Final Results
Volex Group PLC
14 June 2006
Embargoed until 07.00am, 14 June 2006
VOLEX GROUP plc
_______________
Preliminary Announcement of the Group Results
_____________________________________________
for the Financial Year ended 2 April 2006
_________________________________________
Volex Group plc, the global electrical and electronic cable assemblies group,
today announces its preliminary results for the financial year ended 2 April
2006.
Financial Highlights:
• Sales increased by 2.4% to £250.4m (2005: £244.6m)
• Operating profit (before £8.6m major restructuring programme charge (2005:
£6.8m) increased threefold to £5.3m (2005: £1.8m)(1)
• Cash generated by operations:
Before cost of major restructuring programme £13.2m (2005: £1.8m)
After cost of major restructuring programme £11.7m (2005: £1.6m)
• Loss per share before cost of major restructuring programme 1.0p
(2005:loss 23.4p)
• Basic loss per ordinary share 18.5p (2005: loss 46.2p)
• Net borrowings at 2 April 2006 £13.3m (2005: £30.5m)
(1) The operating loss after the £8.6m major restructuring programme charge
(2005: £6.8m) was £3.3m (2005: loss £5.0m)
The Chairman of Volex, Richard Arkle, commented:
'In June 2005 we raised £17.6m net of costs by way of an equity placing with
existing and new shareholders in order to provide the financial and strategic
stability to allow us to execute a long-term strategy that will result in
sustainable returns over the forthcoming years. We have made significant
progress in achieving the key elements of the strategic plan set out in the
Circular to shareholders on 6 June 2005. We generated cashflows from operations
of £11.7m after the cost of the major restructuring compared with £1.6m last
year. Our balance sheet is now much stronger.
We have now passed the inflexion point of restructuring into a path of growth
and profitability but we nevertheless recognise the significant challenges ahead
of us. The industry dynamics of customers reducing their vendor base, rising
commodity prices and pricing pressure are issues we face daily. Predicting the
future in today's uncertain environment is difficult but we are confident that
following the major changes that have been achieved over the last 12 months, we
are well placed to make further progress towards bottom line profitability and
enhancing shareholder value.'
Ends
Volex will host an analysts' meeting today at 9.00am at the offices of Evolution
Securities Limited, 100 Wood Street, London, EC2V 7AN.
For further information, please contact:
Volex Group plc Today: 020 7067 0700 Thereafter: 01925 830101
Richard Arkle, Chairman
Heejae Chae, Group Chief Executive
Derek Walter, Group Finance Director
Weber Shandwick Square Mile 020 7067 0700
Chris Lynch / Nick Dibden
VOLEX GROUP plc
Preliminary Announcement of the Group Results for the Financial Year ended 2
April 2006
CHAIRMAN'S STATEMENT
____________________
The last year has seen the later stages of the restructuring programme that the
Company embarked on four years ago. In June 2005 we raised £17.6m net of costs
by way of an equity placing with existing and new shareholders in order to
provide the financial and strategic stability to allow us to execute a long-term
strategy that will result in sustainable returns over the forthcoming years. We
have made significant progress in achieving the key elements of the strategic
plan set out in the Circular to shareholders on 6 June 2005. Specifically we
have:
•Realigned the manufacturing footprint and moved to lower cost locations.
By the end of FY2006 we have closed seven facilities and downsized two more
and plan to close three further facilities in FY2007 and downsize one more.
Over 95% of our direct labour force is now located in the low cost areas of
Asia, Mexico and Eastern Europe.
•Restructured the organisation into three global product groups to align
with the market and better serve our customers.
•Strengthened the management team through the addition of key staff in
engineering, sales, sourcing and operations. The new team members join us
from leading companies both inside and outside the industry.
•Enhanced our penetration of high growth and emerging markets such as
medical, high speed assemblies and WiMax (Worldwide Interoperability for
Microwave Access).
•Focused on cost reduction and cash generation to improve profitability
and balance sheet. The Group generated cash flows from operations of £11.7m
compared with £1.6m in the previous year.
•Seen the operating profit before the £8.6m major restructuring programme
charge triple to £5.3m from £1.8m. We managed to increase our operating
margin despite a significant increase in commodity prices and pricing
pressure from our customers. We saw benefits of the cost saving and
restructuring programmes during the second half of the year when we
generated £3.9m operating profit against £1.4m in the first half of FY2006.
•Reduced net borrowings from £30.5m to £13.3m.
Results
The revenues for the financial year ended 2 April 2006 were up 2.4% at £250.4
million and operating profit (before the cost of the major restructuring
programme) was £5.3m (2005: £1.8m). Net borrowings closed at £13.3m, down from
£30.5m a year ago.
The Group took a gross £8.9m charge in respect of the accelerated restructuring
programme but a £0.3m credit in respect of higher fire insurance proceeds
reduced the charge to £8.6m. The net loss for the year after this charge was
£3.3m (2005: loss £5.0m).
The Board is not proposing a dividend in respect of the year.
Board and Management Changes
As the Group is now transitioning from a restructuring phase to one of growth,
changes have been made to the Board and management of the Company. Heejae Chae
was appointed as the Chief Executive Officer of the Group. Heejae has already
served as the Chief Operations Officer and has successfully guided the Group
through the restructuring in the past year, particularly in North America.
