Good afternoon, ladies and gentlemen, and welcome to the Volex plc interim results investor presentation. Throughout today's recorded meeting, attendees will be in listen-only mode. Questions are encouraged and can be submitted at any time just using the Q&A tab situated on the right-hand corner of your screen. Please simply type in your questions at any time and press send. Given the attendance on today's call, the company will not be able to answer all the questions submitted today, but the company can review your questions, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Group Chief Executive Nat Rothschild. Good afternoon.
Good afternoon, everyone, and welcome to the Volex half-year results presentation. I'm going to provide you with a summary before handing over to Jon, who will give you more detail on the performance in each market. Following this, I'll update you on our strategy before we take questions at the end. Before we turn to the results, I'd like to talk to you about a further step in our strategic journey. I'm delighted that Dave Webster has agreed to join as our non-executive chair, enhancing an already exceptional board of directors. Dave has unique industry experience. In his current role, he's led the transformation of CPM, a global leader in advanced process automation equipment. Prior to that, he was the driving force for growth and transformation as the CEO of Electrical Components International, or ECI, a leader in consumer electrical and off-highway harnesses.
He brings decades-long customer relationships in our space, particularly in North America, and he will strengthen the board's sector insight. His experience will be invaluable as we scale our North American operations and deepen our customer partnerships in this important market. This month, incredibly, marks 10 years since I joined the board of Volex and became executive chairman, in effect combining the chairman and CEO roles. I came into a business that was in decline with less than $400 million of revenue and a market cap of about GBP 50 million, and in fact, it dropped down to GBP 30 million at the low. I set about building a new organization, including talent from within Volex who had not been given the leadership they deserved.
With this excellent team to support me, a lot of hard work, and endless travel, we've created one of the true standout success stories in U.K. industrials. A significant architect of this success is Jon Malloy, our Global COO, and he will continue in the same role and is every bit as committed to the business as I am. Both of us have very significant personal investments in Volex. Indeed, my move into the Chief Executive position in Volex merely underlines my deep and ongoing commitment to driving further growth and customer engagement. I will continue to lead from the front, delivering our ambitious plans and bringing in new customers. I'd also like to say that none of this would be possible without Jon Bowden's exceptional financial skills and cool head as the business has become increasingly complex.
I'm very grateful to Jon, who is sitting next to me. I'm very much as well looking forward to working with Dave and the existing board to pursue growth in our markets. There are very substantial opportunities ahead, and we have big ambitions. This is a sensible time to align more closely with corporate governance best practice, given the scale of our organization and the strong performance we are setting out today. Moving on to the results, we've delivered another excellent first half with revenues of $584 million at an operating margin of 9.8%. We've generated further strong organic growth at 13% despite a challenging macroeconomic backdrop. In particular, we've seen very strong growth in electric vehicles and data centers. Later in the presentation, Jon will take you through exactly what has happened in each sector. The strong performance is proof that our strategy is working.
Investment we chose to make in previous years is supporting growth this year and beyond. Our capabilities make us a first-choice provider of critical connectivity solutions for global technology businesses. As the world changes, we're changing with it, and we are evolving our footprint to follow the demands of our customers who are reconfiguring their supply chains to deal with tariff challenges. Our move towards centers of excellence where we can deliver a range of the most advanced Volex solutions in a single location has resonated strongly with customers. It also gives us the opportunity to rationalize smaller sites, thereby improving the overall efficiency of the group. We continue to win new projects with our customers, particularly with electric vehicle customers and in the North American off-highway space.
Our first half performance positions us strongly relative to our five-year plan, which, as you may recall, sees us getting to $1.2 billion of revenue by the end of FY2027. Our strong results for the first half are another significant step towards these objectives. Before we break out the individual markets, it's worth talking about how our customer-centric approach delivers deeply embedded customer relationships, giving us confidence in our strategy. As you should all know by now, we work with the biggest technology brands in the world who have earned recognition as leaders in their fields. They trust us to deliver manufacturing solutions that meet or exceed their quality, reliability, and functionality requirements. Although our assemblies might be a small part of large and complex systems, they play a critical role every time.
