Interim Results

Volex Group PLC 12 November 2007 12 November 2007 VOLEX GROUP plc Half-yearly results for the 26 weeks ended 30 September 2007 Volex Group plc, the global electrical and electronic cable assembly group, today announces its unaudited half-yearly results for the 26 weeks ended 30 September 2007. First Half Highlights: • Restructuring programme on track and nearing conclusion. • Cost reductions from restructuring will benefit second half by £2.1m (annualised £4.2m). • Acceleration of revenue growth during first half; sequential growth from second half last year of 4.4% (8.7% in local currency terms). • Progress and outlook is in line with the Board's expectations. • Power Products - continued strong growth in revenues and profit further extending market leadership against small competitors. • Interconnect - focus on technologies yielding strong new business pipeline of Radio Frequency and High Speed opportunities; conversion to revenue expected in second half. • Wiring Harness - restructuring reaching conclusion; cost reductions mostly completed and expected to emerge profitably during second half. Financial Summary: • Revenue was £126.3m (2006: £127.7m); in local currency terms, revenue increased 4.4%. • Operating profit of £4.6m (2006: £5.0m)(1) after incurring additional restructuring related operating costs of £1.6m. • Adjusted(1) pre tax profit of £3.3m (2006: £3.4m); reported pre tax profit of £2.8m (2006: £4.5m). • Adjusted earnings per share of 4.1p (2006: 3.9p). • Basic earnings per share of 3.3p (2006: 5.9p). • Cash utilised by operations: Before major restructuring programme was £4.2m (2006: generated £2.2m) After major restructuring programme was £6.3m (2006: generated £0.8m) Temporary inventory for restructuring (£3.5m) and accelerating growth in the first half drove increases in working capital • Net borrowings at 30 September 2007 were £17.5m (2006: £13.7m) and gearing was 63.4% (2006: 50.4%). (1) Operating profit after share based payment charge of £0.5m (2006: £nil) and major restructuring credit of £nil (2006: £1.1m) was £4.1m (2006: £6.1m). The Chairman of Volex, Richard Arkle, commented: 'We are pleased with the progress made in the first half which is in line with the Board's expectations. We are reaching the conclusion of the restructuring programme and are looking forward to realising the strategic benefits and performance improvements in the years ahead.' Ends For further information please contact: Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101 Richard Arkle, Chairman Heejae Chae, Group Chief Executive Ian Degnan, Group Finance Director Weber Shandwick Financial 020 7067 0700 Terry Garrett Nick Dibden James White INTERIM MANAGEMENT REPORT 26 Weeks ended 30 September 2007 Revenue for the first six months of the year decreased 1.1% to £126.3m (2006: £127.7m), although in local currency terms, sales grew by 4.4%. On a sequential basis, relative to the second half of last year, revenues increased 4.4% (8.7% in local currency terms). The operating profit of £4.6m for the first half was in line with the Board's expectations and was after incurring additional restructuring related operating costs of £1.6m. Operating profit, compared with the first half of 2006, was £0.4m lower reflecting the increased operating costs associated with the restructuring of the Wiring Harness division and increase in new product development costs in the Interconnect division. Power Products The Power Products division's performance was strong in terms of both revenue and profit. Revenue grew 2.8% (11.2% in local currency terms) from the first half of last year further extending our market leadership. We have experienced growth across all segments of the business, in particular personal computers and peripherals. We are positive on prospects for further growth and are seeing firm opportunities from Apple (iPhone) and Dell. We are seeing that many smaller competitors are struggling to cope with rising costs and working capital requirements. Return on sales improved from 5.5% last year to 7.3%, despite difficult competitive and commodity environments. The volume increase and purchasing leverage, along with pass through to customers of copper price increases, contributed to the improvement in margin. Interconnect The Interconnect division reported an 8.4% decline in sales compared with the first half of last year. This was, as previously reported, primarily due to the rationalisation of the customer base. We achieved growth of 4.0% relative to the second half of last year in local currency terms reflecting the benefit of the build-up of the new business pipeline. The strength of the pipeline we have developed and the depth and quality of this new business, reflect the success of our strategy. We are focused on technology specific opportunities