Interim Results
Volex Group PLC
08 November 2006
Embargoed until 7.00am 8 November 2006
VOLEX GROUP plc
Interim results for the 26 weeks ended 1 October 2006
Volex Group plc, the global electrical and electronic cable assembly group,
today announces its unaudited interim results for the 26 weeks ended 1 October
2006.
Financial Highlights:
• Sales increased by 3.1% to £127.7m (2005: £123.9m)
• Operating profit of £6.1m including £1.1m gain on sale of property
(2005: loss £0.3m after charging £1.7m restructuring charges): underlying
operating profit increased to £5.0m (2005: £1.4m)
• Sale of Butts Mill, Leigh, for £1.5m cash proceeds
• Basic earnings per share 5.9p (2005: loss 7.4p)
• Basic earnings per share excluding major restructuring programme,
increased to 3.9p (2005: loss 3.3p)
• Net borrowings £13.7m (2005: £17.5m) and gearing 50.4% (2005: 58.6%)
• LTIP approved at AGM with management to subscribe c. £0.8m of own funds
for new shares
The Chairman of Volex, Richard Arkle, commented:
'I am pleased to report that this is the third consecutive half of growth in
sales and operating profit and it is clear that we are beginning to capture the
full benefits of the restructuring that has been implemented over the last two
years.
In summary, we are aiming to provide better returns to our shareholders by
positioning Volex to maximise the opportunities and minimise the risks. We
believe that our improved customer value proposition coupled with a
significantly lower cost base should improve our competitive advantage and
provide us with the platform to deliver incremental revenues and profitability.'
For further information please contact:
Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101
Heejae Chae, Group Chief Executive
Derek Walter, Group Finance Director
Weber Shandwick Square Mile 020 7067 0700
Chris Lynch / Nick Dibden
CHAIRMAN'S STATEMENT
Revenues for the first six months of the year increased 3.1% to £127.7m,
compared with £123.9m in the comparable period. Adjusting for £1.4m of adverse
foreign exchange movements, sales grew by 4.2% in local currency terms. The
Group generated a substantially higher operating profit of £5.0m compared with
£1.4m in the first half of last year (excluding the major restructuring credit/
charge) despite increases in material costs, in particular the price of copper
which reached an all time high.
This is the third consecutive half of growth in sales and operating profit and
it is clear that we are beginning to capture the full benefits of the
restructuring effort. We have accelerated the timing of closures within our
original three year restructuring programme and in the second half of this year
we will be closing a further three facilities as well as continuing to downsize
some other operations.
Net debt was £13.7m at the half year with gearing reduced to 50%, compared with
59% at October 2005.
The Powercord division of the Group continues to perform strongly with its focus
on next generation and application specific products and grew its sales by 15%
from the first half of last year. As innovation continues in consumer products
and with the recent focus on 'cost of failure' from power sources, the Powercord
division has benefited from its reputation for reliability and quality. However,
the continued rise in commodity prices has impacted margins and we are in
constant discussion with our customers to pass on these cost increases. We have
expanded our facility at Heng Gang in southwest China and are consolidating some
of the other facilities and functions there to leverage the lower labour cost
and economies of scale.
The Interconnect division (formerly known as Infocom) reported a 9% reduction in
sales this half partly as a result of the customer base rationalisation that
occurred last year in North America. The focus on profitability is reflected in
the improved margins and an increase in operating profit to £2.5m (2005: £0.3m
profit - excluding restructuring charges) on lower revenue. We believe that we
have a clear market and sales focus and strategy to leverage our core
competencies. We are already seeing the impact as we make gains, particularly in
the medical and communication equipment markets. We continue to leverage our
'Preferred Supplier' status with our key customers to grow market share and we
have made significant investments in engineering, sales and supply chain
resources to strengthen our competencies further and provide a one-stop total
system solution for our customers. We have also made good progress in the
transfer of production from North America to China thereby reducing our cost
base.