This is no different whether we are powering a domestic appliance that brings convenience to everyday life or connecting the key components at the heart of lifesaving technology. We've built a business that revolves around the customer. We anticipate their needs and rise to their challenges. Our engineers define innovative production solutions and optimize processes for products that are assured to perform in challenging environments. This creates strong customer lock-in and sticky relationships. In many cases, regulatory requirements form a barrier to our substitution in the supply chain. In others, our deep expertise and consistently strong delivery position us as a preferred manufacturing partner. This customer-led approach, disciplined reinvestment, and daily operational excellence form the foundation of a business that compounds value over time. Many of our largest customers have been working with Volex for longer than I have been operationally involved in the business.
Over the past decade, revenues have trebled, given by expanding share with existing customers, winning new products and customers, projects and customers, and a targeted acquisition strategy. Operating margins have strengthened from 2% to a consistent 9%-10% range, maintained successfully for the past five full years. As a result, operating profit has grown from $7 million in FY2016 to $106 million in FY2025. This performance reflects stringent cost control, relentless operational improvement, talent attraction, and retention from the top to the bottom of the organization, plus targeted investments in future growth, each aligned with our customers' priorities. This combination of growth and margin expansion has translated into basic earnings per share rising from $1.50 in FY2016 to over $36 in FY2025. Volex continues to steadily build capability, deepen relationships, and deliver consistent, sustainable returns, creating shareholder value that compounds year after year.
I'll now hand over to Jon to take us through the financial performance in the end markets.
Thank you, Nat. First and foremost, I'm incredibly pleased with the results that we've been able to deliver. This is an excellent performance at $584 million of revenue in the first half of the year, which represents organic growth of 13%. Profitability is towards the top end of our margin targets at 9.8%, which means we've delivered $57.2 million of adjusted operating profits in the first half of the year. With lower interest costs, that means we've increased basic earnings per share by 30% to $19.70 per share on an adjusted basis. We've maintained a strong track record around return on capital employed despite the investment that we made in our business, which includes putting in additional working capital to support customers. As a result, we've stayed at 20% return on capital employed.
These results are an indication of a business that is in great shape and navigating dynamic market conditions effectively. Over the next few slides, I'm going to take you through what we've seen in each of our end market verticals. We've established a market-leading capability in electric vehicles and are recognized for our proficiency in both designing and producing key components to power the next generation of transports. Our long-standing partnership with leaders in EV technology has positioned us well to support a broad cross-section of the EV markets. Much of our 13% organic growth has come from expanding our capabilities laterally to meet evolving market demand. This includes delivering complete AC charging solutions through integrated end-to-end manufacturing. Consumer demand for electric vehicles has continued to grow in our key markets in the U.S., Europe, and China.
EV sales as a percentage of new car sales recently hit 30% in Europe and 58% in China. While changes in government incentives in some markets, such as the U.S., may soften short-term consumer demand, long-term prospects across key geographies are strong. Our footprint allows us to be flexible around customer requirements. For example, we are moving a new program to Mexico to support a customer's tariff optimization strategy. While this will push out the timing of the initial ramp-up, it is exactly the type of dynamic problem-solving that strengthens relationships. With enhanced capabilities supporting a wide range of global automotive brands, we have confidence in our ability to grow EV in the medium term. It is worth starting the explanation about consumer electricals with some context about the performance we have seen over the last 18 months.
We had what you might call a post-de-stocking rebound in the first half of FY2025 when we hit $132 million of revenue. This normalized to $125 million in the second half of FY2025. For the first half of this year, we delivered $126 million, slightly down versus a year ago and more in line with the H2 performance. This represents an organic decline of 6%. Mains Voltage Power Cords continue to represent the largest share of what we do. We work with some of the biggest consumer brands in the world, where reliability, reputation, and customer experience are key priorities. These brands choose Volex because they have confidence in our ability to exceed their quality and safety demands. Our vertical integration and scale in this market means that we have relationships with all the major domestic appliance manufacturers.
