Interim Results - Half Year to 30 September 1999

Volex Group PLC 10 November 1999 Volex Group p.l.c. Unaudited interim results for the half year ended 30 September 1999 Volex Group p.l.c., the world's leading independent producer of electrical power cords and electronic interconnect cable assemblies, announces its unaudited results for the half-year ended 30 September 1999: Highlights Six months ended 30 September 1999 1998 Turnover £143.8m £101.8m +41% Operating profit* £10.4m £8.2m +27% Pre-tax profit* £9.2m £7.9m +16% Earnings per share (headline) 21.0p 18.7p +12% Dividend per share 8.7p 8.2p +6% . Major US acquisition makes Volex number one power cord manufacturer in the world . Strong growth in Ireland, Asia and the Americas . Strong growth in targeted markets of networking and telecommunications . Interest cover 8.2 times * pre goodwill amortisation Commenting on prospects, Mr Bill Goodall, Chairman of Volex, said: 'The Group strategy is progressing very successfully as we continue to extend global operations to support the growing multinational customer base. New opportunities, primarily driven by significant advances in digital communications, provide the basis for further expansion in a number of product areas. Volex is recognised by its customers as a supplier with outstanding strength and reliability. We are confident that the positive trends we are experiencing provide the foundation for strong growth and profitability for the future.' 'This first half year has given us a good start in achieving the growth targets set last year and I look forward to further progress during the remainder of this financial year.' For further information, please contact: Volex Group p.l.c. Today: 0171 253 2252 Thereafter: 01925 830101 Bill Goodall, Chairman Dom Molloy, Group Chief Executive Peter Ford, Group Sales, Marketing and Business Development Director Ken Hooper, Group Finance Director Ludgate Communications Ltd 0171 253 2252 Chris Lynch / Alice Todhunter REPORT OF THE DIRECTORS on the results for the half year to 30 September 1999 The results for the half year to 30 September 1999 were very solid as the Group continued its strategy of providing global support across major market regions. Record sales of £143.8M which were up 41% over last year included £15.4M from the Belden power cord business acquired during the first quarter. The operating profit, before goodwill amortisation of £0.2m, was £10.4M, up 27.1% over the same period last year and included only a minor contribution from the acquired businesses which we are currently restructuring. Pre-tax profits increased 16.4% to £9.2M before goodwill amortisation. After taking into account a minority interest relating to our Brazilian company acquired last year, headline earnings per share increased by 12.3% to 21p. OPERATIONS The Group produced an excellent performance in the first half, during which we clearly gained market share in key strategic areas. Emphasis on the very fast growing data and telecommunications markets, together with the expansion of our power cord products businesses where we have secured a world leadership position, provided strong growth in revenues and profits. Our plan to provide quality products and services from strategic locations in all major market areas continues to progress, and we are encouraged by the opportunities that lie ahead. The Group's operations are strategically placed to take advantage of the exponential growth in digital communications. Our ability to develop new products and reduce time to market due to our strong global presence has been well received by our multinational customer base. The Group is involved in a number of wireless and broadband programmes across the full range of standards including GSM, CDMA and TDMA. We will continue to support these opportunities with investment in people, plant and equipment. With the move to larger facilities in Ireland, further expansion in Suzhou, China and a strong start with the recent acquisition in Brazil, the Group is ideally placed further to increase market share. The engineering base has been strengthened in all operations. New product activity across the Group is especially encouraging. Following the acquisition of Belden's power cord division and increased sales volumes in Asia, Europe and North America, we are now recognised as the world's leading producer of