with existing key customers to achieve higher margin at lower acquisition cost. Our developments within Radio Frequency and High Speed technologies have expanded our ability to engage our customers across their entire business and technology roadmap. We have further cemented our position with key customers by extending our Preferred Supplier status to eight of our top ten customers. The Preferred Supplier status allows us to participate in new programmes and technologies. Our new technical competencies and, in turn, new Preferred status, enable us to build the pipeline of new business further. The operating margin for the division was impacted by the increase in new product development costs including additional engineering resources. Additionally, we incurred £0.7m in one-off operating costs for the transfer of production from Croatia to Poland. This transfer is now complete and we expect operating costs to reduce during the second half. Wiring Harness The Wiring Harness division achieved sales growth of 4.3% whilst undertaking its restructuring programme. During the first half of the year, it transferred a significant proportion of its UK operations to Croatia. The Group took a £3.0m restructuring charge last year related to redundancies and other costs. The division also incurred £0.9m in additional operating costs during the first half to ensure continuity of high customer service levels during the restructuring. We expect to achieve £2.8m in annualised cost savings as a result of the restructuring and expect to emerge profitably during the second half of this financial year. We also expect to see the benefit of increasing revenues from new business wins, in particular from Rolls Royce. Financial Review Operating profit for the period was £4.6m, £0.4m lower than in the first half of 2006 (excluding the major restructuring credit in 2006 and share based payment charges). There were no charges or credits for major restructuring items in the first half of this financial year. The existing share incentive programmes, previously reported, impacted the results by £0.5m. The net interest charge reduced by £0.4m to £1.3m, mainly as a result of £0.3m lower amortisation of debt issue costs following the refinancing that was carried out in the second half of 2006. Adjusted pre-tax profits were £3.3m (2006: £3.4m) after adjusting for share based payment charges and the 2006 major restructuring credit. Reported pre-tax profits were £2.8m (2006: £4.5m). The tax charge reduced by £0.2m to £1.0m. Adjusted earnings per share for the period were 5% higher than last year at 4.1p, (2006: 3.9p) and basic earnings per share were 3.3p (2006: 5.9p). Capital expenditure at £0.7m was £0.9m lower than 2006. Last year capital expenditure was high due to the expansion of a facility in China. Net debt was £17.5m compared with £13.7m at 1 October 2006 and £9.6m at 1 April 2007. Gearing was 63.4%, compared with 50.4% at 1 October 2006. Cash utilised by operations in the first half of 2007 was £6.3m after a net outflow on working capital of £9.6m and £2.1m spend on the major restructuring programme that was provided for in 2006. £3.5m of the working capital increase is due to temporary increases arising from the restructuring, the remainder is due to accelerating revenue growth during the first half. The impact of changes in exchange rates compared to 2006 is that operating profit would have been £0.2m higher. The main exchange rate movement that has affected the results is the US Dollar to £ Sterling with an average rate of $2.00 in the first half of this year compared to an average of $1.85 in the first half of last year. If the US Dollar remains at its current levels then we might expect a similar profit impact in the second half of this financial year. The Board has not declared an interim dividend. Current Trading and Prospects With the conclusion of the restructuring programme we outlined two years ago, we are now fully devoting our energy and resources to executing our strategy for growth and profitability. We have already begun to see positive results and are confident that we can deliver the Board's expectations for the current financial year. We expect that the Power Products division will continue its strong performance for the remainder of the year albeit we remain cautious of the current economic uncertainties and rising commodity prices, in particular copper which forms a significant part of Power Products' materials in the form of cable. In the Interconnect division, we are pleased that the pipeline of new business is driven by our focus on Radio Frequency and High Speed technologies. We are currently working on an increased volume of new product introductions as the first stage of converting the strong new business pipeline to revenue. The level of revenue growth will