This is giving us significant traction as we continue to push our harnessing capabilities, an area where we see strong opportunities for growth. In fact, harnesses and other complex assemblies now constitute almost a third of revenues. In the second half of the year, we have new incremental harness opportunities in Europe. We've seen some secondary impacts from tariffs on European domestic appliance manufacturers. Some of the Chinese competition have reallocated their marketing spend from the U.S. to Europe and are pushing inventory into the European market in response to U.S. tariffs. This is likely to result in some short-term rebalancing, with medium-term growth weighted more towards harnessing opportunities. Although medical is the smallest of our sectors, we proudly support healthcare innovators whose technologies are transforming patient outcomes and improving lives. Our assemblies distribute power and data throughout sophisticated medical equipment, ensuring reliability, accuracy, and patient safety.
The first half of the year has seen disruption in demand for complex medical devices. Reductions in spending for both medical research and public healthcare and the impact of tariffs are leading to reduced or delayed orders for some large medical equipment. The effect is different between customers, with some customers continuing to increase demand during the period, but others looking to reduce orders and manage inventory levels. We have the flexibility to manage this variability within our operations and support customers as demand patterns shift. It is against this backdrop that we saw our sales in the medical sector decline by around 10% organically during the first half of the year. It is likely that the uncertainties caused by the impact of tariffs and policy changes will continue in the short term and will result in a headwind to medical demand.
However, we remain very positive in relation to the medium term. This is partly due to the success in winning new projects with significant medical brands, expanding the range of customers that we work with. In addition, structural growth drivers are very strong in this sector, with rising demand due to demographic change and advances in technology creating new diagnostic and treatment options. With our significant and in-depth understanding of our customers' requirements, we are well positioned to meet the needs of these healthcare innovators. We've seen excellent organic growth of 48% in complex industrial technology, with data centers a significant part of that. We've also had growth across the other categories. Outside data centers, which I'll come back to shortly, we're delivering complex assemblies, both wire harnesses and printed circuit board assemblies, into highly specialized and demanding applications.
Our customers need exceptional quality and complete confidence that the solution will work first time and every time. Meeting their challenging technical and scheduling requirements takes coordination across our operations and engineering experience to support the build process. When we successfully deliver, we unlock additional project opportunities and further repeat business, which contributes to our growth. We are well positioned in the U.S. market with advanced facilities, which are accredited to deliver defense and aerospace products. This includes involvement in major programs that are stepping up to address current defense challenges. Our overall organic growth outside data centers was over 20%, and much of this came from defense projects. In parallel, we're seeing increased demand from core industrial applications such as building environmental systems. Although the end uses are different in all cases, customers are relying on us to deliver a complex solution with maximum reliability in a competitive way.
Our additional capacity in Mexico is an important part of fulfilling these requirements. In data centers, we supply high-performance copper data interconnects operating at speeds of up to 800 gigabits per second. These cables form the critical physical links between servers, switches, and storage systems within data center racks, enabling ultra-low-latency, high-bandwidth connectivity for AI and cloud applications. Growth in data center investment globally is fueling demand for these products, and revenue is up by 80% compared to the comparative period. As with so much of our portfolio, our ability to manufacture in a variety of locations gives us a competitive advantage given the ever-changing tariff landscape. Finally, turning to off-highway, here we've delivered really strong organic growth of 20% in the first half. This included a project for specialist military vehicles in Europe that does not repeat in the second half of the year.
This was a project that we were able to win because of our ability to move quickly and respond to customer demand. Our success in this market is down to supporting specialist vehicle manufacturers in areas such as construction, agriculture, and large passenger vehicles, who have demanding requirements across a significant variety of products. Our ability to leverage our advanced manufacturing platforms to deliver efficient and repeatable solutions despite variable lot sizes is a differentiator in this market. We're making excellent progress in the North American market, where expanded capacity and our highly skilled engineers and sales colleagues are securing new project wins. This comes at a time when U.S.-based manufacturers are looking for regional production to manage their supply chain objectives. Let me step you through what we've achieved on margins during the period.
