning to the next slide, Murat is a really compelling strategic fit with Volex. The acquisition supports diversification, adding a new fifth customer sector to the group, and this helps to balance up our blended portfolio of attractive markets, supporting growth opportunities through the economic cycle. There's no customer overlap, so this is a completely new space for us.
However, we understand the market well, and we are very familiar with wire harness manufacturing and power transmission. The potential strategic synergies in terms of cross-selling are very significant, and in particular, the potential to bring Murat's processes and capabilities to Volex's global customer base, specifically launching into North America. Furthermore, we will be able to market the full Volex suite of products to the high-quality customer base that comes with the acquisition. In addition, our increased scale will support procurement savings, allowing us to negotiate for favorable pricing on key components. We have good experience in sharing knowledge across the group in manufacturing techniques, helping us to drive down production costs. A year ago, we set out our ambitious five-year plan to grow revenues to $1.2 billion at a margin of between 9% and 10% by FY 2027.
This included $200 million from acquisitions, and the results we have delivered this year demonstrate that we are well on track. Our organic revenue growth in FY 2023 was firmly ahead of our assumption in the plan. In addition, the acquisition of Murat blends up our underlying to above 10% on a pro forma basis. The acquisition also goes a long way towards achieving our targeted revenue from acquisitions, as on an annualized historic basis, we are now at $185 million from acquisitions. We've been winning new business from the global trend towards localization, and that's evidenced by the $30 million electric vehicle contract win we announced earlier this year. We've increased our operating margin as we continue to deliver profitable growth, all while maintaining leverage below our stated range.
All in all, this is further progress with delivery towards our five-year plan. To conclude the presentation, we have a reminder of the highlights for the year. Volex has delivered exceptionally good organic growth and has enhanced our margins in FY 2023. We have shown this is a cash generative business. As supply chains continue to improve, we can optimize the working capital position in the group and continue to deliver strong cash returns. We have firmly shown our intent and ability to achieve against the ambitious five-year plan set out last year. Our results this year put us firmly on track against this target. The exciting acquisition of Murat Ticaret opens up a new fifth sector for us in the attractive off-highway wire harness market, further diversifying our business.
It's been a great start to FY 2024, with lots of new project wins and good demand from our customers. We are focused on our now five market sectors, which all have great structural growth drivers. The acquisition of Murat Ticaret allows us to blend up our margins to the top end of the 9%-10% range previously indicated, given the expected completion date. It also represents excellent value and is an exciting step in the growth journey for Volex. As a management team, we are incredibly enthusiastic about what we can achieve with this business. With that, I'd like to thank you for attending our presentation and open up the meeting to questions.
Fantastic. Nat, Jon, thank you very much indeed for your presentation. Ladies and gentlemen, do continue to submit your questions using the Q&A tab, just situated on the right-hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A, can be accessed via Investor Dashboard. Jon, as you can see, we've had a number of questions throughout today's presentation. Thank you for everyone submitting those. Due to the number of attendees on today's call, the company may not be in a position to answer every question that you guys have sent in, but we'll review all questions and publish responses where appropriate to do so.
Jon, perhaps if I could just hand back to you and ask you to read out the question and, either take the question or pass on to Nat, where appropriate to do so. Thank you, and I'll pick up from you at the end.
Yeah, of course. Thanks, Paul. Look, I'm gonna be in charge of the questions today. We'll try and do as many questions as possible. There's so many, that might mean that we try and give quite short answers just so we can give everyone's question a turn. It's always risky being the one who's in charge of the questions, 'cause I don't want Nat to accuse me of handing him all of the difficult ones and answering all the easy ones myself. We'll try and go through them, and I'll certainly take the financial ones and the ones on strategy and operational things that I'll ask Nat to help with answers for. I'm gonna go through them in the order that they're up on my screen.
The first question is from Patrick, and Patrick's question is: "Electric vehicle revenue is slowing considerably. At the half year, it was 52.5%, but this had fallen to 33% at the full year, so the second half must have seen much lower growth. Why is it slowing so much?" I think that's not correct. That's certainly not how I look at it. What we saw, when you look at these numbers on a comparative basis, when you look at the first half of FY 2023 versus the first half of FY 2022, so I think that's where you're talking about 52.5% organic growth. It was actually the first half of FY 2022 that was very slow.
