Interim Results

RNS Number : 2454I

Volex Group PLC

17 November 2008

 



17 November 2008

VOLEX GROUP plc

Half-yearly results for the 27 weeks ended 5 October 2008

Volex Group plc, the global electrical and electronic cable assembly group, today announces its unaudited half-yearly results for the 27 weeks ended 5 October 2008.

First Half Highlights:

• Strong revenue growth across all three businesses. Significant improvement in Interconnect with 23.8% growth 

• Substantial recovery with operating profits of £2.4m(1) compared to loss of £0.3m in previous six months to 30 March 2008

• Working capital reduced by £2.0m despite 22.8% increase in sales

• Initial benefit of the aggressive efforts to improve profitability coming through:

  • Successfully completed the closure of two facilities

  • Continuing cost reductions through consolidation of overheads 

  • Improved operational performance with higher productivity and efficiency

  • Efforts to implement Volex designed solutions are accelerating

• Power Products maintaining its double digit growth rate at 21.8% through market share gains with key Japanese customers

• Interconnect India revenue grew 250% driven by increasing telecom infrastructure spend

• Production in High Speed interconnect ramped up with strong new business pipeline

• Design wins in Interconnect with all three Chinese telecom equipment manufacturers participating in China's 3G rollout

• Announced on 22 September 2008 that the Board is investigating the potential to divest the Power Products division

Financial Summary:

• Revenue up 22.8% to £155.1m (2007: £126.3m); in local currency terms, revenue increased 16.1%.

• Operating profit of £2.4m (2007: £4.6m)(1).

• Adjusted(1) and reported pre tax profit of £1.0m and £1.1m respectively (2007: adjusted £3.3m; reported £2.8m). 

• Adjusted earnings per share for the period were 0.0p, (2007: 4.1p); and basic earnings per share were 0.2p (2007:3.3p).

• Cash generated by operations was £8.1m (2007: utilised £4.2m) 

• Net borrowings at 5 October 2008 were £18.6m (30 March 2008: £21.0m) and gearing was 74.9% (30 March 2008: 92.8%).

1. Operating profit after share based payment credit of £0.1m (2007 charge of £0.5m) was £2.5m (2007: £4.1m).

The Chairman of Volex, Mike McTighe, commented: 'We are pleased with the solid progress the Group has made during the six months. Our focus on core profitability and cash generation has delivered results and improved our financial stability. We continue to drive further operational efficiencies and to maintain focus on each of our businesses. 

'Current market conditions make it difficult to forecast the outlook for the second half. Whilst we have not yet seen a decline in the Interconnect markets, we are seeing a reduction in demand for Power Products, which serve the consumer market. Our outlook assumes that the current rate of decline, which is in line with other consumer product companies, will continue into the fourth quarter. If the economic trend continues at a similar level until the end of the financial year, the Board believes that the structural improvements we have made coupled with the favourable impact of lower commodity prices and the stronger US Dollar will enable the Board to meet its expectations for the current year.'

Ends

For further information please contact:

Volex Group plc	Today: 020 7067 0700	Thereafter: 01925 830101
Mike McTighe, 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

27 Weeks ended 5 October 2008

A substantial recovery has been achieved during the first half of the year with operating profits of £2.4m (2007: £4.6m) demonstrating the initial impact of management's decisive efforts to achieve acceptable profitability after the losses of the previous six months. The improvement was achieved despite challenging commodity prices and an exchange loss of £1.6m. Cash flow also improved significantly with cash generated from operations of £8.1m and working capital reduced by £2m even though there was a 22.8% increase in revenue.  

This performance has been underpinned by good progress in all three businesses. Interconnect in particular, posted a significant improvement with revenue growth of 23.8% (13.4% in local currency terms) which was driven by emerging markets and new technologies. Power Products continued its double digit growth trend, increasing 21.8% (15.7% in local currency terms) despite a slowdown in certain segments and markets. Revenue for Wiring Harness also grew 24.2% with the aerospace and agricultural sectors offsetting the slowdown in the construction segment.

Power Products

The Power Products division continues to deliver exceptional performance with growth of 21.8%. Our strategy to capitalize on our position as the global market leader by partnering with top global customers enabled us to outperform the market and will help mitigate the impact of the general economic slowdown. Our success with Japanese accounts such as Sony, Matsushita, Canon and others demonstrates our commitment and ability to maintain our leadership position. Over the past three years we have made a significant investment in building relationships and raising our product quality to meet the exacting requirements of these Japanese customers. Our focus and commitment enabled us to become a strategic supplier to these accounts which is a significant accomplishment for a non Japanese company. As result of our supplier designation, revenue has increased by 50% each year since FY05 and we estimate that our market share of these accounts will continue to grow from the current level as we expand across their product portfolio and platforms. The PC and related segment of the business also showed strong growth during the first half although we expect demand to decline in the second half given the general economic slowdown. 