Heejae was previously the worldwide General Manager of the Radio Frequency Group
of Amphenol Corporation. Martin May resigned as Chairman after providing
leadership during the restructuring phase. Additionally, Derek Walter, 58, has
tendered his resignation as Finance Director but will remain with the Group
until a new Finance Director has been appointed and an orderly handover period
has been completed. This new management team, together with a significant number
of other new team members, will meet the requirements of the next stage of the
Group's development.
Dimitri Goulandris has also been appointed a non-executive director of the
Board. Dimitri is a partner of Cycladic Capital LLP, which is a major
shareholder of Volex.
Future
The Group is well positioned to take advantage of the dynamics of the global
cable assembly and powercord marketplaces. Based on independent research, Volex
is the third largest player in the cable assembly market (which includes
powercords) and, using internal research material, the largest player in the
powercord assembly market. Despite our leading market positions, our market
share is single digit providing us the opportunity for significant growth. We
are uniquely positioned to grow by leveraging our global footprint, broad
technology capabilities and strategic and preferred relationships with customers
that are leaders in the markets they serve.
We have now passed the inflexion point of restructuring into a path of growth
and profitability but we nevertheless recognise the significant challenges ahead
of us. The industry dynamics of customers reducing their vendor base, rising
commodity prices and pricing pressure are issues we face daily. Predicting the
future in today's uncertain environment is difficult but we are confident that
following the major changes that have been achieved over the last 12 months, we
are well placed to make further progress towards bottom line profitability and
enhancing shareholder value.
In closing, I would like to thank everyone in the organisation. Our people span
the world and many cultures and the business has over one hundred years of
history. We would not have achieved our leadership position if not for the
dedication, hard work and passion of our people. As we move forward to an
exciting future, we recognise that respect, teamwork and collaboration with all
our stakeholders must be the cornerstones that will drive the Group forward on a
global footing and produce the anticipated returns for our shareholders. We will
be asking the shareholders to support a new long term incentive plan for the
senior team and details of the plan will be presented for approval at the AGM.
Richard Arkle
Chairman
CHIEF EXECUTIVE'S REVIEW
During FY2006, Volex Group went through a significant transformation
financially, organisationally and culturally. We emerged from the year poised to
build on our leadership position in the PowerCord, Infocom and Wiring Harness
markets we serve.
We have:
•Restructured the organisation into three global product groups -
PowerCord, Infocom and Wiring Harness - to align with the market and better
serve the customers. We believe that the global nature of our customers and
supply chain require that we operate as a global organisation. Each product
group is responsible for all aspects of the business on a global basis. We
can respond and service consistently the customers' needs anywhere in the
world. We believe that the global structure allows us to leverage the
knowledge, technology and scale to achieve greater efficiency and lower cost
to better serve all our customers across the world.
•Accelerated the global restructuring programme. By the end of FY2006 we
have closed seven manufacturing facilities and downsized two more and we
plan to close three further facilities and downsize one more in FY2007. As a
result, we significantly reduced our costs enabling us to enter FY2007 with
a much lower cost base and over 95% of our direct labour is now located in
the low cost areas of Asia, Mexico and Eastern Europe.
•Streamlined central functions and corporate structure. In order to
empower each global product group, the global purchasing and IT functions
were merged into each product group. Additionally, we have taken action to
benefit from lower costs at headquarters in the coming year. We believe that
the responsibility for business decisions should rest with the product
groups, not the corporate office. The product groups are closer to the
customers and can react much more quickly to the changing marketplace.
•Transformed the organisation's cultural mindset to Global from Regional.
With the reorganisation into global product groups, our perspective and
mindset has become global. We are breaking down the barriers to better share
knowledge and competencies across the organisation. This change will allow
us to better manage our knowledge and technologies to ensure that we provide
the best service consistently to all of our customers throughout the world.
•Developed a performance driven organisation. We enter FY2007 with a focus
on results and accountability. Everyone in the organisation understands our
strategy and goal. We recognise that we must benchmark ourselves against the
competition and drive the organisation to outperform, measuring ourselves
against quantifiable metrics and performance goals.
•Reinforced the organisation with new team members. We believe that people
are our most important asset and we continuously look to invest in
developing new talent at all levels. During the past year, we added key
staff in engineering, sales, sourcing and operations. These individuals
bring with them new perspectives that will fuel our growth.
•Placed emphasis on a common value system. We recognise that our
organisation comprises people from many countries and cultures. Each one of
us brings unique skills and perspectives. It is important that we operate
under common values yet recognise our diversity. We believe that the
following values are universal at Volex: leadership, respect and integrity.
We must promote them through communication and teamwork that will lead to
knowledge sharing across our diverse people.
Markets
The cable assembly market, which encompasses PowerCord, Infocom and Wiring
Harness, is estimated at approximately US$20 billion in annual sales. Volex's
range of technologies and products allow us to participate in a broad variety of
industries including consumer products, data and telecommunications, industrial,
medical, automotive and military.
