Interim Results

Volex Group PLC 06 November 2002 Embargoed until 7.00am, 6th November 2002 Volex Group p.l.c. Unaudited interim results for the half-year ended 30 September 2002 Volex Group p.l.c., the world's leading independent producer of electronic cable assemblies and electrical power cords, announces its unaudited results for the half-year ended 30 September 2002: Highlights Six months ended 30 September 2002 2001 Turnover £120.1m £159.9m Operating profit* £0.2m £2.9m Pre-tax (loss)/profit* £(1.4)m £1.1m Reduction in net debt £3.8m £10.4m * excluding goodwill amortisation Commenting on results and prospects, Mr. Dom Molloy, Chairman of Volex, said: 'The results for the first half of this year demonstrate that the business has been stabilised and has started on its recovery path through increased penetration of its markets.' 'Sales in the period of £120.1m showed a 4% increase over those of the second half of last year. The operating result (pre goodwill) was a profit of £0.2m, delivering on our previous commitment to achieving a break-even operating result on annual turnover of some £240m.' 'The second half-year will benefit from new business gained towards the end of the first half and we anticipate further incremental market share gains. Given the dynamics of our current market place we believe that we are correctly positioned to achieve satisfactory growth in the short to medium term.' For further information, please contact: Volex Group p.l.c Today: 020 7950 2800 Thereafter: 01925 830101 Dom Molloy, Chairman John Corcoran, Group Chief Executive Ken Hooper, Group Finance Director Weber Shandwick Square Mile Tel: 020 7950 2800 Chris Lynch / Graham Herring Report of the Directors on the results for the half year to 30 September 2002 The results for the first half of this year demonstrate that the business has been stabilised and has started on its recovery path through increased penetration of its markets. Sales in the period of £120.1m showed a 4% increase over those of the second half of last year. The operating result (pre goodwill) was a profit of £0.2m, delivering on our previous commitment to achieving a break-even operating result on annual turnover of some £240m. This has been the result of the annualised cost reductions of some £15m achieved during last year combined with the increase in sales. The pre-tax loss (pre goodwill) for the period was £1.4m. These results are in line with the indications given in last year's annual report and accounts. The Group fully met its banking covenants at the end of the half- year. Net borrowings fell to £46.6m on positive cash flow in the half-year of £3.8m. Operations The Group's end markets generally continued to be very difficult across all regions and sectors of our business. The telecommunications market declined further by around 10% in the first half, and the data sector also demonstrated quarter-on- quarter decline. However, the end market for consumer appliances and some areas of the specialty harness markets did enjoy some modest growth during the period. The Group's success in targeting opportunities for increased market share on specific products and global customers has offset the inherent overall market weakness. This has been achieved across all sectors by leveraging our global presence and independence. Business gained towards the end of last year was delivered in the first half, and new sales programmes were launched during this period to provide growth potential for the near future. On a region-by-region analysis, both Asia and North America provided overall growth in excess of underlying market weakness as our penetration of Japanese accounts and improved share of the domestic power market in both regions offset the decline in telecommunications spending. In Europe, however, the increase in our share of existing and new accounts could not bridge the extent of the reduction in end customer demand. Incremental programmes secured with accounts in Europe in the first half will contribute to an improved position in this region for the remainder of the year. The ongoing consolidation of our industry is providing us with significant opportunities, with many OEM and EMS companies continuing to outsource their cable assembly requirements and reduce their supply base. Our global manufacturing capability, responsiveness and independence positions us well to continue to gain market share. Pricing pressures also continue to characterise the market environment. However by focusing on our supply base and consistently driving cost from the Group, we have held the gross profit margin at acceptable levels. In addition, strict control has been exercised on capital expenditure without impacting the Group's ability to keep pace with technology change or respond to new customer or new programme opportunities. The Group's operational focus continues to target improvements in the utilisation of working capital, especially through inventory reduction and improved capacity utilisation which through this period increased by 5% to circa. 