The Wiring Harness division showed modest sales growth but continues to struggle
with its cost base. We are currently restructuring the business by shifting its
operation to lower cost areas and we expect that we will complete the transition
during FY2007/8. We believe that once we have completed this restructuring, the
Wiring Harness division will contribute both revenue and profit to the Group.
The defence, aerospace and construction equipment markets are growing and
attractive and we believe that our brand and excellent reputation will enable us
to be a significant player in these segments. We recognise that the changes we
are undergoing are challenging and costly but they are necessary in order to
generate positive returns.
Financial Review
There were no significant changes in the average exchange rates compared with
the first six months of last year. Sales would have been £1.4m higher and
operating profits £0.1m higher in the current period had the first half 2005
average exchange rates applied.
Operating profit excluding major restructuring credits and charges, increased
from £1.4m to £5.0m and the return on sales improved to 3.9% but management
recognises that this is still far from satisfactory. Both the Powercord and
Interconnect divisions continued to improve their trading performances from
fiscal 2006, reflecting the benefits of the extensive restructuring programmes
but the performance of the Wiring Harness division (excluding the profit from
the sale of Butts Mill, Leigh) continued to disappoint and we expect to be
taking an additional restructuring charge in the second half of this year of up
to £3m.
The total interest charge was unchanged at £1.7m: the Group is paying lower bank
interest as it benefits from lower debt levels but is having to amortise higher
refinancing costs and accrue interest on restructuring provisions and the
(decreasing) pension fund deficit.
Reported pre tax profits were £4.5m (2005: loss £2.0m); excluding restructuring
items, pre tax profits were £3.4m against a loss of £0.3m in the first half and
a profit of £2.2m in the second half of last year.
The tax charge in the first half of the year was £1.2m, unchanged in total from
the comparable period which included a £0.2m non-recurring tax charge. Despite
the increase in profits, we are expecting to be able to utilise some losses.
After adjusting to exclude the major restructuring items, earnings per share
this half year were 3.9p, up from 2.3p in the second half and a loss of 3.3p in
the first half of last year.
Net debt at 1 October 2006 was £13.7m compared with £13.3m at 2 April 2006 and
£17.5m at 2 October 2005. Cash generated by operations in the first half was
£0.8m after a net working capital outflow of £4.3m and £1.4m spend on the
restructuring programme. Stocks increased by £6.2m, partly due to a build up of
buffer stocks for the facilities' closures in the second half of the year and
debtors increased by £6.6m; however, there was a partially compensating inflow
of £8.5m from higher creditors. The sale of Butts Mill, Leigh, generated £1.5m
proceeds, which virtually offset the capital expenditure in the first half of
the year. The main element of the capital expenditure was the expansion at Heng
Gang, which accounted for £0.9m.
The Board has not declared an Interim dividend.
Long Term Incentive Plan (LTIP)
In conjunction with the changes in the Group, the shareholders approved the LTIP
at the AGM on 28 September 2006, which will provide significant rewards for
significant improvements in the Group's performance. As part of the LTIP, the
management team will contribute some £0.8m in cash of their own personal capital
into the Group by subscribing for a new issue of shares at market price. As a
non executive director I am not entitled to participate in the LTIP but as part
of my commitment to the Group, I will be subscribing for 100,000 shares at the
same time and price. This injection of capital reflects our commitment to the
Group's strategy and our belief in the future prospects for the Group as well as
aligning our interests with those of the shareholders.
Current Trading and Prospects
We are continuing to execute our strategy for growth and profitability. Trading
continues overall to be in line with expectations. We expect that Powercord will
continue to be strong albeit we remain cautious against the backdrop of the
economic slowdown in the US. Commodity prices remain a challenge to the business
as the prices continue at their very high levels. In our Interconnect division
we expect to show modest growth as we continue to realign the organisation with
increased customer engineering and sales focus. The Wiring Harness division
should emerge profitably when the restructuring is completed in FY2008.
