Preliminary Announcement of the Group Results

RNS Number : 2677E

Volex PLC

29 May 2012

 



29 May 2012

VOLEX plc

Preliminary Announcement of the Group Results
for the Financial Year ended 1 April 2012

Volex plc ("Volex"), the global provider of customised electrical and optical interconnect solutions, today announces its preliminary results for the financial year ended 1 April 2012.

Financial Highlights

·   Revenue up 6% to $517.8m (FY2011: $490.0m)

·   Normalised⁽ⁱ⁾ gross margin up 1 percentage point to 19.8% (FY2011: 18.8%)

·   Normalised⁽ⁱ⁾ operating profit up 23%, at $32.0m (FY2011: $26.1m). Statutory operating profit of $23.0m (FY2011: $23.5m)

·   Normalised⁽ⁱ⁾ diluted earnings per share (EPS) up 31% to 42.4 cents (FY2011: 32.4 cents). Basic EPS of 30.4 cents (FY2011: 29.3 cents), up 4%

·   Free cash flow⁽ⁱⁱ⁾ improved by $12.5m to $18.3m, from $5.8m in FY2011

·   Net cash of $3.6m at 1 April 2012 (3 April 2011: net debt of $7.4m)

·   Return on capital employed⁽ⁱⁱⁱ⁾ up to 58%, from 45% in FY2011

·   Increased dividend - final dividend of 3.0 cents per share proposed, taking total FY2012 dividend to 4.5 cents per share (FY2011: 2.0 pence) 

(i)     Normalising for non-recurring items and share-based payments

(ii)    Free cash flow defined as net cash flow before dividends, payments to acquire own shares, refinancing costs paid and cash flows arising on disposal of operations

(iii)  Return on capital employed defined as normalised operating profit divided by net trading assets, where net trading assets is the aggregate of intangible assets (excluding goodwill), tangible fixed assets, inventory and trade and other receivables less trade and other payables  

Operational Highlights

·   Further strengthened sales, technology and operations functions and additional investment made in our manufacturing facilities. Well positioned for further growth

·   Significant progress in developing our relationship with our biggest customer, resulting in increased allocations

·   Developed enhanced thermoplastic elastomers (TPEs) and halogen-free material handling capability, for use in other commercial applications and potential new markets

·   Greater embedding of engineers at customer sites improving our customer solutions and enabling the development of new products, such as digital broadband MRI solutions in the Healthcare sector

·   Step change achieved in our continuing IT infrastructure programme, bringing benefits across all functions

·   New global culture initiative launched to support the execution of our strategy

The Chairman of Volex, Mike McTighe, commented:

"The Board is pleased to report another year of very good results. It is particularly encouraging that the Company has delivered this strong financial performance while making substantial investments for the future and at a time of economic uncertainty. We are confident that our strategy of unwavering customer focus, greater innovation, and operational excellence will deliver significant returns for shareholders.

We enter FY2013 with positive momentum and are well-positioned to generate continued growth in revenues, margins and profit, in line with management's expectations."

The Company will be presenting its half year results at 09.30 am on Tuesday 29 May 2012.  A live audio webcast facility with the option to ask questions will be available at the following link:

http://www.media-server.com/m/p/i29b8vxw

For further information please contact:

Volex Group plc                                                                            

Ray Walsh, Group Chief Executive                                                                [phone]

Andrew Cherry, Group Finance Director                                                    [phone]

Buchanan

Charles Ryland / Helen Chan                  / Louise Hadcocks                                       [phone]

Forward looking statements

Certain statements in this announcement are forward-looking statements which are based on Volex's expectations, intentions and projections regarding its future operating performance and objectives, anticipated events or trends and other matters that are not historical facts. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal' or 'estimates'.  By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, by way of example only and not limited to, general economic conditions, currency fluctuations, competitive factors, the loss or failure of one or more major customers, changes in raw materials or labour costs, and issues associated with implementing our strategic plan among other risks. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, Volex undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Chairman's Statement

I am delighted to report another year of revenue and profit growth, particularly in view of the challenging macro-economic environment. Equally pleasing is the significant progress we have made in our continuing transformation to a customer-focused and innovation-driven organisation. As a result of this, we believe the Company is well positioned, both operationally and financially, to deliver on its future growth plans.

Resilient growth

Revenue of $518m was 6% ahead of last year (FY2011: $490m), with normalised gross margin* up to 19.8%, from 18.8% in FY2011. This margin growth helped to increase normalised operating profit* to $32.0m, an improvement of 23% over FY2011, despite important investments, particularly in the sales, operations and technology functions. Normalised earnings per share* increased by 31% to 42.4 cents (FY2011: 32.4 cents).The non-recurring start-up costs of $5.0m related to the introduction of a new product line for a major customer has advanced our competitive position with this customer and generated a substantial step-up in our engineering, manufacturing and quality control capabilities. These undertakings will support the development of a higher-margin product portfolio, one of our core corporate goals.

Investing for further growth

To achieve the foundation for continued substantial, sustainable and profitable growth, the Company has made further targeted investments in people, platforms and processes. During the year, we augmented and restructured our sales organisation, under the leadership of a new Chief Sales and Marketing Officer. We have also enhanced our technology function, in order to better support innovation, improve our new-product development capability, and to ensure we are better placed to fully exploit revenue opportunities with existing customers. The continuing roll-out of LEAN manufacturing techniques, increased capital expenditure in our factories, and advancing the global employee culture initiative are further examples of the important investments made this year that will deliver growing returns in the future.

Increased dividend

Taking into account the strength of these results and our confidence in the future prospects of the Company, the Board is proposing a final dividend of 3 cents per share, increasing the full year dividend to 4.5 cents (FY2011: 2 pence), to be paid after obtaining shareholder approval at the AGM on 26 July 2012.

People

We continue to recognise that people will be the biggest determinant of our success. In addition to the vital new hires referenced above, the Company has made a significant commitment to a global cultural transformation programme that we hope will not only deliver better customer outcomes, but also help to make the organisation a more rewarding place to work.

On 2 May 2012, we were pleased to invite David McKinney to join the Board as Chief Operating Officer, a new Executive Director position. David was Chief Operating Officer of Pace plc from 2005 to 2012, and brings a wealth of operational and business experience which will be of great value to the Board in this next phase of the Company's development.  On the same day, Paul Mountford resigned from the Board of Directors, due to the demanding time commitments of his primary role at Cisco Systems, Inc. The Board will miss the insights that he provided and we thank him for the contributions he made during his time with the Company.

Again, it is our pleasure to acknowledge the skills and dedication of employees throughout the Company, who have once more produced an exceptional performance. Their skills are the real assets of our Company and we would like to thank them for their valued contributions. 

 

Outlook

The Board is pleased to report another year of very good results. It is particularly encouraging that the Company has delivered this strong performance while making substantial investments for the future and at a time of economic uncertainty. We are confident that our strategy of improved customer focus, greater innovation, and operational excellence will deliver significant returns for shareholders.

We enter FY2013 with good trading momentum and are well-positioned to generate continued growth in revenues, margins and profit, in line with management's expectations.

*       Before non-recurring items and share based payments (see note 5 to the accompanying summarised Financial Statements)

Chief Executive's Market and Performance Review

Our FY2011 annual report was entitled "Building for the Future" - and we vigorously pursued that objective during the financial year. We have laid the foundation for greater growth by hiring top-level talent in operations, engineering, and sales and marketing that will maximise the potential of our enhanced capabilities, improve our IT platforms and upgrade and expand our production facilities.

Deliver on our strategy

Our primary objective is simple and straightforward:  deliver competitive advantage for our customers. For the past three years, the driving strategy for fulfilling that objective was to bridge the gap from being a price-sensitive, commodity supplier to a full-service supplier with high-end engineering expertise, a diversified product line, and the ability to help our customers succeed in their own marketplace.

This strategy demands that we add value for our customers, not simply fulfil a supplier contract. It's a very different way of thinking and working from where we were a few years ago, when we were generally a second-source supplier to the firms who owned the engineering relationship. We have improved supply assurance so our customers know what they can count on in their own manufacturing schedules. And we are driving substantial improvements in production cycle-times in order to enhance our customers' own speed-to-market.