The consumer product market continues to remain strong as result of healthy
consumer spending across the world. New applications and development further
drives the growth through the introduction of 'must have' products. Volex has
experienced solid gains in the consumer products sector especially for
flat-screen televisions, gaming and music consoles. We anticipate future growth
through continued new product introductions; however, as with other competitive
markets, we expect significant pricing pressure going forward. Our participation
in the sector is primarily through our PowerCord product line, which carries
significant copper content. This commodity has recently experienced large price
increases which are continuing through the early half of FY2007, further
stressing the competitive nature of this business.
The Group's second largest segment comprises data and telecommunications
products. We provide an array of products in telecom infrastructure, computers,
and Internet equipment (servers, storage systems and datacom equipment) and have
preferred supplier status with customers that are leaders in the markets they
serve. We expect the telecom market to continue to grow: in particular the
wireless sector whose indicators remain strong; wireless subscriber growth
continues with new and improved services and lower tariffs; 3G rollouts continue
to gain traction with launches in many geographies; and the convergence of data
and voice is a driver for future growth. As the system requirements increase and
product cycles shorten, we continue to see growth in the sector; however, with
competition from existing players and new entrants from low cost regions,
pricing pressure remains significant.
The medical equipment segment is expected to continue to grow driven by the
demographics of an ever growing and ageing population. The cable assembly supply
base for medical equipment is highly fragmented but evolving: equipment
providers are aggressively managing their supply chains as they look to generate
efficiency and reduce cost. Volex is a major supplier in the sector and now has
established a leadership position with leading medical equipment providers
through leveraging our technology, product offerings, superior service and
global footprint.
In the automotive and military markets we supply niche wiring harness systems
for off-highway equipment, specialist vehicles and aerospace harness systems.
Our sectors have remained steady, unlike the broader automotive markets, and
experienced positive growth trends as a result of the increasing complexity of
harness for specialty vehicles as well as the general growth in defence
spending.
Product Performance
POWERCORDS:
Revenue increased 6.7% in sterling terms. The growth in net sales was a result
of volume increases and higher average selling prices due to a shift in the mix
towards higher end products as well as price increases driven by escalating
copper prices. New sales in consumer game consoles and increased sales to our
Japanese OEM customers were the leading contributors to organic growth. Although
the competitive pricing environment dampened the net sales increase, we continue
to compete successfully on the basis of performance, quality, reliability, brand
reputation, service and support.
Competitive pricing pressures and escalating copper costs contributed to an
increase in cost of sales. Copper prices rose from US$3,300/tonne to US$5,400/
tonne, compared with a reasonably stable average of approximately US$3,000/tonne
in FY2005. The negative impact on the cost of sales was partially offset by
aggressive supply chain management and improvements in labour and operating
costs.
During FY2006, we reorganised the PowerCord division into a single global
product group, allowing us to rationalise our marketing, manufacturing and
technology strategy. We have closed three facilities and downsized one and
intend to close a further site in FY2007, moving the business to our expanded
China operations. This expanded low-cost capacity will provide labour savings,
fixed cost consolidation and supply chain leverage. Additionally, we have
invested in the engineering resources across all regions to enhance our value to
customers on a global basis.
INFOCOM:
The revenue from the Infocom business declined 4.8% as a result of our
rationalising low margin business, increased pricing pressure and a one-time
award of a contract for telecom infrastructure deployment in India completed in
FY2005. However, revenue and profitability improvements were realised in key
market sectors including medical and telecommunications throughout the year.
The Infocom division went through significant changes in FY2006 designed to
align the manufacturing footprint with our customers' requirements and cost
targets. As a result, we consolidated our manufacturing locations into three
principal manufacturing centres: China, Eastern Europe and Mexico, entering
FY2007 with almost 100% of our direct labour based in low cost regions.
Additionally, we undertook significant action to reduce overhead cost by
reorganising the general and administrative structure. The sales organisation
was realigned to provide global coverage of our key accounts and focus on new
account development, enabling us to identify opportunities to leverage our
technologies across application specific opportunities. Capitalising on our
preferred supplier position at market leading customers, we look to leverage our
technologies and products to gain new customers in similar applications. Going
forward, technologies and competencies will be shared and leveraged across the
entire group to best supply our customers with a broad offering of technology
and capabilities.
The Infocom market continues to be highly competitive through the entrance of
low cost suppliers, the need for aggressive year on year cost reductions and the
desire of customers to consolidate their supply bases. Additionally, we face
rising commodity prices with limited visibility of customer demand. With the
need to improve our market position and profitability, the actions we took in
FY2006 and those we will continue to take in FY2007 will create additional
competitive advantage and allow us to achieve our goals. We have begun to see
the benefits of these actions during the second half of the year through
improved profits and cash flow for the Infocom product group.
WIRING HARNESS:
The revenue from the Wiring Harness business increased by 11.8%, despite price
reductions and was a result of the positioning in the growing markets of
construction equipment and military/aerospace. The automotive market remains
highly competitive with the entrance of new low cost suppliers, as well as
aggressive year on year cost reductions. Whilst revenue increased, profitability
came under severe pressure being impacted by an unexpected administration
proceeding at one of our larger customers, rising commodity prices, as well as
significant operational challenges.