We are blending together various operating margins across our entities and then adding an investment into capacity growth and capability expansion. These investments include adding incremental manufacturing space or additional salespeople. On a year-on-year basis, we've improved our first half margins to 9.8%, which is towards the top of our five-year plan margin range of 9-10%. In achieving this, we've identified cost optimization improvements worth 0.7%, which broadly offsets the impact of inflation in the period. This optimization includes further benefits from rolling out automation, as well as the productivity actions highlighted as part of the integration of Murat Ticaret. We also achieve savings through site rationalization of 0.5%. We have a mixed benefit, which reflects lower consumer power cord sales and higher revenues from our data center customers. There is a small adverse impact from the weakening of the U.S. dollar, which is our main sales currency.
Overall, 9.8% is a very strong first-half result, particularly given the amount of investment that has gone into our business recently, and that will come back to the theme of investment shortly. Moving on to cash flow, as in previous years, there are some factors in the first half that tend to result in lower cash generation in H1 compared to the second half of the year. EBITDA was up to $73.6 million, a 20% increase on the comparative period. Capital expenditure was lower at $21.3 million, which is approximately 3.6% of revenue and well within the 3-4% range we had guided to. Once again, we had an increase in working capital, and higher inventory was a big driver in this. About half of the increase in inventory is coming from data centers, where we hold stock in hub locations to support timely fulfillment of demand.
The remaining increase in inventory is across our other go-to-market sectors and reflects the impact of increased demand, as well as building buffer stocks to support relocation activity. Part of this expansion includes an increase in defense projects, where we hold a greater level of raw materials for operational reasons. Interest and tax are similar to the comparative period, which reflects the timing of tax payments and current debt interest costs in our growing business. The repayment of leases shown below free cash flow includes the exercise of an option to secure the freehold on two existing sites at a significant discount to market value, providing greater security and control. Our covenant net debt ratio, which is our preferred way of looking at leverage and excludes operating lease commitments, improved from 1.3 times to 1.1 times, giving us great balance sheet strength and flexibility.
Our capital allocation priorities are unchanged from prior years. Our primary focus is on organic investments. In addition, we continue to explore acquisition opportunities in a disciplined way. I'll now hand back to Nat to update on our strategy.
Jon, thank you very much. I wanted to return to the key pillars of our strategy and outline how this contributed to our first-half performance. First and foremost, we are in the right markets where we are winning new business, and I'm particularly pleased with the progress we've been making in off-highway in North America. Our team is getting a huge amount of traction with customers who are looking for a high-quality and cost-effective solution. It is an opportune time for Dave Webster to join our organization. Later this month, Dave and I will be on the road, meeting with our customers and visiting a brand new site we are opening this month in Central Mexico. The substantial growth we have delivered in the last two years reflects our ongoing investment program. For example, our product development strategy in EV is delivering growth.
Our global capacity investments have given us capability in the right locations to support our customers' tariff mitigation strategies. This is particularly the case in Mexico, where we have an abundant pipeline of opportunities, many of them new in the last six months. We are a critical manufacturing partner for our customers who depend on our engineering capabilities, our attention to detail, and our ability to meet challenging specifications. We build deep relationships by exceeding their expectations. Moving complex production from a competitor or between sites is a big decision. In the last 12 months, we have relocated multiple programs for our customers without any major surprises, and they have confidence in our ability to deliver. Our people are central to our performance. We trust our teams to deliver. We put our skilled managers at the heart of customer relationships.
With the demand into our facilities in North America, we've been augmenting our team in the region, and we are seeing the benefits of this. Finally, acquisitions have been a significant element of our growth story, although it is just over two years since our last deal. In the first half of the year, we looked at a handful of varied opportunities, but nothing met our strict criteria. With a huge amount of organic growth and new customer programs to deliver, we are looking for well-run businesses with strong management teams that can slot into our organization. We are continuing to pursue some interesting opportunities, but we will not compromise on our acquisition criteria. Every deal we do has to be the right deal for Volex.