Despite strong revenue growth, the operating margin was 4.6% (2007: 7.7%) as a result of high commodity prices, in particular copper, impacting the first quarter. The recent fall in copper prices should, conversely, benefit us during the second half of the year. In addition, the full benefit of the Mexico plant closure should come through during the second half.  

We announced on 22 September 2008 that the Board is investigating the potential for realising value from the Power Products division through its divestiture or flotation on an Asian stock market. We are currently working with our financial advisers to explore all the opportunities available to us and will update the market in due course. 

Interconnect

The strategy to reposition the Interconnect division into high growth technologies and geographies is yielding a positive result. During the first half of the year, revenue increased 23.8% and the division returned to profitability.  India continued its impressive level of growth, increasing 250% on the prior year. Our focus on RF technology enabled us to leverage our market presence in India to become the leader in the wireless infrastructure rollout. We are now supporting 5 out of 8 major operators in India in their US$50 billion investment plan for the next five years. Another area of growth for Interconnect was the medical sector which increased 15.9% as we expanded our product portfolio beyond cable assemblies and into RF coils for MRI equipment. The data and telecom segment also grew 18.8% primarily in emerging countries with Europe and North America remaining largely flat.

In the second half, we expect that we will continue to see the benefit of the High Speed business which is now in full production with an increasing customer base and a comprehensive line of new generation products. Additionally, we are ideally positioned to participate in the 3G rollout in China which should continue given the Chinese government's intention to stimulate the economy through infrastructure investment. We have products designed-in at all three of the Chinese manufacturers whose equipment will be deployed in the rollout. 

The division returned to profitability after the operating losses incurred in the second half of the year to March 2008. The growth of higher margin business, combined with increased productivity and efficiencies from higher volume, contributed to the turnaround. We expect that our cost base will be further improved during the second half following the Canadian plant closure and a reduction in overheads during the first half. 

Wiring Harness

The strategy for Wiring Harness is to focus on customers who can drive profitable growth whilst properly structuring the cost basis to maximize operational efficiency. Our customer focused approach has yielded targeted growth at Rolls Royce and Case New Holland, which generated most of the division's 24.2% revenue growth.  

We have made progress with our operational improvement programme, which has been reflected in improved key performance measures and customer service levels. The deterioration in operating losses of £2.0m (2007: £1.1m loss) has been stemmed although the operational improvements that have been achieved are yet to impact operating margins. While we have adjusted our cost base in the division, closing two facilities in the UK and significantly downsizing another, more actions need to be taken to structure the business properly to match current requirements. We will adjust the cost base further in order to return the division to profitability.

Financial Review

Operating profit for the period was £2.4m, (2007 £4.6m) (excluding share based payment charges). The existing share incentive programmes, previously reported, benefited the results by £0.1m (2007 charge of £0.5m).  

The net interest charge increased by £0.1m to £1.4m, mainly as a result of higher average borrowings in the period. 

Adjusted pre-tax profits were £1.0m (2007: £3.3m) after adjusting for share based payment charges. Reported pre-tax profits were £1.1m (2007: £2.8m). The tax charge was £1.0m (2007: £1.0m), which is largely in respect of the trading profits generated by the Group's Asian operations.

Adjusted earnings per share for the period were 0.0p, (2007: 4.1p); and basic earnings per share were 0.2p (2007:3.3p).

Capital expenditure at £1.2m was £0.5m higher than 2007 as a result of expanding the capacity in China for Power Products production.

Cash generated by operations in the first half of 2008 was £8.1m after a net reduction in working capital of £5.2m. This is a significant improvement in cash generation compared to the cash utilisation by operations of £4.2m in the first half of last financial year. Net debt was £18.6m compared with £17.5m at 30 September 2007 and £21.0m at 30 March 2008. Gearing was 74.9%, compared with 63.4% at 30 September 2007. 

The Board expects that the actions we have taken to improve cash generation in the first half, coupled with the favourable improvement in copper prices will lead to further cash generation in the second half and further reductions in net debt.