The cultural transformation under way at Volex has already been beneficial and improvements are beginning to take hold. The transformation and training at our China facilities, for instance, in combination with major upgrades in machines, tooling and plant management, will give us truly world-class capabilities in low-cost locations.

Finally, investment in technology upgrades is also playing a role, supporting new and more productive ways of working. The IT investments have Volex on the road to operating more strategically, driving more insightful decision-making and quicker, more targeted responsiveness to our customers' needs. We are moving toward greater transparency into our business, which is being driven by customers seeking strategic partners rather than order-taking suppliers.

2012 performance

	Revenue			Normalised Gross Margin
	2012	2011		2012	2011
	$'000	$'000	% Var	%	%	Var
Consumer	330,372	304,336	9	17.9	17.6	+0.3 pts
Telecoms / Data	99,440	109,948	(10)	21.2	18.8	+2.4 pts
Healthcare	51,663	41,536	24	27.5	23.4	+4.1 pts
Industrial	36,294	34,189	6	22.6	23.6	-1.0 pts
Total	517,769	490,009	6	19.8	18.8	+1.0 pts

One way to analyse the past year is through revenue growth. We achieved a record first half delivering 14% revenue growth. The first half provided proof of concept for our strategy and confidence in what we can accomplish when circumstances are under our control. We faced headwinds in Europe, the US and China, due to customers exercising caution in the face of financial uncertainty, while the flooding in Thailand upset the computer hard-drive supply chain, constraining production in the consumer market. So, while revenue slowed in the second half of FY2012, we ended the year with healthy growth of 6% over last year, generating revenue of $517.8m.

In addition to revenue growth, the group also delivered an increase in normalised gross margin, a critical indicator of the long-term promise of our strategy. Our normalised gross margins have been on a longer-term upward trend, and margins in FY2012 increased one percentage point to 19.8%. This is a trend we aim to continue delivering on. In addition to our own initiatives to raise our game, the innovators among our customers have driven us to acquire capabilities that have become potent differentiators that deliver competitive advantage. These include high-precision plastic injection moulding, high-speed interconnects, medical imaging technology and signal integrity innovation.

The positive impact of these new capabilities is reflected in the sector numbers for FY2012. In the Healthcare sector, for instance, while we have begun expanding into new sub-sectors, imaging system applications still make up the bulk of our business. When the quality and acuity of an image can be the difference between life or death, data speed and signal integrity are paramount. Our growing expertise in this area has led to an increase in design-in work. We now have more long-term partnerships, more co-creation initiatives and have seen a jump of 4.1 percentage points in gross margin to 27.5%.

Signal integrity expertise is just one of those enhanced capabilities we have to offer, but it comes into play in each of our four sectors. In the consumer sector, for example, where new permutations of connectivity are now increasingly important in the personal electronics segment, our profit margin increased by 0.3 percentage points to 17.9%. In the telecom/datacom sector, where high-speed data interconnects are shuttling terabytes of data between tens of millions of users and the cloud, profit margins rose 2.4 percentage points to 21.2%. In the industrial sector gross margins decreased by 1 percentage point, to 22.6%, due to lower volumes in the third quarter, with annual revenue growing by 6%.

Compounding these enhanced capabilities with applications engineering, global manufacturing footprint, high-end production in low-cost locations and attentive and insightful customer responsiveness, amongst other factors, and you can see that we are well-positioned to continue our growth and enhance our status as one of the top-level suppliers worldwide.

Focus on customer needs

Being customer-centric is important in every business. What we are doing is more than just listening to the customer, more than just gaining an understanding of their needs. We have focussed on establishing a fully developed strategic partnership, working side-by-side through design and development activities to co-create interconnect solutions as integral components of our customers' products.

Invest in talent

We have strengthened our executive management team, bringing in people with the experience to know what our global clients are looking for, who understand the challenges a global client faces and how they must respond to gain competitive advantage.

We have invested in design and applications engineers, and material science specialists to provide new services, develop intellectual property, and respond more quickly to customers' needs.

We have invested in a new plant management team in Henggang, China, whilst the most significant developments are occurring in our sales organisation. We are recruiting more sales engineers who can talk strategically about all aspects of solution development, recognising that a customer's speed-to-market is often determined by how quickly we can put an engineer on the ground, to convert concepts into design.

Financial Review

Volex well positioned to act on its key strategies

The Group has enjoyed another year of strong trading in FY2012, enabling it to increase significantly its investment in the business.  In addition to a 135% increase in capital expenditure year-on-year, substantial further investment has been made in people, new products and improved processes.  The new banking facility entered into at the start of the financial year has provided far greater flexibility to the business and at a reduced cost.  This has enabled the Group to make these important investments which position the Group well, both operationally and financially as we enter FY2013.

The underlying business has remained robust throughout the year with the Consumer and Healthcare sectors performing particularly well.  This performance, together with the Board's confidence in the Group's future prospects, has enabled the Group to increase the dividend payment to $2.6m from $1.9m in FY2011.

Trading performance

Group revenue for the year increased by 6%, from $490.0m in FY2011 to $517.8m in FY2012, primarily driven by the Consumer and Healthcare sectors.

The Group's normalised gross profit for FY2012 was $102.5m, yielding a normalised gross margin of 19.8%.  This compared to a FY2011 gross profit of $92.1m and a normalised gross margin of 18.8%.  Although operating leverage (the impact of absorbing fixed production costs over an increased revenue base) contributed to the 1% increase in normalised gross margin, the principal driver was an improvement in mix, with increased Volex content more of a feature in our FY12 product range, consistent with the Group's strategy of moving up the value chain.

The Consumer sector saw strong revenue growth in the year, up 9% from $304.3m in FY2011 to $330.4m in FY2012, with the growth mainly generated by increased sales to our major customer. Sector normalised gross margin of 17.9% was marginally up on the prior year with improved mix and manufacturing efficiencies outweighing labour rate increases.

Telecoms / Datacoms revenue was down 10% from $109.9m in FY2011 to $99.4m in FY2012.  The reasons for this reduction are largely twofold; firstly a reduced global spend by Telecoms operators as the continuing economic uncertainty restricts their appetite for investment projects and secondly an active decision by the Group to move away from lower margin products.  As a consequence, normalised gross margin has increased from 18.8% in FY2011 to 21.2% in FY2012.

The Healthcare sector saw very strong demand with a 24% increase in revenue from $41.5m in FY2011 to $51.7m in FY2012.  This increased demand has been driven by the Europe and Asia regions where the Group has achieved strong growth supplying connectivity solutions to the magnetic resonance imaging (MRI) market. This revenue growth has also been coupled with an increase in the Healthcare normalised gross margin, from 23.4% in FY2011 to 27.5% in FY2012.  This margin growth is a direct result of two of the Group's key strategies, greater customer engagement (where we have continued to invest in placing engineers on customer sites) and higher design content within our products.

The Industrial sector saw 6% growth in revenue from $34.2m in FY2011 to $36.3m in FY2012.   The strong growth seen in this sector in the first 6 months of the year was reduced in the second half of the year as one key customer went through a process of de-stocking, which has now been concluded.  Industrial normalised gross margin decreased from 23.6% in FY2011 to 22.6% in FY2012.  This is primarily due to lower volumes in the third quarter of the year, with fourth quarter normalised gross margin returning to levels observed in the first half of the year.

Group operating costs excluding share based payment expenses have increased by $4.5m from $66.0m to $70.5m.  This increase in part reflects the growth of the business but also an active decision by the Board to upgrade people and processes to provide an environment of excellence throughout the Group. As a percentage of sales, however, operating expenses were held flat.

Non-recurring items and share based payments

During the year, the Consumer sector incurred exceptional start-up costs of $5.0m in relation to new product introductions, specifically, the migration from PVC to Halogen-free power cords, coupled with a requirement for significantly higher technical and cosmetic standards.