OEM power cords. This remains a key element in our strategy of being the 'one-stop' source for all of our customers' cabling requirements. Our range of products covers all international standards. Investments in lower cost operations in Mexico, China, Thailand and India provide a strongly competitive manufacturing base for continued growth despite the current trend in world commodity prices. We are now able to supply products across a wider range of markets and in shorter lead times than ever before. This capability materially strengthens the Group's competitive position. The UK wiring harness divisions remain focused on key customers in niche markets with further opportunities for growth. Our Group-wide continuous improvement programmes are now delivering good results. Productivity, quality and responsiveness remain key aspects of the business. FINANCIAL REVIEW Turnover for the first half year increased by 41% to £143.8M, of which £15.4M related to the US power cord acquisition. Excluding the turnover from acquisitions, sales from the existing businesses increased by 26% and included the benefit of currency translation impacts of £1.5M. Following the US acquisition, sales of power cords represented 45% of Group sales, with sales of data and telecommunication products at 44%. Sales of both medical and harness products remained constant, with the latter accounting for 9% of Group sales. The principal areas of growth were Asia and the Americas where, after stripping out the impacts of the acquisitions, sales grew in excess of 40%, with a 20% growth in mainland Europe. The increases in the Group's output by region largely reflected the changes in markets, although of particular note is the 44% growth in output from Ireland supporting increased data/telco cable assembly sales, largely into Europe. Inter- divisional sales grew by 19% reflecting the global nature of the Group's operations. The operating profit, before goodwill amortisation of £0.2m, of £10.4M was 27% up over last year. The results of the acquisitions in the US and India, which as anticipated are in the process of being restructured and expanded, have already become marginally positive. Excluding the results of these acquisitions and goodwill amortisation, the operating margin was 7.9%. This was slightly down on the comparative period due principally to a slower than expected improvement in the UK power cord operations. Interest payable in the half year of £2.1M was covered 8.2 times. The increased charge over last year reflected the higher borrowings for the acquisitions in the first half and increased working capital to fund the sales growth. The Group's pre-tax profits for the first half year of £9.2M, before goodwill amortisation of £0.2M, showed an increase of 16.4% over last year, with the acquisitions breaking even after finance costs. The change in the mix of profits by region has resulted in an anticipated fall in the overall corporate tax rate for the year as a whole from 33% last year to 32%. Consequently this rate has been applied to the half year results. The results include £0.4M for the minority interest. After reflecting these items and excluding goodwill amortisation the headline earnings per share have increased by 12.3% to 21p. During the half year, net borrowings have increased by £21.1M of which £17.0 M relates to the acquisitions. Borrowings therefore stand at £37.5M at the half year end, a gearing of 68% to shareholders' funds, of which almost 31% relates to the acquisitions. Expenditure on fixed assets, excluding those purchased as part of the acquisitions, was £6.2M. Some £2M of this related to the new Irish factory with the balance largely to plant and equipment for increases in capacity. An increase of £5.5M in working capital was to fund the current and anticipated increase in business. With regards to Year 2000 computer and systems issues, our internal hardware and software will be compliant at a cost which will not be material in the current year. If any of our critical suppliers should not be compliant we will have taken the necessary contingency steps to ensure as far as possible that the Group's business will not be adversely affected. INTERIM DIVIDEND The Board has declared an interim dividend of 8.7p per ordinary share, an increase of 6%. This will be paid on 1 February 2000 to shareholders on the register on 24 