partially depend on the strength of our customers in the telecom sector who are currently facing a challenging environment. The Wiring Harness division should emerge profitably as the expected benefits of the lower cost base are achieved during the second half. Heejae Chae Ian Degnan Group Chief Executive Group Finance Director 12 November 2007 12 November 2007 STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm that to the best of their knowledge: a) the set of financial statements has been prepared in accordance with IAS 34; b) the interim management report includes a fair review of the information required in DTR 4.2.7R (indication of important events that have occurred during the first six months of the financial year and description of the principal risks and uncertainties for the remaining six months of the year); and c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein). By Order of the Board Heejae Chae Ian Degnan Group Chief Executive Group Finance Director 12 November 2007 12 November 2007 Unaudited consolidated income statement For the 26 weeks ended 30 September 2007 (1 October 2006) 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 Continuing operations Note £'000 £'000 £'000 _____________________________________________________________________________ Revenue 2 126,303 127,739 248,725 _____________________________________________________________________________ Operating profit 2 4,140 6,142 7,269 Analysed as: __________________________________ Operating profit before share based payment and major restructuring programme charge/(credit) 4,611 5,046 9,642 Share based payments charge (471) (21) (379) Major restructuring programme credit/(charge) 3 - 1,117 (1,994) __________________________________ Operating profit 4,140 6,142 7,269 Investment income 153 97 193 Finance costs __________________________________ - interest on bank debt and other liabilities (983) (1,006) (2,004) - interest on retirement benefit obligations and provisions (211) (221) (283) - amortisation of debt issue costs (260) (538) (896) - write-off of unamortised debt issue costs - - (1,463) __________________________________ (1,454) (1,765) (4,646) _____________________________________________________________________________ Profit on ordinary activities before taxation 2,839 4,474 2,816 Taxation 4 (975) (1,175) (1,950) _____________________________________________________________________________ Profit on ordinary activities after taxation, being retained profit for the period 1,864 3,299 866 _____________________________________________________________________________ Earnings per share* Basic and diluted 5 3.3p 5.9p 1.5p _____________________________________________________________________________ * The earnings per share before the major restructuring programme and share based payment charges/(credit) and the write-off of unamortised debt issue costs for each period is shown in note 5. Unaudited consolidated statement of recognised income and expense For the 26 weeks ended 30 September 2007 (1 October 2006) 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 £'000 £'000 £'000 Exchange differences on translation of foreign operations (741) (2,213) (2,841) Actuarial gains on defined benefit pension schemes - - 335 _____________________________________________________________________________ Net expense recognised directly in equity (741) (2,213) (2,506) Profit for the period 1,864 3,299 866 _____________________________________________________________________________ Total recognised net income/(expense) for the period 1,123 1,086 (1,640) _____________________________________________________________________________ Unaudited consolidated balance sheet 30 September 2007 (1 October 2006) 30 September 1 October 1 April 2007 2006 2007 Note £'000 £'000 £'000 _____________________________________________________________________________ Non-current assets Goodwill 1,930 1,930 1,930 Other intangible assets 180 138 82 Property, plant and equipment 8,380 10,263 9,191 Deferred tax asset 190 236 347 _____________________________________________________________________________ 10,680 12,567 11,550 _____________________________________________________________________________ Current assets Inventories 39,118 34,572 32,107 Trade and other receivables 57,806 56,314 50,866 Current tax assets 431 702 968 Cash and cash equivalents 7 5,710 8,414 12,235 _____________________________________________________________________________ 103,065 100,002 96,176 _____________________________________________________________________________ Total assets 113,745 112,569 107,726 _____________________________________________________________________________ Current liabilities Obligations under finance leases 7 52 86 56 Trade and other payables 49,896 49,093 44,593 Current tax liabilities 3,753 2,765 