The Wiring Harness business in FY2006 continued its drive to improve its
operational performance and cost base. We merged the two separate wiring harness
businesses into one organisation and announced the closure of one of our
manufacturing sites in the UK. Throughout the year we transferred projects to
low cost manufacturing locations. The sales and engineering organisations were
reorganised and strengthened to continue the business development activities
already showing success in FY2006. The drive in FY2007 is to continue the
downsizing in high labour cost areas, whilst improving our operational
performance, focus on business development and build on our very strong
reputation of quality and customer service.
The Future
As we look to the future, there is much uncertainty regarding rising commodity
prices, customer pricing pressures, low cost competition and limited demand
visibility. Challenging as these factors may be, this environment has been the
reality of the industry for the past five years. The competitive landscape is
littered with those unable to adapt to this new environment. Nevertheless,
market leaders have emerged stronger and better and we recognise our challenge
is to outperform them. Volex has struggled for the last five years and has now
emerged to compete aggressively in this challenging marketplace. We believe that
our transformation - financially, organisationally and culturally - will bring
us to the forefront of the competitive landscape. We have aligned our
manufacturing footprint and cost basis to support the most demanding customers;
we have the technology to satisfy cutting edge customers; and we have the supply
chain and logistic competencies to support our global customers. But most
importantly, we have the people who are able to adapt to these constant changes
and continue to provide the best service to our customers.
FINANCE DIRECTOR'S REVIEW
_________________________
International Financial Reporting Standards ('IFRS') and changes to previous
year's figures
FY2006 has been the first year in which Volex Group plc has produced its
financial statements in accordance with IFRS and the comparative figures for the
previous year have been restated accordingly. Details of Volex's IFRS accounting
policies have already been published in the IFRS transition document produced
with the Interim Results for the 26 weeks to 2 October 2005 and published on the
Company's website, and will be included in the Annual Report and Accounts for
FY2006.
The major restatement in the Accounts has been the inclusion in the balance
sheet of the pension fund deficit of two defined benefit schemes, which were
closed on 31 March 2003 and replaced by defined contribution arrangements. At 2
April 2006 the combined deficits on the two defined benefit schemes amounted to
£3.5m (2005: £4.1m).
Overview
The major financial event in FY2006 has been the raising in June 2005 of new
equity (£19.0m before expenses), which has funded the implementation of the
strategy set out in the 6 June 2005 Circular, most notably to date the
realignment of the manufacturing footprint of the Group.
Trading for the year
Turnover for the 52 weeks ended 2 April 2006 at £250.4m increased by £5.8m,
2.4%, over FY2005, including a £7.3m positive currency effect. Thus Group sales
in real terms decreased in the year, due to several factors including the
pruning of approximately US$6m of revenue, which derived from low margin
customer accounts in North America. Operating profit, before the £8.6m major
restructuring programme charge, was £5.3m, giving a return on sales of 2.1%,
compared with £1.8m operating profit and a return on sales of 0.7% in FY2005.
Year on year the average exchange rate for the US dollar appreciated by 2.2%
against sterling and the Singapore dollar by 3.7%, with other less significant
currencies including the Euro also appreciating against sterling.
Sales by destination in Asia and South America increased by 8.1% to £77.0m, in
North America by 3.2% to £74.0m and in Europe, excluding the UK, by 2.7% to
£64.8m. Sales in the UK were down by 10.3% to £34.6m.
Sales of PowerCord products grew by £7.4m, 6.7%, to £118.3m but Infocom product
sales, reflecting the customer base rationalisation in North America and some
pricing pressures particularly in Europe, fell by £5.0m, 4.8%, to £99.4m. Wiring
Harness sales grew by £3.4m, 11.8%, to £32.7m. Operating profits for each
division were impacted by the restructuring programme with most of the
restructuring charge in FY2006 affecting the Infocom division, compared with
FY2005 where most of the charge related to the PowerCord division.
A comparison of Group sales by source or manufacturing location, based on net
sales showed a year on year growth in Asia of £8.8m, 9.7%, to £98.8m, accounting
for 39.4% of the Group's output (2005: 36.8%). North America's net output
increased by £0.8m, 1.1%, in sterling terms to £75.6m over the previous year and
represented 30.2% of Group's total gross output (2005: 30.6%). Sales sourced
from Europe (excluding the UK) fell by £7.6m, 14.8%, to £43.3m and accounted for
17.3% of the Group's net output (2005: 20.8%). UK sourced sales increased by
£3.8m, 13.0%, to £32.7m, 13.1% of the Group's net output (2005: 11.8%).
Gross profit increased by £3.6m to £39.1m and the gross margin to 15.6% compared
with 14.5% in the previous year. The impact of raw material prices, in
particular copper, continued to affect the Group but the restructuring
programme, some sales price increases and the ongoing cost reduction programmes
including procurement and value added engineering programmes contributed to the
increase in margin.
The Group recorded an operating profit (before the £8.6m major restructuring
programme charge) for the year of £5.3m (2005: £1.8m). The translation of
foreign currency operating profits into sterling had a positive impact of £0.6m.