As a result, these new products necessitated wide ranging improvements to our manufacturing processes and investments in higher grade tooling and precision moulding technologies.  Whilst these changes were being introduced, there was a significant and temporary increase in scrap rates and labour inefficiency.  The $5.0 million exceptional cost represents the non-recurring cost of this scrap and labour inefficiency during the transition period.

The investment represents a significant step-up in our engineering, manufacturing know-how and quality control capabilities, and has served to strengthen the relationship with our largest customer.  The benefits of this investment are already evident in the Consumer sector.  Moreover, this sustainable competitive advantage enhances our ability to offer new and different products and to attract a wider range of customers.

The share based payments charge of $4.0m in FY2012 has increased by $1.4m from $2.6m in FY2011.  This increase is primarily due to the full year impact of the FY2011 option grants, which year on year yielded an additional $1.1m of charge.  Options granted in FY2012 generated a share option charge of $0.4m.

Research and development

Group expenditure on research & development, of which the most significant component is employment costs in respect of design engineers, increased 19% to $4.6m from $3.8m in FY2011. The year-on-year increase is due to greater investment in people and consultancy services to further enhance our product design and development capability and is consistent with the Group's strategy of increased focus on designed-in engineering solutions.

Finance costs

Total net finance costs in FY2012 increased by 21% to $3.8m (FY2011: $3.2m).  The principal reasons for this increase were the write off of $0.8m of capitalised debt issue costs associated with the financing facility replaced in the period and a $0.8m charge associated with copper commodity contracts which failed to meet the hedging requirements of IAS 39. Partly off-setting these increases was a reduction in the interest charged on the senior credit facility, with the new facility incurring interest at a margin of 1.75%-2.00% above LIBOR compared with 2.75% on the old facility. 

Tax

The Group incurred a tax charge of $2.0m (FY2011: $3.7m) representing an effective tax rate (ETR) of 11% (FY2011: 18%). The principal reason for the reduction in ETR was an increase in the recognition of deferred tax assets in respect of the Group's trading losses.

During FY2012 we recognised $3.2m of deferred tax assets related to these losses, an increase of $1.5m compared to last year. The increase is as a result of improved profitability in the territories with brought forward losses and greater certainty over the benefits accruing from the global supply chain optimisation project, initiated in FY2010. Total losses at 1 April 2012 were $86m (FY2011: $93m). On a full recognition basis this represents a potential deferred tax asset of $24m (FY2011: $25m). For future years we expect the ETR to return to a level similar to that reported in FY2011.

Earnings per share

Basic earnings per share for the year was 30.4 cents (FY2011: 29.3 cents), a 4% increase on the prior year despite the impact of the exceptional start-up costs and higher share based payments charge.  Adjusting for these items the normalised basic earnings per share figure was 43.7 cents, a 30% increase on the prior year.  Normalised diluted earnings per share increased by 31% in the year to 42.4 cents (FY2011: 32.4 cents).

 

Dividends

During the year, the Group resumed the payment of dividends.  At the Volex plc Annual General Meeting, shareholders approved the proposed FY2011 final dividend of 2.0p per share.  This was paid in August 2011 resulting in a dividend cash outflow of $1.9m.

An interim dividend of 1.5 cents per share for FY2012 was paid in February 2012 resulting in a dividend cash outflow of $0.9m.

The Board is proposing a final dividend for FY2012 of 3 cents per share, representing a 40% year on year increase in dividend.  Subject to shareholder approval at the forthcoming Annual General Meeting, this dividend will be paid on 24 August 2012 to shareholders on the register at the close of business on 27 July 2012.

Return on capital employed

In light of the increased capital investment in the business, the Board has adopted return on capital employed ('ROCE') as a key performance indicator of business performance.  For FY2012, ROCE was 58%, up from 45% in FY2011.  The Group defines ROCE as normalised operating profit divided by net trading assets, where net trading assets is the aggregate of intangible assets (excluding goodwill), tangible fixed assets, inventory and trade and other receivables less trade and other payables.   

Cash flows and net funds

Operating cash flow before movements in working capital in the year was $27.5m (FY2011: $25.2m).

Movements in working capital have yielded a further $8.8m of cash inflow (FY2011: $4.5m cash outflow) with FY2012 benefiting from the implementation of a non-recourse invoice discounting facility.  Under the terms of the arrangement, the Group can sell up to $10m of trade receivables associated with a specific customer.  As at 1 April 2012, the Group had utilised $9.5m of this facility.

After aggregate outflows for tax and interest of $6.0m (FY2011: $9.5m), net cash generated from operating activities was $30.4m (FY 2011: $11.1m).

In line with the Group's strategy of investment in the business, capital expenditure has increased by 135% from $4.4m in FY2011 to $10.3m in FY2012.  This expenditure has been targeted at upgrading both the manufacturing and information technology systems infrastructure of the Group.

During the year, the Group, through its employee share trust, acquired 769,800 shares in Volex plc at a cost of $3.3m.  These shares are held for the benefit of Volex employees and directors to facilitate participation in the Company's share option schemes.  570,000 such options were exercised in the period yielding a cash inflow of $0.3m.

The full year dividend for FY2011 of 2.0 pence per share was paid out in the year, generating a cash outflow of $1.9m.  Similarly the interim dividend of 1.5 cents per share for FY2012 led to a further cash outflow of $0.9m.

As discussed further below, during the year the Group entered into a new financing facility.  As a result of this $26.4m was paid out by the Group to close out the pre-existing facility and $39.5m was drawn down under the new arrangement.  In securing the new facility, the Company incurred $1.7m in arrangement and professional fees.

In the year, 80,000 cumulative preference shares of £1 each were cancelled at a cost of $0.1m.  The interest that had accrued on these shares was also paid and has been included in the interest paid cash outflow category.

As a result of the above cash flows, the Group generated a $23.7m cash inflow for the year (FY2011: $9.0m cash outflow).  As at 1 April 2012, the Group held net cash of $3.6m compared with a $7.4m net debt position as at 3 April 2011. 

In addition to the adoption of ROCE as a key performance indicator (KPI) noted above, the Board has also adopted free cash flow ('FCF') as a new KPI, recognising that the Group's ability to generate cash, either to return to shareholders in the form of dividends or to re-invest in the business, is a key financial metric.  At the same time, as a result of the Group's success in de-leveraging over the last three to four years, the Group intends to de-emphasise absolute net debt as a key performance indicator. The Group defines FCF as net cash flow before dividends, payments to acquire own shares, refinancing costs paid and cash flows arising on disposal of operations. FCF in the year was $18.3m (FY2011: $5.8m).

Banking facilities

On 31 May 2011, the Group entered into a new US$75m multi-currency combined revolving credit, overdraft and guarantee facility ('RCF') with a syndicate of three banks (Lloyds Banking Group plc, HSBC Bank plc and Clydesdale Bank plc) which replaced the pre-existing facility. 

The new facility provides greater flexibility and improved terms as follows;

·   four year facility, available until June 2015;

·   no scheduled facility amortisation;

·   improved pricing, with margin over LIBOR payable linked to a net debt:EBITDA leverage ratio. Initial margin of 2.00% over LIBOR which reduced to 1.75% by year end;

·   interest cover and net debt:EBITDA leverage covenants; and

·   further US$150m pre-negotiated facility agreed to fund future, as yet unidentified, acquisitions

At 1 April 2012, amounts drawn under this facility totalled $41.0m (FY2011: $28.4m).  After accounting for bonds, guarantees and letters of credit, the remaining headroom as at 1 April 2012 was $31.0m (FY2011: $20.8m). 

Financial Instruments

During the year, the Group entered into a number of contracts with financial institutions which were linked to the average copper price as published by the London Metal Exchange ('LME').  The purpose of these contracts was to mitigate the Group's exposure to copper price volatility observed in the Group's cost of sales where rising commodity prices has been identified as a key risk.   

Whilst the contracts acted as an economic hedge against the impact of copper price movements, the initial contracts did not meet the technical requirements of IAS 39 and therefore could not be accounted for as hedge contracts.  As a result the losses on such contracts were recognised immediately in the income statement.  This resulted in a $0.8m loss being recognised within finance costs in the year.