In order to improve our financial flexibility we have secured an additional finance facility with Bank of Scotland plc which allows us to draw up to Eur 6.8m in addition to our existing revolving credit facility of $64.3m with LloydsTSB. Both facilities run until the end of December 2009.

The impact of changes in exchange rates compared to 2007 is that operating profit would have been £1.6m higher. The main exchange rate movement that has affected the results is the US Dollar to £ Sterling and also the US Dollar to Indian Rupee. For the second half of this financial year, if the US Dollar stays at current levels we will see a favourable impact on the translation of our US Dollar denominated earnings into £ Sterling. In addition to this, we have also taken measures to mitigate the potential negative impact of any further changes in the US Dollar to £ Sterling and US Dollar to Indian Rupee exchange rates on translation of the balance sheet.

The Board has again not declared an interim dividend. 

Current Trading and Prospects

We have achieved a solid recovery and expect the actions taken in the first half to reduce our cost base, coupled with improving margins in Interconnect, will benefit us in the second half of the financial year .We will continue to drive further operational efficiencies over the coming period.  In addition, the recent significant falls in copper prices will have a beneficial impact on margins and the appreciation of the US Dollar will improve our earnings when translated into £ Sterling. 

Current market conditions make it difficult to forecast the outlook for the second half. Whilst we have not yet seen a decline in the Interconnect markets, we are seeing a reduction in demand for Power Products, which serve the consumer market. Our outlook assumes that the current rate of decline, which is in line with other consumer product companies, will continue into the fourth quarter. If the economic trend continues at a similar level until the end of the financial year, the Board believes that the structural improvements we have made coupled with the favourable impact of lower commodity prices and the stronger US Dollar will enable the Board to meet its expectations for the current year.

Heejae Chae	Ian Degnan
Group Chief Executive	Group Finance Director
17 November 2008	17 November 2008

  STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that to the best of their knowledge:

• the set of financial statements has been prepared in accordance with IAS 34;

• 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

• 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
17 November 2008	17 November 2008

  Unaudited consolidated income statement 

For the 27 weeks ended 5 October 2008 (26 weeks ended 30 September 2007)

		27 weeks to 5 October 2008	26 weeks to  30 September 2007	(Audited) 52 weeks to 30 March 2008
	Note	£'000	£'000	£'000
Continuing activities
Revenue	2	155,104	126,303	259,765
Operating profit	2	2,536	4,140	1,794
Analysed as:
Operating profit before major    restructuring programme and share based payments charge		2,446	4,611	4,338
Major restructuring programme charge	3	-	-	(2,676)
Share based payments credit / (charge)		90	(471)	132
Operating profit		2,536	4,140	1,794
Investment income		171	153	205
Finance costs
- interest on bank debt and other liabilities		(1,253)	(983)	(2,167)
- interest on retirement benefit obligations and provisions		(88)	(211)	(165)
- amortisation of debt issue costs		(260)	(260)	(520)
		(1,601)	(1,454)	(2,852)
Profit / (loss) on ordinary activities before taxation		1,106	2,839	(853)
Taxation	4	(988)	(975)	(2,530)
Profit / (loss) on ordinary activities after taxation, being retained profit for the period		118	1,864	(3,383)
Earnings / (loss) per share (pence)*
Basic and diluted	5	0.2	3.3	(6.0)

*    The earnings per share before the costs of the major restructuring programme and share based payments for each period is shown in Note 5.

Unaudited consolidated statement of recognised income and expense

For the 27 weeks ended 5 October 2008 (26 weeks ended 30 September 2007)

		27 weeks to 5 October 2008	26 weeks to  30 September 2007	(Audited) 52 weeks to 30 March 2008
		£'000	£'000	£'000
Losses on hedge of net investment taken to equity		(1,910)	(1,019)	(3,354)
Exchange differences on translation of foreign operations		3,684	278	2,513
Actuarial gains on defined benefit pension schemes		354	-	776
Net income / (expense) recognised directly in equity		2,128	(741)	(65)
Profit / (loss) for the period		118	1,864	(3,383)
Total recognised net income / (expense) for the period		2,246	1,123	(3,448)