This investment approach is an important part of how we drive consistent growth and how we position ourselves to win incremental programs with new and existing customers. The qualification process we go through for major new programs is understandably stringent, given our critical role. We build capacity ahead of demand based on market knowledge so we can dedicate space to customers during the qualification process. This has been very successful. Take Batam, Indonesia, where we have now almost filled the additional space we opened last year. Also Tijuana, Mexico, where we are experiencing strong demand for tariff-free manufacturing, having doubled the size of the facility last year. This month, as I mentioned just a moment ago, we are opening a further purpose-built site in Central Mexico, doubling our capacity in this area. However, footprint is only part of the story.
We need to have the right capabilities in our facilities to support evolving requirements and to enhance efficiency. An increasing number of our new programs are built to be highly automated from day one. In addition, we are retrofitting automation technology to existing lines, reducing operating costs and enhancing throughput and yields. Our vertical integration is at the core of our cost competitiveness. We are currently rolling out additional specialist wire products that we extrude ourselves, as well as making complex plastic components and connectors. Our investment in product development focuses on both power products to meet evolving demands in the EV space, as well as the next generation of data center cables. We continue our strong focus on cash payback, with the majority of capital programs achieving cash payback within two years and often much quicker.
This market-leading approach to investment helps us secure benefits quickly and gives us confidence to continue investing in our business. We are three and a half years through our five-year plan, and our first half revenues of $584 million is a significant demonstration that our strategy is working. It is also proof that we are rapidly closing in on our target of achieving $1.2 billion of revenues. We have also been comfortably maintaining our operating margins towards the upper end of the 9-10% range. We are achieving this even after significant investment in growth. This gives us a high degree of confidence that we will achieve the five-year plan. I would now like to summarize our performance and take you through the outlook for the second half. These are, once again, excellent results, a real achievement against a backdrop of tariff-related uncertainty and difficult macroeconomic conditions.
Our growth is proof that the strategy is working, powered by our investments in incremental capacity and capability. In addition, as we scale up the business, we continue to achieve healthy margins at the top end of our target range as our operating leverage increases. We have confidence to invest and to pursue acquisitions because we have a strong balance sheet and significant financial flexibility. Looking forward, we are off to a very good start for the second half of the year. We are mindful of the challenges from short-term uncertainty, particularly arising due to tariffs. However, this is a diversified business with deep long-term customer relationships. Those customers have supported our ability to grow despite these tough conditions, and we expect second-half revenues to be broadly in line with the first half. In fact, we see the changing global trade environment as an opportunity for Volex.
With our geographic capabilities and ability to support customers moving manufacturing between countries, we are well placed to secure further growth. Given our sustained focus on long-term value creation and our tremendous progress against our current five-year plan, we have started working on a new five-year plan. This new plan will reflect the strong and scalable business we have created and set out our ambitions for both revenue growth and margin improvement for the next stage in our journey. We will share this plan with investors in due course. We would be very happy to take your questions.
That's great, Jon. Nat, thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions just using the Q&A tab situated on the right-hand corner of the screen. That's while the guys take a couple of moments to review your questions submitted. I'd just like to remind you a recording of this presentation, along with a copy of the slides, will be available via your Investment Company dashboard. Jon, Nat, you've had a number of questions from investors today, so thank you firstly to everybody for your engagement. Jonathan, may I just hand back to you if you can take us through the Q&A, and then I'll pick up from you at the end.
Yeah, of course. Thank you, Mark. Yeah. I'm going to collate the questions because often we get several questions on the same topic. What I want to try and do is try and answer as many as possible and go through a broad cross-section of the things that are being asked today. The first question, one of the pre-submitted questions, is, will your manufacturing center around Turkey, or might you expand in the US partly in order to mitigate the impact of tariffs?