In January 2012, following a change in our key supplier contracts, the Group has achieved hedge accounting under IAS 39 for all open contracts.  The contracts have been deemed cash flow hedges of forecast future purchases of copper.  As at 1 April 2012, an asset of $1.4m has been recognised in respect of the fair value of open copper contracts with a corresponding $1.4m credit recognised in reserves.   This credit shall be retained in reserves until such time as the forecast copper purchase takes place.

Defined benefit pension scheme

The Group's net pension deficit under IAS 19 increased by $1.5m from $2.1m at 3 April 2011 to $3.6m at 1 April 2012.  The primary reason for this was a $1.0m increase in the pension liability arising from a reduction in the discount rate (linked to the 15 year corporate bond yield) applied to forecast future cash outflows.

Operating Review

Consumer sector

Business Focus and Market Drivers

The consumer products marketplace for Volex is incredibly diverse, comprising computers and printers, consumer electronics, domestic appliances, floor care equipment and power tools.

Distinctive design has become a competitive advantage in the consumer sector. There is a move to higher quality that cuts across all the various sub-sectors, as design is driving the consumer experience. Customers are demanding more functionality, more portability and more aesthetic quality.

Consumers also want value for money. In light of the recent challenges to the global economy, cost-reduction remains an overarching influence on all markets. Our Consumer sector has seen two distinctive cost-driven trends at work. Firstly, our customers are streamlining the number of parts they use across their range of product models, standardizing on a few basic designs rather than creating multiple variations with insignificant differences. This cuts costs, and often makes the consumer shopping experience less confusing.  Secondly, as part of their strategies, original equipment manufacturers (OEMs) are outsourcing a greater amount of their production to original design manufacturers (ODMs).

2012 Performance

With revenues of $330.4m, the consumer sector achieved 9% growth over FY2011. In addition to product line extensions, benefits were realised from the move to single-sourcing. One major customer, for instance, is moving 100% of their power cord and harness business to Volex. Normalised gross margins also improved, gaining 0.3 percentage points to 17.9%. Expanding the number of design-in customers, in a sector that is increasingly putting a premium on design, is helping to drive gross margin gains.

Several steps that Volex took to meet the needs of its largest customer in this sector have positioned the Group for continued growth in years to come, as Volex is now capable of meeting the standards that other consumer-product companies will eventually insist on.

Exceptional start-up costs of $5.0m were incurred in FY2012 in relation to new product introductions; specifically the migration from PVC to halogen-free power cords combined with significantly higher technical and cosmetic standards. These new products necessitated wide ranging improvements to our manufacturing know-how and investments in higher grade tooling and precision moulding technologies. These improvements represent a significant step-up in our engineering, manufacturing and quality control capabilities, and have served to strengthen the relationship with our largest customer. Moreover, this investment has helped to develop enhanced thermoplastic elastomers (TPEs) and halogen-free material handling capability, for use in other commercial applications and potential new markets.

The sector team has been successful in the face of OEM's streamlining part numbers and consolidating their suppliers. For example, Volex went through a process where a customer reduced their power cord suppliers from more than ten to only four - but Volex was one of those four, due to quality, engineering capabilities, global supply chain footprint and cost.

In addition we have benefited from stronger relationships with OEM partners who have been pursuing a strategy of outsourcing to ODMs.  For example, with one major OEM customer, sector management was able to leverage its relationship, resulting in the OEM insisting that their ODM continue to use Volex as the power cord supplier for their LCD and LED televisions after moving nearly half of their TV business to the ODM.

Outlook for 2013

The new products developed this past year are platforms for major sector growth in FY2013. The introduction of a USB charger with a small form factor is a perfect example. Initially designed for a specific OEM, it provides an opportunity for Volex to break into the third-party accessory market. Qualities developed for other sectors are being applied to our Consumer sector to good effect, e.g., ruggedising capabilities that were driven by the needs of the Industrial sector are now being marketed to - and bought by - floor-care customers. High-speed data cables, originally designed for the Telecom/Datacom sector, are now being applied to TV networking customers. Finally, there are opportunities to leverage existing OEM relationships to win new work with ODMs after they realise the benefits Volex can deliver, particularly since ODMs tend to operate as a global supplier and are looking for global sub-contractors to supply them.

Product-development and cross-sector marketing opportunities like these show great promise for FY2013.

Telecom/Data sector

Business Focus and Market Drivers

The meteoric rise of data traffic has totally transformed the telecom/datacom sector in recent years - as well as the solutions required. Our Telecoms business addresses the continued growth of the mobile communications industry, which is opening up more opportunities both at the cell site and for the core network and the Group continues to provide product for fixed-line telecom equipment.  In the data communications environment, we engage in delivery of interconnect solutions for high-speed computing and data-centre environments.

Market drivers in this sector include industry consolidation, convergence, speed, miniaturisation, 'green' credentials and cloud computing.

Telecom giants continue to merge in a chase for economies of scale and market expansion. The upshot is vendor consolidation; as global telecom companies achieve their global reach through M&A activities, they seek suppliers who operate on a global scale and offer high-end capabilities and a comprehensive product line, with whom they can establish a single-source supplier partnership.

Convergence continues to take place, in the scope of products & solutions that our OEM customers engage in, and in the nature of the end-user services they enable. Emerging platforms, driven by both the mobile and fixed-line sectors, are moving toward ultimately supporting a seamless integration of voice and data services, and of text, audio and video content.

Speed and miniaturisation have become high priorities. Telecom companies are moving predominantly to fibre optics in their networks (e.g. fibre to the exchange, FTTX), elevating transmission speeds and eliminating bottlenecks. Mobile network  base stations, while becoming much smaller in size, are working at orders-of-magnitude greater speeds. Finally, data-centre managers are always looking to address the dual demons of excess heat and greenhouse-gas emissions.

Cloud computing is established as a major phenomenon in both business and consumer computing, leading to rapid growth of data centres and network traffic volumes, and a co-incident demand for those smaller, faster and greener solutions.

FY2012 Performance

Geographic dynamics and macroeconomic factors played a big hand in sector revenues last year. In the US, the AT&T acquisition proposal (for T-Mobile USA) put a great deal of prospective business on hold in the second half of the year. In Europe, uncertainty brought on by the sovereign debt crises again put the brakes on business, particularly in the second half of the year. India remained adversely impacted by continued delays in network infrastructure roll-out. Taken together, these factors led to a decrease in revenues of 10%, to $99.4m. More positively, normalised gross margins increased 2.4 percentage points to 21.2% as a result of selling more of our higher-margin products, due to earlier involvement with customers enabled by the sector's growing design expertise.

There were additional developments during the year that show promise for FY2013. Volex saw its datacom business grow significantly in FY2012. Much of it was due to the introduction of the Group's QSFP product, which leveraged an interim move to high-speed copper interconnects for short-hop transmissions in data centres as customers looked for new cost-cutting measures. Building on its QSFP successes, Volex is targeting additional major players in the data-center space for new-business opportunities in FY2013.

In addition, the Group's continued talent development, particularly in engineering resources, will continue to create opportunities. For example, one of the Group's leading telecom customers is based in China, but does roughly half of its business outside of China. Volex was selected in FY2012 as the only data-interconnect partner for this telecom company's overseas business.

Volex's move to work more closely with the customer is already showing results. There is more early involvement in the customer's strategic R&D and product-design processes, and improved engagement with senior customer executives outside procurement.

Outlook for 2013

While uncertain market conditions are expected to continue to affect levels of investment in the telecoms industry, our sector team is well placed to build on the strategies established during the year. The high-speed QSFP datacom product will continue to be a sought-after solution as we continue to expand the Group's presence in the data centre sector, while continuing to develop more advanced, fibre-based solutions.

As a result, the Group is winning more contracts for specialised products that are further tailored to customers' needs. In addition, there are new market opportunities afoot with active optical cable assemblies and high-speed input/output cable assemblies for 100Gb/s transmission. China is expected to provide significant growth opportunities, particularly in the datacom sector.