Unaudited consolidated balance sheet

5 October 2008 (30 September 2007)

		5 October 2008	30 September 2007	(Audited) 30 March 2008
	Note	£'000	£'000	£'000
Non-current assets
Goodwill		1,930	1,930	1,930
Other intangible assets		263	180	261
Property, plant and equipment		8,431	8,380	7,784
Deferred tax asset		437	190	312
		11,061	10,680	10,287
Current assets
Inventories		39,005	39,118	35,050
Trade and other receivables		74,338	57,806	63,876
Current tax assets		84	431	353
Cash and cash equivalents	7	8,207	5,710	4,317
		121,634	103,065	103,596
Total assets		132,695	113,745	113,883
Current liabilities
Obligations under finance leases	7	15	52	44
Trade and other payables		69,166	49,896	52,367
Current tax liabilities		5,447	3,753	4,343
Retirement benefit obligation		43	395	149
Provisions		1,973	2,428	3,359
Liability for share based payments		-	336	214
		76,644	56,860	60,476
Net current assets		44,990	46,205	43,120
Non-current liabilities Bank overdrafts and loans	7	26,811	23,162	25,283
Obligations under finance leases	7	-	10	-
Deferred tax liabilities		100	262	118
Retirement benefit obligation		1,120	2,158	1,513
Long-term provisions		3,098	3,550	3,773
Non-equity preference shares		80	80	80
Liability for share based payments		-	44	4
		31,209	29,266	30,771
Total liabilities		107,853	86,126	91,247
Net assets		24,842	27,619	22,636
Equity attributable to equity holders of the parent
Share capital	6	14,205	14,205	14,205
Share premium account	6	1,357	1,357	1,357
Hedging and translation reserve	6	(87)	(1,761)	(1,861)
Retained earnings	6	9,367	13,818	8,935
Total equity	6	24,842	27,619	22,636

Unaudited consolidated cash flow statement 

For the 27 weeks ended 5 October 2008 (26 weeks 30 September 2007)

		27 weeks to 5 October 2008	26 weeks to  30 September 2007	(Audited) 52 weeks to 30 March 2008
	Note	£'000	£'000	£'000
Operating profit from continuing operations		2,536	4,140	1,794
Adjustments for:
Depreciation of property, plant and equipment		1,333	1,325	2,906
Amortisation of intangible assets		47	41	80
Loss on disposal of property, plant and equipment		-	30	4
Share option (credit) / expense		(40)	299	(113)
Decrease in provisions		(2,020)	(2,481)	(1,469)
Operating cash flows before     movements in working capital		1,856	3,354	3,202
Increase in inventories		(815)	(7,502)	(2,791)
Increase in receivables		(4,855)	(7,712)	(12,506)
Increase in payables		10,787	5,572	5,994
Decrease / (increase) in working capital		5,117	(9,642)	(9,303)
Cash generated / (utilised) by operations		6,973	(6,288)	(6,101)
Analysed as:
Generated / (utilised) before major restructuring programme		8,125	(4,168)	(2,214)
Utilised by major restructuring programme		(1,152)	(2,120)	(3,887)
Cash generated / (utilised) by operations		6,973	(6,288)	(6,101)
Income taxes paid		(288)	(236)	(887)
Interest received		171	153	205
Interest paid		(591)	(622)	(1,666)
Net cash inflow / (outflow) from operating activities		6,265	(6,993)	(8,449)
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment		38	10	242
Purchases of property, plant and equipment		(1,181)	(705)	(1,712)
Purchases of intangible assets		(35)	(101)	(289)
Net cash used in investing activities		(1,178)	(796)	(1,759)
Cash flows before financing activities		5,087	(7,789)	(10,208)
Analysed as:
Generated / (used) before major restructuring programme		6,239	(5,669)	(6,321)
Used by major restructuring programme		(1,152)	(2,120)	(3,887)
Cash flows before financing activities		5,087	(7,789)	(10,208)
Cash flows from financing activities
Proceeds on issue of shares	6	-	138	138
Repayment of borrowings	7	(4,406)	(3,915)	(18,823)
Advances of borrowings	7	3,502	4,978	20,410
Decrease in bank overdrafts	7	-	(30)	(30)
Repayments of obligations under finance leases	7	(29)	(30)	(52)
Net cash (used in) / from financing activities		(933)	1,141	1,643
Net increase /(decrease) in cash and cash equivalents		4,154	(6,648)	(8,565)
Cash and cash equivalents at beginning of period	7	4,317	12,235	12,235
Effect of foreign exchange rate changes		(264)	123	647
Cash and cash equivalents at end of period	7	8,207	5,710	4,317

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 30 March 2008.

The financial information presented for the 27 weeks ended 5 October 2008 and 26 weeks ended 30 September 2007 has not been reviewed by the auditors. The financial information for the 52 weeks ended 30 March 2008 is extracted and abridged from the Group's full accounts for that year. The statutory accounts for the 52 weeks ended 30 March 2008 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 14 November 2008.  