December 1999. THE FUTURE The Group strategy is progressing very successfully as we continue to extend global operations to support the growing multinational customer base. New opportunities, primarily driven by significant advances in digital communications, provide the basis for further expansion in a number of product areas. Volex is recognised by its customers as a supplier with outstanding strength and reliability. We are confident that the positive trends we are experiencing provide the foundation for strong growth and profitability for the future. This first half year has given us a good start in achieving the growth targets set last year and we look forward to further progress during the remainder of this financial year. R.W. Goodall Chairman 10th November 1999 GROUP PROFIT AND LOSS ACCOUNT (unaudited) Six months to Six months to Year to 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 Turnover Existing operations 128,331 101,818 215,913 Acquisitions 15,453 - - ------------ ------------ ---------- Continuing operations 143,784 101,818 215,913 ======= ======= ======= Operating profit Existing operations 10,099 8,207 19,319 Acquisitions 332 - - ------------ ------------ ---------- Continuing operations before goodwill 10,431 8,207 19,319 Goodwill amortisation (197) - (111) ------------ ------------ ---------- Operating profit on continuing operations after goodwill 10,234 8,207 19,208 Costs of a fundamental restructuring of continuing operations - - (900) Profit on sale of tangible fixed asset of continuing operations - - 959 ------------ ----------- ---------- Profit on ordinary activities before finance charges 10,234 8,207 19,267 Interest payable (net) (1,249) (320) (1,005) ------------ ----------- --------- Profit on ordinary activities before taxation 8,985 7,887 18,262 Tax on profit on ordinary activities (2,875) (2,603) (6,026) ------------ ----------- ---------- Profit on ordinary activities after taxation 6,110 5,284 12,236 Minority Interests (380) - (41) ------------ ----------- ---------- Profit attributable to shareholders 5,730 5,284 12,195 Dividends paid and proposed (2,471) (2,332) (6,799) ----------- ------------ ---------- Retained profit for the period 3,259 2,952 5,396 ======= ======= ======= Headline earnings per ordinary share* (pence) 21.0p 18.7p 43.6p Basic earnings per ordinary share (pence) 20.3p 18.7p 43.2p Diluted earnings per ordinary share (pence) 20.1p 18.6p 43.0p Dividend per ordinary share (pence) 8.7p 8.2p 24.0p * pre goodwill amortisation INTERIM DIVIDEND The Directors have declared an interim dividend in respect of the year ending 31 March 2000 of 8.7p (1999 - 8.2p) net per ordinary share. This dividend will be paid on 1 February 2000 to shareholders on the register on 24 December 1999 and will absorb £2,462,330 (1999 - £2,315,593). STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months to Six months to Year to 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 Profit for the period 5,730 5,284 12,195 Currency variations (808) (219) (1,144) ----------- ------------- --------- Total recognised gains for the period 4,922 5,065 11,051 ====== ====== ====== GROUP BALANCE SHEET (abridged and unaudited) As at As at As at 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 Fixed assets Intangible 7,789 - 6,527 Tangible 44,783 33,503 35,802 ----------- ------------ ---------- 52,572 33,503 42,329 ======= ======= ======= Current assets Stocks 37,946 25,216 31,043 Debtors - Due within one year 55,677 38,946 42,555 - Due after one year - 1,450 - Current asset investments 504 814 504 Cash at bank and in hand 9,206 13,965 11,416 ----------- ------------ ---------- 103,333 80,391 85,518 ----------- ------------ ---------- Creditors: - Amounts falling due within one year: Borrowings and finance liabilities (6,641) (1,593) (2,025) Trade creditors and provisions (52,436) (40,811) (44,814) ----------- ------------ ---------- (59,077) (42,404) (46,839) ----------- ------------ ---------- Net current assets 44,256 37,987 38,679 ----------- ------------ ---------- Total assets less current liabilities 96,828 71,490 81,008 Creditors: - Amounts falling due after one year: Borrowings and finance liabilities (40,018) (18,284) (25,743) Other liabilities (824) (2,444) (2,272) ----------- ----------- ---------- Net assets 55,986 50,762 52,993 ====== ====== ====== Represented by: Share