The comparative, if you like, the comparative in the first half of FY 2023, it was an easy comparative because supply chain challenges had disrupted the EV market so much in the first half of 2022. The second half of 2022, it came back with a bit of a vengeance because of the challenges of the first six months of that year. That's why when you try and do the half-on-half comparisons like that, you need to understand what the dynamics are in both parts of the year. My view is EV grew year-on-year by 33%. That's organic constant currency growth. I think that's a fantastic growth rate.
In our five-year plan that we set up just one year ago, our ambition was to grow that in EV at 19% per year over the five years. The fact that we've delivered 33% is great progress. It's probably worth pointing out that as the EV market grows and our exposure to the EV market grows, it is a bit more lumpy than other power cord-based markets like consumer electricals. The reason for that is a lot of demand is driven by launches of particular products. Depending on the timing of the launches of the really big new EV models that we're supporting, that creates some variability in the revenue profile. The main thing for us is that we're continuing to grow.
We're broadening the product set, we're broadening the customer base, and we're doing that 'cause we're incredibly competitive in the EV space because of all the investment that we've made. I hope that answers that question, Patrick. The next question, I think this was a pre-submitted question, thank you for submitting that before the call, and that is about growth of electric vehicles is one of your main growth areas. It appears that China are pressing to monopolize the market. How will this affect you? Nat, did you want to talk about our strategy in the China EV market?
Yes. Look, I mean, it's really our number one priority at the moment because the Chinese EV market is actually as big as the Western market. I think one of the things, one of the areas we definitely need to improve is our ability to penetrate that market. All I would say is that we are laser focused on doing business with the big EV companies in China, like BYD and Geely.
Good. Thank you. A question from Matthew said: How do you think about, manage sovereign risk? That's not a question I've ever had before. My thinking is that sovereign risk is something to do with a country defaulting on its sort of debt commitments. I wonder if this question is actually to do with our exposure to Turkey, and if it is, that links into another question from Mark W., who said, "Congratulations on finding a very attractive acquisition. Obviously, Turkey raises a few eyebrows in terms of the risk profile. Can you please highlight the main risks that you've identified and why you are satisfied it still makes sense to go ahead with the acquisition?" I'm just checking if there might be another question about sort of Turkey and FX.
If there is, then I'll sort of answer on the FX point as well around that as we cover Turkey. I'll go first and talk about some of the economic things, and then I'm sure Nat will want to add something about his view on the risk profile of Turkey. Look, the reality is, we bought DE-KA two years ago. It's the first acquisition we've done in Turkey, and in terms of acquisitions, it's been an absolute dream. They've performed ahead of expectations. It's great business, but the main thing we discovered is that we love working with Turkish businesses. The people are amazing. We've really genuinely enjoyed integrating DE-KA into the rest of our organization. There's a great talent pool in that country, and we find it easy to hire people. The management teams are very entrepreneurial.
In terms of some of the risk factors in Turkey, look, the biggest headache in Turkey would be currency. For us, both DE-KA and Murat, they're EUR businesses. They're selling in EUR, they're buying in EUR. We did extensive analysis on FX for Murat. 30% of their sales are in TRY, but when you go through their cost base, 'cause clearly all of the people who work in Turkey get paid in TRY. When you go through the cost base, the TRY receipts from customers pretty much exactly match up with the TRY payments to suppliers and employees. That gives the business very minimal exposure to the TRY.
In terms of Turkey as a country, some facts that I discovered as part of this acquisition process was that Turkey is the number one manufacturer of commercial vehicles in Europe. Turkey's in a customs union with the EU. It does a lot of trade with Europe, and it has a huge business making commercial vehicles that are going right across the continent. The other thing that's an interesting fact is that foreign automotive businesses have invested $17 billion into Turkey since the year 2000. Turkey's really opened up as an economy that wants to do business with foreign investors. It's become a manufacturing center of excellence and a hub for the whole of Europe.
That's given us a lot of sort of confidence that it's open for business, it's a great place to do business, and we really enjoy our interactions with Turkey. Did you want to add anything on Turkey, Nat?