Major restructuring programme
As indicated in the Chairman's Statement in the Interim Report, we have
accelerated the restructuring programme in the latter part of the year. The
charge taken at the half year of £1.8m was in respect of the downsizing of the
Kanata site and some global management reduction. A further charge of £6.8m was
taken in the second half of the year in respect of the closures either already
implemented by the year end (Fremont, Aguascalientes and Thailand), or already
announced and to be implemented in FY2007 (Clinton and Stoke on Trent, the
consolidation of business from Butts Mill, Leigh, onto an adjacent site and the
downsizing of the Hermosillo factory). The £8.6m charge for the year comprised
£3.9m in respect of severance and relocation costs spent or to be spent, £3.1m
in respect of property lease provisions and £1.9m in respect of asset write offs
and other non-cash items less a £0.3m credit in respect of the settlement of the
insurance claim in respect of the September 2004 fire at Tijuana.
The operating loss after debiting the £8.6m major restructuring programme charge
(2005: £6.8m) was a loss of £3.3m (2005: loss £5.0m).
Interest
Finance charges were £3.5m compared with £4.3m in the previous year, reflecting
the lower debt levels following the equity raising. Higher Libor rates and
stronger exchange rates added £0.2m to the charge in FY2006. Refinancing and
amortisation of debt interest costs were £0.7m compared with £0.9m and the
interest charge of £2.8m included interest on the pension deficit and interest
on the restructuring provisions, which combined totalled £0.3m.
Taxation
Despite an overall Group loss before tax, there was a tax charge of £2.4m (2005:
£4.4m). This charge related to taxes paid in countries where taxable profits
were made and also included a charge of £0.6m in respect of prior years' taxes,
mainly comprising withholding tax in Brazil.
Earnings and Earnings Per Share
The basic loss after tax was £9.1m (2005: loss £13.7m) and the basic loss per
share for FY2006 of 18.5p compares with a loss of 46.2p in the prior year. The
adjusted loss (arrived at after adding back the charge for the major
restructuring programme) was a loss of £0.5m and in EPS terms shows an
improvement from a loss of 23.4p in 2005 to a loss of 1.0p per share. The
earnings figures are distorted by the higher than normal tax charge, as referred
to above, and adding back £0.6m in respect of the prior years' tax charge, the
adjusted earnings would have been positive in FY2006.
Excluding the major restructuring programme Volex made pre-tax profits of £2.2m
in the second half of the year and 2.3p earnings per share, compared with a
£0.2m loss in the first half of the year and 3.3p loss per share.
Net assets
Net assets increased, as a result of the equity raising, from £15.1m to £26.1m
at 2 April 2006. A share premium cancellation exercise was approved by the High
Court in October 2005 whereby the share premium account was applied to reduce
the deficit on distributable reserves.
Other significant balance sheet changes
Apart from the increase in equity and reduction in debt levels, which together
with the funds flow is discussed below, the other significant change in the
balance sheet in the year requiring explanation was the increase in the level of
provisions. The long term provisions have increased from £3.0m to £5.0m and the
short term provisions have increased from £0.6m to £4.0m.
Onerous lease provisions were set up in the previous year in respect of two
sites. As a result of the restructuring programme, onerous lease provisions have
been established in FY2006 for a further four sites. The short term provisions
of £4.0m relate to the severance and other relocation costs that are expected to
be paid in the current fiscal year as well as the current year's lease payments
in respect of the sites where onerous lease provisions have been accrued.
Funds flow and borrowings
Cash generated by operations was £11.7m, net of £1.5m restructuring payments,
compared with £1.6m in the previous year. The increased inflow arose from
improvements in working capital of £7.4m - a £4.6m inflow in FY2006 compared
with a £2.8m outflow in the previous year - as well as from improved profits.
Net interest payments fell to £2.5m against £3.8m in the previous year but
taxation payments at £4.4m were £2.2m higher mainly due to £1.9m spent on prior
year tax issues arising in Brazil and Hong Kong. Capital expenditure on fixed
assets was £2.5m (including £0.1m of finance leases), compared with £2.2m in
FY2005. New equity raised £17.6m net of expenses and with the strengthening of
the currencies there was an adverse foreign exchange impact of £2.3m in the year
on the net debt.
As a result of the above movements, net debt fell by £17.2m from £30.5m at the
start of the year to £13.3m, resulting in a year end gearing level of net
borrowings to shareholders' funds of 51% (2005: 202%). The net debt at 2 April
2006 included £2.1m (2005: £nil) of unamortised financing costs.
Banking facilities
In conjunction with the equity raising the Group entered into a new three year
banking facilities agreement on 30 June 2005 with its principal bankers. The
total costs incurred in FY2005 in the renegotiation of the Group's facilities
amounted to £2.5m and are being amortised over the life of the facilities within
the finance costs.
End of review
_____________
Consolidated income statement
For the 52 weeks ended 2 April 2006 (3 April 2005)
Note 2006 2005
£'000 £'000
_______________________________________________________________________________
Revenue 1 250,378 244,551
_______________________________________________________________________________
Operating loss 1 (3,269) (4,978)
Analysed as:
_________________
Operating profit before major restructuring
programme 5,329 1,768
Major restructuring programme 2 (8,598) (6,746)
_________________
Operating loss (3,269) (4,978)
Investment income 111 59
Finance costs
_________________
- interest (2,761) (3,385)
- refinancing costs and amortisation of debt issue
costs (739) (932)
_________________
(3,500) (4,317)
_______________________________________________________________________________
Loss on ordinary activities before taxation (6,658) (9,236)
Taxation 4 (2,448) (4,424)
_______________________________________________________________________________
Loss on ordinary activities after taxation, being
retained loss for the year 8 (9,106) (13,660)
_______________________________________________________________________________
Loss per share (pence)*
Basic and diluted 5 (18.5) (46.2)
_______________________________________________________________________________
All results wholly relate to continuing operations.