We are very pleased to announce that Ian Degnan will be appointed Group Finance
Director with effect from 16 December 2006 to succeed Derek Walter. Ian is a
chartered accountant and until recently was employed by Exel as Chief Financial
Officer Europe, Global Forwarding Division and prior to that was Finance
Director for various divisions of that group. There is no further relevant
information to disclose under Listing Rule 9.6.13 in relation to Ian's
appointment.
In summary we are aiming to provide better returns to our shareholders by
positioning Volex to maximise the opportunities and minimise the risks. We
believe that our improved customer value proposition coupled with a
significantly lower cost base should improve our competitive advantage and
provide us with the platform to deliver incremental revenues and profitability.
Richard Arkle
Chairman
8 November 2006
Unaudited consolidated income statement
For the 26 weeks ended 1 October 2006 (2 October 2005)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
Continuing operations Note £'000 £'000 £'000
_______________________________________________________________________________
Revenue 3 127,739 123,897 250,378
_______________________________________________________________________________
Operating profit/(loss) 3 6,142 (328) (3,269)
Analysed as:
________________________________________
Operating profit before
major restructuring programme
credit/(charge) 5,025 1,436 5,329
Major restructuring programme
credit/(charge) 4 1,117 (1,764) (8,598)
________________________________________
Operating profit/(loss) 6,142 (328) (3,269)
Finance costs
________________________________________
- interest on bank debt (909) (1,317) (2,339)
- interest on retirement
benefit obligations and
provisions (221) (100) (311)
- amortisation of debt issue
costs (538) (252) (739)
________________________________________
(1,668) (1,669) (3,389)
_______________________________________________________________________________
Profit/(loss) on ordinary
activities before taxation 4,474 (1,997) (6,658)
Taxation 5 (1,175) (1,179) (2,448)
_______________________________________________________________________________
Profit/(loss) on ordinary
activities after taxation, being
retained profit/(loss) for the
period 3,299 (3,176) (9,106)
_______________________________________________________________________________
Earnings/(loss) per share*
Basic and Diluted 6 5.9p (7.4)p (18.5)p
* The loss per share before the costs of the major restructuring programme for
each period is shown in Note 6
Unaudited consolidated statement of recognised income and expense
For the 26 weeks ended 1 October 2006 (2 October 2005)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
£'000 £'000 £'000
Exchange differences on translation
of foreign operations (2,213) 107 1,555
Actuarial gains on defined benefit
pension schemes - - 379
_______________________________________________________________________________
Net (expense)/income recognised
directly in equity (2,213) 107 1,934
Profit/(loss) for the period 3,299 (3,176) (9,106)
_______________________________________________________________________________
Total recognised net income/(expense)
for the period 1,086 (3,069) (7,172)
Adjustment on the first time adoption
of IAS 32 and 39 - - (80)
_______________________________________________________________________________
Total recognised net income/(expense)
since prior year balance sheet 1,086 (3,069) (7,252)
_______________________________________________________________________________
Unaudited consolidated balance sheet
1 October 2006 (2 October 2005)
1 October 2 October 2 April
2006 2005 2006
Note £'000 £'000 £'000
_______________________________________________________________________________
Non-current assets
Goodwill 1,930 1,930 1,930
Other intangible assets 138 136 148
Property, plant and equipment 10,263 13,221 11,515
Deferred tax asset 236 - 244
_______________________________________________________________________________
12,567 15,287 13,837
_______________________________________________________________________________
Current assets
Inventories 34,572 30,679 30,274
Trade and other receivables 56,314 55,246 52,825
Current tax assets 702 - 1,087
Cash and cash equivalents 8 8,414 9,442 11,646
_______________________________________________________________________________
100,002 95,367 95,832
_______________________________________________________________________________
Total assets 112,569 110,654 109,669
_______________________________________________________________________________
Current liabilities
Obligations under finance leases 8 86 97 124
Trade and other payables 49,093 42,811 42,685
Current tax liabilities 2,765 2,340 2,580
Retirement benefit obligation 380 357 357
Provisions 2,962 700 3,996
Liability for share based payment 83 27 95
_______________________________________________________________________________
55,369 46,332 49,837
_______________________________________________________________________________
Net current assets 44,633 49,035 45,995
_______________________________________________________________________________
Non-current liabilities