Just a couple of points. I mean, number one, DE-KA is the lowest cost power core producer in Europe by far. It also has the highest quality. It also has the best customers, because the customers are all either in Turkey or close to Turkey, just a lorry ride away. The same is true with Murat Ticaret. They have the best customers, they have the lowest costs, and they have a very, very entrepreneurial management team. The re-election of President Erdoğan last month has actually taken a lot of... I think it's the best outcome for us as sort of apolitical investors in Turkey.
The appointment of a Western-facing central bank governor, the appointment of a Western-based finance minister, the decisions to hike interest rates in the last 36 hours, are all very positive signs that in this sort of latest period of Erdoğan's leadership, he wants to pursue a more conservative and traditional economic policy. We are extremely comfortable with the risks of doing business in Turkey.
Good. Thank you, Nat. A question from Jesus, and he's asked: "Could you disclose your current customer concentration?" Yeah, absolutely. It's something that we publish in the annual reports and accounts, and we have to publish all customers that make up more than 10% of revenue. We have one customer that's in that category, and they are 16% of revenue. They are our largest customer in the EV sector. They're also one of the biggest automotive manufacturers in the world. Yeah, that is our largest customer at 16%. No other customers are greater than 10%. Question from Simon, who's asked: "What are the longer term volume price dynamics of all of your sectors, please?" The only sector where we've really broken out the volume price effect is in consumer electricals.
The reason for that is it makes sense to do it in that sector, because the products are very standard. It's very hard to do the price volume analysis, say, in our medical business, where we're making such different products, 'cause a complex wire harness for a MRI scanner is totally different to a small cable assembly for a small patient monitoring device, like a blood pressure monitor or a similar. The volumes don't really work so well in that part of the business. The analysis that we did on consumer electricals was really interesting. It showed that volumes were up by 1%, and that price was down by 4%, and that gave us -3% organic growth. The prices weren't down because we reduced our margins or anything like that. Far from it.
We've been very robust on our margins with our customers. Copper was lower, PVC was lower, so because those input costs were lower and we passed those through to customers, that was why the price effect was in that sector. In terms of longer term, look, we set out when we published our five year plan a year ago, what growth we expected in each of our markets, and we said 19% in EV, we said 4% in consumer electricals, 5% in medical, and 10% in complex industrial technology. We still stand by those as the growth rates for our markets over the five year plan period. There's a question from Mark: How much of your organic growth stems from better components availability? Should we consider this element as a one-off rise?
It's definitely been a big help, that's why we've seen such strong growth in, particularly in medical and complex industrial technology. They're areas where we're pulling together lots of different components for our customers and putting them into assemblies. It's typically tens of components. Sometimes you could have 50, 60 components that are going onto a printed circuit board assembly. As availability of those raw materials has improved, that has been a help. We've seen that. If you look at the growth in complex industrial technologies a year ago, it was flat, we would have expected it to grow. This year, it's grown at 19%. There's really been some catch up for make up for last year.
I'd probably sort of refer you to the growth rates that I just mentioned in those areas. In medical, we expect it to grow at 5% per year. In complex industrial technology, we expect it to grow at 10% per year. That's what I use in my models for the long-term growth. If you're interested as to why medical grows more slowly than complex industrial technology, when in many ways they're quite similar markets, the reality is that medical is very sticky customer relationships, which is great for us 'cause we never lose customers, but it also takes a long time to bring on new customers, and that's why we have a lower growth rate in medical.
Complex industrial technology at 10% also benefits from data center cables, and we believe that has a higher growth profile than some of the other products that we sell in that sector. Right, I'll do one more, and then I'll pass it on over to Nat. You've got that coming in a second, Nat, but the one from Simon is: What is your typical cash conversion cycle? It's a great question. It's hard to answer, and it's hard to answer because there's such a diversity in our organization in terms of the types of customers, the types of products. What we typically see is complex products for smaller customers, we get paid quicker, but we might have longer lead times on the components. There's lots of components to pull together.