The announcement is being sent to shareholders. Copies of this report and the annual report for the financial year ended 30 March 2008 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 products that they supply. These divisions are the basis on which the Group reports its primary segment information.

		27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008
		£'000	£'000	£'000
Revenue
Power Products		80,307	65,932	136,312
Interconnect		53,556	43,272	87,114
Wiring Harness		21,241	17,099	36,339
		155,104	126,303	259,765
Operating profit / (loss) before major restructuring programme and share based payments:
Power Products		3,700	5,061	8,195
Interconnect		786	658	(786)
Wiring Harness		(2,040)	(1,108)	(3,071)
		2,446	4,611	4,338
Major restructuring programme and share based payments:
Power Products		47	(246)	(1,672)
Interconnect		31	(161)	(901)
Wiring Harness		12	(64)	29
		90	(471)	(2,544)
Operating profit / (loss)
Power Products		3,747	4,815	6,523
Interconnect		817	497	(1,687)
Wiring Harness		(2,028)	(1,172)	(3,042)
		2,536	4,140	1,794
Investment income		171	153	205
Finance costs		(1,601)	(1,454)	(2,852)
Profit / (loss) before tax		1,106	2,839	(853)
Tax		(988)	(975)	(2,530)
Profit / (loss) from continuing operations		118	1,864	(3,383)

		27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008
		£'000	£'000	£'000
External revenue by product market sector
Consumer Products		83,670	63,533	139,705
Data, Telecommunications and Medical		48,989	41,603	82,855
Industrial, Vehicle and Aerospace		22,445	21,167	37,205
		155,104	126,303	259,765

	External revenue by source			External revenue by destination
	27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008	27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008
	£'000	£'000	£'000	£'000	£'000	£'000
Geographical segments
Asia	89,810	73,130	142,228	67,990	49,572	104,056
Americas	25,764	19,165	52,352	28,039	28,032	56,502
United Kingdom	5,194	4,017	7,030	17,147	16,968	32,784
Europe	34,336	29,991	58,155	41,928	31,731	66,423
	155,104	126,303	259,765	155,104	126,303	259,765

3. Major restructuring programme

	27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008
	£'000	£'000	£'000
Property provisions	-	-	545
Closure of manufacturing facilities	-	-	2,131
	-	-	2,676

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 / (loss) per ordinary share

The calculations of the earnings per share are based on the following data:

Earnings / (loss)	27 weeks to 5 October 2008	26 weeks to  30 September 2007	52 weeks to 30 March 2008
	£'000	£'000	£'000
Earnings / (loss)	118	1,864	(3,383)
Adjustments for:
Major restructuring programme charge	-	-	2,676
Share based payments (credit) /charge	(90)	471	(132)
Adjusted earnings / (loss)	28	2,335	(839)
Weighted average number of ordinary shares	No. shares	No. shares	No. shares
For the purpose of basic and diluted earnings / (loss) per share	56,780,292	56,739,021	56,780,292
Basic and diluted earnings per share	Pence	Pence	Pence
Basic and diluted earnings / (loss) per share	0.2	3.3	(6.0)
Adjustments for:
Major restructuring programme charge	-	-	4.7
Share based payments (credit) / charge	(0.2)	0.8	(0.2)
Adjusted basic and diluted earnings / (loss) per share	-	4.1	(1.5)

Basic earnings represent 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 and share based payment charges/(credit) 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 capital	Share premium	Translation reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2008	14,205	1,357	(1,861)	8,935	22,636
Net profit for the period	-	-	-	118	118
Reserves entry for share option charges	-	-	-	(40)	(40)
Actuarial gains on defined benefit pension schemes	-	-	-	354	354
Exchange differences on translation of foreign operations	-	-	3,684	-	3,684
Loss recognised on net investment hedge	-	-	(1,910)	-	(1,910)
Balance at 5 October 2008	14,205	1,357	(87)	9,367	24,842

7.  Analysis of net debt

	31 March  2008	Cash flow	Exchange movement	Other non cash changes	5 October  2008
	£'000	£'000	£'000	£'000	£'000
Cash at bank and in hand	4,317	4,154	(264)	-	8,207
Debt due after one year	(25,890)	904	(2,172)	-	(27,158)
Finance leases	(44)	29	-	-	(15)
Debt issue costs	607	-	-	(260)	347
Net debt	(21,010)	5,087	(2,436)	(260)	(18,619)

Non-cash changes includes amortisation of debt issue costs of £260,000.

 

END

 

 

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