Bank overdrafts and loans 8 21,975 26,808 24,690
Obligations under finance leases 8 67 37 106
Retirement benefit obligation 2,845 3,479 3,154
Deferred tax liabilities 501 133 537
Long-term provisions 4,360 3,900 4,983
Non-equity preference shares 80 80 80
Liability for share based payment 148 13 187
_______________________________________________________________________________
29,976 34,450 33,737
_______________________________________________________________________________
Total liabilities 85,345 80,782 83,574
_______________________________________________________________________________
Net assets 27,224 29,872 26,095
_______________________________________________________________________________
Equity attributable to equity
holders of the parent
Share capital 7 13,888 13,848 13,888
Share premium account 7 168 32,110 168
Translation reserve 7 (392) 373 1,821
Retained earnings 7 13,560 (16,459) 10,218
_______________________________________________________________________________
Total equity 7 27,224 29,872 26,095
_______________________________________________________________________________
Unaudited consolidated cash flow statement
For the 26 weeks ended 1 October 2006 (2 October 2005)
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
Note £'000 £'000 £'000
_______________________________________________________________________________
Operating profit/(loss) from
continuing operations 6,142 (328) (3,269)
Adjustments for:
Depreciation and impairment of
property, plant and equipment 1,681 1,932 5,365
Amortisation of intangible
assets 63 61 79
(Gain)/loss on disposal of
property, plant and equipment (1,087) (9) 133
Share option expense 43 82 350
(Decrease)/increase in provisions (1,717) 488 4,411
_______________________________________________________________________________
Operating cash flows before
movements in working capital 5,125 2,226 7,069
________________________________________
Increase in inventories (6,194) (1,493) (46)
(Increase)/decrease in receivables (6,643) (2,899) 1,469
Increase in payables 8,529 4,296 3,216
________________________________________
(Increase)/decrease in working
capital (4,308) (96) 4,639
_______________________________________________________________________________
Cash generated by operations 817 2,130 11,708
Analysed as:
________________________________________
Generated before major
restructuring programme 2,169 3,244 13,249
Utilised by major restructuring
programme (1,352) (1,114) (1,541)
________________________________________
Cash generated by operations 817 2,130 11,708
Income taxes paid (486) (2,267) (4,359)
Interest received 97 77 111
Interest paid (989) (1,438) (2,639)
_______________________________________________________________________________
Net cash (outflow)/inflow from
operating activities (561) (1,498) 4,821
Cash flows from investing
activities
________________________________________
Proceeds on disposal of property,
plant and equipment 1,491 25 29
Purchases of property, plant
and equipment (1,555) (1,110) (2,252)
Purchases of intangible assets (62) (21) (100)
________________________________________
Net cash used in investing
activities (126) (1,106) (2,323)
_______________________________________________________________________________
Cash flows before financing
activities (687) (2,604) 2,498
Analysed as:
________________________________________
(Utilised)/generated before
major restructuring programme (821) (1,490) 4,039
Generated/(utilised) by major
restructuring programme 134 (1,114) (1,541)
________________________________________
Cash flows before financing
activities (687) (2,604) 2,498
Cash flows from financing
activities
________________________________________
Proceeds on issue of shares - 17,587 17,645
Repayment of borrowings 8 (1,689) (43,263) (43,263)
Advances of borrowings 8 - 26,135 25,793
Refinancing costs paid 8 (208) (2,390) (2,486)
Increase/(decrease) in bank
overdrafts 8 35 (1,276) (4,193)
Repayments of obligations
under finance leases 8 (77) (47) (144)
________________________________________
Net cash used in financing
activities (1,939) (3,254) (6,648)
_______________________________________________________________________________
Net decrease in cash and cash
equivalents (2,626) (5,858) (4,150)
Cash and cash equivalents
at beginning of period 8 11,646 14,962 14,962
Effect of foreign exchange
rate changes (606) 338 834
_______________________________________________________________________________
Cash and cash equivalents at
end of period 8 8,414 9,442 11,646
_______________________________________________________________________________
Notes to the interim financial report
1. General information
The income and cash flow statements for the 26 weeks ended 2 October 2005 and 1
October 2006 and balance sheets as at 2 October 2005 and 1 October 2006 are
unaudited and have not been reviewed by the auditors. The income and cash flow
statements for the 52 weeks ended 2 April 2006 and the balance sheet as at 2
April 2006 are extracted and abridged from the Group's full accounts for that
year. The statutory accounts for the financial year ended 2 April 2006 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 7 November 2006.