Healthcare

Business Focus and Market Drivers

The Group's primary focus in the Healthcare sector has traditionally been in imaging systems, like MRIs and ultrasound machines, which still represent approximately 70% of revenues for the sector. Volex's activity also extends to several other medical arenas including clinical diagnostics, medical therapy systems, patient care equipment, surgical systems and patient monitoring equipment.

The key market drivers that affect Volex's opportunities in healthcare are fourfold. 'Middle-class' populations in China and India, in particular, are growing dramatically, with commensurate demands for an upgrade in their healthcare services. Accompanying this burgeoning middle class is continued growth of the chronic diseases that follow from the middle-class lifestyle and diet, such as type-2 diabetes and forms of heart disease.

Secondly, demographic changes such as ageing populations are increasing the number of patients seeking treatments, spurring ever-earlier diagnoses and home healthcare solutions such as patient self-monitoring.

The push to control rising medical costs is putting a greater emphasis on preventative care, early diagnosis, less invasive procedures, and greater automation in treatment. Playing into Volex's strength is an increasing reliance on image-guided therapies.

Finally, global customers are looking for a single-source supplier who can meet their needs across a full range of price points. To that end, they want suppliers who have a global reach, with robust, globally distributed supply chains.

2012 Performance

The recent trend of strong year-on-year growth in the Healthcare sector continued for the third straight year, with revenue growing 24% to $51.7m. This revenue growth was accompanied by an increasing gross margin which rose 4.1 percentage points to 27.5%.

This significant growth in FY2012 was driven by three main factors: growth with existing customers, expansion into new markets and leveraging our global footprint. The sector enjoyed success through increasing its business with its largest customer as a result of its ongoing investment in application engineers, working collaboratively with the customer on their premises and designing solutions to their connectivity needs.

New business was won in such areas as kidney and liver dialysis machines, drug delivery systems and infection control systems, such as sterilisers.

Lastly, the sector's ability to capitalise on opportunities, as a result of its global production footprint, has been significant. Volex's Healthcare sector has been able to differentiate itself by better supporting the needs of the global customer looking to single-source its suppliers. Recent systems integration initiatives across the supply chain better enable the Group to provide a seamless experience for the customer.

Those customers with the greatest margin-growth potential are looking for early involvement of their suppliers in the design process. Volex's continued enhancement of its engineering capabilities - particularly in providing value-adding specialty qualities, like signal integrity and advanced materials science - are providing the groundwork for long-term partnerships devoted to co-creation initiatives.

Finally, with increased regulatory controls, not to mention when human life is on the line, Volex's development of robust quality systems is raising the Group's appeal as just that kind of valued partner.

Outlook for 2013

The sector is well-positioned to continue its recent growth into FY2013. In addition to developing further existing products and customers, incremental revenue is expected from new products. As an example, a new kidney and liver dialysis system will be launched towards the end of 2012 to a new customer, the result of Volex and the customer's engineers co-creating the required cable assemblies at the customer's facility.

Industrial sector

Business Focus and Market Drivers

The industrial sector presents a wide variety of opportunities for Volex, including applications for the agriculture, transportation, manufacturing and energy markets, and industrial test and measurement equipment.

Market drivers specific to this sector include growing prevalence of sensors and increasing automation.

The world is becoming sensor-dependent. CNN recently named data analytics the leading job opportunity in the year 2020. Sensors need high-speed interconnects capable of handling the speed and size of today's data transmissions. Industrial customers are moving to greater automation, even in the huge manufacturing centers of China, and particularly for conditions that are too harsh for efficient manual operations. This has put a premium on durability in extreme conditions. Examples of this automation include robotics on assembly lines and testing equipment in steel furnaces.

In addition, our opportunities in the Industrial sector are impacted by broader trends of customised connectivity design, and single-sourcing of suppliers.

 

2012 Performance

Revenue growth for the year was 6%, with total revenues of $36.3m. Although in line with annual revenue growth of 6% for the Group as a whole, the sector revenue in the second half was held back by de-stocking at one major customer.  This de-stocking occurred primarily in Q3 and encouragingly revenue rebounded in Q4 to levels closer to those reported in the first half of the year.

New projects were won with anchor customers, including a manufacturing-automation customer which has standardized on Volex products. Significant development also occurred in the growing sub-sectors of renewable energy and assembly automation (robotics). Normalised gross margin of 22.6% declined one percentage point from FY2011, due principally to lower volumes in Q3.

Several developments during FY2012, aligning with some of the market drivers, bode well for future Volex performance in this sector. Design agreements were signed with existing customers, with design engineers placed on-site at customer facilities, and robust testing capabilities were brought online. One customer standardised all their design around the Volex product, citing product quality, engineering expertise, and supply availability from our global footprint and integrated supply chain.

Our LEAN manufacturing initiative enabled our globally-distributed production facilities to better support our customers' just-in-time inventory management practices. The Group's customer managers understood the issues, were sensitive to clients' singular needs, and drove solution development that ensured those needs were met. This resulted in winning more than one "Best Supplier" award.

Outlook for 2013

The market is looking for complete collaborative design solutions, including the use of eco-sensitive materials, and ever-shorter design cycles to support their time-to-market mandates. Volex is well positioned to benefit from this trend and this is an opportunity for the Group to leverage further the build-up of design engineering capabilities.

Another opportunity being developed lies in harsh-environment solutions. Since Volex customers' products are often subject to extreme conditions, they need to be ruggedised. To that end, the Group has added harsh-environment specialists. Volex is also forging new ground in materials science R&D, going so far as to develop collaborative relationships with several leading universities and testing labs.

The Group will also look to move into adjacent markets, winning new work with the suppliers to the OEMs we already do work for. Volex is also moving an untapped opportunity into the pipeline: the public sector. Once new-product approvals are obtained, new and significant opportunities will open up for such governmental sectors as homeland security and automated toll-road systems.

Manufacturing Operations & Supply Chain

Manufacturing Operations

Enhancement efforts continue to be made on two fronts: plant, machinery and tooling, and personnel. With the majority of output through the Group's Chinese facilities, the main plant upgrade efforts this past year were at the plants in Henggang and Suzhou, and work has also now begun on a major expansion and upgrade of the Volex plant in Batam, Indonesia. These improvements will bear even greater fruit over the next two years as the manufacturing process is comprehensively redesigned in a continuation of the Group's LEAN manufacturing initiative.

The Chinese facilities were also the focus of machinery improvements, some by upgrading controller systems, some by installing new machines. More robust improvements are expected in FY2013, when several state-of-the-art machines will be added to the production line in Henggang. Significant improvements will also be made in tooling, with upgrades that double the throughput, while providing greater precision and reliability and reducing wastage.

In 2012, Volex upgraded personnel through both training and recruitment of new talent. At the management level, new plant managers were installed at a number of facilities. In addition, all plant managers have gone through extensive training, from behavioural training to skill and process training, and initiatives to train production-line employees were also launched, helping to ensure the Group's production people are much better prepared to understand and align with customer needs.

Process changes on the plant floor were also introduced. Line designs were aligned to keep all workers consistently productive and in coordination with each other (which also reduced inventory build-up, consequently decreasing the opportunity for product defects and damage that can result from excessive handling), and more quality assurance measures were introduced.

While our global manufacturing footprint provides structural efficiencies for getting product to our customers, we also added ten new distribution hubs this past year to provide even greater logistical performance.

Supply Chain

The issues Volex addressed with supply chain improvements in FY2012 were largely about being more responsive to customer inventory-management needs. The Group's LEAN manufacturing initiative has been devoted to aligning the entire supply chain in order to decrease inventory and reduce component lead times. Changes by our suppliers to their tooling lead times are expected to drive down the time for that part of the overall production process from 6-8 weeks toward a goal of 2 weeks.

Technology

A desire to understand fully our customers' technological needs has been at the heart of a major initiative continued in FY2012: holding technology reviews with key clients, so that we are better able to align our capabilities with where they see their business going - and even anticipate their needs through breakthroughs in our own research and development (R&D).