For larger customers who are perhaps in, examples are domestic appliance manufacturers, they expect from all of their supply chain, very long payment terms, and you have to accept that if you want to be part of the, that industry. However, you have much shorter lead times on the materials that are coming in. If you think about our factory, DE-KA, which is an automated, vertically integrated power cord factory, they're buying in copper and the ingredients to make PVC to extrude the cables. Probably within a week, those raw materials are being used, and then as soon as they produce the finished product, it's being shipped out. You have a much shorter inventory holding period. There's no such thing as a sort of typical cash conversion cycle. It really depends on different customers, different markets that we're in.
It is a real focus for us, cash conversion. I have five key objectives to deliver this year, and two of them are focused on working capital, and that's the same for John Molloy, Chief Operating Officer. He's got the same two objectives about working capital. Our focus on working capital is not just a finance thing, it's an operational thing. It's a whole organization thing. Our key operational people, our key finance people throughout the organization, they're being measured this year on how much they can do to improve working capital. It's a real focus for us. Nat, the question I was gonna pass over to you is from Paul, and Paul has asked: What do you mean by the off-highway market, please?
Okay. The off-highway market is comprised of tractors, it's comprised of backhoe loaders, it's comprised of any kind of industrial vehicle that has wheels. It could be the type of equipment that tows an airplane off its stand at an airport. It could be a snowmobile, it could be a golf cart. Yeah, what makes these types of business so interesting is the lot sizes are much smaller than traditional automotive. What that means is the larger players, the sort of the giant contract manufacturers of cars or suppliers to the automotive industry, don't want to play in such small lot sizes.
It could be a fire truck, it could be an ambulance, it could be the type of equipment that you see working on a, on a building site. We are experts in playing in these niche areas because we have the level of customer service, and we have the customer that we are responsive to these customers, and we can essentially offer these customers a bespoke service. That sector, more generally in our industry, is called the off-highway market.
Good. Thank you, Nat. Look, there's a number of questions which are on a similar theme, and obviously, people are really interested in the Murat transaction. The gist of a number of the questions is basically, you know, why is it up for sale? Why did the sellers want to sell it? Why have we got such an attractive multiple? Do you wanna take that, Nat, or do you want me to start?
I'm happy to talk about this. Look, I mean, again, it sounds like a rather unusual thing to say on an Investor Meet call, but we're good at retirement sales. These are businesses that founders have started from scratch, almost always owned for multi-decades, and who they sell to is very important to them because they have people who have worked for them for decades. They have family members who are involved in the business, they have family members who are not involved in the business, and they want to know that the business that they created with blood and sweat finds the right home. This is why we've bought so many of these businesses.
In the case of Murat, the engagement with the family has taken more than three years. They wanted to be comfortable that we were the right buyers of this business. I agree with you that the comment I can see here, that it is an attractive multiple. This business is worth more to us than it is to anyone else, because we have an international manufacturing footprint, which is of a greater scale than Murat's. Therefore, we can take these customers that they have so brilliantly acquired in Europe. We can then cross-sell them around the globe. We like the management team.
There's another question here from Mark saying, "Can you please talk about the Murat management team and why you think they have been successful?" Well, they've been successful. First of all, they're an extremely entrepreneurial family-owned business, and so they're like we are a business with a very large degree of insider ownership, so we care, I would argue, as much, if not more, about our business because we're shareholders in it as well. I think the Murat management team, certainly the founder's son, has been the CEO up to this point, and they are world-class at what they do, and they have been successful in vertically integrating this business year after year.
They have a 50-year head start over a new entrant, like a Volex, because they have spent 50 years refining the product, refining the ability to vertically integrate, which means that they are incredibly competitive on a cost basis with incredibly high quality standards, and that's why they've been able to win so much business.
Thank you, Nat. There's a question from Steve, and he says: What happens to the equity fundraise proceeds should Competition Commission reject the Murat transaction? Presume the fundraise complete is not subject to shareholder approval and become diluted in the short term, whilst alternative use of the proceeds are identified. What's your confidence of Competition Commission approval? Our confidence is very high. We had to go through competition approval when we bought DE-KA. The reality with Murat is there's no customer overlap. We're not selling these products as the Volex Group already into Turkey. Our view is that the competition clearance is a formality, but it's a process that we have to go through. We will, you know, work through that as efficiently as we can.