capital 7,156 7,139 7,145 Reserves 47,809 43,623 45,207 ----------- ----------- ----------- Shareholders' funds 54,965 50,762 52,352 Minority Interest 1,021 - 641 ----------- ------------ ---------- Total capital employed 55,986 50,762 52,993 ====== ====== ====== Gearing 68.1% 11.6% 31.2% MOVEMENTS IN SHAREHOLDERS' FUNDS As at As at As at 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 Profit for the period 5,730 5,284 12,195 Dividends (2,471) (2,332) (6,799) ----------- ----------- ---------- 3,259 2,952 5,396 Currency variations (808) (219) (1,144) New share capital subscribed 162 363 434 ----------- ----------- ----------- Net increase 2,613 3,096 4,686 Opening shareholders' funds 52,352 47,666 47,666 ----------- ----------- ----------- Closing shareholders' funds 54,965 50,762 52,352 ====== ====== ====== GROUP CASH FLOW STATEMENT (abridged and unaudited) Six months to Six months to Year to 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 Net cash inflow from operating activities Operating profit 10,234 8,207 19,208 Depreciation 3,376 2,489 5,340 Goodwill amortised 197 - 111 Other items - working capital and movements in provisions (5,494) (6,324) (11,249) ----------- ----------- --------- 8,313 4,372 13,410 ======= ======= ======= Returns on investments and servicing of finance Interest received/(paid) (461) (68) (376) Preference dividends paid (3) (2) (4) ----------- ----------- --------- Net cash outflow from returns on investments and servicing of finance (464) (70) (380) ======= ======= ======= Taxation paid (4,037) (3,088) (6,343) ======= ======= ======= Capital expenditure Purchase of tangible fixed assets (6,162) (3,310) (7,934) Sale of tangible fixed assets and current asset investments 91 1,160 1,535 ----------- ----------- --------- Net cash outflow from capital expenditure (6,071) (2,150) (6,399) ====== ====== ====== Acquisitions Purchase of businesses (17,048) - (6,345) Deferred consideration paid (636) (607) (607) Net cash balances on acquisition 10 - (253) ----------- ----------- --------- Net cash outflow from acquisitions (17,674) (607) (7,205) ====== ====== ====== Equity dividends paid (2,316) - (4,166) ====== ====== ====== Cash outflow before use of liquid resources and financing (22,249) (1,543) (11,083) ====== ====== ====== Net cash inflow from management of liquid resources 2,000 500 4,500 ====== ====== ====== Financing Issue of ordinary share capital 162 363 433 Increase in short term borrowings 15,337 615 6,508 ----------- ----------- --------- Net cash inflow from financing 15,499 978 6,941 ====== ====== ====== (Decrease)/Increase in cash in period (4,750) (65) 358 ====== ====== ====== NOTES TO GROUP RESULTS 1. The summarised results for the half year to 30 September 1999 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 1999. These and the comparative results for the half year to 30 September 1998 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. 2. SEGMENTAL INFORMATION Turnover by Geographical Area Six months to Six months to Year to 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 By destination: United Kingdom 30,212 29,915 66,129 Republic of Ireland 1,903 1,746 3,566 Other Europe 23,371 19,479 38,998 ---------- ---------- ---------- Total Europe 55,486 51,140 108,693 Americas 67,783 35,910 79,067 Asia 19,563 13,860 26,259 Rest of World 952 908 1,894 ---------- ---------- ---------- Total 143,784 101,818 215,913 ====== ====== ====== By source: United Kingdom 34,098 36,938 74,743 Republic of Ireland 22,572 15,698 36,449 Other Europe 1,430 1,417 2,413 ---------- ---------- ---------- Total Europe 58,100 54,053 113,604 Americas 69,090 38,027 83,833 Asia 28,982 20,187 43,109 ---------- ---------- ---------- 156,172 112,267 240,546 Less: Intra Group (12,388) (10,449) (24,633) ---------- ---------- ---------- Total 143,784 101,818 215,913 ====== ====== ====== Operating profit, profit before tax and net assets by geographical area and by type of business are not given as such disclosure is considered seriously prejudicial to the interests of the Group. All activity has arisen from continuing operations. 