60%. Financial Review Turnover of £120.1m for the first half of the 2003 financial year was down 25% over the comparative period last year although up by almost 4% over the second half of last year. The Group's end markets declined over last year's second half, largely driven by a fall of 10 % in the telecommunications market. Against this background this half-year's sales represent a reasonable overall sequential growth half-year on half-year and demonstrate that the Group has achieved an increase in market share. Given these market dynamics, the most relevant comparison of sales for this first half-year is against sales in the second half of last year. Comparison by destination shows that sales increased to our Asian region customers by 24% and to our customers in the Americas by 9% but declined some 12% to European customers. An analysis of gross sales by region of manufacture showed Asia increasing by 24% and the Americas by 10% with sales from the Group's European sites declining by 11%: these changes reflected the re-profiling of the Group's manufacturing capabilities. An analysis of sales by product category and end market is given in note 2 to the results. The operating profit before goodwill of £0.2m compared with a loss of £(4.5)m in the second half of last year and a profit of £2.9m in the first half of last year. The turnaround from last year's second half is principally due to the reduction in overheads of some £15m on an annual basis combined with the relatively small increase in sales. The charge in the period in respect of amortisation of goodwill was £0.4m. The number of employees within the Group at the half-year end was 8,300, slightly up on the start of the year - at the half-year stage last year the total number of employees was 9,200. Finance costs in the half-year consisted of two elements, namely interest costs, which increased with effect from the bank facility refinancing on 14 June 2002, and the amortisation over a two year period of certain of the costs relating to the refinancing. Details of the refinancing costs are given in note 4. The first half-year result before tax, goodwill and refinancing costs amortisation, was a loss of £(1.2)m - after amortisation of these items the result was a loss before tax of £(1.8)m. For the second half of last year the result before goodwill amortisation, exceptional items and tax was a loss of £(5.7)m. The exceptional costs of re-financing written off in last year's second half were £(2.3)m. In addition, during the second half of last year there was a charge in respect of a fundamental restructuring of the Group's European operations of £(6.3)m. The impact in the half-year of changes in foreign currency translation rates compared with the average rates applicable during the second half of last year was a reduction in sales of £2.5m (or £3.4m compared with the average for the first half of last year). Overall there was negligible impact on profits against either of the average rates prevailing in the two preceding half years. Net borrowings at the half-year end were £46.6m as against £50.4m at the end of last year, a net reduction of £3.8m. Details of cash flows during the year are given in the Group cash flow statement and in note 7. As stated earlier, the Group met its banking covenants at the end of the half-year. The Group has adequate bank facility headroom for the foreseeable future. Dividend In the light of current conditions the Board has decided not to declare an interim dividend. Board Changes As previewed in the 2002 Annual Report and Accounts Mr. David Beever joined the Board as a non-executive director on 1 August this year. As announced on 31 October Mr. Bill Goodall will retire from the Board on 3rd December 2002. Further details on these changes were given in the 2002 Annual Report and Accounts. The Future The outlook for the remainder of the financial year remains difficult to predict with order books having shortened in the first half. Recent market intelligence points to continuing uncertainty and further decline in data and telecommunications markets, with consumer product related