Engineering expertise

Following on from work started in FY2011, we have been developing our optical interconnect range of products: the optical cables that link computers with other computing devices and also provide internal connections. Copper is the established technology for short-run high-data volume transmissions.  But the size of these short-run data streams today is a growing opportunity for transmission by fibre optics. Fibre can handle higher speeds, up to 100Gb/second, at reduced cost.

In FY2012, this initiative gained momentum. The Group added technology experts and now has some of the best signal-integrity engineers in the business. Now the work is addressing multiple optical product opportunities, like optical USB cables, and related applications.

Much of our development effort has been focused on sector-specific opportunities. For the Telecoms/Datacoms sector, the issues are miniaturisation and speed, with digital-only signals. In the Healthcare sector, Volex has typically been focused on the large imaging cable-types, where image clarity is paramount, particularly with the increasing density of the data being transmitted. Speed and signal integrity, along with miniaturisation, are obviously driving forces in the Consumer sector and influencing R&D in the optical-interconnect space. The Group's advanced signal-integrity expertise has provided a critical advantage there.

Innovation

The company's R&D activities are focused on driving innovation throughout its product portfolio, to enable it to deliver new or enhanced customer-specific connection solutions. For instance, in the US, several collaborative efforts in materials science are under way with major universities and testing labs. This provides unprecedented opportunities to experiment with new materials. The consequent advances made by the Group in material sciences now enables Volex engineers to bring new levels of ruggedness and flexibility to manufacturing robotics products, for example, where highly repetitive machine actions and continual vibration are significant challenges to durability.

The Group has also increased its participation on standards committees. Getting involved with such organizations as the Video Electronics Standards Association (VESA) and the Optical Fiber Communication Conference (OFC) allows the Group to stay in touch with the directions that next-generation interconnects will be taking and provides enlightened focus to product development.

In summary, strategically driven investment across a number of technological fronts in FY2012 is opening up new opportunities to be developed in FY2013.

 

People, Processes, Platforms

People

There was an infusion of new talent as a progressive reorganisation brought upgrades, particularly by enhancing strategic marketing and sales experience. Engineering capabilities were also strengthened, from engineering design and application development to specialisations for capitalising on where promising growth opportunities will be, e.g., halogen-free injection moulding.

As the Group moves up the value chain the approach to human capital is evolving. The focus now is on talent development as well as talent acquisition, which is supported by the strengthening of our global HR team.

Processes

Performance Management is one process that has received attention. All employees will now participate in performance appraisals that have been developed to enable objective comparisons to be made between organisation functions and across geographies.  An on-line appraisal process has been introduced for the first time that covers around 200 of the most senior employees.

To combat an industry-wide tendency of high attrition, especially in the production facilities in China, the Group has made a number of positive changes. Every new production-line hire is assigned a mentor, who is given added incentives for developing and retaining their charges. Work-flow was altered so that responsibilities were more equitable and provided opportunities for more diversified skill development. Process re-engineering in the plants has led to a multifunction-team approach, which has proven to be more personally rewarding. These changes have all contributed to a decrease in attrition, along with the increased efficiencies and performance that come with more continuity on the production lines.

Platforms

We have already seen benefits from investment in our platforms. In the last year, the institution of vendor reviews has enhanced accountability in the supply chain. Systems integration between Volex and its vendors has increased supply-chain stability and efficiency of operational processes, and reduced error rates. Two new global data centers have been implemented, one in Europe, the other in Asia, to provide consistent data access across all locations, while the cultural transformation is moving people to embrace technology and apply the data-driven knowledge it can provide.

The result of this is that we are able to use information more productively, particularly for anticipating future challenges and opportunities, but also to help build and support stronger relationships with customers.

Consolidated Income Statement
For the 52 weeks ended 1 April 2012 (52 weeks ended 3 April 2011)
		2012			2011 (restated)
		Before non-recurring items and share based payments	Non-recurring items and share based payments	Total	Before non-recurring items and share based payments	Non-recurring items and share based payments	Total
	Notes	$'000	$'000	$'000	$'000	$'000	$'000
Revenue	2	517,769	-	517,769	490,009	-	490,009
Cost of sales	3	(415,250)	(4,990)	(420,240)	(397,940)	-	(397,940)
Gross profit		102,519	(4,990)	97,529	92,069	-	92,069
Operating expenses		(70,515)	(3,976)	(74,491)	(65,994)	(2,602)	(68,596)
Operating profit / (loss)		32,004	(8,966)	23,038	26,075	(2,602)	23,473
Finance income		73	-	73	222	-	222
Finance costs		(3,900)	-	(3,900)	(3,383)	-	(3,383)
Profit / (loss) on ordinary activities before taxation		28,177	(8,966)	19,211	22,914	(2,602)	20,312
Taxation	4	(3,445)	1,416	(2,029)	(3,787)	127	(3,660)
Profit / (loss) for the period attributable to the owners of the parent		24,732	(7,550)	17,182	19,127	(2,475)	16,652
Earnings per share (cents)
Basic	5	43.7		30.4	33.7		29.3
Diluted	5	42.4		29.4	32.4		28.2

Consolidated Statement of Comprehensive Income
For the 52 weeks ended 1 April 2012 (52 weeks ended 3 April 2011)
		Group
		2012 $'000	2011 (restated) $'000
Profit for the year		17,182	16,652
Other comprehensive income / (loss):
Gain / (loss) on hedge of net investment taken to equity		(479)	827
Cash flow hedges:
Gain / (loss) arising during the period		1,295	-
Exchange gain / (loss) on translation of foreign operations		(886)	(1,843)
Actuarial gain / (loss) on defined benefit pension schemes		(1,828)	1,500
Other comprehensive income / (loss) for the year		(1,898)	484
Tax relating to components of other comprehensive income		-	-
Total other comprehensive income / (loss) for the year		(1,898)	484
Total comprehensive income for the year attributable to the owners of the parent		15,284	17,136

Consolidated Statement of Financial Position
As at 1 April 2012 (3 April, 2011, 4 April 2010)		Notes		2012 $'000	2011 (restated) $'000		2010 (restated) $'000
Non-current assets
Goodwill			3,085		3,109	2,928
Other intangible assets			2,897		2,120	998
Property, plant and equipment			20,022		12,465	11,378
Other receivables			543		322	323
Deferred tax asset			5,098		2,157	407
			31,645		20,173	16,034
Current assets
Inventories			49,790		51,889	41,718
Trade receivables			90,612		105,200	77,929
Other receivables			15,092		12,927	13,306
Current tax assets			703		722	584
Derivative financial instruments			1,453		-	-
Cash and bank balances	9		43,578		20,397	27,638
			201,228		191,135	161,175
Total assets			232,873		211,308	177,209
Current liabilities
Borrowings	9		2,398		27,542	428
Obligations under finance leases	9		117		195	97
Trade payables			88,551		91,641	68,523
Other payables			34,574		35,513	25,447
Current tax liabilities			5,938		4,393	8,194
Retirement benefit obligation			596		251	235
Provisions	10		1,078		2,940	6,151
Derivative financial instruments			54		296	563
			133,306		162,771	109,638
Net current assets			67,922		28,364	51,537
Non-current liabilities
Borrowings	9		37,420		-	38,463
Obligations under finance leases			-		108	135
Other payables			706		-	-
Deferred tax liabilities			2,563		2,309	99
Retirement benefit obligation			2,976		1,883	3,384
Provisions	10		4,590		5,744	6,165
Non-equity preference shares			-		207	121
			48,255		10,251	48,367
Total liabilities			181,561		173,022	158,005
Net assets			51,312		38,286	19,204
Equity attributable to owners of the parent
Share capital			28,180		28,180	25,940
Share premium account			2,586		2,586	2,586
Hedging and translation reserve			(4,252)		(4,182)	(3,166)
Own shares			(5,271)		(2,240)	-
Retained earnings / (losses)			30,069		13,942	(6,156)
Total equity			51,312		38,286	19,204