Do you want me to answer that one? Look, we've got 5,000 people in Turkey. We have, I think, eight sites there at the moment. We are committed to Turkey. We have more than enough expansion space there at the moment should we need it. We have also just opened a brand new low-cost site in the center of Turkey where labor costs are highly competitive. I think in North America, North America has always been a critically, the critically important market for us. If you look at what we have done in Mexico, where we have doubled the size of our Tijuana site, and as I said on at least one occasion in my presentation, we have opened a new purpose-built site, or we are going actually next week to open a new purpose-built site in Central Mexico.
We are covered for the U.S. market through our investments in Mexico. I think the, and we have two sites, two existing sites, two specialist sites in the U.S. at the moment.
Good. Thank you, Nat. There's another question here about, we announced that we were manufacturing partners for AFC Energy, and the question was to understand how significant that partnership is.
I think that you would need to go and extrapolate from the AFC business plan how big the opportunity could be. We have the capability to take cost out of the AFC, the portable hydrogen generators that AFC makes. AFC's success will be contingent on dramatically reducing the cost of those generators. We are working with AFC as we speak. I think you need to look at their management team to answer that question.
Good. Thank you. There is a question about when the San Luis Potosi facility will be operational, which is actually operational now. It opened the beginning of the previous week. Nat and I, as well as Jon Malloy and Dave Webster, are actually going to San Luis Potosi to see the new facility and to cut the ribbon on the site. Also, more importantly, it is an opportunity to introduce Dave Webster to the operations of Volex and to also take the chance to meet with customers. That is a really exciting trip for us. There is a question about medical organic revenues having declined by 9.9%, driven by reduced global spending on healthcare and research. What is the plan to turn this around? That is a question from Anthony. I will start on that if you like, Nat, and you can add your thoughts.
Really, we're not planning to do anything different in medical because actually the strategy we have is working. We have some excellent deep relationships with customers. We have some excellent facilities. Overall, we see very long-term structural growth drivers in the medical market, and we feel that we're well positioned. It is a great strength in the portfolio effects we have across the five markets that if one of those markets is experiencing a short-term dip for various reasons, in this case, it is related to tariffs and changes in legislation, we can still deliver 13% organic growth across the piece. We do not feel that we need to do anything significantly different in medical because we're already doing all the right things.
Yeah. Just to add, if you strip out our largest medical customer, we grew organically year on year in medical by a few points. The medical business we have requires very little capital investment. The sites we have, for example, in Poland and in Slovakia that are exclusively medical, they kick out big dividends up to the group every year. They have very, very healthy margins. The business is incredibly sticky. We have managed to grow our, we have managed to diversify our medical business tremendously over the last 10 years. I am very optimistic about the medical business. I think the amount of destocking that has occurred over the last 12 months, I think some of the customers have gone too far, and I think you could have a really kind of rip come back next year.
Good. Thanks, Nat. There's a question from Stuart about the fact we reference tariff-related uncertainty multiple times, and he'd like us to explain which specific tariff regimes by region and product are the most material to Volex's P&L. In terms of tariffs, our strategy with tariffs from the beginning has been to pass the costs onto our customers. We've done that in 100% of cases that we pass through the cost of tariff to our customers. In these results, there's only really two areas which we referenced in the presentation where we've seen the impact of tariffs. Part of it is in medical, where some of our particularly Eurocentric customers are seeing reduced demand as they sell into the U.S..
The other area that we mentioned in the presentation is in relation to consumer electricals, where Chinese competition are flooding the European market with product at the moment. There will be a rebalancing that will occur over a period of time in terms of demand. We addressed the medical piece earlier and why we still feel very confident in medical. In terms of the consumer piece, as we talked about in the presentation, the big opportunity in consumer is around harnesses. Quite often for domestic appliance manufacturers, we will sell them a power cord for $1, a harness for a washing machine or another domestic appliance. We might sell that for $6. You can see quite quickly that if we can grow the share of that harness market, that could have an appreciable impact on our revenue over a period of time.