In terms of what we disclosed in the placing announcement, we have to say that in the event that the transaction doesn't complete, that the proceeds will be used for general corporate purposes, including further acquisitions. We think that that's a low probability of happening, and therefore, we'd give further information on what our intention would be if something happened and the transaction didn't complete. I'm going quite quickly because there's loads of questions, and I'll try and get through them in the last sort of 10 minutes or so. Question from Damian: With revenue from acquisitions close to $200 million targets already, are you planning to slow the pace of your purchases? I think there may have been a similar question to that from someone else.
Look, we're an acquisitive business. Acquisitions are an important part of our story. We've been very focused on this transaction. As we've said, we've been working on it for two years. We've done extensive due diligence. We've done a lot of work to understand the business, the market, the customers, et cetera. It has been a real focus. It's gonna be important for us to integrate this business successfully, and that will be a focus of a number of our management team for a period, while we make sure that we get it absolutely right. As an acquisitive business, if a great opportunity comes along that fits with our objectives, and clearly we would look to accommodate that. Question from Paul.
He said, "The acquisition was not exposed to Turkish lira, but presumably it continues to be a low-cost production location." Yeah, I'd absolutely agree that it is a low-cost production location. There is significant inflation in Turkish lira terms, but what matters to us is what the euro equivalent is of those salaries. In euro terms, salaries are not increasing significantly in Turkey, certainly less in euro terms than many of the other markets in which we operate. We like Turkey. It is a very competitive place to manufacture, great availability of talented people, and that's really important with the type of skilled manufacturing that we do. There's a question from Felipe, and Felipe has asked, "Why have Murat doubled revenues and EBITDA in three years, but will only grow at 7% going forward?" Well, that's pretty simple to answer.
Murat's had an incredibly strong growth profile in the last couple of years, and it's been helped by the fact that during the pandemic and the associated challenges in supply chain, many of its larger competitors let down customers in this space, and they were focused on other parts of their business, where they deal with mainstream passenger automotive, and they didn't do a very good job in this sort of, this very complex specialist off-highway market, where Murat is so successful. That gave Murat an opportunity to win market share and to bring in new customers, and it's been a phenomenal success story. The way that we've positioned our model going forward to be conservative, is as we've looked at market growth, the market growth, as we set out in the presentation, blended across those areas is 7%.
That's how we've conservatively positioned our forecast going forward. Clearly, we will look to exceed that if we can, but at the same time, we want to concentrate on integrating the business, bringing it into Volex, operating it in the Volex way, and growing it in a scalable way. That's why we've set out some conservative growth projections for the acquisition. David, another question on Turkey, which we may have answered some of this. He said, "Currently, the economic background in Turkey seems uncertain, high inflation, high interest rates, and falling Turkish lira values. Obviously, you are continuing to factor all these factors into your acquisition plans. Are your plans still evolving rapidly?" In terms of Turkey, we've had two years in Turkey. We understand the dynamics of the economy. We've dealt with high inflation.
As we've mentioned before, this business we're buying is naturally hedged, gives us minimal exposure to the Turkish lira. The pattern that you see in Turkey is that salaries go up every six months. Unlike the U.K., where there might be a pay rise every year, it's every six months in Turkey because of the level of inflation. That resets it back to where we'd expect it to be in euro terms. Over the next six months, the currency devalues, and the labor cost becomes better from a euro perspective, and then it resets at the end of that six month cycle. We're very, very good at dealing with that.
There's a question from Ariel, who has asked, "Previously, you said that you expected 400 Gb-800 Gb cables to be purchased by data centers towards the end of FY 2023. Has that happened? Do you expect these cables to be further in demand in FY 2024?" It's a good question because that has absolutely been the pattern that we've seen. Towards the end of FY 2023 and coming into FY 2024, we've started to see a tick up in the demand for those 400 Gb cables in particular. It's been really pleasing to see that through. There's another question from Ariel about, "Even though it's early in the year, given the strong start, do you see results beating analyst expectations released following the April trading update?