Consolidated Statement of Cash Flows
For the 52 weeks ended 1 April 2012 (52 weeks ended 3 April 2011)
	Notes		2012 $'000	2011 (restated) $''000
Net cash generated from operating activities	8		30,353	11,087
Cash flow generated from / (used in) investing activities
Interest received			73	222
Proceeds on disposal of intangible assets, property, plant & equipment			79	101
Purchases of property, plant & equipment			(10,263)	(4,363)
Purchases of intangible assets			(1,986)	(1,200)
Acquisition of own shares (net of funds received on option exercise)			(3,031)	-
Net cash outflow arising on disposal of operations			-	(247)
Net cash generated used in investing activities			(15,128)	(5,487)
Cash flows before financing activities			15,225	5,600
Cash generated before non-recurring items			19,932	5,847
Net cash outflow arising on disposal of operations			-	(247)
Cash utilised in respect of non-recurring items			(4,707)	-
Cash flow generated from / (used in) financing activities
Dividends paid			(2,712)	-
Repayment of borrowings	9		(26,377)	(14,387)
Repayment of preference shares			(130)	-
Refinancing costs paid			(1,655)	(24)
New bank loans raised	9		39,544	-
Repayments of obligations under finance leases	9		(181)	(144)
Net cash generated / (used) in financing activities			8,489	(14,555)
Net increase / (decrease) in cash and cash equivalents			23,714	(8,955)
Cash and cash equivalents at beginning of year	9		18,525	27,210
Effect of foreign exchange rate changes	9		(1,059)	270
Cash and cash equivalents at end of year	9		41,180	18,525

Consolidated Statement of Changes in Equity
For the 52 weeks ended 1 April 2012 (52 weeks ended 3 April 2011)
	Share capital	Share premium account	Hedging and translation reserve	Own shares	Retained earnings /  (losses)	Total equity
	$'000's	$'000's	$'000's	$'000's	$'000's	$'000's
Balance at 5 April 2010 (restated)	25,940	2,586	(3,166)	-	(6,156)	19,204
Profit for the period attributable to the owners of the parent	-	-	-	-	16,652	16,652
Other comprehensive income / (loss) for the period	-	-	(1,016)	-	1,500	484
Total comprehensive income / (loss) for the period	-	-	(1,016)	-	18,152	17,136
Issue of share capital	2,240	-	-	-	-	2,240
Own shares acquired in the period	-	-	-	(2,240)	-	(2,240)
Reserve entry for share option charge	-	-	-	-	1,946	1,946
Balance at 3 April 2011 (restated)	28,180	2,586	(4,182)	(2,240)	13,942	38,286
Profit for the period attributable to the owners of the parent	-	-	-	-	17,182	17,182
Other comprehensive income / (loss) for the period	-	-	(70)	-	(1,828)	(1,898)
Total comprehensive income / (loss) for the period	-	-	(70)	-	15,354	15,284
Dividends	-	-	-	-	(2,712)	(2,712)
Own shares acquired in the period	-	-	-	(3,031)	-	(3,031)
Reserve entry for share option charge	-	-	-	-	3,485	3,485
Balance at 1 April 2012	28,180	2,586	(4,252)	(5,271)	30,069	51,312

1.       Basis of preparation

The preliminary announcement for the 52 weeks ended 1 April 2012 has been prepared in accordance with the accounting policies as disclosed in Volex plc's Annual Report and Accounts 2011, as updated to take effect of any new accounting standards applicable for the year as set out in Volex plc's Interim Statement 2011.

The annual financial information presented in this preliminary announcement for the 52 weeks ended 1 April 2012 is based on, and is consistent with, that in the Group's audited financial statements for the 52 weeks ended 1 April 2012, and those financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The independent auditors' report on those financial statements is unqualified and does not contain any statement under section 498 (2) or 498 (3) of the Companies Act 2006.

Information in this preliminary announcement does not constitute statutory accounts of the Group within the meaning of section 434 of the Companies Act 2006. The full financial statements for the Group for the 52 weeks ended 3 April 2011 have been delivered to the Registrar of Companies. The independent auditor's report on those financial statements was unqualified and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

US Dollars Presentational Currency

Following the disposal of the Wiring Harness division in 2009 and sustained international growth, the cash flows and economic returns of the Company and entities over which it has control (its subsidiaries), (together the 'Group'), are now principally denominated in US Dollars ('USD').  From 4 April 2011, the Group changed its currency in which it presents its consolidated and parent Company financial statements from Pounds Sterling ('GBP') to USD.

A change in presentation currency is a change in accounting policy which is accounted for retrospectively. Statutory financial information included in the Group's Annual Report and Accounts for the 52 weeks ended 3 April 2011 and 4 April 2010 previously reported in GBP has been restated into USD using the procedures outlined below:

·      assets and liabilities denominated in non-USD currencies were translated into USD at period end closing rates of exchange;

·      share capital, share premium and own reserves were translated at the historic rates prevailing at 5 April 2004 (i.e. the transition date to IFRS) or the subsequent dates of transactions;

·      non-USD trading results were translated into USD at average rates of exchange;

·      the cumulative hedging and translation reserve was set to nil at 5 April 2004 (i.e. the transition date to IFRS). All subsequent foreign exchange translation movements comprising differences on the retranslation of the opening net assets of non-USD subsidiaries and the retranslation of the trading results of non-USD subsidiaries have been charged to the hedging and translation reserve; and

·      exchange differences recognised directly in the hedging and translation reserve arising from foreign exchange hedging instruments or monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur were translated into USD at average rates of exchange.

All exchange rates used were extracted from the Group's underlying financial records.  The exchange rates used were as follows:

USD / GBP exchange rate	FY2012	FY2011	FY2010
Closing Rate	1.5983	1.6111	1.5169
Average Rate	1.5978	1.5510	1.5958

Going concern

As highlighted in note 7, on 31 May 2011 the Group signed a new committed revolving credit facility through which it will meet its day to day working capital requirements. This new facility is available until June 2015.

The Group's forecasts and projections, taking reasonable account of possible changes in trading performance, show that the group should be able to operate within the level of this new facility. The Group has access to additional undrawn committed facilities together with long established contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the ongoing uncertain economic outlook.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these summarised financial statements.

This preliminary announcement was approved by the Board of Directors on 29 May 2012.

2.       Businessand geographical segments

Operating segments

Revenue	2012 $'000	2011 (restated) $'000
Consumer	330,372	304,336
Telecoms / Datacoms	99,440	109,948
Healthcare	51,663	41,536
Industrial	36,294	34,189
	517,769	490,009

Gross profit	Before non-recurring items $'000	Non-recurring items $'000	2012 Total $'000	2011 (restated) $'000
Consumer	59,113	(4,990)	54,123	53,609
Telecoms / Datacoms	21,034	-	21,034	20,653
Healthcare	14,186	-	14,186	9,735
Industrial	8,186	-	8,186	8,072
	102,519	(4,990)	97,529	92,069
Unallocated operating expenses (excluding share based payments)			(70,515)	(65,994)
Operating profit before share-based payments			27,014	26,075
Share-based payments			(3,976)	(2,602)
Operating profit			23,038	23,473
Finance Income			73	222
Finance costs			(3,900)	(3,383)
Profit before tax			19,211	20,312
Tax			(2,029)	(3,660)
Profit after tax			17,182	16,652

Operating expenses and charges for share-based payments have not been allocated to sectors as management report and analyse sector profitability at the gross profit level and there is no meaningful basis for any such allocation.

Geographical segments
The Group's revenue from external customers and information about its non-current assets (excluding deferred tax assets) by geographical location are provided below:
	External revenue by destination		Non Current Assets
	2012 $'000	2011 (restated) $'000	2012 $'000	2011 (restated) $'000	2010 (restated) $'000
Asia (excluding India)	299,205	256,559	18,594	10,590	9,029
North America	100,446	105,848	742	662	965
Europe (excluding UK)	89,723	93,978	420	243	320
India	11,371	19,556	574	719	863
South America	17,024	14,068	430	368	388
UK	-	-	5,787	5,434	4,062
	517,769	490,009	26,547	18,016	15,627

3.       Non-recurring items

	2012 $'000	2011 (restated) $'000
New product start-up costs	4,990	-

Exceptional start-up costs of $4,990,000 (2011: $nil) were incurred in relation to new product introductions; specifically the migration from PVC to halogen free power cords.  These new products necessitated wide ranging improvements to our manufacturing processes and investments in higher grade tooling and precision moulding technologies.  The exceptional costs include the materials scrappage costs and labour inefficiencies associated with the new product lines.