spending tending to marginally increase over the period. However, the second half-year will benefit from new business gained towards the end of the first half and we anticipate further incremental market share gains. Overall we expect to continue to make progress although on a longer timescale than originally envisaged. We anticipate sales revenue in the second half will be materially better than the first half-year, with the associated benefit to operating profit. In addition the ongoing cost cutting measures effected in the first half will give full benefits to the second half-year and these will be supplemented by further measures identified for implementation during the remaining six months. We believe the Group's financing will remain stable, and we anticipate that the various bank covenants will be met and a satisfactory headroom against bank facilities maintained. Our strategy is clear and we have made a good start in our recovery phase. Given the dynamics of our current market place we believe that we are correctly positioned to achieve satisfactory growth in the short to medium term. D.J. Molloy Chairman 6 November 2002 CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited) Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Turnover Continuing operations (see note 2) 120,122 159,908 275,696 ======= ======= ======= Operating profit/(loss) on continuing operations before goodwill amortisation 162 2,919 (1,581) Goodwill amortisation (430) (435) (871) ------- ------- ------- Operating (loss)/profit on continuing operations (268) 2,484 (2,452) Costs of a fundamental restructuring of continuing operations (see note 3) - - (6,278) ------- ------- ------- (Loss)/profit on ordinary activities before finance charges (268) 2,484 (8,730) Finance costs (see note 4) - interest (net) (1,409) (1,851) (3,060) - refinancing costs - amortised (168) - - - exceptional - - (2,260) ------- ------- ------- (Loss)/profit on ordinary activities before taxation (1,845) 633 (14,050) Tax on (loss)/profit on ordinary activities 462 (158) 3,907 ------- ------- ------- (Loss)/profit on ordinary activities after taxation (1,383) 475 (10,143) Dividends paid and proposed (3) (1,582) (1,585) ------- ------- ------- Loss for the period transferred from reserves (1,386) (1,107) (11,728) ======= ======= ======= Basic (loss)/earnings per ordinary share (pence) (4.8)p 1.7p (35.5)p Headline (loss)/earnings per ordinary share* (pence) (3.3)p 3.2p (8.4)p Diluted (loss)/earnings per ordinary share (pence) (4.8)p 1.6p (35.5)p Dividend per ordinary share (pence) - 5.5p 5.5p * see note 6 INTERIM DIVIDEND The Directors have not declared an interim dividend in respect of the year ending 31 March 2003 (2002 - 5.5p net per ordinary share). CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 (Loss)/profit for the period (1,383) 475 (10,143) Currency variations (1,724) (809) (695) ------- ------- ------- Total recognised losses for the period (3,107) (334) (10,838) ====== ====== ====== CONSOLIDATED BALANCE SHEET (abridged and unaudited) As at As at As at 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Fixed assets Intangible 13,664 14,409 14,065 Tangible 36,810 47,161 41,232 ------- ------- ------- 50,474 61,570 55,297 ======= ======= ======= Current assets Stocks 30,690 45,139 35,735 Debtors 52,493 58,002 52,344 Current asset investments 1,482 - 1,482 Cash at bank and in hand 7,662 19,888 13,090 ------- ------- ------- 92,327 123,029 102,651 ------- ------- ------- Creditors: - Amounts falling due within one year: Borrowings and finance liabilities (5,430) (8,141) (2,897) Trade creditors and provisions (32,195) (46,822) (34,995) ------- ------- ------- (37,625) (54,963) (37,892) ------- ------- ------- Net current assets 54,702 68,066 64,759 ------- ------- ------- Total assets less current liabilities 105,176 129,636 120,056 Creditors: - Amounts falling due after more than one year: Borrowings and finance liabilities (48,837) (59,793) (60,602) Other liabilities (134) (21) (139) ------- ------- ------- Net assets 56,205 69,822 59,315 ======= ======= ======= Represented by: Share capital 7,231 7,231 7,231 Reserves 48,974 62,591 52,084 ------- ------- ------- Total capital employed 56,205 69,822 59,315 ======= ======= ======= Gearing 82.9% 68.8% 85.0% MOVEMENTS IN SHAREHOLDERS' FUNDS (Loss)/profit for the period (1,383) 475 (10,143) Dividends (3) (1,582) (1,585) ------- ------- ------- (1,386) (1,107) (11,728) Currency variations (1,724) (809) (695) New share capital subscribed - 121 121 ------- ------- ------- Net decrease in shareholders'funds (3,110) (1,795) (12,302) Opening shareholders' funds 59,315 71,617 71,617 ------- ------- ------- Closing shareholders' funds 56,205 69,822 59,315 ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT (abridged and unaudited) Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Net cash inflow from operating activities (see note 7) 3,426 16,984 30,222 ======= ======= ======= Returns on investments and servicing of finance Interest paid (net) (1,677) (1,466) (2,557) Refinancing costs (3,253) - (347) Interest element of finance lease rentals (9) - (12) Preference dividends paid (3) (3) (6) ------- ------- ------- Net cash outflow from returns on investments and servicing of finance (4,942) (1,469) (2,922) ======= ======= ======= Taxation recovered/(paid) 2,613 (2,157) (4,169) ======= ======= ======= Capital expenditure Purchase of tangible fixed assets (1,277) (3,453) (5,084) Sale of tangible fixed assets and current asset investments - 425 689 ------- ------- ------- Net cash outflow from capital expenditure (1,277) (3,028) (4,395) ======= ======= ======= Acquisitions Deferred consideration for subsidiary undertakings - (1,774) (4,015) ------- ------- ------- Net cash outflow from acquisitions - (1,774) (4,015) ======= ======= ======= Equity dividends paid - - (6,893) ======= ======= ======= Cash (outflow)/inflow before financing (180) 8,556 7,828 ======= ======= ======= Financing Issue of ordinary share capital - 121 121 Decrease in short term borrowings (7,247) - (590) Capital element of finance lease rentals (28) (138) ------- ------- ------- Net cash (outflow)/inflow from financing (7,275) 121 (607) ======= ======= ======= (Decrease)/increase in cash in period (7,455) 8,677 7,221 ======= ======= ======= NOTES TO GROUP RESULTS 1. The summarised results for the six months to 30 September 2002 have been prepared under the historical cost convention modified to include, where considered appropriate, the revaluation of land and buildings and in accordance with the accounting policies adopted in the accounts for the year to 31 March 2002. These and the comparative results for the half year to 30 September 2001 are non-statutory accounts within the meaning of Section 240 of the Companies Act 1985 and have not been reported upon by the auditors under Section 235 of the Companies Act 1985. The figures for the year ended 31 March 2002 are an abridged version of the Group's full accounts and, together with other financial information contained in these results, do not constitute statutory accounts of the Group within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the period ended 31 March 2002 have been filed with the Registrar of Companies for England and Wales and have been reported on the Group's auditors. The report of the auditors was not qualified and did not contain a statement under section 237 (2) and (3) of the Companies Act 1985. 2. Segmental Information Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 By destination: United Kingdom 22,399 26,245 49,529 Republic of Ireland 1,944 1,705 7,340 Other Europe 17,030 25,111 43,026 -------- -------- -------- Total Europe 41,373 53,061 99,895 Americas 48,502 67,758 112,391 Asia 30,247 39,089 63,410 -------- -------- -------- Total 120,122 159,908 275,696 ======== ======== ======== By source: United Kingdom 15,499 32,065 64,883 Republic of Ireland 24,643 20,838 34,648 Other Europe 4,861 5,698 9,362 -------- -------- -------- Total Europe 45,003 58,601 108,893 Americas 51,986 70,456 117,807 Asia 38,420 45,245 76,257 -------- -------- -------- 135,409 174,302 302,957 Less: Intra Group (15,287) (14,394) (27,261) -------- -------- -------- Total 120,122 159,908 275,696 ======== ======== ======== Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 By product category: Data/Telecommunications 50,976 89,179 134,897 Powercords 53,512 54,193 106,437 Harnesses 15,634 16,536 34,362 -------- -------- -------- Total 120,122 159,908 275,696 ======== ======== ======== Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 By End market: Data/Telecommunications 81,027 113,420 187,876 Appliances 23,470 29,952 53,742 Harnesses 15,625 16,536 34,078 -------- -------- -------- Total 120,122 159,908 275,696 ======== ======== ======== Operating profit, profit before tax and net assets by geographical area and by type of business are not given as such disclosure is considered by the directors to be seriously prejudicial to the interests of the Group. All activity has arisen from continuing operations. 