Also, do you believe it's a fair price valuation?" I think that means in relation to the Volex share price. "Do you still believe the company is undervalued?" In terms of all I'll say on the sort of the outlook is, we've had a strong start to the year. We're really pleased with where things are tracking at the moment. In relation to, do we think that Volex is undervalued? I mean, I think that's really sort of a question for shareholders. I think it's an absolutely brilliant business. I think we've got a great strategy, a great growth profile. We're delivering exceptional organic growth, improving our profitability. We're doing transformational acquisitions. I think that deserves a strong rating in the market. I don't know what you think on that topic, Nat.
Look, I just invested GBP 50 million back into the business, because I think it's undervalued. I'll leave it at that.
Good answer. Thank you. Ariel says, "What's the acquisition pipeline like now? Is it less competitive? Is there a chance of another equity placing rights issue?" The acquisition pipeline has opportunities at a number of stages. As I mentioned earlier, Murat has been our focus. There's been a lot of time from the team that concentrates on acquisitions, making sure that we've got Murat right. But there's always interesting stuff that comes up, and we would look to go ahead with anything that we think is a good acquisition, but, you know, certainly no immediate plans for another placing. David has said, "One weak link in our infrastructure in the U.K. is the current condition of the national grid for electricity distribution.
Is this an area of the business you're interested in?" I think that's a straightforward answer. It's just not really a space that we play in. Our focus is on the five sectors that we've set out: consumer electricals, EV, off-highway, medical, and complex industrial technology. Another question from Ariel: "Do you expect consumer electricals revenues to grow this year despite forecasts for further rate hikes? Do you worry about rising interest costs?" In consumer electricals, our view is that over the five-year plan period, it grows at 4% on a compound annual growth rate. Different economies will experience different things at this period in time. In the U.K., clearly pressure on people from interest rates, cost of living, that's not translated to every single economy around the world.
One of the great things about our business is how geographically diverse it is, and that will support us being able to develop every part of our business. I guess I'd point to FY 2023. FY 2023 was a challenging year for consumer spending, and we grew volumes at 1% in consumer electricals. In terms of interest costs, look, I think every CFO worries about interest costs in the current environment. We took a decision at the beginning of FY 2023 to fix some of our interest rate exposure, so $50 million of our borrowing is at a fixed rate, and that's taken some of the concern away, but we're obviously plan for different scenarios around interest in all of the modeling that we do. Another question is on inYantra. "How is inYantra progressing?
Will the site be able to service growing EV production there? Nat, you've been to inYantra quite recently. Did you wanna talk about how things are progressing at inYantra?
Look, I was at inYantra last month. It's got a very good management team. We've got a 13-acre site there. We are a extremely low-cost assembler of printed circuit boards. I took a major EV company there on a site visit, and, you know, that is a market where, when it comes, we will be able to take the products that we make while in China and Indonesia, and more recently, we've just started in Mexico, and we'll be able to do the same thing in India. That's why we bought the inYantra business, to be perfectly frank.
Good. Thank you. Go through a few more questions very quickly, 'cause otherwise we're gonna run out of time. Mark said, "Any potential issues related to overstocking of inventory into slowing global growth, either obsolete or overvalued stock?" Look, we hold a lot of inventory as a business. We manage it very carefully. We have a prudent provisioning policy, and the main thing we do is, if we're acquiring inventory for customer projects, wherever possible, we have clauses in the contract that mean that the responsibility for any obsolete inventory is with the customer. Actually, the occurrences of it being a cost to Volex, 'cause we've overpurchased, are very few and far between. Simon said: What's the likely working capital outflow as sales rise? We look at our total working capital balances, and it comes to approximately a 23%-24% of revenue.
Really, the way to think about that is if you add $100 million of revenue, you need an extra $23 million of working capital. It's not quite as straightforward as that, 'cause there's different profiles in different parts of the business, so it depends on the mix, but that's broadly how to think about it. If you think about where we have to go from here to achieve our five year, five year plan, it gives you an indication of the working capital that goes in, and set against that will be our efforts to optimize working capital. Mark asked about interest rates, and as I said, we fixed $50 million of our debt at a fixed interest rate for another period of three years.
That was a great thing that we did 'cause we fixed it when interest rates were lower, that's giving us protection. Simon says: "Will the investment needed in Murat be expensed of our CapEx? How much will it cost, and how long will it take?" It's a mixture of the two things. Some of the investment will be OpEx investment to enhance the capabilities in the business to give it the opportunity to scale and to ensure that we hold on to key employees in the business. There'll be some CapEx as well, but we believe the capital intensity in Murat is lower than the group as a whole.