* The loss per share before the costs of the major restructuring programme for
each period is shown in note 5.
Consolidated statement of recognised income and expense
For the 52 weeks ended 2 April 2006 (3 April 2005)
2006 2005
£'000 £'000
Exchange differences on translation of
foreign operations 1,555 266
Actuarial gains/(losses) on defined
benefit pension schemes 379 (487)
_______________________________________________________________________________
Net income/(expense) recognised
directly in equity 1,934 (221)
Loss for the year (9,106) (13,660)
_______________________________________________________________________________
Total recognised net expense for the
year (7,172) (13,881)
Adjustment on the first time adoption
of IAS 32 & 39 (80) -
_______________________________________________________________________________
Total recognised net expense since prior year
balance sheet (7,252) (13,881)
_______________________________________________________________________________
Consolidated balance sheet
As at 2 April 2006 (3 April 2005)
Note 2006 2005
£'000 £'000
Non-current assets
Goodwill 1,930 1,930
Other intangible assets 148 117
Property, plant and equipment 11,515 13,451
Deferred tax asset 244 -
_______________________________________________________________________________
13,837 15,498
_______________________________________________________________________________
Current assets
Inventories 30,274 28,030
Trade and other receivables 52,825 50,381
Current tax assets 1,087 -
Cash and cash equivalents 11,646 14,962
_______________________________________________________________________________
95,832 93,373
_______________________________________________________________________________
Total assets 109,669 108,871
_______________________________________________________________________________
Current liabilities
Bank overdrafts and loans - 45,315
Obligations under finance leases 124 138
Trade and other payables 42,685 37,187
Current tax liabilities 2,580 2,993
Retirement benefit obligation 357 359
Provisions 3,996 619
Liability for share based payment 95 -
_______________________________________________________________________________
49,837 86,611
_______________________________________________________________________________
Net current assets 45,995 6,762
_______________________________________________________________________________
Non-current liabilities
Bank overdrafts and loans 24,690 -
Obligations under finance leases 106 43
Trade and other payables - 8
Retirement benefit obligation 3,154 3,736
Deferred tax liabilities 537 391
Long term provisions 4,983 2,957
Non-equity preference shares 80 -
Liability for share based payment 187 -
_______________________________________________________________________________
33,737 7,135
_______________________________________________________________________________
Total liabilities 83,574 93,746
_______________________________________________________________________________
Net assets 26,095 15,125
_______________________________________________________________________________
Equity attributable to equity holders of the
parent
Share capital 8 13,888 7,465
Share premium account 8 168 20,986
Translation reserve 8 1,821 266
Retained earnings 8 10,218 (13,592)
_______________________________________________________________________________
Total equity 8 26,095 15,125
_______________________________________________________________________________
Consolidated cash flow statement
As at 2 April 2006 (3 April 2005)
Note 2006 2005
£'000 £'000
________________________________________________________________________________
Operating loss from continuing
operations (3,269) (4,978)
Adjustments for:
Depreciation of property, plant and
equipment 3,842 4,401
Impairment of property, plant and
equipment 1,523 1,451
Amortisation of intangible assets 79 91
Impairment of goodwill - 1,868
Loss/(gain) on disposal of property,
plant and equipment 133 (1,918)
Share option expense 350 15
Increase in provisions 4,411 3,417
________________________________________________________________________________
Operating cash flows before movements in
working capital 7,069 4,347
(Increase)/decrease in inventories (46) 1,264
Decrease/(increase) in receivables 1,469 (297)
Increase/(decrease) in payables 3,216 (3,731)
________________________________________________________________________________
Cash generated by operations 11,708 1,583
Analysed as:
________________
Cash generated before major restructuring
programme 13,249 1,775
Cash utilised by major restructuring
programme (1,541) (192)
________________
Cash generated by operations 11,708 1,583
Income taxes paid (4,359) (2,159)
Interest received 111 59
Interest paid (2,639) (3,859)
________________________________________________________________________________
Net cash inflow/(outflow) from
operating activities 4,821 (4,376)
Cash flows from investing activities
Proceeds on disposal of property, plant
and equipment 29 7,826
Purchases of property, plant and
equipment (2,252) (1,999)
Purchases of intangible assets (100) (62)
________________________________________________________________________________
Net cash (used in)/from investing
activities (2,323) 5,765
________________________________________________________________________________
Net cash inflow before financing
activities 2,498 1,389
Analysed as:
________________
Cash flows before major restructuring
programme 4,039 (5,587)
Cash (utilised)/generated by major
restructuring programme (1,541) 6,976
________________
Net cash inflow before financing
activities 2,498 1,389
Cash flows from financing activities
Proceeds on issue of shares 8 17,645 -
Repayment of borrowings 9 (43,263) -
Advances of borrowings 9 25,793 1,536
Debt issue and refinancing costs paid 9 (2,486) (743)
(Decrease)/increase in bank overdrafts 9 (4,193) 1,050
Repayments of obligations under
finance leases 9 (144) (136)
________________________________________________________________________________
Net cash (used in)/from financing
activities (6,648) 1,707
________________________________________________________________________________
Net (decrease)/increase in cash and
cash equivalents 9 (4,150) 3,096
Cash and cash equivalents at beginning
of year 14,962 11,919
Effect of foreign exchange rate changes 834 (53)
________________________________________________________________________________
Cash and cash equivalents at end of year 9 11,646 14,962
________________________________________________________________________________
1. Segments
Business segments
For management purposes, the Group's structure was reorganised during the second
half of the year such that the Group is now organised into three operating
divisions - PowerCord, Infocom and Wiring Harness. These classifications are
based upon the nature of the products which they supply. These divisions are the
basis on which the Group reports its primary segment information.