4.       Taxation

	2012	2011 (restated)
	$'000	$'000
Current tax - charge for the period	4,409	5,746
Current tax - adjustment in respect of previous periods	303	(2,493)
Total current tax	4,712	3,253
Deferred tax	(2,683)	407
Income tax expense	2,029	3,660

5.       Earnings per share

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

Earnings		2012	2011 (restated)
		$'000	$'000
Profit for the purpose of basic and diluted earnings per share being net profit attributable to equity holders of the parent		17,182	16,652
Adjustments for:
Non-recurring items		4,990	-
Share-based payments charge		3,976	2,602
Tax effect of above adjustments		(1,416)	(127)
Normalised earnings		24,732	19,127
		No.shares	No.shares
Weighted average number of ordinary shares for the purpose of basic earnings per share		56,582,380	56,821,563
Effect of dilutive potential ordinary shares - share options		1,777,754	2,141,432
Weighted average number of ordinary shares for the purpose of diluted earnings per share		58,360,134	58,962,995

5.       Earnings per share (continued)

		2012	2011 (restated)
Basic earnings per share		Cents	Cents
Basic earnings per share		30.4	29.3
Adjustments for:
Non-recurring items		8.8	-
Share-based payments charge		7.0	4.6
Tax effect of above adjustments		(2.5)	(0.2)
Normalised basic earnings per share		43.7	33.7
Diluted earnings per share
Diluted earnings per share		29.4	28.2
Adjustments for:
Non-recurring items		8.6	-
Share-based payments charge		6.8	4.4
Tax effect of above adjustments		(2.4)	(0.2)
Normalised diluted earnings per share		42.4	32.4

Normalised earnings per share has been calculated on the basis of profit before non-recurring items and share-based payments, net of tax. The Directors consider that the normalised diluted earnings per share calculation gives the best understanding of the Group's earnings per share in the current and prior period.

6.       Dividends

	2012	2011
	$'000	(restated) $'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 3 April 2011 of 2p per share (2010: £nil)	1,850	-
Interim dividend for the 52 weeks ended 1 April 2012 of 1.5 cents per share (2011: $nil)	862	-
	2,712	-
Proposed final dividend for the year ended 1 April 2012 of 3.0 cents per share (2011: 2p)	1,699	1,830

The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these summarised financial statements.

7.       Bank facilities and refinancing

On 31 May 2011 the Group signed and entered into a new US$75 million multi-currency combined revolving, overdraft and guarantee facility with a syndicate of three banks (Lloyds Banking Group plc, HSBC Bank plc and Clydesdale Bank plc - together 'the Syndicate').  The facility is available until June 2015.  The principal terms of the facility are as follows:

·      no scheduled facility amortisation

·      pricing (margin over LIBOR) payable linked to a net debt:EBITDA leverage ratio. Initial margin of 2.00% above LIBOR reduced to 1.75% above LIBOR by 1 April 2012;

·      Interest cover and net debt:EBITDA leverage covenants

·      further US$150m pre-negotiated facility agreed to fund future, as yet unidentified, acquisitions

·      the facility is secured by fixed and floating charges over the assets of certain Group companies.

At 1 April 2012, the Group had available $30,950,000 (2011: $20,783,000, 2010: $21,237,000) of undrawn committed borrowing facilities.

8.       Notes to cash flow statement

	2012 $'000	2011 (restated) $'000
Profit for the period	17,182	16,652
Adjustments for:
Finance income	(73)	(222)
Finance costs	3,900	3,383
Income tax expense	2,029	3,660
Depreciation on property, plant and equipment	2,448	3,041
Amortisation of intangible assets	1,155	390
Loss on disposal of property, plant and equipment	48	23
Share option charge	3,976	2,602
Decrease in provisions	(3,122)	(4,347)
Operating cash flow before movement in working capital	27,543	25,182
Decrease / (increase) in inventories	968	(9,340)
Decrease / (increase) in receivables	9,161	(24,708)
(Decrease) / increase in payables	(1,340)	29,501
Movement in working capital	8,789	(4,547)
Cash generated from operations	36,332	20,635
Cash generated by operations before non-recurring items	41,039	20,635
Cash utilised by non-recurring items	(4,707)	-
Taxation paid	(3,199)	(6,774)
Interest paid	(2,780)	(2,774)
Net cash generated from operating activities	30,353	11,087

9.       Analysis of net debt

	Cash and cash equivalents $'000	Bank loans $'000	Finance leases $'000	Debt issue costs $'000	Total $'000
At 4 April 2010 (restated)	27,210	(39,966)	(232)	1,503	(11,485)
Cash flow	(8,955)	14,387	144	24	5,600
Exchange differences	270	(905)	(16)	65	(586)
Other non-cash changes	-	-	(199)	(778)	(977)
At 3 April 2011 (restated)	18,525	(26,484)	(303)	814	(7,448)
Cash flow	23,714	(13,167)	181	1,655	12,383
Exchange differences	(1,059)	988	5	7	(59)
Other non-cash changes	-	-	-	(1,233)	(1,233)
At 1 April 2012	41,180	(38,663)	(117)	1,243	3,643

Debt issue costs relate to bank facility arrangement fees. Amortisation of debt issue costs in the year amounted to $1,233,000 (2011: $778,000).

9.       Analysis of net debt (continued)

Analysis of cash and cash equivalents:		2012 $'000	2011 (restated) $'000	2010 (restated) $'000
Cash and bank balances		43,578	20,397	27,638
Bank overdrafts		(2,398)	(1,872)	(428)
Cash and cash equivalents		41,180	18,525	27,210

10.     Provisions

	Property $'000	Corporate restructuring $'000	Other $'000	Total $'000
At 4 April 2010 (restated)	10,321	927	1,068	12,316
Charge / (credit) in the year	253	-	(330)	(77)
Utilisation of provision	(3,034)	(852)	(461)	(4,347)
Unwinding of discount	322	54	-	376
Exchange differences	358	18	40	416
At 3 April 2011 (restated)	8,220	147	317	8,684
Charge / (credit) in the year	(1,631)	11	-	(1,620)
Utilisation of provision	(1,356)	-	(146)	(1,502)
Unwinding of discount	216	-	-	216
Exchange differences	(78)	(7)	(25)	(110)
At 1 April 2012	5,371	151	146	5,668
Less: included in current liabilities	(831)	(101)	(146)	(1,078)
Non-current liabilities	4,540	50	-	4,590

Property provisions

Property provisions represent the anticipated net costs of onerous leases and associated dilapidations. The provisions have been recorded taking into account management's best estimate, following appropriate advice, of the anticipated net cost of the lease over the remaining lease term and the level of sub-lease rental income, if any, that can be obtained from sub-tenants. This provision will be utilised as the rental payments, net of any sub-lease income, fall due through to 2020.

Corporate restructuring

The provision at 4 April 2010 of $927,000 included an amount relating to the compensation for loss of office payable to the former CEO of the Group, who left the Group on 9 March 2009. During the prior year full and final settlement was made with regards to this claim.

Other

Other provisions include the Directors' best estimate, based upon past experience, of the Group's liability under specific product warranties and legal claims.  The timing of the cash out-flow with respect to these claims is uncertain.

11.    Reconciliation of operating profit to normalised EBITDA (earnings before interest, tax, depreciation, amortisation, non-recurring items and share-based payment charge):

	2012	2011 (restated)
	$'000	$'000
Operating profit	23,038	23,473
Add back:
Non-recurring items	4,990	-
Share-based payment charge	3,976	2,602
Normalised operating profit	32,004	26,075
Depreciation of property, plant and equipment	2,448	3,041
Amortisation of acquired intangible assets	1,155	390
Normalised EBITDA	35,607	29,506

 

END

 

 

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