Ariel said, "How will you be able to cross-sell if Murat sell to different end markets to Volex?" These are customers that we will be able to develop in North America, because we work well with these types of customers. We've already had conversations with them. We will globalize the relationship from Murat and replicate the success they've had in Europe and other markets, including North America, as well as being able to sell the wider range of capabilities of Volex into that customer base. Ariel has asked if recent acquisitions, any acquisitions not met your expectations. Look, we've been pleased with all of the acquisitions that we've made. Some of them require more integration activity, and some of them are very easy to integrate.
Every business we bought, we bought it for a reason, and those reasons have been valid. A question from Paul: Might you seek a main market listing? Look, we've got no plans to do that at the moment. It's something the board considers from time to time, as you'd expect any board to think about issues of capital structure. We like being on AIM. We think it's a good balance between regulation and flexibility, and it has certain advantages, in particular, the fact that there's inheritance tax benefits in the U.K. Three more questions. Simon says, "Is the investment in Murat increasing the productive capacity of the business?
If so, by how much?" Yes, some of the investment we're making is to allow the business to grow and scale, and they are currently working on a program to build a new factory in Turkey to deliver on customer commitments. I don't know exactly, sort of, in volume terms or revenue terms, what that will give them, but it's a growing business, and the management team have grown very successfully, which is why it's great to have that management team on board. Then two final questions. Both from Ariel: How cyclical is the off-highway market versus consumer electricals? Nat, do you have a view on that? I would say it's sort of not that cyclical, but what do you think?
My view is the within the off-highway sector, there is a broad spectrum of customers. Some will be more cyclical, some will be less cyclical. The biggest part of Murat's business is in the ag sector, and that is in a structural sort of growth period, and it is a very, very healthy. I would argue for the next three to five years, you have a clear runway of strong growth in that sector.
Great. Last question: How long is the payback period for the Murat acquisition? That we don't really think about it like that at the moment. It's hard to answer anyway because it would depend on sort of how quickly we can deliver these synergy benefits. Clearly, it's not a quick thing to globalize some of these customer relationships, but we have done it successfully in the past with DE-KA, and that gives significant upside on the acquisition. The key thing for us is that it's mid-teens earnings accretive before taking into account the upside from the synergies, and it covers its cost of capital in the first year. We believe it's an incredibly compelling acquisition. We're really pleased to have delivered it, and we think it means great things for the group.
With that, we've answered every single one of your questions. I hope that's been useful for everyone. We really appreciate your participation. We get some great questions on here. It's always a pleasure to be able to devote the time to going through them.
Nat, Jon, thank you indeed. As you say, Jon, you've covered off every single question, so I'm sure the investors can very much appreciate that. If there are any further questions that do come through, you will have the ability to review those as well. Nat, before redirecting investors to provide you with their feedback, which I know is particularly important-
Yeah.
to you and the team, if I could just ask you for a few closing comments, please.
Yes. Look, I'm gonna finish how I began. First of all, thanking the retail investors, particularly the 441 people who took part in the retail offer, also to say that this offer was 4.3 times oversubscribed amongst the institutional investors, we've got now five to six new sort of blue chip institutions on the register, which is a real testament to the quality of the business that we've built, the quality of the management team, and perhaps I should also say, the quality of the deal that we announced yesterday. We're really sort of confident about the future. I want to also say, you know, we're big fans of the AIM market.
We're supporters of the London market. The fact that we went out and were able to, you know, complete this fundraising in just two hours, shows you that there's still life in the London market yet, and we are happy to be a part of it. Thank you to everyone. We look forward to talking to you again in around six months' time.
That's fantastic. Nat, Jon, thanks again for updating investors and taking all those questions. Can I please ask investors not to close the session? As you'll be automatically redirected to provide your feedback, and all the team can better understand your views and expectations. This will only take a moment to do, and I know the company greatly value your response. On behalf of the management team of Volex plc, we'd like to thank you for attending today's presentation, and good morning to you all.