3,817 Retirement benefit obligation 395 380 378 Provisions 2,428 2,962 3,914 Liability for share based payment 336 83 129 _____________________________________________________________________________ 56,860 55,369 52,887 _____________________________________________________________________________ Net current assets 46,205 44,633 43,289 _____________________________________________________________________________ Non-current liabilities Bank overdrafts and loans 7 23,162 21,975 21,722 Obligations under finance leases 7 10 67 40 Retirement benefit obligation 2,158 2,845 2,458 Deferred tax liabilities 262 501 209 Long-term provisions 3,550 4,360 4,013 Non-equity preference shares 80 80 80 Liability for share based payment 44 148 258 _____________________________________________________________________________ 29,266 29,976 28,780 _____________________________________________________________________________ Total liabilities 86,126 85,345 81,667 _____________________________________________________________________________ Net assets 27,619 27,224 26,059 _____________________________________________________________________________ Equity attributable to equity holders of the parent Share capital 6 14,205 13,888 14,158 Share premium account 6 1,357 168 1,219 Translation reserve 6 (1,761) (392) (1,020) Retained earnings 6 13,818 13,560 11,702 _____________________________________________________________________________ Total equity 6 27,619 27,224 26,059 _____________________________________________________________________________ Unaudited consolidated cash flow statement For the 26 weeks ended 30 September 2007 (1 October 2006) 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 Note £'000 £'000 £'000 _____________________________________________________________________________ Operating profit from continuing operations 4,140 6,142 7,269 Adjustments for: Depreciation and impairment of property, plant and equipment 1,325 1,681 2,822 Amortisation of intangible assets 41 63 122 Loss/(gain) on disposal of property, plant and equipment 30 (1,087) (1,198) Share option expense 299 43 283 Decrease in provisions (2,481) (1,717) (1,130) _____________________________________________________________________________ Operating cash flows before movements in working capital 3,354 5,125 8,168 __________________________________ Increase in inventories (7,502) (6,194) (4,431) Increase in receivables (7,712) (6,643) (2,318) Increase in payables 5,572 8,529 5,219 __________________________________ Increase in working capital (9,642) (4,308) (1,530) _____________________________________________________________________________ Cash (utilised)/generated by operations (6,288) 817 6,638 Analysed as: __________________________________ (Utilised)/generated before major restructuring programme (4,168) 2,169 10,715 Utilised by major restructuring programme (2,120) (1,352) (4,077) __________________________________ Cash (utilised)/generated by operations (6,288) 817 6,638 Income taxes paid (236) (486) (797) Interest received 153 97 193 Interest paid (622) (989) (1,984) _____________________________________________________________________________ Net cash (outflow)/inflow from operating activities (6,993) (561) 4,050 Cash flows from investing activities __________________________________ Proceeds on disposal of property, plant and equipment 10 1,491 1,933 Purchases of property, plant and equipment (705) (1,555) (2,198) Purchases of intangible assets (101) (62) (70) __________________________________ Net cash used in investing activities (796) (126) (335) _____________________________________________________________________________ Cash flows before financing activities (7,789) (687) 3,715 Analysed as: __________________________________ (Utilised)/generated before major restructuring programme (5,669) (821) 5,893 (Utilised)/generated by major restructuring programme (2,120) 134 (2,178) __________________________________ Cash flows before financing activities (7,789) (687) 3,715 Cash flows from financing activities __________________________________ Proceeds on issue of shares 6 138 - 1,321 Repayment of borrowings 7 (3,852) (1,689) (25,519) Advances of borrowings 7 4,978 - 23,322 Refinancing costs paid 7 (63) (208) (1,399) (Decrease)/increase in bank overdrafts 7 (30) 35 30 Repayments of obligations under finance leases 7 (30) (77) (114) __________________________________ Net cash from/(used in) financing activities 1,141 (1,939) (2,359) _____________________________________________________________________________ Net (decrease)/increase in cash (6,648) (2,626) 1,356 and cash equivalents Cash and cash equivalents at beginning of period 7 12,235 11,646 11,646 Effect of foreign exchange rate changes 123 (606) (767) _____________________________________________________________________________ Cash and cash equivalents at end of period 7 5,710 8,414 12,235 _____________________________________________________________________________ Notes to the interim statements 1. Basis of preparation These interim financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the EU. The financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards as adopted for use in the European Union ('IFRS') and which are consistent with those disclosed in the annual report and accounts for the 52 weeks ended 1 April 2007. In the current financial year, the Group will adopt IFRS 7, 'Financial Instruments: Disclosures' for the first time. This is a disclosure standard and as such there is no impact on the adoption of this standard on the accounting policies applied in these interim financial statements. The financial information presented for the 26 weeks ended 1 October 2006 and 30 September 2007 has not been reviewed by the auditors. The financial information for the 52 weeks ended 1 April 2007 is extracted and abridged from the Group's full accounts for that year. The statutory accounts for the 52 weeks ended 1 April 2007 have been filed with the Registrar of Companies for England and Wales and have been reported on by 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 (as amended). The interim report was approved by the Board of Directors on 9 November 2007. The announcement is being sent to shareholders. Copies of this report and the annual report for the financial year ended 1 April 2007 are available at the Company's registered office at Dornoch House, Birchwood Science Park, Kelvin Close, Warrington, WA3 7JX and can also be downloaded or viewed via the Group's website at www.volex.com. 2. Business and geographical segments Business segments For management purposes, the Group is organised into three operating divisions - Power Products, Interconnect and Wiring Harness. These classifications are based upon the nature of the products which they supply. These divisions are the basis on which the Group reports its primary segment information. 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 Revenue £'000 £'000 £'000 _____________________________________________________________________________ Power Products 65,932 64,125 123,299 Interconnect 43,272 47,218 91,285 Wiring Harness 17,099 16,396 34,141 _____________________________________________________________________________ 126,303 127,739 248,725 _____________________________________________________________________________ Operating profit Power Products 4,815 3,513 6,157 Interconnect 497 2,508 4,642 Wiring Harness (1,172) 121 (3,530) _____________________________________________________________________________ 4,140 6,142 7,269 Finance costs, net (1,301) (1,668) (4,453) _____________________________________________________________________________ Profit before tax 2,839 4,474 2,816 Tax (975) (1,175) (1,950) _____________________________________________________________________________ Profit from continuing operations 1,864 3,299 866 _____________________________________________________________________________ 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 External revenue by market sector £'000 £'000 £'000 _____________________________________________________________________________ Consumer Products 63,533 57,708 112,745 Data, Telecommunications and Medical 41,603 45,633 86,138 Industrial, Aerospace and Vehicle 21,167 24,398 49,842 _____________________________________________________________________________ 126,303 127,739 248,725 _____________________________________________________________________________ Geographical segments External revenue by source External revenue by destination 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks to to to to to to 30 September 1 October 1 April 30 September 1 October 1 April 2007 2006 2007 2007 2006 2007 £'000 £'000 £'000 £'000 £'000 £'000 ___________________________________________________________________________________________________ Asia and South America 75,292 55,485 122,772 51,734 47,242 91,417 North America 17,003 34,097 49,234 25,870 32,550 59,853 United Kingdom 4,017 16,396 34,141 16,968 16,937 33,690 Other Europe 29,991 21,761 42,578 31,731 31,010 63,765 ___________________________________________________________________________________________________ 126,303 127,739 248,725 126,303 127,739 248,725 ___________________________________________________________________________________________________ 3. Major restructuring programme (credit)/charge 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 £'000 £'000 £'000 _____________________________________________________________________________ Property provisions - - 202 Closure of manufacturing facilities - - 3,007 Profit on sale of properties - (1,117) (1,215) _____________________________________________________________________________ - (1,117) 1,994 _____________________________________________________________________________ 4. Tax charge The Group tax charge for the period is based on the forecast tax charge for the year as a whole and has been influenced by the differing tax rates in the UK and the various overseas countries in which the Group operates. 