3. (i) Costs of a fundamental restructuring of continuing operations The costs of a fundamental restructuring of the continuing operations of the Group's UK power cord manufacturing activities amounted to £900,000 in 1998/99. The taxation treatment of these costs resulted in a reduction of £270,000. (ii) Profit on sale of a tangible fixed asset of continuing operations The profit on the sale of a factory in Ireland during 1998/99 amounted to £959,000. There was no tax on this exceptional item as the capital gains tax liability will be held over against the base cost of the new factory. 4. The figures for the year ended 31 March 1999 have been extracted from the statutory accounts which have been filed with the Registrar of Companies. The audit report was unqualified and did not contain any statement under section 237(2) and (3) of the Companies Act 1985. 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 1999 1998 1999 Pre-tax profit (before goodwill amortisation) 9,182 7,887 18,373 Taxation (2,875) (2,603) (6,026) --------- --------- --------- Profit for the financial year 6,307 5,284 12,347 Preference dividends (3) (2) (4) Minority interests (380) - (41) -------- -------- -------- Headline earnings 5,924 5,282 12,302 Goodwill amortisation (197) - (111) -------- -------- -------- Net profit for the financial year 5,727 5,282 12,191 ===== ===== ===== No. of shares No. of shares No. of shares For basic earnings per share 28,274,245 28,185,658 28,215,536 Exercise of share options 197,710 224,038 149,645 ------------- ------------- --------------- For diluted earnings per share 28,471,955 28,409,696 28,365,181 ========== ========== ========== Headline earnings per share (full) 21.0p 18.7p 43.6p Basic earnings per share (full) 20.3p 18.7p 43.2p Diluted earnings per share (full) 20.1p 18.6p 43.0p Headline earnings per share has been calculated on the basis of continuing activities before goodwill amortisation. The directors consider that this gives a better understanding of the Group's earnings following the change in the accounting treatment of goodwill. 7. CASH FLOW (i) Analyses of net debt 1 April Cash flow Exchange 30 September 1999 movement 1999 £'000 £'000 £'000 £'000 Cash at bank and in hand 9,416 (380) 170 9,206 Overdraft (2,025) (4,370) (246) (6,641) ------- (4,750) Loans (25,743) (15,337) 1,062 (40,018) Term deposits 2,000 (2,000) - - -------- -------- -------- -------- Net debt (16,352) (22,087) 986 (37,453) -------- -------- -------- -------- (ii) Reconciliation of net cash flow to movement in net debt Six months to Six months to Year to 30 September 30 September 31 March 1999 1998 1999 £'000 £'000 £'000 (Decrease)/Increase in cash in the period (4,750) (65) 358 Cash inflow from increase in debt and lease financing (15,337) (615) (6,508) Cash inflow from decrease in liquid resources (2,000) (500) (4,500) -------- ----------- ----------- Change in net debt resulting from cash flows (22,087) (1,180) (10,650) Translation difference 986 844 (126) ---------- ---------- ---------- Movement in net debt in the period (21,101) (336) (10,776) Net debt at beginning of year (16,352) (5,576) (5,576) ---------- ---------- ---------- Net debt at the end of the period (37,453) (5,912) (16,352) ====== ====== ====== 8. ACQUISITIONS On 10 May 1999, the Company completed the acquisition of the assets and business of the power cord division of Belden Inc. for an initial cash consideration of US$25m. A further cash payment, based on the seller's net book value of the acquired assets, brought the total consideration to US$27.4m (£16.7m). On 15 June 1999, the Company completed the acquisition of the cable assembly company Stocko Electronics India Pvt Ltd, subsequently renamed Volex Interconnect India Pvt Ltd. The results, net assets and cash flows for this company in the period are not material. The aggregate book values of the assets and liabilities acquired, their fair value to the group and the resultant goodwill was as follows:- Book and fair value to the Group Total £'000 Tangible fixed assets 7,353 Intangible fixed assets 34 Stocks 7,757 Debtors and Prepayments 4,967 Cash 10 -------- Total Assets 20,121 Liabilities and Accruals (3,372) -------- Net Assets 16,749 ===== Fair value adjustment: Accounting policy alignment - stocks (1,160) ===== Fair value of net assets 15,589 Goodwill 1,459 --------- 17,048 ===== Satisfied by: Cash 16,778 Acquisition costs 270 -------- 17,048 ===== Exchange rates used: 10 May 1999: £1 : US Dollar $1.635 15 June 1999: £1 : SG Dollar $2.75 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.

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