That is very firmly where we have our sights set in that consumer electricals business. There is a question from Peter about which of our five end markets, EV, consumer, medical, complex industrial technology, and off-highway, do you expect to grow the fastest and why? I feel that is a question that is best saved for when we release our new five-year plan. We have clearly seen tremendous growth over the life of the current five-year plan, particularly in EV and complex industrial technology. The next five-year plan that we will set out in due course will give an indication of where we think that future growth can come from. Overall, we feel very positive about the opportunities in end markets. To that end, is there a particular end market that you feel particularly optimistic about, Nat, in terms of long-term growth opportunities?
True to form, I still feel optimistic about all of them. I would pick out, I think, look, we said it a lot that you have a situation where labor rates are going up in Mexico, and there is an opportunity to showcase low-cost manufacturing in Southeast Asia. It is really sort of consumer electricals, and then it is, for example, the commercial HVAC market, which are really suited for manufacturing in Southeast Asia. Those are areas of business that require less capital investment than some of our other silos. I think those are very interesting areas. There is a little piece of a growing piece of complex industrial technology, and then there is the consumer electrical side where we are seeing we are getting great traction. I have always said that the consumer electrical side of our business is very, very underappreciated.
Where we came from 10 years ago, we had a non-vertically integrated power core business, and we had no consumer electrical harnesses at all. Now we have a business doing around a quarter of a billion dollars a year of revenue. It is a very, very underappreciated part of our portfolio.
Good. Thank you, Nat. There is a question which is asking from RW, asking for some clarification because there is a statement I made, which was along the lines of that there is an increase in working capital driven by investment in inventory. I mentioned that part of that is because we are operating through a hub model in data center sales. The question is, can I please explain what that hub model means? Now, how that works, how certain customers ask us to support them is by putting inventory into hub locations, particularly in the U.S.. That allows us to manufacture in Asia, and then we ship to the hub locations, and then that inventory is available for the customer to pull to meet their requirements.
It works very well for the customer because that inventory sits on the Volex balance sheet, which is one of the reasons why you see this adverse movement in working capital. For operational reasons, from a customer's perspective, they like that confidence that as there are peaks and troughs in demand of their particular use case, when they're building data centers, they need to move very quickly to populate the data center with infrastructure, which includes all the service switches, and then, of course, the cables that critically connect all of those things together. They want the confidence that they can go to those hub locations in the locality of where the data centers are being built and move very quickly to achieve their build-out requirements.
There's a question from Tam Anvia about if we could explain or if I can explain the decline in revenue in Asia. Within the earnings release, we report revenue both in terms of the go-to-market sector, for example, EV or consumer electricals, but we also report a regional split. There is a reduction in Asia and quite a significant increase in North America. It really just reflects the end markets where we've seen the biggest pull of data center products and the particular customer mix in those markets. It's just really a function of how we report where particular customer revenue comes from, as noted in that release. Question from Melvin. How significant is the volatility of the copper price to the business, and what stocking destocking is taking place in response?
As we've said previously, and remains to be the case, for assemblies and products where copper is a significant element of the bill of materials, it is our policy to pass that copper risk through to the customer. There is a repricing mechanism around copper. When copper goes up, then we're able to charge higher prices, which means our margins remain consistent in the face of copper volatility. That is a process that has worked very well for us, but it also is something that's very well understood and accepted by the customers. We haven't seen any significant evidence that customers are either stocking up or destocking in advance of anticipated moves in the copper market. Of course, the copper market moves very regularly and sometimes quite unpredictably.
For some of our customers where they choose not to take that risk, we back off that risk ourselves by going out to a bank and hedging the copper exposure. There's a question here from Anthony saying that the markets have reacted favorably to these results, as has been seen by a substantial increase in the share price. Do you think the present share price and market cap is a true reflection of the value of the business, or do you think the business is still undervalued given the future growth opportunities?
I think investors have to decide how to value Volex. I think given our growth rate, our organic growth rate, where we compare against other U.K. industrials, we should trade on a higher multiple.
Good. Thank you. There is a question from Theo about, has Volex ever considered entering the grid electrical cable market given its growth, and if not, why? I think this is referring to more like the national grid, the supply side of the electricity distribution market. Do you have any thoughts on that, Nat?