The announcement is being sent to shareholders. Copies of this report and the
annual report for the financial year ended 2 April 2006 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. Basis of preparation
The Interim financial report has been prepared using accounting policies
consistent with International Financial Reporting Standards as adopted for use
in the European Union ('IFRS') and in accordance with those disclosed in the
annual report for the financial year ended 2 April 2006, as published by the
Company on 13 June 2006.
3. Business and geographical segments
Business segments
For management purposes, the Group is organised into three operating divisions -
Powercord, 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
1 October 2 October 2 April
2006 2005 2006
Revenue £'000 £'000 £'000
_______________________________________________________________________________
Powercord 64,125 55,851 118,275
Interconnect 47,218 52,052 99,398
Wiring Harness 16,396 15,994 32,705
_______________________________________________________________________________
127,739 123,897 250,378
_______________________________________________________________________________
Operating profit
Powercord 3,513 2,261 3,597
Interconnect 2,508 (1,388) (2,966)
Wiring Harness 121 (1,201) (3,900)
_______________________________________________________________________________
6,142 (328) (3,269)
Finance costs, net (1,668) (1,669) (3,389)
_______________________________________________________________________________
Profit/(loss) before tax 4,474 (1,997) (6,658)
Tax (1,175) (1,179) (2,448)
_______________________________________________________________________________
Profit/(loss) from continuing
operations 3,299 (3,176) (9,106)
_______________________________________________________________________________
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
External revenue by market sector £'000 £'000 £'000
_______________________________________________________________________________
Consumer Products 57,708 49,935 100,525
Data and Telecommunications 39,143 44,232 87,986
Industrial and Medical 14,119 13,737 27,845
Vehicle and Aerospace 16,769 15,993 34,022
_______________________________________________________________________________
127,739 123,897 250,378
_______________________________________________________________________________
The comparative information for the 26 weeks to 2 October 2005 has been restated
to take account of the reorganisation of the Group that occurred in the second
half of the prior financial year. The comparative segmental operating loss
information for the 52 weeks to 2 April 2006 has been restated to reflect a more
appropriate allocation of costs.
Geographical segments
External revenue by source External revenue by destination
26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April 1 October 2 October 2 April
2006 2005 2006 2006 2005 2006
£'000 £'000 £'000 £'000 £'000 £'000
__________________________________________________________________________________________________________
Asia and South America 55,485 46,435 98,761 47,242 36,186 77,033
North America 34,097 39,040 75,591 32,550 38,010 73,986
United Kingdom 16,396 15,597 32,705 16,937 16,983 34,560
Other Europe 21,761 22,825 43,321 31,010 32,718 64,799
__________________________________________________________________________________________________________
127,739 123,897 250,378 127,739 123,897 250,378
__________________________________________________________________________________________________________
4. Major restructuring programme (credit)/charge
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
£'000 £'000 £'000
_______________________________________________________________________________
Global management restructuring - 574 1,535
Property provisions - 1,190 3,149
Closure of manufacturing facilities - - 2,720
Impairment of property, plant and
equipment - - 1,523
Insurance claim (receipt) - - (329)
(Profit) on sale of properties (1,117) - -
_______________________________________________________________________________
(1,117) 1,764 8,598
_______________________________________________________________________________
During the period, the Wiring Harness facility in Leigh, UK was sold with a
profit of £1.1 million being recorded.