5. Earnings per share The calculations of the earnings per share are based on the following data: 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2007 2006 2007 Earnings £'000 £'000 £'000 _____________________________________________________________________________ Basic earnings 1,864 3,299 866 Adjustments for: Share based payments charge 471 21 379 Major restructuring programme (credit)/ charge - (1,117) 1,994 Write-off of unamortised debt issue costs - - 1,463 _____________________________________________________________________________ Adjusted earnings 2,335 2,203 4,702 _____________________________________________________________________________ Weighted average number of ordinary shares No. shares No. shares No. shares _____________________________________________________________________________ For the purpose of basic EPS 56,739,021 55,551,699 55,941,189 Effect of dilutive potential ordinary shares - share options - 41,373 96,093 _____________________________________________________________________________ For the purpose of diluted EPS 56,739,021 55,593,072 56,037,282 _____________________________________________________________________________ Basic earnings per share Pence Pence Pence _____________________________________________________________________________ Basic earnings per share 3.3 5.9 1.5 Adjustments for: Share based payments charge 0.8 - 0.7 Major restructuring programme (credit)/ charge - (2.0) 3.6 Write-off of unamortised debt issue costs - - 2.6 _____________________________________________________________________________ Adjusted basic earnings per share 4.1 3.9 8.4 _____________________________________________________________________________ Diluted earnings per share _____________________________________________________________________________ Diluted earnings per share 3.3 5.9 1.5 Adjustments for: Share based payments charge 0.8 - 0.7 Major restructuring programme (credit)/ charge - (2.0) 3.6 Write-off of unamortised debt issue costs - - 2.6 _____________________________________________________________________________ Adjusted diluted earnings per share 4.1 3.9 8.4 _____________________________________________________________________________ Basic earnings represent net profit attributable to equity holders of the Company. The adjusted earnings per share has been calculated on the basis of continuing activities before major restructuring programme and share based payment charges/ (credit) and write-off of unamortised debt issue costs, net of tax. The Directors consider that this earnings per share calculation gives a better understanding of the Group's earnings per share in the periods presented. 6. Statement of changes in shareholders' equity Share Share Translation Retained Total capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000 _____________________________________________________________________________ Balance at 1 April 2007 14,158 1,219 (1,020) 11,702 26,059 Net profit for the period - - - 1,864 1,864 Net proceeds from issue of equity shares 47 91 - - 138 Reserve transfer on exercise of warrants - 47 - (47) - Reserves entry for share option charges - - - 299 299 Exchange differences on translation of foreign operations - - (741) - (741) _____________________________________________________________________________ Balance at 30 September 2007 14,205 1,357 (1,761) 13,818 27,619 _____________________________________________________________________________ During the period 187,782 shares were issued on the exercise of the remaining outstanding warrants for proceeds of £138,000. 7. Analysis of net debt Other non 1 April Exchange cash 30 September 2007 Cash flow movement changes 2007 £'000 £'000 £'000 £'000 £'000 _____________________________________________________________________________ Cash at bank and in hand 12,235 (6,648) 123 - 5,710 Overdraft (30) 30 - - - Debt due after one year (22,819) (1,126) (83) - (24,028) Finance leases (96) 30 4 - (62) Debt issue costs 1,127 63 - (324) 866 _____________________________________________________________________________ Net debt (9,583) (7,651) 44 (324) (17,514) _____________________________________________________________________________ Non-cash changes include amortisation of debt issue costs of £260,000 and a movement in debt issue costs accrual of £64,000. This information is provided by RNS The company news service from the London Stock Exchange

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