Revenue Operating
profit/(loss)
_______________________________________________________________________________
2006 2005 2006 2005
£'000 £'000 £'000 £'000
_______________________________________________________________________________
_______________________________________________________________________________
PowerCord 118,275 110,882 2,812 (243)
Infocom 99,398 104,409 (2,196) (3,822)
Wiring Harness 32,705 29,260 (3,885) (913)
_______________________________________________________________________________
Consolidated 250,378 244,551 (3,269) (4,978)
__________________________________________________________
Investment income 111 59
Finance costs (3,500) (4,317)
_________________
Loss before tax (6,658) (9,236)
Tax (2,448) (4,424)
_________________
Loss from continuing operations (9,106) (13,660)
_______________________________________________________________________________
External revenue by market sector 2006 2005
£'000 £'000
_______________________________________________________________________________
Consumer Products 100,525 95,614
Data and Telecommunications 87,986 94,296
Industrial and Medical 27,845 25,588
Vehicle and Aerospace 34,022 29,053
_______________________________________________________________________________
250,378 244,551
_______________________________________________________________________________
Geographical segments
The Group's operations are located mainly in Asia, North America, United Kingdom
and Other Europe. The following table provides an analysis of Group's sales by
geographical market, based on both the source and destination of the sale.
External External
revenue by revenue by
source destination
2006 2005 2006 2005
£'000 £'000 £'000 £'000
_______________________________________________________________________________
Asia and South
America 98,761 90,022 77,033 71,243
North America 75,591 74,746 73,986 71,691
United Kingdom 32,705 28,941 34,560 38,542
Other Europe 43,321 50,842 64,799 63,075
_______________________________________________________________________________
250,378 244,551 250,378 244,551
_______________________________________________________________________________
2. Major restructuring programme
2006 2005
£'000 £'000
_____________________________________________________________________________
Global management restructuring 1,535 -
Property provisions 3,149 3,298
Closure of manufacturing facilities 2,720 1,171
Impairment of property, plant and equipment 1,523 1,451
Impairment of goodwill - 1,868
Insurance claim (329) 876
Profit on sale of properties - (1,918)
_____________________________________________________________________________
8,598 6,746
_____________________________________________________________________________
During the year, as part of the Group's major restructuring programme, the
Global management team has been restructured. The Group's global manufacturing
footprint has been changed and additional provisions have been recorded against
four properties. Impairment charges have been recorded against property, plant
and equipment at these properties.
Settlement of the insurance claim relating to the Tijuana fire was finalised in
January 2006 at a higher level than had been expected at the previous year end.
3. Exchange rates
The principal exchange rates used in the preparation of the financial statements
are:
Average % change Year end % change
2006 2005 vs. £ 2006 2005 vs. £
___________________________________________________________________________________
United States dollar 1.80 1.84 2.2 1.75 1.89 8.0
Singapore dollar 2.98 3.09 3.7 2.83 3.12 10.2
Euro 1.46 1.47 0.7 1.44 1.45 0.7
Canadian dollar 2.15 2.36 9.8 2.03 2.29 12.8
Brazilian real 4.23 5.28 24.8 3.82 5.02 31.4
___________________________________________________________________________________
4. Taxation
2006 2005
£'000 £'000
_____________________________________________________________________________
Current tax - charge for the year 1,865 2,629
Current tax - adjustment in respect of previous
years 584 930
Deferred tax (1) 865
_____________________________________________________________________________
2,448 4,424
_____________________________________________________________________________
5. Loss per share
The calculations of the loss per share are based on the following data:
2006 Per share 2005 Per share
£'000 p £'000 p
_______________________________________________________________________________
Basic loss (9,106) (18.5) (13,660) (46.2)
Major restructuring programme
costs 8,598 17.5 6,746 22.8
_______________________________________________________________________________
Adjusted loss (508) (1.0) (6,914) (23.4)
_______________________________________________________________________________
No. shares No. shares
_______________________________________________________________________________
Weighted average number of
shares 49,247,645 29,540,692
_______________________________________________________________________________
The adjusted loss per share has been calculated on the basis of continuing
activities before major restructuring costs, net of tax. The Directors consider
that this loss per share calculation gives a better understanding of the Group's
loss per share in the current and prior year. As the Group recorded a loss per
share, the share options are anti-dilutive and therefore there is no difference
between the basic and diluted loss per share.