5. 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
in the various overseas countries in which the Group operates.
6. Earnings/(loss) per share
The calculations of the earnings/(loss) per share are based on the following
data:
26 weeks to 26 weeks to 52 weeks to
1 October 2 October 2 April
2006 2005 2006
Earnings £'000 £'000 £'000
_______________________________________________________________________________
Basic earnings/(loss) 3,299 (3,176) (9,106)
Major restructuring programme
(credit)/charge (1,117) 1,764 8,598
_______________________________________________________________________________
Adjusted earnings/(loss) 2,182 (1,412) (508)
_______________________________________________________________________________
Weighted average number of
ordinary shares No. shares No. shares No. shares
_______________________________________________________________________________
For the purpose of basic EPS 55,551,699 43,108,550 49,247,645
Effect of dilutive potential
ordinary shares - share options 41,373 - -
_______________________________________________________________________________
For the purpose of diluted EPS 55,593,072 43,108,550 49,247,645
_______________________________________________________________________________
Basic earnings/(loss) per share Pence Pence Pence
_______________________________________________________________________________
Basic earnings/(loss) per share 5.9 (7.4) (18.5)
Adjustment for major restructuring
programme (income)/costs (2.0) 4.1 17.5
_______________________________________________________________________________
Adjusted basic earnings/(loss) per
share 3.9 (3.3) (1.0)
_______________________________________________________________________________
Diluted earnings/(loss) per share
_______________________________________________________________________________
Diluted earnings/(loss) per share 5.9 (7.4) (18.5)
Adjustment for major restructuring
programme costs (2.0) 4.1 17.5
_______________________________________________________________________________
Adjusted diluted earnings per
share 3.9 (3.3) (1.0)
_______________________________________________________________________________
Basic earnings/(loss) represents net profit/(loss) attributable to equity
holders of the Company.
The adjusted earnings/(loss) per share has been calculated on the basis of
continuing activities before major restructuring programme costs, net of tax.
The Directors consider that this earnings/(loss) per share calculation gives a
better understanding of the Group's earnings/(loss) per share in the periods
presented.
As the Group recorded a loss per share in the periods to 2 October 2005 and 2
April 2006, the share options are anti-dilutive and therefore there is no
difference between the basic and diluted loss per share in those periods.
7. Statement of changes in shareholders' equity
Share Share Translation Retained Total
capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000
____________________________________________________________________________
Balance at 2 April 2006 13,888 168 1,821 10,218 26,095
Net profit for the
period - - - 3,299 3,299
Reserves entry for share
option charges - - - 43 43
Exchange differences on
translation of foreign
operations - - (2,213) - (2,213)
____________________________________________________________________________
Balance at 1 October 2006 13,888 168 (392) 13,560 27,224
____________________________________________________________________________
8. Analysis of net debt
Other
2 April Exchange non cash 1 October
2006 Cash flow movement changes 2006
£'000 £'000 £'000 £'000 £'000
_______________________________________________________________________________
Cash at bank and in hand 11,646 (2,626) (606) - 8,414
Overdraft - (35) - - (35)
Debt due after one year (26,751) 1,689 1,437 - (23,625)
Finance leases (230) 77 - - (153)
Debt issue costs 2,061 208 - (584) 1,685
_______________________________________________________________________________
Net debt (13,274) (687) 831 (584) (13,714)
_______________________________________________________________________________
Non-cash changes include amortisation of debt issue costs of £538,000 and
accrued costs of £46,000.
Note:
The presentation being made to stockbroking analysts on Wednesday 8 November
2006 will be on the Company's web site www.volex.com from 11.00 am that day.
This information is provided by RNS
The company news service from the London Stock Exchange
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