3. Costs of a fundamental restructuring of continuing operations In the comparative period costs of a fundamental restructuring of the Group's European powercord and infocom assembly operations amounted to £6,278,000. The taxation effect of this exceptional item was £979,000. 4. Finance Costs Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Net finance costs represent: Interest payable (net) on bank loans and overdraft (1,409) (1,851) (3,060) Refinancing costs - Amortised (168) - - - Exceptional - - (2,260) -------- -------- -------- (1,577) (1,851) (5,320) ======== ======== ======== Interest costs increased with effect from 14 June 2002 when the Company's finance facilities were rearranged: this resulted in the average cost of borrowings increasing by 2.5% basis points. The total cost of the refinancing came to £3.6m, an increase of £1.13m over the original estimated figure. This increase is principally due to the complexities and associated costs of the finalisation of the new facilities, in particular the giving of security over certain assets in favour of the principal banks. Costs of raising the new facilities are being amortised over the initial two-year term for which the facilities are available, the charge in this half-year being £168,000. 5. The Group tax charge for the period is based on anticipated tax rates for the year as a whole and has been influenced by the differing tax rates in the UK and in the various overseas countries in which the Group operates. 6. The calculation of earnings per share are based on the following profits and numbers of shares: Basic and diluted Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £000 £000 £000 (Loss)/profit for the financial year (1,383) 475 (10,143) Preference dividends (3) (3) (6) -------- -------- -------- Basic (loss)/earnings (1,386) 472 (10,149) Goodwill amortisation 430 435 871 Cost of fundamental restructuring - - 6,278 Finance restructuring costs - - 2,260 Tax on exceptional items - - (1,657) -------- -------- -------- Headline (loss)/earnings (956) 907 (2,397) ======== ======== ======== No.of shares No.of shares No.of shares For basic (loss)/earnings per share 28,602,637 28,581,799 28,592,218 Exercise of share options - 80,471 11,794 ----------- ----------- ----------- For diluted (loss)/earnings per share 28,602,637 28,662,270 28,604,012 =========== =========== =========== Basic (loss)/earnings per share (4.8)p 1.7p (35.5)p Headline (loss)/earnings per share (3.3)p 3.2p (8.4)p Diluted (loss)/earnings per share (4.8)p 1.6p (35.5)p 7. CASH FLOW (i) Reconciliation of operating profit to net cash inflow from operating activities Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Operating (loss)/profit (268) 2,484 (2,452) Depreciation 3,521 4,155 8,517 Goodwill amortised 430 435 871 Decrease in stocks 3,056 13,266 23,698 (Increase)/decrease in debtors (2,399) 11,174 19,735 Increase/(decrease) in creditors 623 (14,250) (17,480) Cash impact of fundamental restructuring (1,435) - (1,975) Other items (102) (280) (692) --------- -------- -------- 3,426 16,984 30,222 ========= ======== ======== (ii) Analyses of net debt 1 April Cash flow Exchange 30 September 2002 movement 2002 £'000 £'000 £'000 £'000 Cash at bank and in hand 13,090 (4,746) (682) 7,662 Overdraft (2,827) (2,709) 147 (5,389) (7,455) Loans (60,563) 7,247 4,479 (48,837) Finance Leases (109) 28 40 (41) -------- -------- -------- -------- Net debt (50,409) (180) 3,984 (46,605) -------- -------- -------- -------- (iii) Reconciliation of net cash flow to movement in net debt Six months to Six months to Year to 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 (Decrease)/increase in cash in the period (7,455) 8,677 7,221 Cash outflow from decrease in debt and lease financing 7,275 - 728 -------- -------- --------- Change in net debt resulting from cash flows (180) 8,677 7,949 New finance leases - (121) (242) Translation difference 3,984 1,811 297 -------- -------- --------- Movement in net debt in the period 3,804 10,367 8,004 Net debt at beginning of year (50,409) (58,413) (58,413) -------- -------- --------- Net debt at the end of the period (46,605) (48,046) (50,409) ======== ======== ========= Note: Copies of this interim report are being sent to all shareholders. Copies can also be obtained from the Company Secretary, Volex Group p.l.c., Dornoch House, Kelvin Close, Birchwood Science Park, Warrington WA3 7JX. The presentation being made to stockbroking analysts on Wednesday 6 November 2002 will be on the Company's web site www.volex.com from 11.00 a.m. that day. This information is provided by RNS The company news service from the London Stock Exchange

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