6. Dividends
The Directors do not recommend a dividend on the ordinary shares for the year
(2005: £nil).
7. Bank facilities
On 30 June 2005, new three-year bank facilities with the Group's principal
Bankers became effective. As a consequence of signing these new bank facilities
the conditions relating to the existing warrants, 494,945 of which were in
issue, have been amended to include a re-pricing to 73.5p and an extension of
the expiry date to 30 June 2008 (see note 9).
8. Movements in shareholders' equity
Share Share Translation Retained Total
capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000
____________________________________________________________________________________________
Balance at 3 April 2005 7,465 20,986 266 (13,592) 15,125
Adjustment on first-time
adoption of IAS 32 &39 (80) - - - (80)
____________________________________________________________________________________________
Balance at 4 April 2005 7,385 20,986 266 (13,592) 15,045
Net proceeds from issue
of equity shares 6,503 11,142 - - 17,645
Reserves transfer on
exercise and cancellation
of options and warrants - 150 - (150) -
Net loss for the year - - - (9,106) (9,106)
Reserves contra entry for
options and warrant charges - - - 577 577
Capital reduction - (32,110) - 32,110 -
Actuarial gains on defined
benefit schemes - - - 379 379
Exchange differences on
translation of foreign
operations - - 1,555 - 1,555
____________________________________________________________________________________________
Balance at 2 April 2006 13,888 168 1,821 10,218 26,095
____________________________________________________________________________________________
On 29 June 2005, an Extraordinary General Meeting approved an increase in the
authorised share capital of the Company to £18,830,000. On 30 June 2005, the
Company issued 25,850,340 ordinary shares for proceeds of £17.6m (net of £1.4m
expenses).
On 12 October 2005, the cancellation of the Company's share premium account was
confirmed by the High Court of Justice, Chancery division. The balance on that
account at that date was used to eliminate the deficit in the Company's retained
earnings account.
Upon the adoption of IAS 32 & IAS 39, the Company's non-equity preference shares
(£80,000) have been reclassified as non-current liabilities.
9. Analysis of net debt
4 April 2005 Cash Exchange Other 2 April 2006
flow movement non-cash
changes
£'000 £'000 £'000 £'000 £'000
________________________________________________________________________________
Cash at bank
and in hand 14,962 (4,150) 834 - 11,646
Overdraft (4,026) 4,193 (167) - -
Debt due after
one year - (25,793) (958) - (26,751)
Debt due within
one year (41,289) 43,263 (1,974) - -
Finance leases (181) 144 (11) (182) (230)
Debt issue costs - 2,486 - (425) 2,061
________________________________________________________________________________
Net debt (30,534) 20,143 (2,276) (607) (13,274)
________________________________________________________________________________
Non-cash changes within debt issue costs include £227,000 associated with the
amendment of warrants (see note 7) and accrued costs of £87,000, less
amortisation of debt issue costs of £739,000.
10. Adoption of International Financial Reporting and Accounting Standards
('IFRS')
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted for use in the
European Union ('EU') and have been prepared on a historical cost basis. The
Group has made use of the exemption available under IFRS 1 to apply IAS 32,
Financial Instruments: Disclosure and Presentation and IAS 39, Financial
Instruments: Recognition and Measurement from 4 April 2005.
Whilst the information included in this preliminary announcement has been
compiled in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. Details of Volex's IFRS accounting
policies have already been published in the IFRS transition document produced
with the Interim Results for the 26 weeks to 2 October 2005 and published on the
Company's website. The Company intends to publish full financial statements that
comply with IFRS later this month and these will contain reconciliations between
UK GAAP and IFRS for the 2005 income statement and 2004 and 2005 balance sheets
together with a summary of the Group's significant accounting policies.
Volex Group plc's consolidated financial statements were prepared in accordance
with United Kingdom Generally Accepted Accounting Practices ('UK GAAP') until 4
April 2005. UK GAAP differs in some areas from IFRS. The effect of transition
from UK GAAP to IFRS on the Group's loss for the year ended 3 April 2005 and its
net assets at 3 April 2005 is set out below.
Loss for Net assets
year to as at
3 April 2005 3 April 2005
£'000 £'000
_______________________________________________________________________________
As previously reported under UK GAAP (13,928) 18,869
Reversal of goodwill amortisation 302 302
Goodwill impairment charge (132) (132)
Defined benefit pension schemes 113 (3,914)
Share options (15) -
_______________________________________________________________________________
As restated under IFRS (13,660) 15,125
_______________________________________________________________________________
11. Non-statutory financial statements
The financial information set out above does not constitute the statutory
financial statements of the Group within the meaning of Section 240 of the
Companies Act 1985. Statutory financial statements for 2005 were prepared under
UK GAAP and have been delivered to the Registrar of Companies for England and
Wales. Those for 2006 will be delivered in due course. The auditors have
reported on these accounts and did not contain a statement under Section 237(2)
and (3) of the Companies Act 1985.
The preliminary announcement was approved by the Board of Directors on 13 June
2006.
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