This is a different business to us. This is a business that is dominated by companies like Prysmian and Nexans and other large multinational businesses. This is not what we do. Also, the business has much lower margin characteristics. Those are sort of single-digit operating margin businesses. We are looking for niches. We are trying to be maneuverable. We are looking for kind of less commoditized business.
Yeah. Great. Thank you. There's a question about the percentage of revenue that each of our largest customers make up in the markets that we operate in. In terms of customer concentration, we have a very broad range of customers, and there's nothing that we, from a management perspective, feel particularly concerned about in terms of customer concentration risk. We do have some larger customers, which tend to be very well-known household names that are leaders at the frontier of technology developments. In particular, we see that within complex industrial technologies and within the EV sector. What's great with working with companies at the forefront of technology is through our manufacturing partnerships and the complex products that we offer to them, we're able to learn a lot about developments in the technology.
That helps us as we engage with other customers who are perhaps a bit behind, a bit further from the leading edge. There is a question about whether the boost that gold miners have had this year with rising gold prices has led to an increase in demand for off-highway vehicles to sort of support the gold markets. I do not think we have seen anything down to that level of granularity, but perhaps a few words on where you see things in the off-highway space, and particularly, I suppose, obviously, our North American opportunity.
Yeah. Interestingly, we want to contract with Fortescue to make the wire harnesses that go into the next generation of electric mining trucks. I went down to their headquarters last year and met Dr. Andrew Forrest and had a tour. That contract has actually, unfortunately, gone away because of the decision by Fortescue to move all their production to China, partly because of some of the decisions that this government has taken. We are trying now to kind of requalify ourselves on the China part of that business. That is an example of exactly the type of business that we like to do, which is a big off-highway, super customized, heavy harness with tons of complexity to it. Overall, the off-highway business has grown 20% organically through our acquisition of Murat in Turkey in 2023. We have got almost every single one of the major customers.
We're now trying, as we said in previous calls, we're trying to then cross-sell those opportunities into other geographic locations. That includes North America and obviously Asia as well.
There's a question I'll take from Mick, given I run one of our support functions, the finance team. It's about, given the growth of AI, what steps are Volex taking to implement AI in our own organization? It's a good question that there's a tipping point now in terms of how these technologies have developed, that it does allow you to run things in a more efficient way. AI is just one of the avenues that we are looking at and actually using on a regular basis to become more efficient in the back office of Volex.
That is really important because as we grow revenue, if we want to look to enhance our margin position, then we need to do that through further operating leverage, which is all about running as efficiently as possible in the support functions of the organization so that the operating leverage comes through. As well as AI, we are using cloud technology, we are using lots of applications. We are rolling out a new ERP system, which is going incredibly well and is giving access to a new feature set. We are using more tools for greater collaboration across the business. All of these things come together to put us in a position where we are enhancing the efficiency. A final question, we have had a question from Chris. He says, "Excellent results. Well done.
I know it's somewhat futuristic, but do you see data centers opening in space? I didn't know whether you had any thoughts on that as we come to close the Q&A session. A rather left-field question for the very end.
Maybe on asteroids as well in space. No, the answer is I don't have any great insight into the thinking of Elon Musk. He's the only person who could possibly pull something like that off.
Very good. Thank you.
That's great. Jon, thank you very much indeed for updating investors. Of course, if there are any further questions, Jon will give those to you post today's call. Thank you once again to you both. Nat, perhaps before I redirect those on the call to give you their feedback, which I know is particularly important to you both, perhaps I could just ask you for just a couple of closing comments.
It is 10 years since I have been doing this. I think it is five or six years for you now, is it not, as well? We are in the midst of the journey, and we are grateful for the support of all of the retail investors and also the InvestorMeet platform, which is very important to us. We look forward to seeing you in six months' time.
That's great. Jon, Nat, thanks once again for updating investors. If I could please ask investors not to close this session, as we'll now automatically redirect you to provide your feedback. Only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Volex, we'd like to thank you for attending today's presentation.